Is it ever okay to take out a loan?

Loaded question. I know.

If you’ve been around here for the duration, you know I am anti-debt. Make do, or do without. The best things in life aren’t things. Suck it up and pay it off. Debt free is the way to be.

Yes to all of that!

But we still took out a loan for part of our recent basement digging/finishing and dysfunctional kitchen remodel.

home loan(image credit)

We hemmed and hawed and researched and studied and prayed and prayed some more before taking the plunge, and that’s what it came to. Why am I telling you? What business is it of yours? Well, a couple of things. 1) We’re all friends here and we can learn from one another. 2) Many of you have congratulated us on saving for the house, some have even mentioned cash, and you’re kind of freaking me out. I in no way want to lead you astray. I don’t remember ever declaring “We paid cash!” and I don’t want you thinking we’ve done something we haven’t! So here it is, just in case.

“Congratulations on saving for such a great new space!”

Thank you! Yes, we did save. For fifteen years, we saved. Before we were even married, this moment, this future need, was being planned for. I have added to my own retirement and other investment funds from the moment I earned my first “big girl” teacher pay check. When we married and were earning two full-time incomes, we lived on (mostly) his and put mine into savings. When we bought our first home we declined the bank’s offer for a loan we could afford (while giggling at the absurd number), and purchased a house half that price.Β  (Stubborn, we are.)

My income, and our savings, was cut in half when our first baby arrived on the scene and I went back to work only part-time. That lasted two years, and then I quit teaching completely to stay home full-time with my two little loves. “It’s a good thing we saved when we did!” we’d often say, knowing that money would now be tight and our savings goals would creep.

Then we moved to Tiny Town. Our home sold in less than 24 hours at a nice profit, and we traded suburb convenience for community. Finding a new home was decidedly more difficult, and we reluctantly purchased a 100 year old fixer-upper (that made me cry, because I am pathetic like that) and vowed to make it ours. We also vowed to pay off our 15 year loan in 7, and we did it in 5. We’ve been completely debt-free, no mortgage, no vehicle loans, nothing, for almost 3 years.

In the meantime, we added 3 children to our family and fell in love with our too small, imperfect, paid for home.

Five children. 1,400 square feet. Three bedrooms. One bathroom.

That’s where we were at a little over a year ago when we called the basement guys. We had already agonized and prayed over (why the agonizing? because we’re human) our options:

  1. Buy a bigger home. (One problem. We live in a Tiny Town. There truly are NO homes for sale here to accommodate our family size. The ONE that came open in the last 3 years was snatched up before we knew it was for sale.)
  2. Build a new home. (Gag! I’m joking, but goodness, that would be a nightmare for indecisive, “whatever works” me. Picking out All.Of.The.Things?! Never. Also, the cost. The cost was prohibitive. And, honestly? We think older homes are built better. There. I said it.)
  3. Make this home work. (We loved our location. We loved our yard. We love old homes and think they’re worth the effort. They have good bones. Also? We could double the size of our home and redo our wacko kitchen for less than building new.)

We decided to make this home work.Β  (May I pause for a moment and just share that there are still rooms in this home that are quite a mess, like our upstairs bathroom and our bedroom? Ah, well. Someday…)

We ran numbers. Got estimates. Pored over mutual fund statements. Warned our financial adviser that there soon would come a time that we’d be taking money out instead of faithfully putting it in. Wash, rinse, repeat. For over a year.

We had the cash to dig the basement. (And even to finish part of the basement.) Yay! We also had funds to cover the finishing of the basement and the kitchen remodel, but that would wipe out our savings. Completely.Β  Well, not completely. Most of the retirement funds would still be there, but if we’ve learned anything, it’s Do Not Touch The Retirement Funds.

Do you know what scares me more than debt? Having no savings cushion with a family of seven. (Some of you are thinking I’ve forgotten our sixth baby. I have not. We found out about #6 the very day we started digging the basement. Ha!)

So, the cushion. We need a cushion. My husband’s pickup is a 1994 model that legally rides one passenger. Our children have crooked teeth. We are firm believers in expecting the expected. Things happen, and while neither of us was ever in scouts, we want to be prepared! Also, the accounts are interest bearing. That snowballs over time, and it really would be to our advantage to leave some money in there to work for us.

We weren’t comfortable wiping out our funds, but neither were we comfortable taking out a loan that would equal twice what we originally paid for our home. Ack! We were advised to take out the full loan, leaving the funds to accrue interest, but we just couldn’t stomach it.

In the end, we settled on a compromise. We took out a large sum from our savings (which hurt), and a slightly larger sum in a loan (which hurt even more). I would likely be sick about the whole thing, but oh! we are enjoying our space! And that’s why we save, right? So we can then spend on what we want and need. We know it is money well spent.

