How We Bought A House And Only Pay A $116 Monthly Payment
Hey everyone! I have an update to share from a reader named Nichole. She first shared her story in August of 2021 about how she went from -$20,000 to a six-figure savings by 26 years old. Today, she is sharing her story on how she bought a house and has a low monthly payment.
The following will outline the steps my husband and I, both 27 at the time of purchase, took to buy a house during a high market.
We did a previous post titled How We Saved Over $100,000 By Age 26. Although we did not reach our original goal of paying all cash for our home, we did get our monthly payment down to $116!
Yes, you read that correctly, one hundred and sixteen dollars.
I encourage you to read our story above before reading this one, as this is an update to the previous post. My husband and I have lived in a room the past 3 years with our 3 cats, and yes, it is as bad as it sounds. We are happy to announce we are living in our own home and our cats are very happy to run around and even have their own catio (cat patio)!
First, let’s start with the house details! Below is a short description of the purchase of our home. We bought early 2022 during a hot market in Southern California.
- Sales price: $319,000, around 1,300 square ft, 2 bed 2 bath on an acre of land
- After closing costs: $327,000
- Down payment: $100,000
- Final loan amount: $227,000
- Monthly mortgage (non compound): $1,116
- With back house rent for: $1,000
- Final monthly mortgage payment: $116
Before buying we:
- Set aside a 6 months savings for emergencies
- Have a $1,000 emergency savings to avoid credit card usage
- Have a $2,000 savings for any car fixes (one of them is a Jaguar XF Portfolio and can require some pricey oil changes/fixes, etc..)
- Set aside $20,000 for furnishing of the home—we never bought a home before and needed some expensive items like appliances, couches, side tables etc..
So, although we put $100,000 down we did have about $45,000 more saved on top of this for the items mentioned above. This money sat in accounts that accrued interest.
Where we keep our money:
- Money Market Account: we would transfer our money between two accounts depending which one had the higher interest rate at the time OR special bonus offers. One time I was able to get a $500 bonus for transferring my money over! Keep an eye out for these types of offers if you have a lump sum of money.
- High Yield Savings Account: through a local credit union. The one I currently have offers close to 4%! This is almost unheard of for a savings account!
- Keep in mind: these accounts are not for investing, rather they are for fighting against depreciation. You want the money to be liquid but not as liquid as a transfer through the same account. Mine takes about 3 days to transfer and helps fight against emotional purchasing.
Our original plan was to buy our home outright with cash but after a couple job changes and the pressure of living with people we ultimately decided it was the best decision to buy a home sooner rather than later.
MENTAL HEALTH IS MORE IMPORTANT THAN NO MORTGAGE! This was a powerful lesson I learned during my financial journey.
A few other details:
- We paid our homeowners insurance a year in advance (approx. $600 annually)
- We don’t have an impounded account for our loan so we save our set aside property taxes money (we also make a little interest off this money during the year)
- We have a back house that we earn rent from!
- No kids—3 cats though!
- One full-time worker and one commission-based worker in the home
- A portion of the home burnt down in 2019 which resulted in ALL NEW tile flooring, all new paint, all new appliances in the house (including a brand-new swamp cooler), and a new chimney. This was devastating for the previous family but such a blessing for us!
- There was a death in the home—don’t worry we saged the home and have had NO issues (passed of old age)—Not sure if this is a contributing factor of why our offer was accepted on top of the 30% down but worth mentioning!
Now, let’s dig deeper in the details of this purchase.
Why no impound account?
First, let’s start by talking about what an impound account it. Most mortgages have an impounded account, meaning your property taxes are included in the monthly mortgage payment. We decided not to go this route and instead, save our property taxes in a high yield savings account.
We also chose not to do an impound account because my husband is a real estate agent and we get large chunks of money at a time alongside my regular biweekly pay. We prefer to throw $6,000 into a savings account and earn some interest on it while we save it for taxes at the end of the year.
