For the past 10 months, my husband and I have been working to pay down our debt, increase our credit scores, and save for a down payment. We live in the second most expensive city in the United States, so houses are a wee bit expensive as well. Earlier this year, housing prices dipped to their lowest price in about 10 years. This, along with really low interest rates, is what prompted us to get serious about purchasing a house.
As I have been keeping track of foreclosed homes in our neighborhood using RedFin, I have noticed a startling trend: Prices are creeping up! And we’re not quite ready. Of course, houses are still much more affordable than they were, say, two years ago. However, this trend is making me reevaluate the price of home we can afford. My original estimate of what I felt we could comfortably afford was about $250,000. I am now realizing that there are very few, if any, homes available in this price range.
Therefore, my new ballpark figure, which is slightly higher than I originally wanted to settle for, will be closer to $300,000. In many states, 300K gets someone a terrific, large, newer home. However, in my case, I’ll be lucky to purchase a 1,000 square foot fixer upper. This new, higher price also means that to save 20% for a down payment, I will have to save MORE money than what I originally had planned. This probably also means I won’t be putting 20% down on a house, it will most likely be closer to 10%. After using some mortgage calculators, here is the breakdown of what our payments would be:
- Down payment of $30,000 on $300,000 home (or 10% down)
- Monthly mortgage payment $1500 on a 5.25% 30-year home loan
- 1.5% property tax divided by 12 months $375 per month
- Homeowners insurance monthly payment approx. $125
- Total monthly payment: $2000 (only $200 more a month than what we are currently paying for our rental house)
This monthly figure is about $100 more than what I had actually hoped our monthly mortgage would be, and this is based on a very low interest rate. Of course we could always opt for a 7/1 ARM (which is not my favorite option), or perhaps find a major fixer upper for less than $300,000. What I’m finding though, is that the major fixer uppers don’t qualify for a home loan, they are cash-only sales.
Our original goal was to get into a house by summer of 2010. This goal still seems feasible providing the housing market doesn’t spike up or interest rates increase greatly within the next 8 months. Of course, if this does happen before we are able to purchase a house, we could always go with plan B; purchase land, then build on it later. Of course there is always plan C; change our lifestyle and go with an alternative housing idea.
2 Comments
I thought the alternative housing idea link would show me yurt. Boy was I close. Your husband’s thinking may be radical, but his ideas are good. Sometimes you have to do something a bit outside the box in order to get where you want without waiting a zillion years for slow progress. I know, as I am slowly on the path of selling everything we own to pay off this ridiculous debt of ours.
And please do save up the minimum 10% on a house. I just posted the true costs of having a mortgage – jeepers! it can be costly.
Husband and I are moving out of California in about 5 years to go buy in an area that is not effected by continuous increasing school costs and skyrocketing state debt.
@Money Funk-If I could move out of California, I would too! My husband, unfortunately, loves it here and won’t think about that as an alternative right now. I’ll check out your mortgage article, this may help us.
thanks for the comment!