Home Buying and the Two-Income Family

Family in front of Home

So you’re thinking of buying a home — that’s great! But have you thought about how the home you buy now will fit in with your family’s financial future?

Buying a home has come to be one of the defining moments of adulthood in much of the developed world. For most people, a home is the biggest purchase they’ll ever make. And the size of the home (as well of the size of the corresponding mortgage) can set the parameters for many other things that happen in your financial life going forward. This means that the kind of house you buy can set the stage for the way your family earns money and spends money for decades to come.

Last year we published a whole series of articles about buying homes. They ranged from advice about mortgage terms and down payments to insights about the size of homes that is appropriate for most people. I realized recently that there is one topic that we didn’t touch on, though: Should you buy your house based on one income or two?

A Tale of Two Incomes

I’ve seen it happen too many times: A young couple gets married, and within a couple of years they decide to buy a home. At this point, they both have good jobs, and their combined income is relatively high. They don’t have any kids yet, so their expenses are relatively low. The bank tells them how much they qualify to borrow based on their high income, and so the couple happily take that full amount in order to buy a nice, big home.

Fast forward a few years, and this pleasant-sounding story is starting to unravel. There is a child on the way, and the couple is having to make difficult decisions about their family’s future. They would love for one of them to be able to stay home with the new baby and be a full-time parent. But that nice, big house of theirs comes with a nice, big mortgage payment, and they can’t afford to make that payment without both of their incomes. And yet, the cost of full-time childcare is also going to take a big bite out of their budget. The young parents are stuck between a rock and a hard place, and they might begin to regret buying the big, nice house to begin with.

Thinking Long-Term

Before we proceed, let me say that this is not an editorial about parenting, working moms, two-income families or any other controversial subject like that. Every family is different, and there’s no one-size-fits-all answer to these issues. I’m not here to make a case for keeping one parent at home. But if you do want to keep a parent at home when your kids are young, I’m here to make a case for planning for this when you buy a home.

The idea here is relatively simple: If you buy a home when you have two incomes, the person who sells you a mortgage is going to tell you how much you qualify to borrow based on those two incomes. The banker is always going to encourage you to borrow that full amount, because he makes more commission when you take out bigger loans. And if your family plan entails both spouses working in perpetuity, then all is well: You can go ahead with a home purchase based on those two incomes. But if you plan on having one parent at home once kids enter the picture, you need re-think your deal.

Some basic arithmetic will tell you what your income will be in the future, once one of you leaves the workforce to become a full-time parent. If this is something you value, then you need to base your mortgage calculations based on what you can afford on this single income. Ignore what the banker tells you, and figure out how much you can afford to pay once one of you is staying home. Going this route will enable you to buy a house that you can afford in the long term.

If you buy a house based on what you anticipate one parent to earn, you give yourselves flexibility to make decisions as your family grows, without being painted into a corner by your house payment. And you also create an opportunity to build some wealth in the meantime: Since you only need one income to cover the house payment, you can use the time between buying the house and having your first child to save money, invest or pay down debt with the second spouse’s paycheck.

What do You Value?

One of the foundational principles of financial life is that the way we spend our money shows us what we really value. Jesus said that “where your treasure is, there your heart will be also.” The things we do with our money reveal the inclinations of our hearts, no matter what we say with our mouths.

If you’re making decisions about home ownership and family planning, I challenge you to take an honest look at what you really value. Too often, we hear people say “I would love to stay home with my kids, but I just can’t afford to right now.” Sometimes this means they’ve got a house payment that’s too big to allow them to stay home. Unfortunately, that house payment demonstrates where their values really lie.

I don’t want to put a guilt trip on anyone, or make you feel like you have to stay at home to be a really good parent. But I do want to help inject some reality into your decision making. If staying home with your kids is something you really value, you need to prepare financially for the implications of this decision long before the kids arrive. And that means buying a house that you can afford on one income.


 by Upplandsmuseet. Used under Creative Commons License.

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