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Discussion Starter · #1 ·
Hi there!

So, my dp and I are finally in a position to buy our first home. We're saving up and I have some questions for you who may have your finances stablized for a while. We have never had savings before. Nor have we ever bee a position to even think about home buying.

We think we'll be able to have a down payment by the end of the summer. However, this downpayment would be the sum total of all of our savings. I'm not sure this is a sound financial thing to do. are there other things I need to be saving for? How much, outside of the downpayment, should we have, before buying a house?

TIA!
 

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You should have a 6-9month emergency fund before you save for a downpayment. Basically, if something happened & you have no income coming in, this fund will be what you will draw on to pay the important things like groceries, rent/mortgage, etc. Get this filled up first.

Also, in addition to the down payment, have a nice chunk of $$ saved up for the inevitable things that will come up (say, the fridge goes in the first year, you need a new stove, etc). This could also include a moving cost, a bit for things like curtains (they add up), etc. I don't know how much this should be, since I've never bought a home yet, but I know that when relatives have, things like curtains aren't included. Sometimes, washers & driers aren't include either! So save up some money for things like that.

Oh, and do you have any other debt? Before saving up for a downpayment, I'd get those payed off. It will really help your sanity to not have to worry about a car or cc payment on top of the mortgage.

Ami
 

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Quote:

Originally Posted by Mama_Meme View Post

We think we'll be able to have a down payment by the end of the summer. However, this downpayment would be the sum total of all of our savings. I'm not sure this is a sound financial thing to do. are there other things I need to be saving for? How much, outside of the downpayment, should we have, before buying a house?

TIA!
We are just starting to save for the downpayment right now ourselves.

We have $10K (6+ months of expenses) that is not going to be touched, it's the emergency fund.
We currently have another $1,500 in a growing car replacement fund, when it gets closer to $5K, then all money will go into the downpayment fund.

I would not feel remotely comfortable with taking on a mortage without money in the bank for emergencies and a stable car. Will this trouble proof our lives? No, but it's hedging. our bets per se.

I could not imagine giving advice to anyone to purchase a house without being debt free and having a healthy emergecny fund on top of a downpayment.
Will some people be okay? Sure, but not a gamble I would be comfortable taking.
 

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There are so many unexpected expenses with home ownership. Great advice here, an emergency fund in addition to a down payment is a must. The inspector missed the bad roof on our last house and we had to shell out $4000 to fix it once the rains started.
 

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I'm not quite sure what you mean by "in the position to buy our first home"?

I would never clear out my savings to buy a home. I bought a house when I was 19 and it isn't cheap. A lot of unexpected things come up from major to minor repairs - purchasing equipment to keep up the yard, buying appliances, etc. Even inspectors miss things - ours missed huge cracks in the shower that could've possibly caused rot had we not fixed them. I ended up selling the house a couple of years later...we rent now.

Dh and I just got out of debt and are starting to save for our 6 month emergency fund (we need $8,000)...when THAT is finished we'll start saving up for a house. It'll take some time because we want a 15 yr fixed mortgage MAXIMUM...so maybe, 5 years or so (I'm a sahm)...but it'll be worth the wait - to not have to be so strapped for cash or worried that sh*t may hit the fan and we don't have savings...

I would wait until you guys are actually financially ready. Just my advice.
 

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Discussion Starter · #6 ·
WOW! It's funny, but I have NEVER had any savings (emergency or otherwise) in my life. We do have some for an emergency fund, and also, in cases of emergencies, our parents have always been kindly and lent us the money til we could pay it back.
It's a challenge right now to save for an emergency fund because we don't know what house we will buy so don't know the mortgage payments. also, we're living with my dad right now (in order to save money up for a home) so I don't really have expenses other than food. We were thinking a good emergency fund would be $5K. is that reasonable, or would you recommend more?
We're looking for a place with an in-law suite so we can help with mortgage payments that way. Would we budget in the whole mortgage payment (when looking at an emergency savings fund) or the mortgage payment minus the rental income?

Thanks so much for your input. This is *really* new territory for me, as I've lived in poverty my whole life. To be even thinking of buying a house is not something I ever in my whole life thought I would be doing. now that we're looking at it, I am realising that there is SOOO much that I need to learn about money.
 

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you should be able to have your mortgage paid for without a renter.

We had 4k saved for house expenses before we bought our home. We promptly spent it on necessary and some unnecessary things to work on the house. We had 5000$ additionally in a 401k that we'd have a penalty to touch. We've never been big savers for an emergency fund, although I hope to do that someday soon. We have life insurance and great medical coverage- so that helps me feel more secure. We also have credit cards with lots of room on them, although again that is not ideal.

It comes down to that there are a ton of rules, but for my rule- we just had to feel secure with what we were getting into.
 

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I would recommend more than 5k for a homeowner...

I'm not sure where you live though, and i know there are still SOME cheap places in the US...

Our full e-fund is $8k for 6 months, and we rent @ $620/mo. I'm assuming when we buy a home we'll have to add more to the e-fund because property taxes/insurance, etc.

I would figure out how much monthly mortgage you guys can afford, add in property taxes/ insurance, etc...estimate your bills (maybe go off your parents bills as a rough estimate?) and multiply that by 6 (months). That'll atleast give you a decent idea of what you should be saving.

Good luck!

I know it's hard to be patient...trust me, i know! I can't WAIT to buy a house, but waiting will be worth it...promise


PS. Check out dave ramsey's total money makeover (there's a sticky in this forum). Me and DH have been doing it since about february and managed to get out of debt, save $1,000 and pay cash for our wedding, wedding rings, baby stuff (i'm due this july with number 2) and go to wisconsin...among other things!

