Tuesday, January 24, 2012

What Our House Cost

Here are some of the financial details about the house.

We had saved up almost $30,000 when we were ready to start looking (this is in addition to our $10,000 emergency fund). We weren't sure how much money we were going to need for a downpayment, or how much we would qualify for, or really anything else. So we decided to get pre-qualified to see what was realistic and how much longer we'd need to save. We were thinking we could afford a house that was from $200,000 to $230,000, but we weren't even sure what was out there in that price range.

We'd been recommended a mortgage broker already, so we filled out the form on her website and emailed her a bunch of bank statements and tax paperwork. We met with her a few days later, and she went over things in detail. Peanut and I have pretty good credit (in the mid-700s; his combined scores beat my combined scores by one point) and, along with our downpayment (which they calculated as being every last bit of the money we had in savings), we qualified for a mortgage of $450,000.

Well, you could have knocked me over with a feather. Around here, that would buy a really nice house - and you'd get a really big mortgage payment to go along with it.

The mortgage broker also went over all the closing costs - fees charged by the county, the lender, the notary, the title company, the insurance company, and a million other people to handle the actual transaction of purchasing a house. Those fees added up quickly, even though we got a discount from the broker from the referral we'd received. Still, though - they were affordable with our existing savings if we were comfortable going with a 10% downpayment instead of a 20%.

We were delighted to know that we qualified for enough to buy a house in the range we had in mind and even higher, had enough for a "good" downpayment, and could afford the closing costs, so we started to figure out how much of a monthly payment we felt comfortable with. We knew it would be more than rent for our apartment, but decided that we wanted to keep it doable on one salary, and unofficially, wanted to keep it lower than our rent in New York, which was $1444 when I left in June.

The next step, of course, was looking for a house, which we found on our first day out. Then a bunch of negotiations with the sellers (not about price, incidentally, but closing dates and moving dates - don't buy a house just before the holidays!) and voila - we were ready to close.

What do you really want to know? Hard numbers? Okay:

Overall details
House list price: $235,000
Offer: $230,000 (we probably could have haggled here a little more)
Appraisal: $233,000 (but not too much, as they had priced it just right)

One time fees
Appraisal fee: $450
Inspection: free (family member)
Down payment: $23,000
Closing costs: $8,066.38

Ongoing
Principal and interest: $988.25
Home owners' policy: $75.42
County taxes: $242.37 (will probably go up a bit in June, since the appraisal came in higher than what the sellers had on their tax forms)
Mortgage insurance: $86.25 ($1,035 per year - way more important to kill our 6% student loans before focusing on this!)

Total monthly payment: $1392.29

A few things to note
Although we were approved for a much larger number than we originally thought we could afford, we wound up buying within our original budget. And yes, I did look at some more expensive houses - as soon as we knew we could spend more, I started searching for places from $230,000-$280,000. But ultimately, it made more sense to go cheaper. I think this just goes to show that when you pay close attention to your finances, your gut instinct is frequently right on target.

More important than the total cost of the house was the actual monthly cost. We can easily afford this payment on Peanut's salary alone, or if things were really super tightened, on my salary alone - which was very important to us. We don't want to be tied to jobs because of our house payment. If one of us gets fired or needs to (or wants to!) stay home with a baby, we are capable of doing that, even though we have a mortgage payment.

One more nifty number:
Equity we own: $26,000 (11%)

The amortization schedule is kind of horrifying - it shows just how much of our $988.25 payment goes towards interest and how much towards principal, and it really, truly is almost all interest for the first several years. Still, between what we'll pay into it and the way the value of the house might go up (which seems to be the trend now in our area), we'll probably have 20% equity sooner than the lender forecast, which is November of 2017. To have the PMI canceled, we'll have to alert the lender that we believe we've reached 20% equity and they will set up an appraisal. It'd be nice for that to happen early, but I'm not going to sweat it.

