Why We Bought a House One Year and $22,000 Sooner Than Planned
It is pretty standard to put down 20% when purchasing a home. The more you can put down, the lower your monthly payment. And the easier it will be to pay extra and pay it off faster and the less you will pay in interest over time. In an ideal world I would pay cash for our dream home prior to settling down to start a family. But until The Sims “rosebud” cheat works in real life, we are looking at up to 30 years of debt for where we sleep at night.
As I have mentioned before, I grew up in a house where “debt” was the literal worst thing that could happen to someone. My parents have never had a car payment and paid off their mortgage in about 10 years. I aspire to be that financially free one day and getting rid of all debt is a huge key to that happening. We know we will have to make sacrifices along the way, but hopefully not quite to the extreme that they did. I am fairly extreme in my approach to becoming debt-free but there is a limit for me. I’m not so sure they have a limit.
In our discussion of our current debts, short and long-term financial goals and our priorities, my husband and I have discussed how buying a home fits into our plan at great length. After a over a year of searching and many changes in strategy, we finally closed on our perfect home four months ago. *insert happy dance and sigh of relief here* This brings huge changes to our budget. To be completely honest, I’m kind of terrified. We had discussed staying in our old house another year beyond what we did to be able to save up enough for a 20% down payment, instead we ended up with only about 10% down. What this means is we will not only end up paying a depressing amount more in interest over the course of the loan, but we now have to pay PMI for up to the next 5 years.
With our budget in the old house we were able to save $1000 a month while still paying down debt and taking nice vacations with ease. Now we are one a very strict budget and until we make a few financial moves that we had been waiting to do until after closing, we are temporarily contributing
very little zero to the vacation fund. Luckily the delay of closing fell to our advantage and we were able to “save” hundreds of dollars, through no fault of our own. And with an extra paycheck month and playing around with some accounts, we expect to come out ahead as we adjust to the new budget. Our house payment is going from $416 per month (principal, interest, PMI, and property taxes) to $1305. This is a huge jump and majorly affects our bottom line and our debt attack strategy. In our original plan, we would have paid off at least his two smaller student loans and be on our way to paying off both or at least one of our vehicles as we would have been buying our “forever home.”
So why the change of heart?
I was adamant about wanting to have 20% down before we made our move, but Mr. LLB wanted to move about a year and a half ago. So, how did my husband talk me into making this leap a year ahead of schedule. Well to be honest, he made some very good points, and he was right. After all, marriage is about compromise.
- As the economy is improving and more people are looking to buy instead of rent, we are more likely to be able to sell quickly.
- We were very concerned about selling our house. Houses are selling fast when in good condition, with updates and staged well, but our
house valueneighborhood was very rapidly declining.
- We talked with our mortgage broker and locked in a fixed rate. Based on some things we had read, we fully expected that waiting a year or more would mean an interest rate at least 1.5% higher. After some calculations, it would have cost us MORE to wait until we had 20% for a down payment with a higher interest rate, even without PMI.
- The loss in equity we would have surely taken by waiting to sell our house. Assuming we still could have sold it quickly. The value of our house was dropping faster than we were saving.
So long story short, 20% down is ideal but it may cost you in the long run. Take into consideration the interest rate you are given and whether or not you will have to pay PMI. Make sure to compare monthly payments as well as how much you will pay over the course of your mortgage. Just because it was beneficial for us to make the jump sooner, does not mean it would be the same for everyone. Talk to a trusted realtor or lender to see what is the best course of action for you. I am so glad my husband convinced me to consider looking into the option of buying sooner rather than later. So far, it all appears to be working out just fine.
Did you buy a home before you saved 20% for a down payment? Would you recommend someone pay PMI for a few years if it meant they would save money in the long run?