In a galaxy far, far away, there lived a frugal couple who yearned for home ownership. Mostly, they were sick of apartment life and wanted to paint their walls any other color besides “rental white” (which is a sort of dirty white that never looks clean). They were on a debt-killing rampage, annihilating any Federal Student Loan that lie in their path, but their priorities changed. They started dreaming of the day that they would own a home that they could call their own.
When Did It Start?
In early February, 2010, while we were out and about, we stumbled upon an open house and went in. We had a nice chat with the realtor, looking around and joking about how we couldn’t afford a home. However, it still got us to dreaming even more than we already were about home ownership. We had been DINKS (Double Income, No Kids) for the better half of a year, enjoying our double income with relatively low expenses. We were able to live off my income alone, and were tackling our student loan debt with Mrs. iHB’s income. We even drew a debt thermometer on our pantry door to keep track of and celebrate our debt payoff milestones (SUPER NERDS!).
After looking at the house, we were interested in how the home buying process worked. I contacted a Dave Ramsey ELP and received a call within 9 minutes of sending the email (they mean business!). We met up with him after work one day where he explained to us the process of looking, making an offer, inspection, and so on. His wife just happened to be the Loan Officer he works with (convenient!) and she was right around the corner in her cube (yes!). We sat down, gave her some numbers, she offered us a beer and got us pre-approved…wow, that was fast! We weren’t even wanting to get pre-approved or start looking at houses, all we wanted to know was how the process worked.
Pre-approved, huh? Now What?
So there we were, pre-approved for a house up to $375,000 and an appointment to go house hunting that weekend! The only thing between us and finding our new home was Wednesday, Thursday and Friday. Somehow in those three days, our apartment started to shrink and our neighbors got more annoying (especially the loudly amorous ones upstairs!). We were glued to Redfin.com like Nicolas Cage to tax court, and we emailed every other MLS number to our agent.
We went out that weekend and saw 6 houses within our price range (less than the 375k we were pre-approved for [how do they come up with these numbers anyway??]). The first 5 houses had “potential” (read: crap houses that would need an overhaul, resulting in us living in a construction zone for 7 years while popping out kids, causing strife in our marriage because “you bought this stupid house, why don’t you finish what you started” and “I work all day, and coming home to this house makes me die a little inside everyday”, which would end up in expensive marriage counseling, causing us to try and mortgage our new house to save our marriage, but we’re underwater and defaulted on our “rehab” loan so we end up setting the house on fire in a fit of rage, which reconciles our marriage but puts us in debt for the next 50 years because we forgot to renew our home owner’s insurance policy…)…so we just didn’t feel right about putting in an offer on them. The last house we looked at just blew us away. Not only was it 20 years newer than any home we had looked at, it was also turn-key ready to move in. It had a great layout, 2.5 bathrooms and a big backyard! It was in a great neighborhood with no HOA dues, and was absolutely perfect. Our agent wrote up an offer, we slept on it and decided to submit it the next day!
How Could You Afford That House?
Before we went to the open house and got inspired to look at houses, we had already started saving for a down payment. At the time, we were making decent money and we were living on just my income. We worked out the numbers and we were able to afford a house with minimal down and still be able to save a few hundred dollars a month. We still had our savings buckets for gifts and occasions, were able to put away a little for retirement and live comfortably. But we had to be a bit more strict about sticking to our budget. We had gotten a bit lax about spending cash and date money and were blowing quite a bit of cash on eating out and entertainment. So we had to make some decisions about where our money should be going.
It was easy to change our spending habits because we were motivated to start saving for a house. Our priorities had changed from “pay off debt” to “buy a home”, and we were both ok with making that change. We re-directed all of our debt payoff money and some of our extra spending toward saving a down payment for a home. We had only saved for about a few months and put away about $5,000 before we contacted our real estate agent. We didn’t have quite enough saved, so we were “gifted” another $13,000 to get approved and make an offer (which is awesome, because $13,000 is the gift limit you can give someone and not pay any gift taxes). This worked out well, because we were able to get the $8,000 refundable tax credit as well, essentially paying for half of the down payment!
Some have asked why we chose to buy a home while in debt. It’s simply that we had a change in our priorities and buying a home moved to the top of our list. Sure, living in an apartment is a great catalyst for wanting to purchase a home, but we have also always had a heart for having our home be a place of community. And since my priorities list is: God, Wife, Kids, Family, Friends, Church, we decided that our home was able to help us with all of those. We wanted our place to be somewhere where we could love on people as much as God loves us, my wife could nest and create a wonderful home, we could raise our kids in, host family get togethers and holidays, throw awesome parties with great friends, and host our church small group. I am not saying that you cannot do those things in an apartment, but I am saying that we felt led to purchase this home with the above reasons as a confirmation for us to make the purchase.
We happened to buy when the market was down, but not at the bottom. We’re probably about break-even or a little underwater on our mortgage. We almost have enough income to cover the monthly expenses without dipping into savings. And we enjoy every minute of owning our home. Would I make the same decision if we had the opportunity to do it all over again? Absolutely. Is my PITI (Principal, Interest, Tax, Insurance) over 60% of our income? Yes. Does budgeting allow us to have a high percentage of our income go to our home and still have a life? Yes. I think many more people can afford homes than they think. All it takes is getting on a budget and going for it. Seriously, that’s it.
In Part 2, I’ll talk about what happened after we submitted the first offer, how we dealt with the counter-offer, and dealing with potential hang-ups for buying a home. Stay tuned!
Comments: How was your first home-buying experience? Do you enjoy home-ownership? What percentage of your net income is your home? If you don’t own a home, why not? Do you think you cannot afford one? If you need any help getting on one, you can contact me and submit your detail for a Budget Friday review. Or you can just listen to your neighbors procreate all night while staring at your “rental white” ceiling, reveling in how awesome apartment life is.