Post a Comment

Mortgage and Down Payment

By: Green Panda | Date posted: September 15, 2009 (7:00 am) | Write a Comment (7 Comments)

My husband and I are in the process of buying a house. Reviewing  several books on personal finance and mortgages,  I’ve been reviewing information on down payments.

How Much Should Your Down Payment Be?

The direct answer is as much as you can afford.  What can you afford to put down without putting your finances in jeopardy?

You shouldn’t look at the minimum you can get away with. You should examine your budget line by line and see how much you can put down and still have a buffer. You don’t want to put yourself in a financially vulnerable position.

Running the Numbers

Have you ever wondered what is involved in owning a house? Do you want to see if you can handle the pressure?

How much can you afford for a down payment?

How much can you afford for a down payment?

The best advice I can give is ask your friends who are home owners and see how much it costs. What if you’re nervous about asking them? What if you’re not sure if they’ll tell you because this is a personal question?

Before we went house hunting, we asked almost everyone we knew about owning a house.  We weren’t just looking at buying a home; we were looking at the 15, 30 year outlook. You might think such details are boring, but they are meaningful. We needed to know if we could do this month to month, year to year. That’s the issue to weigh.

Here’s how I have gone and asked some friends. Feel free to adapt this to your circumstances.

Me: Hey. We’re looking at buying a house, but we want to do right. I know you’re smart with your money, so I wanted to ask you for some advice.

Friend: Yeah, what is it?

Me: We want to make sure we can afford to live in it. We looked at the cost of mortgages, utilities, property taxes, etc, but is there something we missed?

Friend: Did you include ___ in your calculations?

Me: No, thanks for mentioning that. (Write it down or put it on your phone for refernece – show that they are really helping you)  What expense(s) was(were) higher than you thought?

As you can see, you’re not trying to be nosy, but you’re looking for concrete examples. Your friend feels (rightly so) that they are helping you and that they’re an expert. People love to be the experts, so let them be and learn from them.

Doing a Test Drive For a Mortgage

Put yourself ahead of the game. Start living as if you have bought the house. You got the information from personal research and interviews, so put it into practice.

Have extra expenses deducted (and put into savings) so it would match what you would spend as a home owner. If you can’t afford to maintain the extra payments, then you have at least put some money away in savings for a down payment. Cut back and look at what is important and not really important to you.

Our Down Payment and Emergency Fund

Our down payment will be coming from our joint savings account that we’ve deposited slowly in since we got married (some of the first dollars were actually gifts of money from our wedding). We have tried our best to ignore this account and not deplete it until we needed it, such as now for the house.

Our mortgage after the down payment will be well within our budget. Even if we didn’t have the $8,000 tax credit, this would be a house we could afford. We’ll build up our reserves a bit after we move and our plan is to use the tax credit to pay down the mortgage.

The Point Behind Running the Numbers

You may think it is a bit overboard to plan and write about this so much, but buying a house is the biggest purchase we have made. We want to make sure we do this intelligently and enjoy the house as much as our families have enjoyed theirs for the all these years.

Why is running the numbers so important? Why do I keep repeating the phrase? I read this somewhere and it really stuck with me:

If you waste your money, you are also wasting the time you spent to earn it.

Your Thoughts

How about you? Were you able to set aside money for a down payment? How did it turn out?

Be Sociable, Share!
7 Comments
  1. Comment by MLR — September 15, 2009 @ 1:04 pm

    We must be on the same wavelength or something. Very important topic to cover.

    For anyone who is in the market to buy a house, make sure you also check the property taxes on the ACTUAL house you are looking at. Just because a neighbor pays $1,500 doesn’t mean you will.

    I wrote a post on it here just yesterday. It came to mind when I realized how many people neglect the property tax as part of the “total cost of ownership” equation.

  2. Comment by Green Panda — September 15, 2009 @ 7:04 pm

    Yeah, owning a house is not the same as renting. Thanks for sharing your post on property taxes.

  3. Comment by Evolution of Wealth — September 15, 2009 @ 8:35 pm

    I think you this is a great article pointing out a lot of things people don’t think about such as the extra expenses of owning a home. I look forward to hearing more about your home buying process. Is a goal of your to pay of your mortgage as quickly as possible? I always wonder why people want to do this. I look forward to hearing more about your home buying process. I actually just wrote a post where a 30-year mortgage can be better in the long run.http://evolutionofwealth.com/2009/09/15/your-mortgage-when-30-beats-15/

  4. Comment by Jason @ One Money Design — September 15, 2009 @ 9:54 pm

    I really like your tip “doing a test drive on your mortgage.” What a great way to save and also learn if you can afford the mortgage, insurance, and taxes each month. It’s so easy to get excited about the purchase and get into too much house. It’s no fun feeling the pressure of a monthly house payment that limits spending on other important areas in the monthly budget. I think a good rule of thumb is the 25% of take home pay rule Dave Ramsey often mentions. It provides a nice cushion to comfortably meet other expenses.

  5. Comment by Jason @ One Money Design — September 15, 2009 @ 10:47 pm

    I should have probably clarify the Dave Ramsey rule is a not to exceed 25% of take home pay. If you can do less, that’s great!

  6. Comment by Efrain — September 15, 2009 @ 10:21 pm

    I’ve actually been thinking about this lately. There are currently 7 (4 adults & 2 kids-household grew relatively fast) in our household & we share expenses. Among the adults we share expenses which makes saving easier, but space is starting to feel tight at times.

    Last big purchase I made I took about 2mo to purchase my vehicle. (research of vehicle & haggle/put my foot down with salesman) I got my payment at just under $215 for an ’08 Hyundai Sonota. The goal was to get payment at $200 even, but I got sold on a warranty. I bought the car used so I didn’t get the manufacture’s original warranty, 2nd owners aren’t given it. Anyway, my point is that I took plenty of time & research to make that decision & I think it’s time to start with thinking about a house of my own.

    I’m going to start to put some money away per paycheck, but at first thought 25% seems a little high. Wil try between the 10 to 15% range. Thanks for all the tips!

  7. Comment by Roger — September 21, 2009 @ 7:58 pm

    I’m with Jason; the test drive your household expenses idea is a good one, which I see mentioned from time to time in the financial media. Certainly, asking about all the expenses your friends have is a good way to help get a handle on what you can expect to pay. There’s almost always something that you forget. And no, you are most definitely not planning too much.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.