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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. 😉
56 thoughts on “Buying A Home (Part 1)”
I take your story as a cautionary tale not to go to any open houses or get pre-approved for a mortgage until we’re absolutely ready to buy – and by “ready to buy” I don’t mean “have house fever.” I really don’t think you should be encouraging people to follow your example in this area (the budgeting, absolutely, but not spending 60% of your income on housing). Just because you have your head above water now doesn’t mean you aren’t exposing yourself to undue risk. Do you have any massive income increases on the horizon?
Emily, house fever is definitely something to watch out for, and I won’t say that we didn’t have it at all. If we’re purely going on percentages, then I completely agree, I would NOT encourage anyone to go out and drop 60% of their income on a home. And yes, we are exposing ourselves to risk, but it is calculated risk for sure. I always think about what I would tell my kids when giving advice. Though I wouldn’t suggest dropping over half their income into a home, I do want them to consider all the options before writing off buying a home. We looked at the market (yes, we were a bit off on this), the tax credit (free money), our upcoming income, our budget, and our ability to handle home repairs of any sort. Based on those factors, we decided it was the right time to jump in.
Our home was only about 40-45% of our income at that point, which was a bit higher, but easliy manageable. When things really changed was when my wife got pregnant. her staying home is what caused the number to jump to about 60%. I have gotten a promotion at work, am building a tax practice and have other revenue streams in the works.
All that to say, I agree with you, we took a big risk, bigger than I would advise for most people. But for us, it has worked out well. If it all comes crashing down, I will be the next Dave Ramsey, cursing debt and suggesting no more than 25% of your take-home pay for your PITI (which is great advice if you can afford it 🙂 ).
I think buying a home in debt is a great option if you can swing it responsibly. Rent is just wasted money and not enough people look at it like that. It may take you longer to pay off your student loans, but those are considered “good credit” much like a mortgage. And at the end of the day you will have stake in a home!
We feel the same. We’re definitely “house poor” as some might call it, but we still enjoy it. I would LOVE to kill those loans, but need some more income first.
Our first home-buying experience was great and we still own that home as a renter. My advice is to be picky and get a home you really love.
Nice! I hope we are able to rent this house out as well. We are still in love with it like the day we moved in, so no regrets there. It would take something earth-shattering for us to move back into an apartment…
I am very happy for you! I think home ownership is a personal choice and want. We currently don’t want or need a house. I am pretty satisfied with our little apartment. I am very messy, so the more space, the more mess. :/
Hey, I’m all for renting if you enjoy where you’re at, for sure. And you’re right, it’s a choice, and no one should feel forced into buying a home. The cool thing about right now, though, is how inexpensive it can be to get in. Where we live, some people I know are buying a home because it’s cheaper than renting at this point.
But you are completely right, more space = more mess!
You and your wife sound very happy with your decision, so that’s great–no ‘owners’ remorse!’ Your overall financial situation does read a bit precarious however! This may well work out for you if your income doesn’t fall and you don’t have a series of large, unexpected expenses.
I stretched myself a bit too when I first bought a home. I didn’t have other debt, but the mortgage payment fit very tightly into my budget. A $6,000 chimney repair very rudely awakened me to the economic reality of home ownership. But owning a home is great, for now. At some point I may prefer to divest myself of all the responsibilities and go back to renting.
We are definitely at risk being in our home, I won’t deny that! We have calculated the risk and are decidedly still staying in our home. We obviously don’t hope for large, unexpected expenses, but we do have 6 months saved up for those situations. We don’t mind our money going to our home, because it fits all of our priorities.
But definitely not saying that renting is ALL BAD, but it was not a great experience for us. We hope to never go back for sure, but if it happens, we still have God, Spouse, Kids, Family, Friends and Church, so I know we’ll be ok.
Great story! I can’t wait to buy a house. It’s going to be SO freeing. I hate apartment living, I hate renting, and I hate not having a yard. I grew up in a small town and we had a lot of space to run around. Now, I live in a bigger city but still want that space. Best of both worlds I guess!
