#51 - The Netflix Show Marriage or Mortgage: We Provide Finance Tips and How to Manage the Budget
Updated: Mar 3, 2022
-What is the average cost for wedding? -What is median cost to own a home? -The marriage is a one-day event, can the home be a lifetime of memories? -Can a couple have a marriage and a mortgage?
This week we’re talking about the new Netflix show called Marriage or Mortgage. This is where a wedding planner and a real estate agent make pitches to a couple so they can decide which path that they want to go down. The show takes place in Nashville, Tennessee.
The premise is that the couples are going to choose one of the options based on their budget. Then wedding planner Sarah Miller takes them around town to show them various options as does Nicole Holmes, the real estate agent who takes them to three homes to show them what their future life could be.
So let’s get to some numbers so that we can see what these couples have to work with. The average budget on the show is between $25,000 - $35,000. As for the home prices, they ranged from the mid-$300,000’s to the upper $400,000 range.
So we can see that right off the bat these couples will already begin to carry a big load of debt if they choose the home or they will drain their cash reserves and perhaps some of their nest egg when making their decision.
While we’re not privy to the process by which these couples were cast for the show, one clear criterion was that they all fit in a particular financial category where they are not in a position to afford both a wedding and a down payment on a home.
So Let’s Throw Out Some Stats for the Cost of a Wedding
In the US, the average cost to get married is $38,700, according to WeddingWire's 2019 Newlywed report, which looked at data from more than 18,000 US-based newlyweds who got married in 2018. The ceremony and reception takes up a huge chunk of that, at $29,200.
Weddings are so expensive that 28% of couples around the world go into debt to pay for them, reported Business Insider's Erin McDowell, citing WeddingWire's 2019 Global Wedding report.
So let’s run through the typical cost for a wedding:
Cake and desserts: $550
Lighting and décor: $1,400
Don’t forget the engagement ring and the honeymoon, which, according to WeddingWire, clock in at an average of $5,000 and $4,500 respectively.
From our research the average age to get married is 32 and the average salary is $47,736 according to Smart Asset; however, the median household income is $70,000 according to advisorsperspectives.com. Keep in mind that this is gross salary.
What will the House Cost?
So on the inverse when looking to buy a home according to the National Association of Realtors, the median price for a home is $303,900 as of January 2021.
If we took a $25,000 down payment or 8.2%, that would be a mortgage of $278,900. Using a 3.5% interest rate the mortgage payment for a 30-year fixed term comes to $1,252.39.
As for taxes for home with this price, the national average for taxes is in the range of $3,200. So let’s assume that’s $271 per month.
Then we factor in closing costs that are typically 2 - 5% of the mortgage price. At 2% that comes to $5,578. (We’ll also assume that the prepaid interest is factored in). Hence, when adding that to the down payment, the total investment is $30,578 and this is right in the range of the money that the couples on the show have in their budgets.
Now without 20% down payment on the home, there will be PMI applied each month and this typically ranges from .25 to 2%. So if we use the 2% as a guideline, this number is multiplied by $278,900 which comes to $5.578. Next, we take that number and divide by 12 and that comes to $465 per month.
If use .25% that comes to $697 per year or $58 per month. The cost for PMI is highly dependent on your credit score - for the sake of this discussion we’ll split the difference and say the monthly payment is $232.
Oh yeah! Don’t forget about hazard and/or homeowner’s insurance. The average cost according to PolicyGenius in a January 2021 report, it states that the average is $1,200 per year. So that’s $100 per month.
So Let’s Do Some Math on the Total Cost to Live in this Home
Mortgage Payment: $1,252 Taxes: $271
PMI: $232 Homeowner’s Insurance: $100
So this brings the total payment to eventually be an outright owner at $1,855 per month.
The Marriage or the Mortgage?
This is a huge decision for couples especially when they are younger. These are the commitments that often shape the personal finance landscape for life.
People want the wedding and the house for the future. The wedding is a one-day event that will be in memory for years to come while choosing the home will create a multitude of memories.
Unfortunately, life choices are usually dependent on money. Having debt highly correlates to how much money one can save for retirement.
We pulled some data from a CNBC article on debt. In 2019, credit bureau Experian reported the average total debt per consumer (including mortgages) was $90,460, which outpaced the average annual income of $50,413.
One thing to keep in mind is that one’s financial picture also centers on the assets and Cindy speaks to clients about this on a daily basis. She points out the other item that needs to be addressed is net worth and which is assets minus debt.
Adding to this notion CNBC Select reviewed the Federal Reserve’s latest Survey of Consumer Finances which states that the total net worth of U.S. households is $748,800.
Without a doubt this number does not represent the real picture. On or about the top 20% of earners pay well over 80% of the taxes. Hence, the high majority of Americans do not have anywhere near this amount in assets. Lastly, from CNBC, they say a better indicator of the overall median net worth of U.S. households is $121,700.
So Where Does That Leave Things?
Let’s lay it out on the table? The marriage or the mortgage?
-The mortgage financially speaking.
-The mortgage from a long-term personal finance standpoint.
The crux of the situation is that if a couple chooses the wedding, then they’ll have to keep paying rent. This also presumably means it will take several months to save that $25,000 or so and that doesn’t factor in a potential growth in the family.
What is the Logical Financial Choice?
It is important for couples to consider if they can afford the home on a regular basis as per our example. Owning a home is more than just the payment.
Factors need to be considered including, retirement planning, rainy day funds, emergency funds, home maintenance, increased utility costs, child care, and health insurance just to name a few.
In fairness, Cindy and I are older and this isn’t our first rodeo so our choices would be different if we were 32 years old. With that being said, perhaps the smartest thing to do financially, is to opt for a small wedding and then continue to save for a few years to build up the money; not only afford the purchase of the home but factoring in all of the new month-to-month and future expenses that may arise.
There is one other option: The one thing that the Marriage or Mortgage show didn’t allow for in the show format which was to allow the couples to have that small wedding and take the remaining money to buy the home. This would allow a couple to have a wedding and buy a house.
In some of the cases, the couples had to opt for a smaller wedding due to the Cornavirus and thus they saved some of their money.
Financial Food for Thought
Keep in mind FHA loans allow for a 3.5% down payment. This means a couple could opt for a smaller mortgage. If they went with the $303,900 home, the down payment is $10,636 which is $14,363 less than our example of 8.2%.
This means that extra cash can be used in savings or a rainy fund to account for unforeseen expenses or just help with with the monthly budget management.
Let’s Do the Recap
So what is the right choice? The marriage or the mortgage? This is all based on a couple’s decision. A good piece of advice is to spend the time and create a vision board. This will allow for the mapping out of goals to make an informed decision.
#2 If you choose the marriage in our scenarios, this will drain your savings. If you choose the mortgage it will also drain that nest egg. Ask yourself . . . what do I really want? A one-day long term memory or perhaps a lifetime of memories.
As part of the vision board, spend time looking at the debt versus the income as well projected growth in your overall earning power. Next, look at your retirement plan and create personal finance goals to save enough to have a comfortable nest egg when you retire someday.
Another option is to have a small wedding and use the rest of the money for the home. Review all options that are available and don’t rush to make a decision. Most importantly, it is imperative to create and manage your budget.
Sometimes, the best decision is not to make one. Seeing that you already saved money, just continue to add to the savings account and then take the plunge when the time is right.