How Much Money Should I Save Up For A House?

How Much Money Should I Save Up For A House?Buying a home is one of the largest purchases a person will ever make. I can’t think of anything that would be more expensive.

Since buying a home is such a large part of a person’s life, no one wants to make a mistake. It would be a costly mistake if you did make one.

Recently, I received a reader request for a new post about buying a home. The reader asked:

I would love to see a post on the best way to save up to buy a house, i.e. what is a good percentage to put for the down payment, what other costs should be saved for such as homeowners insurance, inspection fees, etc.

I think this is a great question. I am not a home buying expert, but I have bought a home in the past and we are in the very, very beginning stages of buying our next.

With our first home, we got a great deal and bought a house that was much lower than what the bank approved us for. We researched like crazy and thought about all of the different little expenses that would come up when you own a home so that we would not be surprised. There were still a few surprises, but for the most part nothing was too shocking.

However, this is not how many people buy a home. Many people buy a home by only looking at the sticker price, and not really thinking about anything else. There are many expenses that go along with buying a home and all of these little expenses can really inflate the price.

Below are questions you may want to ask yourself before deciding on a home:

 

What expenses come with a home?

There are many expenses that come with buying a home. All of the different home expenses should be budgeted into what you can actually afford. I always think it’s best to be as prepared as possible.

Possible home expenses include:

The actual home. Okay, this one is obvious. This will be the price you actually pay for a home. You need to think about your interest rate and closing costs in this area too. Your interest rate can vary and even just a difference of one percent could mean a hundred dollar or more difference each month.

Property taxes. This can vary widely from city to city and state to state. It’s always best to look at the property taxes before bidding on a home. One house that is priced in one city might have property taxes of $2,400 a year ($200 a month), and a very similar house with the exact same price in another city (and yes, it could just be a mile down the road) might have property taxes of $4,800 a year ($400 a month). That difference in property taxes might be what puts you over your budget.

Home insurance. For this, you want to think about all parts of home insurance. Will your home need any added insurance? Such as for earthquakes, flooding, or hurricanes? Our home insurance is fairly cheap, at around $700 per year. I know someone who pays $2,800 for their annual home insurance though. Prices can vary greatly depending on where you live and how big your home is.

Bills. Different homes will have varying amounts when it comes to bills. For example, older homes tend to have higher utility bills because of inefficiencies in the home (air flow throw cracks in windows and doors, old furnace, etc.). For example, one home that cost $300,000 might have a monthly electric bill of $75 per month. Another home with that exact same price might have a monthly electric bill of $500 per month. Some of the bills you might expect (related to your home) include electric, gas, trash, sewer, water, cable, and more.

Inspection fee. This is usually a one-time fee. Before you buy a home, you should ALWAYS get a home inspection. Don’t skimp either. I recently saw someone on Facebook who was looking for a home inspector and she said she just wanted the cheapest thing possible and she didn’t care what the inspector checked. This is a HUGE mistake. I know someone who skipped a home inspection and a week into moving in, the bathroom upstairs flooded and the floor caved in. This was a ton of damage, and it turned out the problem had been building up for quite a long time. This means a home inspector most likely would have caught this. Different areas you might want to have checked include: the foundation; radon (don’t skip this. We almost did and our realtor advised us not to. Our home actually failed the radon test and we negotiated to have the radon equipment included in the sale contract); mold; termites; plumbing; electrical system; and more.

Furniture and appliances. I know someone who recently bought a home but was complaining that it was completely empty. They said they forgot to budget in furnishing the home, which turned out to be more expensive than they thought. So instead, they had boxes for end tables and only a bed in their new home. Furniture and appliances is an area you should not forget about unless you truly do not care. There are ways for you to save money (such as shopping on Craigslist), but it can still all add up very quickly.

House repairs and maintenance. Don’t forget about this! Home maintenance and repairs can include a lot. This includes:

  • Yard cleanup such as collecting leaves and mowing the lawn;
  • Plumbing such as replacing new pipes, clogs in drains, and so on.
  • Paint. Both interior and exterior.
  • Electrical. What if a squirrel chewed through your wiring?
  • Windows. What if a window broke?
  • HOA. I wasn’t sure where to put this but I think this category is best. Before you buy a place, you should figure out if you want to belong to a homeowners association or not. Their fees can add up quickly.
  • The list goes on and on…

 

How much should I budget for a new home?

This is a hard question to answer.

Whatever you budget, you should always keep in mind the total cost of a home. As you can see above, there are many expenses that go into the total cost of owning a home.

It can be hard to decide on a budget for a home. It’s really just a realistic number that you feel comfortable with. Some people take out a loan that is around 25% to 30% of their after-tax take home income.

