Over the last couple of months, we’ve been going through the process of buying our first home. It’s been both exhausting and exhilarating at the same time.
Apparently buying a house with no money down doesn’t mean it’s not going to cost you anything upfront, which we realized quickly. So I’m working on putting together a plan to save a lot of money before our first mortgage payment is due.
We have an emergency fund, but I don’t really want to use it if we don’t have to. So instead, I recently created a House Fund to save money for our mortgage payments and the various costs of buying our first home.
In addition to our initial costs, there are also some other things we would like (and need) to purchase and do to the house after we move in. The first step in creating my plan to save a lot of money is to prepare our finances for home ownership and then go from there.
Right now we’re staying with my parents for a month or two while we wait to close on our first house, so we aren’t currently paying rent. Also, I expect our monthly expenses to be higher than when we lived in apartments. We’ll likely need home owner’s insurance from a company like 21st Century now that we’re buying instead of renting
So by estimating our monthly mortgage and bills now, we can begin to adjust our budget and priorities to avoid a financial apocalypse later on.
Estimating Our Mortgage & Bills
Our lender seems to think our mortgage payments will end up being between $1,025 and $1,050 per month. So I’m going to use $1,100/mo. just to be on the safe side.
That means, since we get paid and budget our money bi-weekly…we need to put away $550 from each paycheck to cover our mortgage costs.
I can always adjust these figures later on, make extra payments on our mortgage or just put anything leftover into our House Fund.
The bills are going to be a little trickier since we’re using different service providers than before and having a house instead of an apartment.
Normally, I would imagine it would be best to ask the seller to see copies of their past bills to get a better idea of what to expect. But, since we’re buying the house from an investor who flipped it and never actually lived there, that’s not really going to paint an accurate picture for us.
My best estimates:
Electricity: $120 per month
Water & Sewer & Garbage: $80 per month
Internet Service: $60 per month
Cell phone: $65 per month
Netflix (or something similar): $10 per month
Mystery Bills or Services: $165 per month (better safe than sorry)
Total Bills: $500 ($250 bi-weekly)
Total Mortgage: $1,100 ($550 bi-weekly)
Total Mortgage & Bills: $1,600 ($800 bi-weekly)
My plan is to start pretending that we’re paying all this now and just shove the money into our House Fund so that we have money saved for our 1st payment and the other expenses listed above.
I still want to save money aside from that, but it will help us get into the habit of not having that money. Right now, we’re living rent-free so our only bill right now is the cell phone. Other than that, all the pretend mortgage and bill money will go into the house fund.
Don’t worry, we’re not taking any money out of our 401k or anything rash like that. Well, maybe a little rash, but not too awful. We were contributing 8% before taxes to our 401k and I recently dropped it down to 1% while we’re trying to save money for the house expenses.
We don’t get any sort of match on our 401k contributions, so it’s not going to be as bad. Sure we’ll be missing out on some compounding, but not too much. We’re still doing the 1% and plan to get right back to where we before. Although, I’m not sure if we’ll continue contributing to the 401k the same as before.
I need to do a review of our investments and make some decisions about our retirement saving. I’m considering maybe putting 4% into the 401k and the other 4% into our Roth IRA. It’s going to take me a while to figure it out, since I suck with this stuff.
I was hoping that we would get our retirement contributions up to 10% this year, so thankfully there’s still time.
Honey got another raise
This last month, my honey got another raise. Woohoo! Good job, Honey. Normally what I prefer to do when he gets a raise, to avoid lifestyle inflation, is to increase our 401k contributions. The raise seemed to happen at the same time I decreased our contributions, so that didn’t happen.
When I go back to putting more away for retirement, it should be much easier to bump things up to 10% because of the raise. I don’t want to get used to having this much money because it’ll probably just get wasted and we’ll expect it.
He got the raise because he’s been doing awesome since his new promotion (earlier this year) to supervisor and will be taking his boss’s place while he’s on medical leave for a few months or more.
How did you prepare your finances for home ownership?