Let me start by saying that I have never purchased a house, so researching this post was a great exercise for me and it actually convinced me that I should not rush into renting and instead focusing on saving money to become a homeowner.
My first aversion to taking on a mortgage comes from reading the book Rich Dad, Poor Dad by Robert Kiyosaki. He explains a home with a mortgage should not be seen as an asset because it takes money from your pocket each month. I took this information to mean that I should focus on renting and save money to purchase a house with all cash.
I recently decided that I have been thinking about everything incorrectly. I have to live some where right? And I have to make a monthly payment even if it is to a landlord or to the bank. After taking a look at rental prices and seeing the subsequent monthly mortgage rates and payments,
I’ve decided to purchase a house.
Not tomorrow, obviously because I am still working on paying off debt and I’d like to be debt free before I take on such a large debt for 15 to 30 years. I also need to keep in mind that I can take out a mortgage on the house but I need to save a bit of money first.
So my next thought was, ‘how much do I need to save to buy a house?’ I know that the banks and borrowers created the housing bubble that led to the recession and both bank and borrowers are currently risk averse. Before the crash, borrowers were able to put down as little as nothing down and get a mortgage.
There were even NINJA loans, which allowed borrowers with No Income, No Job or Assets to get a loan.
Because of this recklessness on the part of banks and borrowers, houses are cheap, but mortgages are harder to get. Banks are often requiring 20% or more down before they will even think about lending you money.
So I’ve decided to save 20-40% before attempting to purchase a house. I will use 20% as the down payment and the rest for emergencies, necessary renovations, and incidental repairs.
There are some great condos and townhomes in Atlanta going for anywhere from 20k to 80k and most in desirable locations.
I did my estimates based on the house prices that I am looking at, but I also added one right at 120k. This is a typical starter family home price in Georgia.
| House Price | 20000 | 40000 | 60000 | 80000 | 120000 | |
| Down Payment | 20% | 4000 | 8000 | 12000 | 16000 | 24000 |
| Emergencies | 20% | 4000 | 8000 | 12000 | 16000 | 24000 |
| Closing Costs | 4% | 800 | 1600 | 2400 | 3200 | 4800 |
| Fees and Other | 515 | 515 | 515 | 515 | 515 | |
| $9,315.00 | $18,115.00 | $26,915.00 | $35,715.00 | $53,315.00 |
Resources: http://www.mortgage-investments.com/Mortgage_and_real_estate_Calculators/closing_cost_calculator.htm
So I would say a general rule of thumb is to save a little less than half of the home purchase price.
An additional perk to buying your first home is the ability to use after tax funds from your Roth IRA. You can even use what you’ve earned in your Roth without paying a penalty.
How did you fund your first home purchase?
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