Dear Pete: I did everything wrong. I purchased a home when I couldn't afford it. My father gave me the down payment. I had no savings. I could afford the mortgage, but not the maintenance. I have refinanced the loan a couple times. I am now two months behind on the mortgage and there are repairs to the house that I can't afford to do. Now what? I feel like I should cut my losses and sell and rent until I can REALLY afford to own. — Kaitlyn, St. Louis
Sell. I probably shouldn’t end the column here, but I’m tempted.
You couldn’t afford to be a homeowner when your dad gave you the down payment, and you can’t afford to be a homeowner today. You and anyone else reading this are undoubtedly feeling a harsh vibe from me right now. Don’t. I’m actually being more thoughtful than other folks throughout your life as a homeowner.
You can’t afford it.
There is nothing wrong with the phrase “you can’t afford it,” or “I can’t afford it,” for that matter. In fact, it’s a beautiful phrase. I love saying “I can’t afford it” and I wish more people would jump on the bandwagon. No one gets embarrassed when a fellow skydiver tells you that you don’t have a parachute right before you are about to jump out of the back of a plane, do they?
But for some reason, hearing or thinking you can’t afford something is upsetting. I used to get upset when someone would insinuate that I couldn’t afford something. “How dare you?” I would scoff.
I didn’t realize at the time that those people were the only honest people left on Earth. But as I think back on how offended I was, and how offended you might feel right now, I’m still at a loss as to why.
I assure you I’m not salting wounds. I’m just trying to get you comfortable with a really important and positive idea. You can’t afford the house.
Maybe it’s the word can’t. I believe there was an inspirational poster in my middle school social studies class that warned us against the word “can’t.” Is it possible that you and I and everyone else was brainwashed by a motivational poster meant to inspire smelly pre-teens? It can’t be.
I actively look for opportunities to remind myself that I can’t afford things I’d like to own that people would willingly sell me. Heck, my banker has personally tried to talk me into buying something I can’t afford. Admitting you can’t afford something isn’t selling yourself short, it’s displaying self-control. Our 2004 SUV sounds like a distressed yak sometimes when I start it up, and there’s a ton of people who would like to get me a quieter vehicle, including my neighbors. However, until November 2018, I won't be able to buy a new car. Not with the way I do things. I can’t afford to based on the standard I set for my family and my financial future.
The concept of affordability is disappointingly subjective. It’s dependent on your standards and your expectations for your future. A bank has zero expectations for your future.
You can’t afford the house for a few reasons. You didn’t have money for a down payment, which is sign enough that you couldn’t afford the house. Loved ones who want what’s best for you will try and circumvent my down payment maxim by becoming a down payment surrogate. They can afford to buy that house, but you can’t. This is where the confusion begins.
Can a person with no monthly margin in their budget accumulate a down payment? No. A lending institution wants a down payment to help mitigate their lending risk, but a borrower should want to make a down payment to prove to herself that she has the capacity to accumulate money on a regular basis. Why?
Because homeownership is ungodly expensive. Not only do you need repair and maintenance money to move into your home on the day you rent the truck, but you will repeatedly and consistently need repair and maintenance money until you leave the house the last time, upright or otherwise. A house doesn’t get less expensive as you own it, it gets more expensive. “If we can just get past year seven of owning this home, then...” is a sentence which has never been spoken intelligently.
You can’t afford your home. It had been awhile since I mentioned it, so here it is again.
Being able to afford a monthly payment, as determined by someone charging you interest to borrow money, is as indicative of objective affordability as my 10” chef’s knife is indicative of my status as a world-class chef. Being allowed to borrow money, or being allowed to buy a really expensive professional-quality knife, is not anything more than someone’s willingness to make money on you, in spite of whatever ability you might possess to handle the purchase appropriately.
Even renters struggle to understand what they can afford to pay on a monthly basis. Of course, their saving grace is that they don’t have to pay for any repairs or maintenance.
If you think owning a home with little money is hard, try selling a home when you need to, after not maintaining the home for years and years. Even people who’ve maintained their homes in a respectable manner hate the financial realities of a buyer’s inspection report. Paying money to sell your home for a perpetually decreasing price will leave you in a horrible mental state.
You can’t afford your home. Don’t borrow money to stay. Find a way to get out. Rip the Band-aid off.
Once you rid yourself of the house you can’t afford, rent. Rent a place you can afford. Pump your fist when the fridge stops working. High-five your cat when the sewer backs-up. It’s not your problem. It’s the problem of the person who owns the house.
Your current crisis is about to save your financial life. Call your bank and start working on a plan to sell the house you can’t afford. Don’t let them talk you into staying. You can’t afford it.
Peter Dunn is an author, speaker and radio host, and he has a free podcast: Million Dollar Plan. Have a question about money for Pete the Planner? Email him at AskPete@petetheplanner.com