The backyard is one of the best parts about our home. I love having my own private place outside! We’re on a 10,500 sq. ft. lot in a city with small lots, so we’re definitely happy with the space. We were getting a little claustrophobic in our apartment. You’l love a owning a home 🙂
I’m not there yet. I live in a rental house and will for a while but I love reading stories like these. Keeps me inspired for when I will actually be able to afford a house! And I don’t like apartments so I look for rental houses–this way I have the house plus a yard.
Rental houses are a great compromise if you can’t get into a home just yet!
i love the story-telling in this article.. and look forward to the conclusion..
i have no idea where the “approved for: ” numbers come from that lenders use.. they are just absurd, and often double the amount that most folks should really be spending.. 60% is a huge number to be paying on your house, and would cripple many families severely, but it sounds like you are making it work– so kudos to you.
i am a homeowner as well, and would really have to fall on some hard luck to consider going back to renting. i love the automatic building up of equity (and the tax deductable interest) that comes with ownership.
Yea, we ended up way under the “apprived” amount, but it’s just silly throwing out those numbers. I consider our purchase a ‘special case’ because of our large savings, but if we bought a $375k house, we’d definitely be losing our house soon.
60% is pretty daunting, but we’re making it work and still enjoying it. The tax deduction and equity building are just a bonus 🙂
I’m itching to buy my first home, but it just isn’t the right time for me. My income is not steady enough, my long term career is up in the air and I need to be considering moving to a more affordable city. So as much as I want it, home buying is just not going to happen for me this year. In the meantime I’m really focusing on my career trying to get it on track. There’s no need to rush into the decision when the timing isn’t right.
Timing is VERY important. I would never recommend buying if you are not 110% committed to it. Especially since you want the flexibility of changing jobs and possibly moving. When you are ready, though, if you plan it right, it’s a great experience 🙂
Great story, Jacob. While I’m all for owning a home I will say it’s impressive that you can get by with 60% of your income going to the mortgage. I’d say about 33% of our income is in our mortgage (with taxes and insurance). Our first time home-buying experience was great but we were really ignorant and made some mistakes – mainly with considering how the house would resell.
33% would be ideal for us, and I hope to get there soon. For now, we’re making do with it being such a high percentage, but still are comfortable with where we’re at. Re-sell is something we’re definitely trying to consider with any home improvements we’re doing, but first and foremost, it’s a home that we want to enjoy living in.
It’s funny, I was actually thinking this morning “Jason is going to rip me a new one for spending this much”. Not sure why? Maybe because you’re a Dave Ramsey counselor….Haha!
I’m actually one of those crazy people who prefers renting. I went through the home buying/owning process for 3 years and it was rough. Now I live in a gated, upscale apartment complex with great amenities and quiet neighbors. For me, I have more peace of mind renting than owning a home (at least for now).
I fell into the trap of “you’re pre-approved for $xxx,xxx” and I didn’t work out the budget to see what I really could afford. Somehow I thought the bank knew what I could afford. Live and learn. Buying a home is a smart move, but for a single gal like me, I’ll be waiting till I’m ready to start a family before I buy a home again.
More power to the renter! Honestly, buying is not for everyone, and can be financially detrimental. Sounds like you’ve got a great living situation, I wouldn’t change a thing. Cool site, btw…
Thanks for posting this! I love seeing how other young couples are making it work… We considered making minimum student loan payments this year and throwing my whole income into a down payment fund, but decided against it — we’re not expecting any “gifting” help and there are too many unknowns right now to make the commitment. We’d rather have larger savings accounts and a plan for total debt payoff. And we, too, will be down to one income once kids come along.
I’m glad we got far enough into the thinking process to realize all this, though — I had major house fever (I think it’s easy to in this market, combined with this stage of life), and now I have enough anxiety about buying to make myself be patient for a while. 🙂 I think in 2 years, we’ll have a better idea of what we want, where we want it and all those other considerations. Hopefully prices will still be decent by then.
There are always great deals out there, no matter the economy. Don’t worry too much about “missing the boat.” You are absolutely doing it right by exploring the options and finding that maybe you are not comfortable going for it just yet.
