8 Reasons You Should Buy A Small Home

My husband and I bought our first home in 1992. It had taken us four years to find a suitable house. We began the process by finding out how much the bank would loan us. We looked at this number in astonishment. We - SERIOUSLY - would never loan us that amount of money. If we had followed conventional wisdom and purchased the largest home we could for the maximum allowable amount of money, the results would have been astronomical!

We would have been "house poor". Our house payment would have been such a high percentage of our take home pay, buying things like groceries and toilet paper would have been challenging.

Instead, we mentally and emotionally cut the amount the bank would loan us by 35%. Then reality set in. Our income was so low and our price range so meager that I cried the first time I looked at the numbers on paper. Seriously!

Four years later, after saving a 20% downpayment, we finally scored a 1930, two-bedroom bungalow. We were deliriously happy. It had been built by a local contractor for his daughter and son-in-law as a wedding gift. We were the second owners and the house was in original condition.

P-O-T-E-N-T-I-A-L!

Although the house had "good bones", every single room needed an overhaul.  Yet, all my husband and I could see was "POTENTIAL" spelled out in great, big, giant letters across the vistas of our minds.

We set to work to remodel one room at a time as we saved up enough to pay cash for each project. Simultaneously, we paid every additional penny we could find toward the principle of the loan in order to annihilate that mortgage as quickly as humanly possible.

Ultimately, we paid off the mortgage five years later. That's when I proposed a great big, nearly impossible goal - to pay cash for our larger, "forever home".

We were able to leverage the fact that we were completely debt free, stayed in that tiny home, filled it with four sons, saved the equivalent of our monthly mortgage payments, and 12 years later, purchased our current home with cash.

Our average yearly income during those dozen years? $35,000!

I will never regret using the "two-step plan" for buying our dream home. 

• Yes, it took us nearly 20 years to move up in size and location. 

• Yes, it was hard. 

• Yes, we had to live in a small space.

• Yes, it was nearly impossible to not compare our lives to that of our friends.

• But, YES, it was worth it! 

Here are 8 Reasons you should consider a starter home.

1. Smaller downpayment

Conventional wisdom, handed down from our grandparents, tells us that a minimum of 20% downpayment is the most prudent way to purchase a home. Even in this day and age, that's sound advice. For an added advantage, we decided to shoot for a 15 year mortgage.

When we began house hunting, we discovered that the price difference between a two bedroom and a three bedroom home was upwards of $25,000 - and that was 25 years ago! It's even more than that now!

2. Smaller mortgage

It clearly follows that if you buy a less expensive home, your mortgage payments will follow suit and be smaller. In fact, often a smaller mortgage means that you can afford to choose a 15 year mortgage instead of a longer, 30 year term. Living in less space often means owning that space a whole lot quicker!

3. Less expensive to heat, cool, and maintain

When it comes to heating and cooling bills, it makes sense that you can maintain a comfortable temperature inside your home for less money. In fact, even if you are cooling your home in the spring and fall using whole house fans, ceiling fans, or window fans, you can achieve comfort in less time when your home is smaller.

We replaced the roof on our first home - twice! After owning it just a couple of months it became clear that a new roof was in order. We bought 20 year shingles and thought we were done. Nope! The shingles suffered from a defect. Eight years later, they were cracking, peeling, and literally disintegrating. We did receive a prorated settlement from the manufacturer. But, the balance to, once again, replace the roof was several thousand dollars. The only comfort we received in the entire process was that if our roof's square footage had been larger, it would have cost us significantly more money.

New home owners don't often think of the cost savings they will achieve in terms of maintenance. Yes, a washer or dryer costs the same no matter what your home's square footage. However, when it comes to big ticket items like furnaces, air conditioners, roofs, and siding, smaller homes win the money race hands down!

4. Lower taxes

Our first lot measured 62 feet by 62 feet. That's it! the house took up much of the space. We had a small front yard and about four feet of back yard. The "up" side was that our yearly tax bill never exceeded $1500 for the nearly two decades that we owned the house. When we moved, our taxes more than doubled.

5. Easier to pay off early

Paying off the mortgage early is like giving yourself a big, fat raise!  In our case, we paid 20% down and chose a 15 year mortgage. Then, I set to work saving every penny I could get my hands on! By prepaying the principle, we were able to eliminate the entire mortgage in just five years. If your money is tight, don't despair!

By paying just one additional payment per year, you can pay off your mortgage several years early, saving thousands of dollars in interest. If you choose to do this, be sure to send in a separate check, marked principle only and then double check as soon at the check clears to be certain that they did not apply the money toward interest or future payments.

Here's where you just can't beat a smaller home. When your payments are already manageable, it's easier to add a little extra every month and get that debt eliminated. I will admit that we were a little haphazard and unorthodox in or prepayment schedule. Basically, whenever I had scrimped, saved, and squirreled away a few, extra thousand dollars, we sent in a check marked "principle only." It worked, but it would probably have been a smoother process if I had been more deliberate in tracking our progress and done it on a regular schedule.

6. If your fortunes reverse, it's easier to keep your home

My husband was laid off several years after we bought our home. We sort of knew that the handwriting was on the wall, so to speak. So, it didn't come as a complete surprise. When his boss called him into the office one of the first things he asked my husband was, "Will you be okay, financially?" Larry replied, "Yes, sir. Our home is completely paid for and we have a very adequate emergency fund."

Even if we had not been debt free, because of how small our mortgage was, our emergency fund would have carried us (mortgage and all) for several months. When you choose to live beneath your means, when disaster strikes, you can more easily come up with solutions for bridging financial gaps.

7. As your needs change, you can often redefine spaces

Bedroom space often becomes a problem for small home owners as their family expands. When looking at a smaller space, you can often create a third bedroom by finishing an attic, insulating a porch, or converting a family room.

We had four sons in a two bedroom home. So, we needed to come up with creative ideas and solutions for sleeping accommodations. Our first home had a walk up attic, which could have been finished into another bedroom. It would have taken several thousand dollars to raise the roof a couple of feet and add dormers, but it certainly could have been done. We chose not to do it. When we simply could not fit a fourth bed into the boys' 11 X 11 foot bedroom, our oldest sons headed to the basement and we gave up our family room, making it into a third bedroom.

8.  Paying for your next home is SO much easier when you have your first home paid for!

After you've paid off a home, honestly, you don't want to do anything but heave great sighs of relief and then spend the next several months sitting on your front porch and glorying in the fact that you really own it. For months, it seemed surreal to not owe anyone a single dime. 

However, being the crazy financial guru that I am, and being pregnant and adding three more sons to our tiny home after eliminating that mortgage, I began to dream of having more space. That's when I came up with my great big, nearly impossible goal to pay cash for our second home. 

It took us twelve years and a whole lot of sacrifice to save the difference between the sale price of our first home and the purchasing price of our second home. I will never forget the feeling of handing over that check, walking out of that house closing, and knowing that we would never have to make a single payment on our home - ever! 

If you enjoyed this post, you may also like: 

Gazelle Intensity: Saving for Home #2
Cash is King: Buy House #2
Paying for Our Home with Nickels and Dimes
Four Ways to Slash Your Budget
Ten More Ways to Slash Your Budget

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Do all to the glory of God, 

Hope