For me though, I like to stay significantly lower than that though. I would rather have my mortgage and home related expenses to be somewhere around 10% to 15% of my monthly after-tax take home pay. This is because I am a freelancer, so my income is not stable. I also live in a low cost of living area where housing is cheap, so I could never really imagine paying a crazy amount for a home when I am used to cheap home pricing.

Whatever you do, you should always have a budget in mind before you start home shopping. Also, try to get pre-approved before you go shopping for a home as well because you never know if you will even get approved.

One last note for this section: Your budget does not have to be the same budget that the bank gave you. Banks are notorious for lending out more than people can realistically afford. This means you should take the bank’s budget as a guide, but you will probably be better off if your budget is lower than theirs.

 

How much should I put down for a down payment on a house?

This is another tough question to answer, as there is not a single solution.

For us, I always thought our next home would be paid for completely in cash (many years down the line), but now it just seems like there are many positives in not rushing this process (there are both positives and negatives in not paying a home off early).

In some cases, you may be able to put down just 2.5% on your home, whereas other times you are asked to put down 20% or 30%.

How much you put down on your home really depends on if your goal is to pay it off early or not, and how much you can truly afford.

If you don’t care about paying off your home early, then putting 50% down may not make much sense if there are better investments out there and you don’t feel comfortable putting all of your money down. If you want to pay off your home in a “normal” 30 year rate, then putting down just the minimum (without having to pay PMI – see below) that your bank allows you might be best.

I will say that if you put down less than 20%, you will most likely have to pay private mortgage insurance (PMI), which can be a couple hundred dollars tacked onto your mortgage each month. This might be an expense that makes a home no longer affordable.

However, if you want to pay speed up your home payoff plan, then you might decide to put down as much as you realistically can afford in order to jump on your home payoff goal.

 

How much do you think a person should save up for a house?

Are there any other expenses I forgot about?

 

Image via Flickr by robboudon

Living In A 200 Square Foot Tiny House – Could You Do It?

Living In A 200 Square Foot Tiny House - Could You Do It?When we first moved out when we were 18, we moved into a very small house.

It was extremely small at around 400 square feet (less than that if you don’t count the basement), but it was cheap, had a backyard and was located very close to the college I was about to start attending.

Also as a reminder, last year Jordann also posted about how she used to live in a 400 square foot house.

I recently became interested in tiny homes again when I was watching a documentary on Netflix (we’re starting to find cable less and less worthwhile) called Tiny: A Story About Living Small. This documentary followed a man building his very own tiny home, and the documentary also showed others who lived in their own tiny homes.

I find tiny homes very interesting. They make great use of their space, they are usually very cute, and they are very affordable. Even with the positives below though, I don’t think it’s something I could do.

For me, the negatives greatly outweigh the positives. I think we could do something smaller than what we currently have, but 200 square feet is just too extreme for me.

Below are the positives and negatives of living in a tiny house:

 

Pro: Your housing expenses will be cheaper.

The average tiny home costs less than $30,000 to build. That includes the exterior and interior of the home. That is very cheap! That is much cheaper than the average home.

However, I do think you have to remember about where you are going to place this tiny home. Yes, you can buy land for cheap, but land can also be very expensive in other areas.

Your home will also be cheaper in that your utility bills will be cheaper. It’s much cheaper to heat or cool down a 200 square foot house than a 2,000 square foot house.

Repairs, maintenance and replacements will also most likely be much cheaper in a tiny home.

 

Con: I think it would be difficult with children and pets.

We don’t have children yet, but we would like to have them in the future. With all of the people I’ve seen and read about who live in tiny homes, I don’t think there’s been a single one who had children or pets.

I think it would just be very difficult with a family. People need their space… Or, maybe that’s just me?

However, I think if it were just one or two people living in a tiny home, then it would probably be much more doable. When we lived in our 400 square foot house (let’s keep in mind that we haven’t lived there in a very long time), it wasn’t completely bad. The size didn’t really bother us at all at the time. I think it really helped that there were multiple small rooms to escape too, and there was also a front and backyard and porch.

 

Pro: You’ll spend less money on material items.

I am a bit of a hoarder. Just ask Wes and he will probably want to cry just thinking about how much stuff I have.

My closet is jam packed to the ceiling with stuff, and then I also have things in the guest bedroom and in our basement.

Moving into a tiny home would probably be a lifesaver in that I would be forced to think about each purchase I make. Since there’s only so much room in a tiny home, you will buy fewer items.

 

Con: Having guests over won’t be comfortable.

I remember watching in the documentary when the main person being filmed had guests over.

He invited his family over to see the home he just built and it was extremely cramped. It was almost like everyone had to bend over in order for their to be room for everyone.

