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Buy the Pricey House? Or the Moderate House?


My wife and I have recently started looking at properties for purchase. Since we live in an area where everyone seems to buy a house immediately after high school, we’ve seen many of our friends make foolish decisions when it comes to their first home purchase.

The final decision often comes down to the “big house” with all the stainless steel, and the “moderate house” which will suit all the needs of the couple perfectly, but with a little less sparkle than the other. Of course, these two homes are not within the same price range: the one that shimmers and shines is most likely at the very top of their price range, and the other house is a starter home that is easily affordable. 

The Main Argument for Stupidity

“If we buy this house, we’ll never need to look for another house again. We’ll live here forever. Therefore, the added expense will be worth it.”

If you’ve ever purchased a house, I’m sure you’ve heard yourself saying this. It sounds great and all, and almost sounds reponsible. But, in reality, it’s just another want, and after a while, it’s just another house.

Clearly, I’m in favor of purchasing a modest house. It doesn’t need to be flashy or sparkly. It just needs to keep the rain out and stay relatively quiet so you can sleep at night. The price should be modest enough to pay off within 10 years or less. That way, you’ll never feel the stress of those mortgage payments. You’ll always have extra cash “just in case”.

But What If We Do Live There Forever?

I understand that some of you might be ready to purchase that expensive home that you recently fell in love with. I’m not saying ‘don’t do it’, but let me shine some light on what you’ll be missing out on.

Those that purchase a house at the top of their price range become what I call, “house poor”. They pay in such a large amount to the bank every month that they do not have any extra cash to enjoy life! They throw away all their fun so that they can live in a cool looking box. Don’t believe me? Check it out.

Calculate the Extra Cost

Let’s say your amazing house is $225,000 (which is the absolute maximum amount you can afford) and the modest home is $130,000.

Since the amazing house is stretching your budget, you have no choice but to pay off the loan in 30 years. Assuming all of your payments are on time, after 30 years, you will have paid $410,414 (and that’s with a low 4.5% interest rate).

With the modest home, you can afford to pay it off more quickly and choose the 15 year loan (with an interest rate of 4.2%). After those 15 years, you will have paid $175.442.

  • Big House = $410,414
  • Modest Home = $175,442

Let Me Show You More

When you first looked at the home prices, it didn’t seem like it was that different did it? But, after looking at the amount paid with interest, you suddenly realize how big of a decision this really is!

Since the moderate house costs $234,000 less than the big house after interest, I began to think, what kind of fun could you have for that amount of money (and notice, the big home purchase allows for no fun…for 30 years).

So, there’s my list up above. It was actually kind of tough to spend that amount of money, so I threw “vacation home” at the end to spend the remaining $90,000. Which looks more fun? The modest home or the big house? 🙂

Housing Money Mortgage Payoff


My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. That’s an awesome approach to home buying! Thanks for the great information. With a purchase as big as a house, the opportunity costs are enormous. You’ve given me and my wife a lot more to consider. We have had the same mindset that you describe (“what if we DO live here forever?”), but we are trying to keep in mind that jobs aren’t guaranteed and kids sometimes come in 3s or 4s! Not to mention being house-poor would go against all my financial upbringing.


    • Glad I can help Austin! My wife and I always try to keep our expenses lower than one of our incomes. That way, if something happens down the road, we are still surviving as if nothing happened. 🙂

  2. We bought a moderate house in a nice area. The area cost us a bit more but we know it safe and central for our future children. I think you can always upgrade later if your money situation changes but don’t take off more than you can chew. 2 people don’t really need that much space anyways.

    • When considering your future children, it’s definitely important to buy in a nice area of town, but if you or your husband loses a job, I hope that you can still make those payments. You are right about the space. No one really needs 2,000 square feet or more. 5 people can still live pretty comfortably in 1,000 square feet.

  3. I once visited a lady that lived in a beautiful neighborhood. When I drove up to her house, I was somewhat envious because I’m older and I live in a little small ranch.
    She invited me into her living room. There was one chair and nothing else!
    I couldn’t believe she and her husband were willing to live in a house, definitely above their means, when they couldn’t afford to furnish it! That wasn’t an assumption on my part, she told me that was the case.
    People also forget the higher cost of the utilities and taxes in the larger home.

    • Yep, there are plenty of people that love to show off everything that they can’t really afford….. it’s sad really. But, of course we all want to appear successful. I’d rather actually BE successful and then have some fun.

  4. I will give you the same advice I gave my son and daughter! Buy the best house you can afford (now) in the best neighborhood with the best schools. This way, the value will always be there. It sounds as though you are focusing on price versus the best house for you.

    • krantcents, often times, I agree with you 100%, but I have to disagree with you on this one. It sounds like you’re saying to purchase a house at the top end of your capability. This is exactly what I’m trying to tell people to avoid! It leads to high interest payments and many struggles down the road.

      I do agree that you should buy within a nice neighborhood though. Your house has a better chance of appreciating in value that way. 🙂

  5. Dang derek, a new diamond ring for 10k?! That’s a pretty good comparison though – mostly people just hope that salary increases can help them ride it out and give them more breathing room over the life of the loan.