Most people prefer to have their home insurance and property taxes impounded into their loan but we are more comfortable paying upfront and not worrying about it. There is not one right or wrong way, whatever you are comfortable with.
There may be specifications on who is allowed to get a non impound account. Some of those factors may be how liable you are to pay your mortgage, for example, how much money you put down on the home. Since we put down 30% and had a conventional loan they granted us the opportunity to not have an impound account. We also paid for our home insurance up front for the whole year, it was around $600.
Our monthly mortgage excludes: property taxes and home insurance, which contributes to how low it is. With a impound account our monthly mortgage would be around $1,400, which is still fairly low.
Sometimes at the end of the year people receive a return on the property taxes that are paid. We decided that we would rather hold onto our money versus the government holding it for us. This way we are able to earn our interest and feel most comfortable having control over how our money is handled.
What we looked for in a home BEFORE we bought
My husband and I chose to focus on our first home being a great investment.
You may ask, how does that work when we are in a high market? There are several key components we considered before buying. First, the comps in the area has to be excellent. We chose a home that was considered lowest quality in the area, where new builds on our block are going for $200-300,000 higher than ours. This automatically raises our homes worth. You never want to be the nicest home in the neighborhood (at least when you buy).
When we got our appraisal done our homes value came back more than what we paid for the home! This put automatic equity into our home and was GREAT news!
Zillow doesn’t always show EVERYTHING the home has to offer and it is important to go look at the home and its entirety. This home had almost an acre of land and upon looking at the home we saw there was a back house! We also saw that the back house had hookups to the electrical, which was odd because there was no mention of it on Zillow. We found out that it was grandfathered in as an original homestead! We are the only permitted home on the block allowed to have two homes on less than 2 acres.
Our home also has a chicken coop, various trees (including fruit trees), three entries onto the property (all fenced), a barn shed on a concrete slab, and a two-car garage attached to the home.
We will be fixing up our back house and making it livable and renting it out for $1,000 a month. This will be used to pay off our home and we only need to pay $116 a month for our mortgage if we want to.
Now, this is not going to be the plan, but what we will do is use that $1,000 to go toward our principal every month. By paying our regular mortgage of $1,116 PLUS an additional $1,000 toward principal we will cut down our 30-year mortgage by 18 years! This is not including extra payments we plan on making along the way.
Our goal is to pay off our home in 5-7 years.
Our end goal is to rent out both properties and buy another home and pay the new one off even faster with the rent from both homes, totaling around $3,000 in rent from the two properties (maybe more depending on market at the time). We will move once this home is 100% paid off.
We saved over $100,000 by the age of 26 and you can read more about that process in our previous post here – How We Saved Over $100,000 By Age 26.
We have always had a goal of buying and renting out real estate and eventually not having to work if we don’t have to. We are both hard workers and want to play hard before we are too old to enjoy it.
We want to see the finer things in life by 40 and hit our pinnacle point, where our money makes enough for us to live off of. That gives us 12 years to work on, and is completely doable. In the process we will be able to help put roofs over other family’s heads by renting out our purchased homes!
Finding a Good Tenant
- Background check: these are well worth the price and gives great insight to a potential tenant past history and also checks for job status.
- Credit check: knowing a potential tenants past credit is important as it gives you more insight about their money handling.
- Two letters of recommendation: One of the letters is preferred to be from previous landlord. The second one is preferred from a previous roommate.
- A security deposit: we will be asking for a months’ worth of rent up front as a security deposit in case there are damages when the lease is over that we need to make.
- Initial interview: interviewing your tenant will give you an opportunity to see them face to face and create a clear landlord and tenant relationship. This can also help create comfortability and establish clear guidelines and trust.
- Follow fair housing laws: always abide by fair housing laws when choosing a tenant.
The Buying Process
We went with a 30-year mortgage but we pay it like it’s a 15-year mortgage.