Right or wrong, here’s how we justified our loan:

  1. We have no other debt. None. In fact, we were asked multiple times when presenting our application to the bank, “No mortgage? No vehicle loan? No payments of any kind?” Nope.
  2. We still have savings. If some catastrophic emergency happened tomorrow, we could dig out the loan total and pay it off. It wouldn’t be smart in most situations, but we could do it in an emergency.
  3. It didn’t make sense to dig a basement (with cash) and not finish it for another 5 years while we built up more cash. We would have survived just fine, I’m sure, but we have no regrets about spreading out and making this home more livable and enjoyable for our large family.Β  Also, we are not DIYers. Doing it ourselves, while it might save money, would take considering our pack-o-small children, his coaching, weekend ball tournaments, etc. It was worth it to us to pay to get it done.
  4. In all the years that I’ve been home with our littles, I have worked to supplement the family income. Living on a teacher’s salary is not for the faint of heart. His income certainly meets all of our needs, but what I am able to do by saving and earning while at home makes life a little more fun. πŸ˜‰ More on that tomorrow. Or soon. (I better not promise tomorrow with my on again off again blogging record…)

I still hate loans. I still hate being in debt, especially after being completely debt free for nearly three years. But it was the right choice for our family. So tell me (be gentle, please!), Is it ever okay to take out a loan?

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  1. Yes it is ok. It was a well thought out plan. You have to live in the house now. if you waited until you had the money the kids might be grown. You are doing and you did the best your could. I imagine you will have it paid back in a year or so. Don’t worry about it – enjoy your home.

    • We see that all the time, Jennifer. My own parents finally bought their first home, big enough for all of us, when I was a senior in high school. I don’t regret their decisions for one minute (and why buy when you can rent a nice farm house for $75/month for 7 years <------ insane) but I know they wish they would have had that house for us growing up.

  2. Not for a vacation or an Ivy League college that you will never earn enough to pay back. For comfortable living quarters for your family, absolutely! Enjoy your home!

  3. YES! While I like debt-free living, it simply isn’t always practical. You have to do what works for you–including loans! With your track record, you’ll likely pay it off early.

  4. Yep. But you know that. πŸ™‚ And you don’t need my approval, anyway. We do have a mortgage, though no other debt. Moving from a big house in Indiana that we bought for 110K to pricey Connecticut where a significantly SMALLER home was way more than twice as much made paying all cash an elusive fantasy. BUT, this is the move that enabled my husband to have a JOB. So, yeah, it was worth it. Good for you and smart, well-planned decisions!

  5. Yes. Awesome post. I always like reading the “We Paid Cash” stories, and we have saved up for some things (and managed to not go into more debt–besides our mortgage– for our own home remodel, somehow, in which we doubled the size of our 720-square-foot house that we paid way too much for just before the market quit climbing back in 2005). But then I realized that I was feeling really condemned when my husband (a teacher also) chose to take out a loan for a new car to replace his clunker, and I reminded myself that it’s not about principles. I think if somebody has a spending problem, he/she should force themselves to live on cash until they change their ways, but when you’re a generally frugal family, there are exceptions to the “no loans” principle. I’ve loved seeing your new space, and I’m so happy for you all! It’s worth every penny.

  6. Our only debt is our homes (yes, plural – we weren’t able to sell our old one when we moved for my husband to take a better job, so we rent it out), and I dream of paying them off, but we also are contemplating a loan to make this house bigger. It is 1500 sq ft., 6 kids, 3 bedrooms, 1.5 bath…. I’m with you. I say if you’ve prayed about it and have peace about it (most important!!), and have the savings to cover it, go for it.

    • That’s one of my biggest financial fears, owning two homes. But, as you know, you do what you’ve gotta do!

  7. Yes it is! You “use” your home everyday! It’s not like the $8K wedding dresses those brides buy on tv!
    Don’t forget you also increased the resale value of your home so it really is a long term investment if you ever have to sell!
    We have being digging ourselves out of debt since our (modest, paid cash) wedding day! Mostly student loan debt. In that time we have also had two babies and lost 75% of our income! Despite all that God has provided for and blessed our family!

    • “$8K wedding dresses those brides buy on tv” <----- That makes my frugal heart gasp in horror. HA! Yes, we are trying to keep in mind the increased value of the home, though doubtful that we'd actually get out of it what we've put into it. Who knows, though?! And in the meantime, we're enjoying every bit of it!

  8. OK..first off UR my hero….seriously.. you and hubby lived debt free for 3 were able to stay home with your children…UR awesome!!! I think anyone who has the gall to make fun or be mean or just be awful can just stick it!! THERE I said it in the most nicest way possible. I think all the hard work and homework and still the savings you guys did is AWESOME..and i dont mind saying wish I had HALF of the attitude as well as the willpower to do it your guys way…the teamwork…the whole thing is just cool. and i think your wonderful..and to have another baby..that’s just so neat!! and blessings…very happy for your family Amy! we have debt and we have pulled from places to pay it off mostly again which probably wasnt the smartest..but we did it and we just have to move forward….trying anyway πŸ™‚

    • Ha! Thank you. Not awesome by any means. Just living life the best we know how, learning along the way. πŸ˜‰

      Keep plugging, Kelly. You can do it!

