Why my friends who own a $1 million home got into debt for a $5,000 HVAC repair

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When mortgage rates began plunging to record lows in the second half of 2020, two friends of mine who had married a few years earlier decided to dive into homebuying. They had saved for a house and had a decent income, so they figured they would take advantage of these low interest rates and increase their income House purchase budget.

Initially, they told themselves they would buy a house that would cost $800,000 or less. (In some context, we all live in New Jersey, and while an $800,000 mansion is certainly beautiful, it’s not necessarily a mansion.) They could have one Yes, really amazing house instead.

So that’s what they did. They ended up buying a $1 million home and saving 20% ​​on closing, leaving them with a huge whopper of a mortgage. And while they were initially happy with that decision, they’re now at the point of regret.

A big mistake

My friends knew when they bought their home that they would be spending a large portion of their income on housing. But they were okay with that. They thought that if they had a comfortable home, they would cook more in their large kitchen and spend more time in their park-like backyard instead of going on excursions or eating out.

This plan worked for a while, and to be fair, they’ve cut back on time off spending. But they also started spending a lot more not only on their mortgage payments, but also on maintenance and repairs.

More: Our picks for the best FHA mortgage lenders

Actually the Cost of owning their home became so massive that they ended up practically using up their life savings. And that put her in a really tough spot earlier this year when her HVAC system broke down.

House poor and now in debt

My friends who own a $1 million house (actually more like $1.1 million based on market value) now have $5,000 Credit card balance they pay off over time. The reason? They exhausted most of theirs savings for the down payment on that house, and the rest pretty much wiped out in the course of the maintenance and repairs in it for the first few years. When they recently encountered an HVAC problem, they had to charge it up and pay for it over time.

My friends admit their situation is problematic as they are the very definition of domestic poverty. But they also feel stuck.

Sure, they could sell their house and move to a cheaper one. But then they lose money in real estate agent fees and closing costs for a new mortgage. In addition, mortgage interest rates are currently very high. While they are currently paying less than 3% on their home loan, if they sign a new mortgage they could end up paying over 7%.

At the moment my friends are planning to stay but cut back on spending even more and they both want to take on something second jobs to pay off their debts as quickly as possible and increase their liquidity reserves. But either way, they’ve learned the hard way that taking too much house can have consequences. And they agreed to let me tell their story so other buyers can learn from their mistake – and avoid doing the same.

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