Why I Bought My First House
With our upcoming move, I started reminiscing about the current house. I’ve been living in this house for 10 years now and I’ve got a lot of memories from this home. Here’s the story of why I bought my first home.
When I decided to buy my first house, getting one was the last thing on my mind. I was really looking for an apartment.
My brother had just moved in with me and we were living in a reasonably sized 2 bedroom apartment at the time. For just the two of us, it worked out well. The problem was that his fiancee was moving in, and with 3 of us, the place might start to get crowded.
We decided to start looking at a bigger apartment. Nothing huge, but bigger than where we were. At the time, there was a pretty bad rental crunch, and it was tough to find a place to rent. When we did find a place, it was generally expensive, and there were many restrictions on renting (longer term leases, pet restrictions, etc…).
A good friend had just bought himself a house 6 months prior and highly recommended going that route. I really hadn’t considered that idea at all (or even the idea of renting a house). After his suggestion, I decided to see if I could even qualify for a house, and how much I would have to spend.
It turned out I qualified for a Federal Housing Act (FHA) loan. I was a first time home buyer and wasn’t buying a very expensive home. This required that I only pay 3% down. Luckily, since I was sharing rent with my brother, and I had some savings. My parents were very generous and helped me with the down payment as well.
Because I wasn’t able to afford to put down 20%, I was stuck paying for Private Mortgage Insurance (PMI). That was annoying because all it really did was cost me an extra $100 or so a month and I got no real benefit from it (well, except I guess that someone was willing to take a chance with my loan because it was insured). It’s a “necessary evil” (or you can pay some more up front on the loan to get out of it but it’s not generally worth it).
I got qualified to look at homes in a specific price range (not to exceed the amount of FHA). For reference, I had already searched for large 2 and 3 bedroom apartments for rent and found that it was going to cost us about $1050-$1500 a month. Looking back I should have checked home rental prices as well but hadn’t considered renting a home. To buy a new house, I wanted it to be on the low end of what renting would be.
We started with existing homes closer to town (and work). It was tough to find something in my price range that I liked. We kept searching though, and I found homes that would work, but were not exactly what I was looking for. My realtor then suggested that we look further outside of town, and that he knew of some new home construction that was in my price range.
Immediately I found a home I liked (damn model homes – they will get you every time). I figured for sure it would cost more than a pre-existing home. It turned out, with incentives from the builder, it was actually cheaper to build my own home! And the price, after the options I selected, would yield a payment of $1120 (including house payment, taxes, home insurance, and PMI). This was on the low end of how much I was looking at for rent.
Also, my brother and his fiancee were going to be living there. Instead of paying rent, I let them cover the costs of groceries and most of the utilities. We had plenty of room, and I was even able to offer a room to a college friend who helped out by paying the rest of the utility costs. Overall, I think we all paid less per month than we had while renting. It was a great situation. Especially for me of course, because I now have quite a bit of equity in the house that will help out immensely once we move.
My “renters” moved out after a few years during the dotcom bust and I decided to refinance the house because interest rates had fallen so much. I got an Adjustable Rate Mortgage (ARM) (yes, looking back that probably wasn’t the smartest idea but at least it did work out). The rates had fallen at that time down to 4.5% for that 7 year ARM (that means it adjusts after 7 years – I think that’s at least 2 years off). When I switched to the ARM, I also decided to put an additional $100 per month toward the principal (less than what I was saving on monthly payments due to the refinancing). It really helped bring the principal down.
So now here we are, about a week away from moving out, and seeing this current house go. I do have a lot more memories about the house other than the financial ones I’ve mentioned here, but because it came down primarily to money on why I chose to buy my first house, I thought the numbers would be interesting to see again. Looking at it again I realize I made the right decision at that time. I hope I’ve set us up for the right decision in our new home. We’ve done all the work we could to make sure it will work out, but only time will tell if it was the right decision to move now. I’m hopeful that it will be for the best!
Image source tofslie