It's not everyone's cup of tea...but it's good, simple advice! Nothing too fancy, good for the newbie i think
 

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I think an e.fund that is NOT part of the downpayment of 10K is smart, less is a risk.

I'd say if you've got such small expenses than take advantage and get a REAL e.fund under your belt BEFORE you work on the down payment. Then, save up enough to avoid having to pay PMI, 20% in most areas.
 

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I find it so interesting to ask for financial advice in this forum. Most of it is sound, but it tends to rely on each individual's income, cost of living and personal experience.

I am in the same position as you Mama-Meme. DH and I are getting ready to buy our first home soon. We also made some drastic changes in order to save as much $$$ as possible. I was starting to wonder if we could ever afford it. I felt too poor.

First of all, knowledge is power. I've been watching our multiple listing site (MLS.ca) to keep up to date on our market. I've been watching it for a year now, seriously for 6 months. I've narrowed it down to where I want to live and I know all the houses on the market, how long they've been there (or how many times), how the prices have fluctuated and what price range to expect.

I'm looking for a house under $100,000. Something that has flexible income opportunities so that if something *does* come up along the way, we have more choice. I love kids and my heart is set on fostering, so whatever house we buy has to work for that. (Not too hard
) But, if that doesn't work out for some reason, I've also thought about daycare, renting out bedrooms to college students, portioning off part of the house to rent out and/or a garage space for DH to have his own welding biz. We have actually found a house that would work for all of these options and is zoned commercial/residential.
:

I also want to point out that the emergency fund isn't your FULL monthly budget times 6-9mths. It is your pared down budget after getting rid of all extras (eating out, cable tv, new clothes, etc).

I highly recommend that you schedule an apt at your bank for a financial chit chat. It was so helpful. They'll tell you exactly what you need in order to buy a house. You can find out your credit rating, your borrowing power, all the fees involved in buying a house (welcome tax etc), any gov't programs on fixing up houses, grants offered etc. I have a great bank though.


As for the "just in case" fund.... it really depends on what you feel comfortable with. I know for myself, I would be ok with a bit less. DH and I both have handy family members who know how to use a hammer. In another year, we're going to have a licensed electrician in the family.
What I'm saying is that *for me* I would feel comfortable having less $$$ in an emergency house fund. I know not everything would be cheap to fix but I feel like I am willing to take that risk. We also have only a tiny bit of debt right now (couple thousand in student loans) so that helps too.

Oh, don't forget to save for closing costs and inspection fees.
 

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Yes to what has been said, but i wanted to add a couple things.

I think a $5k e fund if fine as long as that will cover your 6 months expenses. *we* could live on 5K for 6 months..many people probably couldn't.
If you have any temporary debt liek a car pymt, definityel pay that off.
The downpayment should be the full 20% to get out of pmi and get a better loan, etc.
The "extra" fund..this can vary widely, depending on your comfort level. I'm comfortable with less, maybe a thousand or 2. 4-5 would be a much safer bet, and if it turns out you dont need it after being in the house a while, could always be applied to your mortgage , retuirement fund, college fund, etc.

the one thing i want to bring up is the 30 year vs 20 or 15 year mortgage.
I'm not sure if it is Dave Ramsey, but one thing I read when getting our finances in order was that if you can't afford your house on a 15 year mortgage, you can't afford it.
I think that advice might be less useful in some places where housing is outrageous..but in general, look into a 15-20 yr mortgage. See what the difference in payments is ....$200/month? $400? It will not only save you tens of thousands of dollars over the life of the loan, but help insure you against tragedy.
 

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Discussion Starter · #12 ·
Thanks again for all the advice. I will definitely check out the dave ramsey thing.

I do want to chat with the bank. I guess I'm just a bit nervous, as I've never really been in this position before. weird....


Also, I find it really funny that people always mention a smaller mortgage. One home we were looking at we would pay an extra $400/month for a 15 yr mortgage compared to a 25 yr and would save 50K in interest. BUT if we took that $400 and saved it every month in a piggy bank we would make 72K over 15 years. So, by taking a longer mortgage we could be in a position to be 22K ahead. Which I think is really funny.
 

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Quote:

Originally Posted by Mama_Meme View Post
Also, I find it really funny that people always mention a smaller mortgage. One home we were looking at we would pay an extra $400/month for a 15 yr mortgage compared to a 25 yr and would save 50K in interest. BUT if we took that $400 and saved it every month in a piggy bank we would make 72K over 15 years. So, by taking a longer mortgage we could be in a position to be 22K ahead. Which I think is really funny.

Have you done the math thou on what you could save in those extra 10 years if you did not have any mortage? Would you only thus then have $22K in savings? I bet not. If you didn't have a mortage payment and saved all those payments plus the "extra" $400 a month, you would have a lot more in the bank than just $22K.
 

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For what it's worth, we have a house with a MIL apartment that we rent. We are able to pay the full mortgage without the renter, but not happily. We would have to stop paying for preschool and cut back in other areas. Fortunately, we've found a great tenant who plans to be here a long time.

When we bought this house we had more than 20% down along with an emergency fund and other savings.

When we bought our first house, however, we did not. We bought our first place in 2002 with money my husband had saved before we were married as our down payment. We put almost all our savings into the house, but in that case it was worth it as the value of our house increased 60% over 5 years before we sold. I wouldn't count on home values going up like that anytime soon, however.
 

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This thread is so interesting to me, thanks to all that have shared their advice, I have enjoyed reading it!!

Today i met with a mortgage advisor for the first time, which I had anxiety over, but I'm glad that I did it, and now I can see what we can afford.
 
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