Yesterday I mentioned that I couldn’t be paying off debt at this rate without living with my parents. And as nice as it is to let me live with them, I would be here until I’m 30 to be debt free, which is not sustainable. With $60,500 left to pay off, and an average payoff of $1000/month after interest, I would be here for another 5 years, unrealistically pending no emergencies come up in that time.
So I started looking at options that are more sustainable and would be the best way to maintain my debt payment progress. My first thought was finding really affordable rent, which is hard to do near Minneapolis, not to mention it’s at least $800 more in monthly expenses that would take away from debt payments.
I continually stumbled upon personal finance blogs about buying their own homes and my overly active imagination kicked into high gear. After a down payment, a small mortgage would be much more affordable than rent AND if I rented out a bedroom or two, the rent money would cover the mortgage itself. My only requirement would be setting aside some money monthly for maintenance. That sure sounded appealing!
But I can’t afford a down payment!
Typically 20% is standard, and although I’ve been saving while at home, my focus has been debt and I don’t have thousands of dollars casually sitting around. However, if you don’t pay 20%, there’s an annoying consequence called Private Mortgage Insurance, or PMI, which is an additional interest charged to the amount that should have already been paid in the down payment.
Thanks to my family’s history of working in real estate, I was easily able to talk to a Loan Officer about what I would be approved for, what the additional costs are, and to give me an idea of my options. After giving her my background info, I received some great news.
First of all, I’m approved for $105,000, which is much more than I realistically could afford monthly. I was shocked to see that number and it made me incredibly aware of how our economy ended up in the trash! Just because the bank says you can do it, doesn’t mean you should! Banks are not looking out for your best interests, they just want your interest!
Anyway, fortunately I was already shooting for the $50,000-$70,000 range so I wasn’t concerned. Yes, a small, simple house that might need a little TLC.
Second of all, thanks to having excellent credit, I can take a homeownership class and the PMI will be waived entirely. That means I qualify to pay 3% upfront with no consequence and I can keep my monthly payment low. It’s a win-win! My birthday present to myself is to take that $15 class and save myself a couple thousand!
So instead of throwing as much money as possible towards debt, my new focus is to save as much money as possible to complete a down payment and be a homeowner! Once situated I will find a roommate or two, and then I will be able to tackle debt at my current pace for years to come.
Yes, homeownership is a big commitment. That is why I’m buying small, because roommate or not, I want it to remain affordable for me. The monthly payment is much lower than the average rent and it will eventually give me something in return.
What happens if I want to up and move again, since it has definitely been a trend these past few years? As much as I’ve appreciated the opportunity to travel and live elsewhere, I need some stability for a while. I need a home base with friends and family around and the Minneapolis area is really feeling like home for me, despite the frigid winters. However, I’m not naive and I know possibilities come up at my age. If I end up moving away, not only will this house remain affordable for me, I can take on a landlord role and continue renting it out. If I am convinced to move elsewhere, I won’t be instantly selling this investment.
The idea of buying a house is BIG but I feel really comfortable and confident about this next move. While I work on saving money, my next step is to start looking for houses and I couldn’t be more excited!! I’ve become obsessed with shows like “House Hunters” and “My First Place” and I daydream about finishings and decorations despite having no idea what my actual house will look like.
After the shock of such a large purchase wore off, my family and friends have been really supportive of this investment. I know it’s not for everyone but after a lot of research and thought, I know it’s a good move for me. I cannot wait to see how this adventure unfolds!