Now, I’ll be honest, I don’t throw raging parties or anything, but I would like the option of having people over when I can. This is especially true since we plan on moving to a new state and we would like people to visit us occasionally.

 

Living In A 200 Square Foot Tiny House - Could You Do It?Pro: You may be able to bring the tiny house when traveling.

Okay, this doesn’t apply to every single tiny house, but there are some that are small enough where you can actually travel with it.

You can bring your tiny home to where you want it to be, and you may even be able to do some road trips in it as well.

This makes the list of possible places to live pretty much endless.

 

Con: Not a lot of personal space.

This is no surprise. They are called tiny homes for a reason. According to the documentary, tiny homes are homes that are 200 square feet or less. That is extremely small.

That’s smaller than my bedroom, and my bedroom is not huge by any means.

Since I work from home 24/7 now, I would like to have more space since I’m at home more. I think I would get a little crazy if I was in the same exact room hour after hour, day after day.

 

Would you ever live in a tiny home? Why or why not? How small could you go?

How big is your home currently?

 

Also, if you live in a tiny home (less than 250 square feet preferably), I’d love to hear from you and possibly conduct an interview for this blog. Please send me an email if you are interested.

 

Images all via Flickr by Tammy Strobel

What We’re Looking For When We Move

What We're Looking For When We MoveOkay, okay, I’ve talked about moving a lot in the past.

Last year, we were thinking about selling our current house and buying a new one in the St. Louis area again. But, then I left my day job for full-time freelancing and there were just too many things going on.

Good thing we put our home purchase on hold, because now we are thinking about leaving the St. Louis area and buying a home in a different state.

The two main states we are thinking about now are Colorado and Florida.

Yes, I know, these are two completely different states. Florida is hot and humid and doesn’t get any snow. Colorado experiences all four seasons and isn’t humid at all.

Below are some of the different things we are wanting and are thinking about when it comes to our potential move.

 

A beautiful area.

I used to really love the St. Louis area, but that was before we went to Colorado. After hiking and camping in Colorado, nothing in St. Louis is even remotely comparable.

I love how there are so many things to do in Colorado.

We can visit national parks, national forests, amazing trails, lakes, and so on. There are several outdoorsy things to do in this state and I think it would be impossible to ever feel bored if we moved to Colorado. Colorado is also closer to many other beautiful areas in the country, so it would be much easier to have beautiful outdoor vacations than where we are in Missouri right now.

What we love about Florida is the warmer weather and the beaches, of course!

We are also interested in getting a sailboat, and living in Florida would mean that we could travel the Caribbean potentially with a sailboat. That is a dream and sounds a little crazy though, and I’m not sure if that would ever realistically happen.

 

Good schools.

No, we don’t have children yet. However, we are thinking about having them in the next few years.

This means that we are looking into the school system for wherever we move. We forgot to do this when we bought our current house, mainly because we were so young when we bought and we knew we didn’t want children in the near future at that time.

The only way I really know how to check this though is with the website Great Schools. Does anyone know if this is a good way to check? Or are there better websites?

If you live in Colorado or Florida, or know of any school systems, please let me know. I’d love to hear!

 

Budget.

We will, of course, have a budget wherever we move. I’m not the type of person who could live in Los Angeles or New York City where the cost of living is extremely high.

I want a decent house that is within our budget. I’m not exactly sure what our budget will be, but somewhere between $300,000 to $400,000 I think would be good.

Also, we want a home with at least a little bit of land. At least one acre would be great. I just want a little bit a land, a pretty view, and possibly an area where I can attempt to grow a garden.

I’m not sure if all of this is possible in Colorado though. We have been looking at Realtor.com and Zillow and it seems like housing is a little bit more expensive there then it is here in St. Louis. $300,000 to $400,000 in St. Louis could buy you a 4,000 square foot brand new McMansion!

If anyone wants to help with a budget (how much is the average home in a city in both of these states?), cost of living, property and income taxes in each of these states, how is the social life like, and so on? I know this can vary greatly, but I would like to hear anyone’s input about these areas.

 

Not too, too far away.

Colorado is around 12 hours from where we live in St. Louis. That is definitely a long car drive, but it is something that we can do within one day. Also, a plane trip wouldn’t be too terribly long, so that is doable as well.

Florida would be a minimum of 12 hours from our home, and some places in Florida could even be 25 hours a way. That is definitely a long drive!

One reason why we are thinking about leaving the St. Louis area is because we don’t have much family here in St. Louis anymore. Wes’s parents and his younger siblings all just recently moved to Memphis, and my whole family lives in Chicago.

 

Would you ever move to a new area? Why do you currently live where you live?

What must a city have for you to want to move there?

 

Image: The picture above is one I took with my iPhone while we were driving when we went to Colorado in June. No editing or anything, that’s just how beautiful Colorado is!