If you need a little insight, though, I’d be happy to review your budget and do a “if you bought a $200k – $250k house” budget to see what it would look like. Just let me know 🙂
Thanks! We’ll keep that in mind. 🙂
60% yikes! I’m glad it seems to be working for you, but it would make me very nervous (then again I am also someone who hates risk). I do find it impressive that you manage to live on the remaining 40% however (especially your $300 grocery budget, wow!). I totally have house fever, but am trying deal with the “rental white” and loud neighbors for now. 🙂
This is the only area that I would not consider us “conservative.” We squeezed the budget WAY back because we were intent on purchasing a home. We are happy with our current situation, though there definitely is a risk there.
But jumping in too early can definitely be detrimental. Like I said above, if you’d like a budget review, let me know 🙂
My parents (dad) is a huge promoter of buying real estate. There is nothing like owning your own property, and being responsible for your junk. 😉
I do have a bit more motivation now that I’m “responsible for my own junk”. LOL. I hope it turns out to be a good investment in the long run, but other than monetarily, I’d say it has already been a great investment!
I can’t wait to buy a house, though I doubt a house where I live is a realistic idea. Basically a one bedroom condo in Vancouver costs about $350K, so maybe we’ll have to move someplace cheaper for a home. Perhaps a condo is a more realistic purchase in the next few years.
We’re just south of you in Northwest WA state 🙂
I know that my brother-in-law is saving for a condo, building equity, then selling (or renting it out) and putting down a payment on a house. That seems to be a great step to getting into a home if you can time it right.
We’ve considered doing this too (also near Seattle). A condo may not be the perfect situation but can be a good first step into home ownership. Good luck!
Haha I had to stop by back your blog because I just loved the writing the first time. In a galaxy far far away? Genius. Anyway, back to the topic! We are not in the home buying market since my hubs went back to school, but I absolutely love reading about other people who go through the process so I’m prepared one day. It sounds like yall were well prepared and did some smart saving. Looking forward to part 2!
Glad you stuck around! Buying a house is certainly an adventure, but a wonderful one at that!
Our first home purchase was great, until it wasn’t. What I mean by that is it was easy to do the original paperwork, too easy. By it being so easy to get that original loan closed it hurt us on our refinance when we found out how screwed up all of it was. I wrote about it on my blog a while back. Glad to say that we are refied now and we can put that behind us.
I’ll check out that post. Super bummer about refi complications. They’re already hard enough! Glad it worked out in the end, though.
I thoroughly enjoyed your description of houses with “potential!” I completely understand the sentiments expressed.
Hah! Yea, I don’t want to live in a construction zone….ever really. Our yard is a temp. construction zone, but it doesn’t inhibit our daily life.
My husband and I just went through something very similar – we’re in the midst of paying off debt, but while I was idly glancing through the real estate section of the paper one day, I thought I’d crunch some numbers. And I thought I did it wrong, so I crunched them again – and then I realized I could have a mortgage payment that would be lower than my rent.
So we went for it, though we were MUCH more conservative than you. We were pre-approved at $400k, but we only spent $115k. Is it my dream home? No. But it’s still pretty nice, and since we bought it at the bottom of the market, I know that we received a great deal. And an $1100 payment every month (which includes taxes and HOA dues) is not only less than our current rent ($1550) but is less than 25% of our income. 🙂
I would be freaking about the 60% thing – I will cross my fingers that nothing happens to you. Good luck.
Nice work on the home! That’s a flippin’ sweet deal. You’re killin’ it! I wish we were able to purchase a home at that price, would definitely make things much easier. I’m hoping nothing happens either! 🙂 Thanks for dropping by.
“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…)”
HAH! This totally describes my fear of buying a do-upper.
I’m glad we went the route we did. Though I’d like to think of myself as someone who can “do it all”, things would go bad if we had a “fixer upper” for sure.
lol, I love DINK and the dog bought a house!
Our dog is seriously loaded. Sometimes we have to borrow money from her 😉