First Person: I Should Have Used My Down Payment to Buy a Cheaper House

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Several years ago, I saved up about $40,000 for a down payment for a new home. It never dawned on me that I could take that same amount of money and buy a cheaper home with cash.

I remember seeing several fixer-upper homes in that price range, but I didn't consider them.

After the Great Recession hit, I wished I didn't have a $1,200 a month mortgage, but I was stuck. We couldn't sell our home because the values began to tank.

Right now it's very possible to buy a home for the price of a car, which is the amount of money most people have saved up for a down payment on a house.

I had some terrible misconceptions that led me to purchase a home with a mortgage instead of buying a less expensive home with cash.

Buying before interest rates go up

We hurried to buy a home because everyone said interest rates would go up. Instead, we watched as interest rates slowly decreased in the past 7 years. Now we know there was no rush to take out a mortgage to buy a home.

Getting a deal before they are gone

I could have taken the time to build on our $40,000 down payment savings. If we waited just another 2 years, we would have saved an additional $22,000 toward a new home purchase. We were in the fortunate position of being able to stay in a relative's home while we saved up our down payment. Everyone was saying the deals would never last. Instead, the deals kept getting better.

Buying in a better neighborhood

I learned the hard way that you can't buy your way into a better neighborhood. What was a nice neighborhood six or seven years ago isn't necessarily a nice neighborhood today. In fact, we would have been better off buying a cheaper home in a more established neighborhood. Instead we purchased a new construction home. In the past few years, many of the homes have gone into foreclosure. Some of the once brand new homes have been vandalized.

Purchasing in a master-planned community

When I was shopping for a new home, Realtors told me that homes purchased in the master-planned communities go up more in value. They highly suggested I buy in a gated community. I couldn't afford to pay cash for homes in the upscale neighborhood. However, I purchased a townhome in a "gated" subdivision. However, the homeowners learned that the city refused to maintain the streets in gated communities. Homeowners could either pay to maintain their own streets or remove the gates. In the end, the gates came down to save money.

If we purchase a home in the future, we won't take out a mortgage even though interest rates are at historically low levels. We will save up enough cash to be able to buy a step-up home when we can afford it.

We have learned that spending more money doesn't always guarantee the kind of lifestyle and security one would expect. Not to mention, we would have a greater cash flow if we didn't have to pay a mortgage every month.

*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.

More from this contributor:

From Debt To Wealth on $10 a Day

Refinancing to Save $51,000

Staying Put will Save us $70,000 in Interest


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