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