So. That's what it took to buy our house. I'm trying to recover from shock every time I look at our savings account balance, which is back down to our bare emergency fund. I kind of got used to seeing such a higher number in there, but I know that we're covered for the majority of emergencies that would come our way, and now I want to focus on building up savings for our big-ticket purchases: a second car, a built-in bookshelf/desk situation, guest room furniture, new living room furniture, new pots and pans, etc....

Any questions on how we bought our house?

14 comments:

  1. I'm dead set against paying PMI so I've put 20% down both times I've purchased a house. That said, I understand that isn't feasible, but I would advise to get to the 20% equity level as soon as possible. You can't write the PMI off on your taxes but you can write the student loan interest off, so the 'effective' student loan rate is actually lower than the 6% you referenced.

    Sounds like your mind is made up, but just keep in mind that the PMI gives you absolutely no value or benefit moving forward. The sooner that you get out from under that, the sooner that $86 per month goes back into the money available to work for you.

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    1. Unfortunately, our tax situation means that the student loan interest deduction doesn't help us out at all. Thus, there is a significant benefit to paying down our student loans faster, and paying PMI to avoid wiping out our emergency fund (which we'd have to build back up before paying extra on the loans) makes a lot more sense for us.

      We're still going to get to 20% well before our lender's projection, but we'll be focused on student loans first because it's a better return for our money.

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  2. I feel your pain! Our down payment at 20% is $50,000. When it comes out of our accounts in Feb we might actually cry. Thankfully we don't have really any closing costs and we just have to pay our lawyer 2,000 and we should be good to go. Then comes the furnishings and renos - our rental we live in now came fully furnished so we don't have any furniture!

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    1. Wow, I wish we'd had such low closing costs! Still, I guess furniture costs well more than the $6,000 difference between your closing costs and ours. Good luck!

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  3. Great post. We just bought a house too and we also got approved for almost $500k. I was shocked. We spent less than half of that and made sure we could afford it on my salary (the lower amount) if we absolutely had to. My husband was very uncomfortable with high monthly payments---my frugality is rubbing off on him! Our house needs a little bit of work, but we are able to save money quickly for those jobs now. We gutted an remodeled a bathroom within 2 weeks of owning the place, paid for in cash. There are a few more projects we want to do and then we will put extra money down on the principle. It feels good to be able to have that huge buffer in our budget and I love being able to write checks for our projects :)

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    1. One of the places we looked at needed extensive updating and remodeling. The mortgage payment would have been quite low and we *probably* could have paid cash for it as we went, but I didn't want to live in a construction site for months on end. Still, taking on a lower monthly payment is the only way we could have even entertained the option!

      Congrats to you and your husband for staying within your own budget - not the bank's!

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  4. It's so good to read about others who are not listening to the bank's assessment, but buying a house within your financial comfort level. The same thing happened to us. The bank approved us for so much more than we had estimated we could afford (same as you - $230,000), but when we looked at the numbers we couldn't figure out how paying down a $ 400,000 mortgage would allow us to save anything afterwards, buy any furniture, or go on a trip once in a while. It's also nice to know that if one of us loses our jobs, we won't lose our house. Congrats!

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    1. It's also nice to know that if one of us loses our jobs, we won't lose our house.

      Yes, exactly! I like to think that we're just smart like that, but I think the recession really drove home the point that nothing is secure. I've heard too many scary stories to believe what the bank offered us - and I can't believe they offered that to us given all the scary stories that are out there!

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  5. Thanks for sharing all the details! It was really great to read and learn more about this (intimidating!) process. Congratulations to you and Peanut. :)

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  6. Thanks so much for sharing this info! People usually don't go into the little details of fees, where they come from, how much they are, etc. It's helpful!

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  7. Congrats! Sounds like you found a really great place and thanks for sharing all the details, it definitely gives me some perspective!

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  8. It must be wonderful to own a home. Around where I live a decent home costs $1M, so I can only dream of one day being able to afford that. It's nice to live vicariously through you and learn a bit about the various costs involved with owning versus renting!

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  9. Congrats again on your house. Real estate in my area isn't as bad as Her Every Cent Counts, but a 20% down will be at least $80,000. Sigh.

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Thanks for commenting!