  9. I agree with taking the loan. Like others have said, it is what is best for your family. In my opinion, being happy in your home makes it easier not to splurge in other areas. It is much easier to eat meals from home when you have the space to cook, and the space to eat together as a family. I admire how long you were able to overcome the challenges of your first kitchen, and how long you waited for the upgrades. You still used your money wisely, as building would have been more expensive. So happy for you!

    • “being happy in your home makes it easier not to splurge in other areas. ” I hadn’t thought of it that way, but you are exactly right!

  10. Yes

    However,loans should not become a permission slip to over spend. When I was in college, i had friends who would use their student loans for a yearly spending spree (yikes).

    We have a mortgage. We lost 75% of our home’s value in the housing crisis. We were only 24/25 when we bought our home and couldn’t predict that 68% of our neighborhood would be foreclosed on. Our goal now is to pay down our negative equity and save for 50% of our next home’s price. We plan to stick with a modest fixer upper, and renovate as we go.

    • “However,loans should not become a permission slip to over spend.” Agreed, 100%. And oh, how my heart aches for you. What a mess! We were VERY fortunate to sell our first house when we did, having no idea that even a few months later it could have been a completely different story.

  11. I am not a stalker, I swear. But, I was driving around town today and thought of you when I saw a sign advertizing a home equity loan sale at a local bank. I was wondering if you had to take out a loan for the “unplanned” kitchen remodel or if you had cash to pay for that too. What uncanny timing that you posted this today! I think loans are ok as long as the monthly increase in bills can be covered. My husband wants a bigger house, but I have to keep asking him, where the extra $400 a month will come from. When he can’t answer, then we both know we can’t afford it!

  12. Great post, Amy! I have to be honest, I was wondering how you did it and now I know! I wish more blogs would straight up tell it like it is. Kudos to you for a well thought out plan and enjoy your new space with your growing family! You are an inspiration!

  13. Meredith says:

    I love this post! Good for you guys for deciding what’s right for your family. We’re debt free, aside from our mortgage, and it always bothers me if we have to take out a loan for anything, but I need to relax and know that if we do, we’d pay it off as quickly as we could.

  14. I agree with what everyone else has said. I think even Dave Ramsey says it’s “okay” to have a mortgage. That is “good” debt, I mean no debt it good, but paying cash for a home in a lot of situations just isn’t possible. So since you don’t have a mortgage, I think it’s fine that you have a loan to pay for the addition to your home.
    We have a mortgage but no other debt. A mortgage that we’re paying extra on and hope to have paid off long before the 20 years other people would take to pay off a 20 year mortgage.
    BUT, with baby #4 on the way we really NEED a new vehicle (at least if we want to haul all the children legally!). We would like to pay cash, but we also don’t want to buy something so cheap it’s breaking down constantly. And we like having a cushion of savings for unexpected emergencies. So we don’t want to use up ALL our savings. So we are considering financing a portion of the cost of a “newer” used minivan.

    • I think you’re doing fantastic with no other debt than a mortgage. Our biggest financial regret so far was taking out the 30 year loan. We should have done the 15 or 20, but received terrible advice. I shudder to think how much farther ahead we could be with our goals now…

      • It’s amazing how much difference that makes! We have a 30 year loan on our first home (the renter) but only a 10 year loan on the one we’re living in. While this one is much smaller – we’ll own it outright lightening years before we get close to finishing the other one and the price we paid for each of them was not all that different!

  15. Yes! There are definitely situations in life that warrant debt. I also feel strongly that sometimes we shouldn’t follow the “financial rules” in order to capitalize on situations and our current season in life. For instance, maybe you could have saved to pay cash for the next ten years, but then how many of your children would be out of the house and would you even need all the space then? After not having a car payment for close to 7 years, we decided in about a year we’d be ready to purchase a mini van. However, we only wanted a Toyota or a Honda for the reliability, which are hard to find used with low miles. So when a few months later my mom found a used Sienna with low miles for sale on the side of the road that was way under KBB, we got a loan and bought it (after I swore I’d never get a car loan again). We had money to pay cash, but it would have wiped out our savings and I was not okay with that. It was an opportunity that we knew might not come along before we needed the car and since we paid the loan off in 9 months, the interest we paid was much less than the amount we saved by buying at that time.

    • That’s exactly why we went for it, Anna. Without any other debt, we felt comfortable with this to ENJOY the home with our kids and their friends.

  16. You know, I think that, in reaction to the current “buy now, pay later” culture, and the financial crisis of 2008, there is a lot of pressure to never, ever, under any circumstances take out debt. The blog world seems to be full of great articles, tips, and stories. I think that’s great, but I really don’t think that things are “always” or “never.” I think you can reason through all the variables and pick what is best. That doesn’t mean rationalizing your way into a purchase you REALLY can’t afford, but I also don’t think that completely eliminating the option of taking out a modest loan as a tool to accomplish a long-term goal is necessarily wise.

    • “I really don’t think that things are ‘always’ or ‘never.’ ” Right! There are very few absolutes in life.

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