Basically, we want a lower monthly payment just in case life takes an unforeseen turn and it would benefit us to have a lower mortgage payment.
We opted for a 21-day escrow and included it in our offer to the sellers. Because no one was living in the home they accepted our request. This is not always the case, especially if you are putting an offer on a home that has people living in it, also known as a contingency sale. The sale is contingent on the sellers also finding a home.
We were also able to bypass a couple inspections and pay for them ourselves to ensure our escrow closed in time. This is not always an ideal situation and may not be allowed if you have an FHA loan. Because we have a conventional loan and my husband is an agent we already had all the resources to make this happen. We also planned for the worse case scenario, for example, if we needed to repair our septic tank. Thankfully we did not need to make any fixes, but if we did, we would have the money to do so!
There are many moving parts in purchasing a home and the truth is, you need to make decisions that are going to benefit YOUR family and yourself.
My buying process is in no way the best process for everyone. Find what works for you, but know what options are available to you!
The purpose behind the “why”
I spoke about this in my last Making Sense of Cents guest post, but I would be remiss if I didn’t mention it again.
Our home buying process has a much bigger “why” than just owning a home and living our dream.
My husband and I want to be able to help others one day. We want to give generously and freely without any expectation in return. During our journey the most fun we had was giving to others, both family/friends and strangers. Most of the time this is completely anonymous.
We have learned through this process that money is a tool that can be used to bless others and soften the hardest of hearts. We work everyday to first fill our cups so that we are able to overflow and fill others cups as well.
When you have a why for what you do it motivates and keeps you on track with your goals. We met weekly to talk about our money goals and kept our goals outlined on poster boards for us to see before we left for work every day.
As corny as it may sound, make sure you have a “why” for what you do and the financial goal you have set for yourself. Having a why gives purpose to the journey and will keep you motivated on the days that you want to throw in the towel, trust me on this one.
Because we set ourselves up financially we are now able to:
- Invest up to my match at work
- Max out our Roth IRA’s every year (currently that rate is $6,000 each)
- Have the peace of mind knowing if a disaster happens we are set (having proper insurances and emergency funds set up)
- Explore the world because our mortgage is super low and we can afford to!
- Live our dream of owning property with land
- Help our families financially
- Provide opportunities to others (rent out our back home)
- Live and give generously knowing that it is a part of our monthly budget
- Sleep at night knowing that we big plans for the future and have set down a strong foundation
Our future plans are to:
- Own several properties that all pay for themselves
- Open up a real estate brokerage
- Teach others how to succeed with their money
- Become a top earning real estate team in our area (my husband and I)
- Create a lifestyle that gives us access to opportunities we never had before
- Give to others with an open heart—after all, this is the most fun you will ever have with money!
We are building an empire and saving money has allowed us the opportunities we’ve been given. We will continue to save and put our money into investments that ultimately get us to our end goal, financial freedom.
Consistency, diligence and hard work are the contributing factors to our financial success and continue to be.
A few things learned through this savings journey:
- Delayed pleasure pays off for the rest of your life. This one decision has set up my husband and I forever (and only took like 3 years)
- Persistence, hard work and patience teaches you a lot about yourself
- When you feel like giving up, DON’T!
- Every dollar saved gets you a dollar closer to your goals
- Side hustles are an easy way to beef up your emergency fund- I’ve done everything from baking to becoming the cleaning person at work for overtime hours. When you REALLY want to reach a goal, you do anything to make it happen.
- Meeting money goals has helped me in reaching other goals in life like establishing healthy daily habits.
- I have a lot more confidence in myself since hitting my financial goals—I’ve even set new goals to reach since buying my home!
If you are reading this and are encouraged or have any questions about our journey please feel free to ask in the comments below!
Author bio: My name is Nichole Yanez and I am a financial blogger at Elizabeth And Inez. I talk about my experience as a millennial living in Southern California! I work in the field of education but my passion is money management and inspiring others to start their journey to financial freedom.