Currently, we live in a house provided by my employer. We love our house, but at some point in the future, we’ll want to buy our own house. To that end, I’ve created a new savings goal.
For the past six months, I’ve been tracking housing costs in our local area. We have picked out three or four subdivisions that we really like, and we’ve calculated our ‘maximum amount we’ll pay for a new home’. While I’d love to pay cash for the house, that may not be realistic. But, I do hope to put at least 20% down so that we can get a conventional loan and avoid PMI.
I have run several calculations, including pricing the loan for 15 and 30 years, raising and lowering the interest rate, and manipulating the down payment. For our price range, the ‘worst case scenario’ for our mortgage payments would be roughly $2,000 per month. (The actual payment would be calculated when we took out the loan, and would be based on exactly how much we borrow and rates at the time we take out the loan. According to my calculations, the monthly payment will be somewhere between $1200 and $2000.)
For the next twelve months, I’ll ‘pretend’ to have a mortgage. By paying myself $2000 a month – stashing it away in my ING Direct Savings Account – I’ll accomplish two goals. First, I’ll prove to myself that I can make these payments. And, second, I’ll rapidly build a substantial down payment. Win, win!
If I save $2,000 a month for 12 months, I’ll have $24,000. If I add that to the $7,000 already in my non-retirement savings, I’ll have $31,000. But, since I’m not a fan of the number 31, I’ll fix my goal at $33,000. My actual monthly goal will be $2166.66.
I’ll track my progress over at the No Credit Needed Network. Here’s my current chart – SavingsNCN. This new goal replaces my old goal (of saving $16,000 this year). I just never could get excited about that old goal, but I’m stoked about the new one.
Do you create goals? If so, how agressive are you? I like to set super-agressive goals and then push myself.
Sounds like a great way to save for a down payment! We’re not quite to the “save for a house” phase of our lives, but we’ll get there soon enough. I imagine we’ll take a similar plan of action as you are.
I love setting goals. I tend to set them month to month, since my husband gets paid monthly. We also have a few long-term ones, varying in length from one year all the way to retirement.
Without goals, we won’t have a target! We’re bound to miss the mark that way.
Why would you buy a house if one is provided? Will that take away from your current savings because you don’t have rent now?
@Livingalmostlarge – The house we live in now has 3 bedrooms… and we now have 3 kids… So, sooner or later, we’ll want a bigger house. Again, it might be years before we make the purchase, but, more than likely, it’ll be within the next 2.
NCN
Why would you purchase a house? Is it really worthwhile to purchase if you are getting it for free? Will it cut into your retirement savings?
If you buy your own house, will your employer add your current housing stipend to your salary, i.e. give you around a $15,000/yr raise? If you’re simply giving up the free housing benefit, it’s clearly not worth purchasing a house, so I’m guessing you’ll get an extra cash bonus from your employer. I’m curious…
I was going to say.. if you’re going to receive say, an extra $1000/mo from your employer to make up for not taking their housing stipend, you should deduct that $1000/mo from your current savings goal.
Sounds like a great plan, pretending that you have a mortgage, to save for the downpayment! Wow, will you find a manual underwriter aslo, so you don’t have to worry about your non existent FICO score? Great idea.. your website is a great motivator for being debt free!
@mppaul3 – I actually have a very good FICO score…
This is a great plan. It is what I suggest people do. You are even doing extra (if you pay rent). Anyway for people that do pay rent, if they are looking at buying I suggest figuring out a reasonable estimate of monthly payments. Then subtract their rent and save the rest (so $2,000 say – current rent of $1,200 = $800/mo.). Saving that proves you can afford the $2,000 rate. And in fact this is really above what you need (since you will get a tax break… But it is a good estimate to get started. And I suggest targeting 20% down too.
You are falling into the trap…. Just because you have three kids doesn’t mean they each need their own bedroom for goodness sakes! I personally think it’s foolish to give up your free house before you have to. You are catching a case of “affluenza”.
@Elaine.. I agree, we don’t ‘need’ a house w/ three bedrooms… but, it would be nice, so we are preparing, just in case that’s what we decide to do. We can stay here, or, if we find a house that we like and fits w/ in our budget, we can make a purchase. This is an ‘experiment’ to see what we could afford… I’d hardly call it a case of ‘affluenza’..
Is your housing currently paid for in full by your employer? If so, I can see how you were able to get out of debt. I think you did work hard at it, but you gotta admit if there is no housing payment to deal with- it is ALOT easier. I would save money for a house, but what is the rush? As others have mentioned keep in mind of all the “little” extras of owning a house i.e maintenance, rising taxes etc. Just don’t rush into it because you feel pressure to be a “homeowner”. Sounds like you have a good thing going and you do live in a house currently vs an apartment.
Nothing is wrong with the kids sharing a room-really. I wish I could pile away the money like you but we have a $1700.00 mtg pymt, one income(husband) I’m in school and a baby on the way. We live very frugal and get no help whatsoever from family or friends. I guess the grass is always greener. You got a good thing going just think it through.
I think your plan is great, it is similar to Dave’s “Drive Free” plan. It is great that you are doing the research on housing prices, sub-divisions, etc. I would continue your research and keep track of sales, number of days on the market, listing vs. sales prices, etc. for houses or communities that you are interested in.
Even if you decide to stay in your current situation you will be no worse off and will have a bunch of money in the bank.
It all depends on your income. If you have enough to sacrifice for 12 months
go for it!!
I am definitely a goal-setter, and for quite some time now my goal is to have $1.2 million in retirement savings, not including my home.
Your goal sounds great. I saved for many years while living in my sister’s basement. I was able to put down about 45% on a $209,999 home (now valued at about $395K). I’m thankful i was able to put down that much becus it means less pressure on me (still single) to take high-paying jobs if i don’t like them. My principal is just $775 a month but i’ve been prepaying ever since I bought it 13 years ago am down to a $71k balance.
you can do it too!
Interesting to read over the comments here and look at the date – just a few months before the GFC hit.