Why My Friends Who Own A $1 Million Home Got Into Debt For A $5,000 HVAC Repair

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Let’s just say they made a big mistake buying their house.


Key points

  • Taking on too much of a mortgage can lead to a cash-strapped lifestyle.
  • It could also lead to debt when unexpected expenses arise.

When mortgage rates started plunging to record lows in the second half of 2020, two friends of mine who had gotten married a few years earlier decided to take the plunge into home ownership. They had saved up for a house and had decent incomes, so they figured they would take advantage of those low rates and increase their home buying budget.

Initially, they figured they would buy a house for $800,000 or less. (In some context, we all live in New Jersey, and while an $800,000 property is certainly a nice property, it’s not necessarily a mansion.) But the more they looked, the more they realized that s stretched their budget a little more, they could have a really amazing house instead.

So that’s what they did. They ended up buying a million dollar house and betting 20% ​​at closing, which left them with a giant mortgage. And while they were happy with this decision at first, they are now at the point where they regret it.

A big mistake

My friends knew before buying their house that they were going to spend a large part of their income on housing. But they were okay with it. They believed that if they had a comfortable home, they would cook more in their large kitchen and spend more time in their park-like garden rather than taking trips or going out to eat.

This plan worked for a while, and to be fair, they reduced their leisure spending. But they also started spending a lot more not just on their mortgage payments, but also on maintenance and repairs.

In fact, the cost of owning their home has become so huge that they have practically exhausted their savings. And that left them in a very tough spot earlier this year when their HVAC system failed.

More: Our picks for the best FHA mortgage lenders

Home poor, and now in debt

My friends who own a $1 million house (actually more like $1.1 million at this point based on market value) now have a credit card balance of $5,000 which they are paying off over time. The reason? They used up most of their savings for the down payment on that house and pretty much wiped out the rest during maintenance and repairs in their first two years. And so when they had a recent HVAC issue, they had to charge for it and pay it back over time.

My friends recognize that their situation is problematic, because they are the exact definition of being housing poor. But they also feel stuck.

Of course, they could sell their house and move to a less expensive house. But then they will lose money in realtor fees and closing costs on a new mortgage. Also, mortgage rates are very high right now, so even if they are currently paying less than 3% on their home loan, if they sign a new mortgage, they could end up paying over 7%.

For now, my friends plan to stay put but cut spending even more, and they’re both looking to take on second jobs to pay off their debt as quickly as possible and increase their cash reserves. But either way, they’ve learned the hard way that taking too much home can have consequences. And they agreed to let me share their story so other shoppers could learn from their mistake and avoid doing the same thing.

About Daisy Rawson

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