(Originally posted on The $76K Project on 1/19/2020)
Hello, $76K readers! Just checking in with an update. Not sure yet whether it'll be a short one or a long one, as I'm not feeling particularly blogger-y today. But when I started The $76K Project, I promised myself that I'd document all of the major steps along this journey. So here I am, a reluctant writer chaining herself to her keyboard.As I outlined a couple of weeks ago, two of our 2020 goals were to (1) figure out what we're doing about our current housing situation and (2) apply for a home loan. As of today, January 19, we can check both of those items off the list. Whoop! High five!
Housing has been an ongoing concern for us because it's a major chunk of our budget. Currently, our baseline monthly income (not including petsitting earnings, bonuses, or Fortysomething's occasional freelance work) is about $4600. Rent for our two-bedroom, two-bath duplex - where we've lived for nearly two years now - is $2200. That means we spend just under 50% of our income on housing, which is... a lot. It's especially a lot now that I'm working part-time and purchasing my own health insurance.
Sooooo... we've been trying to figure out whether to stay put and deal with an anticipated rent hike in the spring (more on that in a moment) or throw our hats into the housebuying ring. (A third option is to move to another rental, but rent here is high across the board, so it doesn't seem worthwhile.)
To see how much of a loan we're actually qualified for, we completed a home loan pre-approval application. We gathered and submitted all of the paperwork (so much paperwork) and agreed to a credit check, and within a couple of days, we learned that we were pre-approved for up to $375K. We enlisted the help of a Realtor and started perusing the listings.
But at the same time, we were questioning whether we really want to buy and whether it's a smart financial move.
Anyway, seeing as how we don't intend to move anytime soon, we'd love to find a way to stabilize our housing costs and make them a little more manageable. At least at first glance, buying seems like a good way to do that: the mortgage is your mortgage; unlike the rent, it's not going to go up every year.
Nevertheless, we also recognized that there would be some major hurdles associated with buying at this point in time:
(1) $375K is A LOT of money. A breathtaking amount of money. A sum that kept me up at night once I learned that someone was actually willing to lend us that much. Do we want to take on hundreds of thousands of dollars of debt when we've just managed to get our heads above water?
(2) We don't have much of a down payment. We could use the $10K in our savings account, but then... we would have no savings.
(3) When we ran the numbers, we realized that we could end up paying between $150-$200K in interest over the life of the loan. Obviously, we could curb that total by paying off the mortgage sooner, but it's likely that even under the best circumstances, we'd still end up paying tens of thousands of dollars in interest.
(4) Housing in our area is expensive, but that doesn't mean these are turnkey properties. In reality, anything less than $400K will likely need work. As renters, we don't have to worry about that. If something breaks, the landlord fixes it. If the roof leaks, the landlord takes care of it. If the lightbulbs burn out in the kitchen, they'll replace them. We do... nothing.
(5) The monthly numbers would be roughly the same. Ideally, buying a house would allow us to cut our monthly housing expenses by several hundreds of dollars, but realistically, after factoring in the mortgage itself, taxes, and PMI, it would probably be a wash.
(6) We'd likely have to depend on other people for help with the down payment and closing costs - and I want us to be self-sufficient. One reason we pursued homeownership was that a family member offered to help out. That offer changed over the weeks, and as more and more strings were attached, it became less and less appealing. If we're going to buy, I don't want to deal with any of that. I want to be able to do it without assistance.
(7) We love our current rental. With the high rent come numerous benefits that align with our interests and values: there's a trail literally right out the front door, Fortysomething and the Kiddo can walk to work/school (a real boon in inclement weather), and we need only one car (and use it rather sparingly). Because we're centrally located, we can get to any side of town in minutes. And we have beautiful views. Honestly, I can't imagine living anywhere better.
A few days after we were pre-approved for a mortgage, Fortysomething talked to our landlord about what would happen if we decided to break our lease. During that conversation, the landlord offered to lower our rent - not by a lot, but lower it nonetheless - and lock it in for the next 1.5 years. (Note: we tried negotiating our rent last year and got nowhere with that; I guess us telling them we were looking to buy was a gamechanger.)
It didn't take us long to decide that, at least for now, continuing to rent is the way to go. Neither option is great, but with renting, we don't have that burden of debt on our shoulders. We don't have to worry about moving across town, or gathering a huge chunk of money for the down payment and closing costs, or finding a way to replace/repair the appliances that will inevitably break within the first six months of homeownership.
Sometimes you have to try something to see if you really want to pursue it. I'm glad we applied for the loan and started this process because it showed us that it's not the right time. It's amazing how crystal clear that became, and how quickly.
When this lease is up for renewal, I suppose we'll just play it by ear. Maybe we'll be ready to buy then. Maybe not. You can't know everything in advance, and that's okay.