Daddy Financials

I guess this is as good a time as any to mention our future home-purchasing plans. The wife and I have decided to shoot for 2 years to get into either our first home or first condo. Either way, we want to own some real estate. The 2 year goal was more my thing than hers. It was always my goal to get a house/condo before I turned 30. Due to several financial setbacks this is one of the few goals that I can still reach before my 30th birthday. Even if we don't get it by then, I would at least like to be in position to start looking and be able to make offers by that point. As far as goals go, we have revised them and have a new set ready and being worked on. But this was one of my originals, one of the O.G. goals :)

While the house is the next main step for my wife and I, we have yet to go on a vacation alone. So this year we are planning on a one week getaway down to Florida. That is our primary savings goal for this year, we should have the account funded by the summer and we should be leaving sometime in October. We are still putting away a small amount for the down-payment, but it's just enough to get the snowball rolling down the hill. By the end of October we should be going full throttle.

The plan is to save at least $250/month but shoot for $300/month, increasing to $400/month for the last 6 months up until my birthday (2/08/2009). I give a range only because we have a baby with unexpected needs and I give us a little leeway for spoiling the poor little piglet :) This gives our "house" account a range of $5,400 - $6,000. Factor in the 2 tax returns for years 2008 and 2009 which I'm low balling at $2,000/year and this increases to $9,400 - $10,000. I'm also not factoring any interest earned on this account just to keep it simple. So roughly $10,000 to get into our first house. Here is the rest of the plan.

SONYMA is the State of New York Mortgage Agency, this is most likely who we will be using to finance the purchase. The "Achieving the Dream" program for first time homebuyers seems pretty enticing. They require only 3% down payment to purchase the property and they assist in paying the closing costs. The interest rate on the loan is currently 5.875%(this is sure to change in 2 years but not too much) on a 30 year fixed.

With 3% down on a $200,000 property, we would be financing $194,000, this breaks down to a payment of $1,150/month PI(Principal + Interest). Property taxes in the Orange County area of NY where we are looking would be about $3,000/year ($250/month). Including homeowners insurance the total monthly mortgage should work out to a little less than $1,500/month. Seems like a big number, at least it did to me at first, but we are already paying almost $1,100/month for renting a 2 bedroom in the Bronx. This is considered cheap by Bronx standards.

$1,100 plus the $400 we were already saving gives us the $1,500 target mortgage. If we factor in the tax breaks and the equity we will be gaining by purchasing a home, I think we are better off. Home prices should be dropping in the next few years with all of the madness surrounding the mortgage market. It will be more difficult to qualify for loans which will in turn make selling homes harder, this will increase supply and hopefully lower prices.

Of course we will have to up our emergency fund accordingly and also put aside some money for maintaining our new home(1% value of the home = $160/month). We will be using about $6,000 for the downpayment, leaving us with $3,000 to make any small repairs or purchase furniture and another $1,000 to start the maintenance fund. We are also planning on bi-weekly payments to bring down the principal a little faster. The only thing I have to factor in would be the commuting cost to get to work.

Of course the housing market can totally change during this time and we would have to come up with a totally different plan. But this is what we are shooting for as of today. We will have no debt outside of my wife's student loan and of course the mortgage. We have higher salaries at this point. I don't plan on putting a hold putting a hold on any of our other savings goals while doing this. It's aggressive, but you only live once and you have to challenge yourself. My wife is a strong woman and I know we can do this together.

I know this goes against the grain in the mostly frugal personal finance blogosphere, but I think owning a home or any real estate is a rewarding (both financially and emotionally) and safe long-term investment. If we can pick the right area in the right school district, we can enjoy quality appreciation and a higher quality of life that we can get from renting. Thats my opnion on the wholebuy vs. rent debate. If you can afford it(make sure you can before you jump in), I say go for it. It is a huge commitment and it will be costly, but if you plan ahead and play your cards right then you will end up way ahead of the game.

If anyone has any suggestions or comments, I will be happy to listen

Thanks for reading

I love you Baby