I remember when I was younger prior to being a homeowner, and was paying rent every month. I always wondered to myself, “Am I wasting my money paying rent for a house?” I wanted to buy a house badly because I knew that it was a good investment and that it would grow in value. I also wanted to own a home because then my wife and I could spend money on it and do what we wanted to do. While we were renting, everything had to be approved by someone else.
The problem that I had was a lack of money. I didn’t have anything saved up for a house. Instead I had credit card debt which was making it very difficult to put money aside. Any possibility of having money to save to go towards a down payment, was paid in credit card interest. So I thought again to myself, “How can I possibly afford to buy a house?”
During that time, being in California, home prices were constantly rising. I kept thinking that there had to be a way to make it happen. I spent my time at first focusing on looking for houses to buy. That just made the house fever worse. Instead of coming up with a game plan to be able to afford a house, I kept looking at houses I couldn’t afford. It was maddening.
Where to get Started? Getting finances in order.
When I finally realized that we couldn’t afford to buy a home, I changed my focus. In my personal situation, I began to feel that my issue wasn’t necessarily the need to buy a home. My problem was a lack of contentment in the rental home that I currently had. So for me, I prayed about the desires that I had, and the Lord did a work in my heart. I still wanted to be able to buy a house for our family, but it no longer became an active pursuit. Instead I looked into getting our finances in order.
Without really strategizing, my first thought was that we needed to solve the debt problem. My credit card finance charges were draining my bank account. We tried to cut some in our expenses, but we needed a better income in order to attack the problem. So I had to get to work. I picked up a couple extra jobs in order to increase our income and we went after the debt. Looking back now and knowing more quite a few years later, here are thoughts on why getting finances in order is the best place to start.
Monthly house payments are stressful without margin in the budget.
If you are struggling living paycheck to paycheck or dealing with a large amount of debt and currently renting a home, it is highly likely you are like we were and having trouble just making that payment. Without first looking at your finances and creating some margin in your budget, you are still going to have trouble making a mortgage payment. Yes, the mortgage payment is going towards principal and paying the debt down. However, the money still has to leave your bank account just like the rent payment.
What happens when something breaks in the home you own?
As a renter, everyone knows that the landlord takes care of the repairs. If you are currently renting a home, you have probably experienced this. When something breaks or is in need of being replaced because it is worn out, you can ask the landlord to take care of it. It is their property and their responsibility to repair it when that is needed.
When you make the leap and buy a house for yourself, you become the tenant and the landlord. What happens if something breaks in your new home? The reality is that you have to pay for it. Having margin in your budget becomes much more necessary when a needed repair comes along. It is also really helpful to create a solid emergency fund to have money set aside for repairs. Pipes leak, roofs leak, windows break, and a lot more happens. Most of the time they are unpredictable and without a savings for emergencies, your home can become a source of stress.
Additional expenses come with home ownership that renters don’t have to pay.
When you buy a house, there are lots of new expenses that come along with the purchase. New homeowners don’t necessarily know this and neither did I. Here are some of the things that a homeowner will have to pay that a renter doesn’t have to deal with.
- Homeowner’s insurance
- Property Taxes
- HOA monthly dues
- Additional utilities (that a landlord usually pays)
These are definitely items that need to be considered, and planned for prior to purchasing a home. As a renter, the landlord deals with many of these costs. If you don’t know the costs in advance, you will find that home ownership will become much more frustrating.
Saving for the down payment.
When you purchase a home there is always money required up front. The largest of these items is the down payment. Depending upon the bank/lender that is going to provide the loan, the requirement for a down payment will be different. Some loans will require as low as 3% for a down payment. Three percent seems like a low amount. However, if you do the math, it can still be a lot of money.
A house that is $400,000 with a 3% down payment would still need $12,000 for a down payment. In addition, there are usually other fees including costs from the lender, and closing costs that the buyer needs to pay as well. Closing costs can be around 3% and will be around $12,000 in this example. This means that for a $400,000 home, the minimum that you would need will likely fall around $25,000.
It seems like it will take forever to save up the money.
In our example, $25,000 is a lot of money. If you are currently in a situation dealing with debt payments, or living paycheck to paycheck, it does seem impossible. That amount of money seems like it is so far away. The thoughts of putting that amount of money aside in any period of time is a hard thing to think about.
The other thing that can cause anxiety is the rising home prices. When home prices are going upwards, the urgency to buy a house seems to increase. I remember feeling very frustrated knowing that I didn’t have the money, and watching the prices of homes around me going up and up. The next thought is that the amount of money needed to be saved will go up faster than you can actual set it aside.
Don’t focus too much on the prices of the homes
The reality is that home prices do go up, but the housing market isn’t something predictable and it doesn’t go up all the time. There are times when home prices come down, or stall out. We were able to get our first home when the prices came down a few years back. No one really knows what will happen in a few months or a few years.
Besides the unpredictability of the housing market, it isn’t something that you can control anyway. Watching home prices going up and up will only make you more anxious while you are trying to save money. The better focus is on your family, and managing your finances, and your relationship with the Lord if you know Him as Savior.
There are many different types of houses that you can buy
When it comes to real estate, there are many different types of homes that you can buy. There are single family homes of course, but there are also condos. A condominium might be less money and be a decent starter home that will work better with your budget. You don’t have to own a single family home right out of the gate especially if it is a lot more money.
House size can also come into play. A single story 2-3 bedroom home will be much more affordably priced, than a 5 bedroom, two story home will be. Everyone including me, likes the idea of a large home with a lot of space. But it is okay to start with something smaller and work your way into a larger home down the road. All homes build equity over time.
A smaller, more affordable home that leaves plenty of margin in the budget will bring much more peace and joy than a home that stretches your budget to the maximum. A common thought is that if you buy as much as possible, that is alright because you can earn more money over time to make the payment a lesser burden. But no one knows the future and that is truly a gamble.
Start focused and simple
The first thing to do is create a plan on paper. If you have been considering lately the idea that you want to buy a house, you likely know how much one will cost. If you know that, you know how much you need to save. If you know that, the next step is to come up with a game plan and figure out how you will get from where you are at the moment to where you need to be to buy that first home.
The first step for you may be to create a manageable budget. If you have never done this before, it is a good idea to figure out income and expenses and put something down in writing that you can follow. This will identify where you are at, and what you need to do in order to create enough margin in your budget to start saving.
Starting simple with some math and a budget will get you along the path to buy a house for yourself. Don’t let yourself get lost in thinking how long it will take, or in watching home prices rise. Start focused and simple. Get a plan together to start saving money and keep building on that. It also helps to find peace and contentment in the home that you are renting. That will bring you peace in itself and make the journey more enjoyable and less stressful.
It is a large task to buy a house for the first time, but it is possible taking it one step at a time.