    • Ha, my wife would like a nice rock! 🙂

      Yeah, I was actually pretty surprised at the difference when I calculated the numbers! I think I would much rather do a bunch of fun stuff, rather than have a huge house.

  6. That is my thoughts exactly, you just put it in much better words. Now, if I can only convince my wife on this concept…..

    • 🙂 That is always the tough part isn’t it? I’m pretty surprised, but my wife is getting severely interested in a fixer-upper. We’re taking a second look at it tomorrow. Love it!

      • did you get pre-qualified?

        not pre-approved – pre-qualified?

  7. It’s kinda’ funny reading the values of some homes…I bought my house for $45K. It’s a small starter home, but it comes with a nice 1 car garage – plenty of space for my woodworking shop – as well as a deer camp on the back corner of my 12.65 acres.

      • Yeah, up here by me, houses + land are going for nice low figures. There is a place up here that has 27 acres, a house, a barn, several gardens and a hen house…all for $80K! If I had a bit more equity in my current house, I probably would try and get that other place…lol

        • Wow! That would be amazing! If my work ever allows me to live anywhere, I would love to purchase a bunch of property like that!

  8. That is a great way to look at it! And, taking it one step further, imagine how much you could have if you save and invest that extra money.

    • Exactly! If the money was invested instead of spent in the fashion that I laid out, you’d have a large chunk of your retirement funded after 30 years! Good thought! 🙂

  9. Hmmm, it depends how bullish you are on your own finances.

    10 years ago, I bought at the low end of what I could have afforded. In retrospect, I should have bought the max, b/c now I make much more.

    I’d live it up, so long as you have 20% down and another 10% left over in cash.

    Do you have that?


    • I’m one that likes to have a house paid off. That way, if something happens, the bank can’t just take it from you. Our plan is to buy a house and pay it off within 3-5 years. After we get the mortgage out of the way, we can rent it out and move on to another house. Either that, or start to invest heavily since we have all that extra cash.

      • Life gets in the way sometimes! I do not suggest paying your mortgage off completely – not a good tax choice in my opinion.

        • I disagree Diane. Do you know why you’re getting a tax break? It’s because of all the added interest you’re paying. If you pay in $5,000 in interest in a year, the tax break might reward you with something like $1,000. With a paid-for house, you pay $0 in interest and receive $0 in tax breaks. I think I’d rather take $0 than -4,000.

  10. I’m glad when I bought my condo I was looking at 2 places.

    One was in a flashy complex with pools and gyms, a garage and a fireplace… They had just poured a lot of money into the complex to renovate it and make it look more Orange County… and it came with a higher price tag about 30k more than the association right next door. I also did my homework and found out within the last 2 years the association had issues 2 special assessments because people weren’t paying their HOA dues…

    So naturally I chose to move into the older association next door. I got my condo for cheaper, The floor plan was more open and it just needed some tender loving care. I did the remodel in cash and now my place is my little sanctuary. Sure I don’t have a pool and a gym, but i’m the same distance to the park nearby and my association dues actually cover some of my utilities… and I don’t have to worry about special assessments because the complex has been good with their reserves and making upgrades one building at a time.

    • Well done with your wise choice! I hope to make that same decision very soon. 🙂

  11. What a great visualization about the difference between a modest home and a “stretch” home. That said …. what on earth is a “pole barn”????

    • Ha! Sometimes I forget that pole barns aren’t everywhere…. It’s basically a separate garage that sits by itself. You can work on your cars here, store you boat, or just load it up with junk (that seems to be the popular choice around my neck of the woods….). 🙂

  12. 2. Should you pay off your mortgage?

    As a rule, the higher your tax bracket, the less money you’ll save by prepaying your mortgage. Reason: The higher your bracket, the more your mortgage interest deduction is worth to you. Say you have a $300,000, 30-year, 5 percent fixed-rate mortgage and are consider sending the bank an extra $100 a month from day one. You’d save $39,938 in interest over 30 years. Subtract the value of your mortgage interest deduction, however, and you’d wind up saving $29,954 over 30 years if you’re in the 25 percent bracket but only $25,960 if you’re in the 35 percent bracket. Rather than using after-tax money to pay down their mortgage, high earners are better off boosting their pre-tax 401(k) contributions, where the money will grow tax deferred.

    — MoneyWatch editor-at-large Jill Schlesinger contributed to this article.

    • It’s a great point Diane, but it assumes that the stock market will go up. Typically, it does, but I don’t want to base my financial future on typically. I’d rather own a house that the bank can’t take away from me.

  13. Pricy or Moderate – one thing you forgot is your income will go up over the years….so that mortgage that seemed to be out of reach – will be in reach within a few years, once in reach you can then pay off a bit more every month. As well your life can change drastically in 10 years. To Krantcents ~ Buy the best house you can afford (now) in the best neighborhood with the best schools < solid advice! I remember purchasing a home with those credentials, and made alot of $. so true for resale!

    • The question of if the house value will rise is a secondary question. You should never bank on a house value going up and your income rising so that you can make more payments in the future.

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