Welcome back to my channel! Just kidding. Welcome back to Money, Honey, your one-stop shop for fiscal guilt trips and inspiration alike.
This will be the third (and final, I believe) Millennial Housing Diary, and in my opinion, I’ve saved the two most interesting for last.
If you submitted a housing diary, I want to say—thank you so much for trusting me with those intimate financial details. I appreciate your willingness to share, and I’m conflicted with feelings of pride and envy surrounding your ability to buy a home.
Today’s diary looks at two people who have two big things in common: they bought their homes as single persons without help from their parents and with student loan debt.
I think these are the two most inspirational—and one of the entrants gave some other financial heads-ups, too (I think that ended up being my favorite part about this series).
A single 25-year-old male living in Oklahoma City, Oklahoma
Income: $145,000 pre-tax (2016)
Down payment: 20%, or $60,000 (it took me two years to save)
Cost of home: $300,000
Type of home: 3-bedroom ranch-style home
Location: Oklahoma City, Oklahoma
Mortgage: Yes, 30-year fixed
Taxes: $3,400/year (property tax is super low! Best thing about Oklahoma)
Insurance: $1,750/annually (no escrow account – paying with credit card also!)
Total monthly payment: $1,160/month
Student debt? Yes, $29,000 (Paid off ~1 year of graduating, with credit cards for all the points!)
What he said…
“I closed on my house back in January 2017—one of my friends actually owned it right before me. I was over there all the time, so I already knew it was the perfect house for me. I’d been casually looking at houses and found nothing I liked, but once she mentioned that she was thinking about selling it, I told her I would buy it immediately. I feel like this is very different than most people’s first-time house buying experience.
As a side note, this was right after Donald Trump got elected and interest rates were already starting to increase, so I immediately starting shopping for rates. I wanted to get a 30-year mortgage, and with interest rates so relatively low, it was a good way to keep my monthly payments low and take advantage of the tax breaks from the interest expenses.
The main thing I wanted to avoid was the dreaded PMI. My only advice to any millennial buying a house, would be to always pay 20% down. If I would have put $50,000 down instead of $60,000, I would have ended up paying almost $7,000 in PMI over 5 years, assuming I didn’t make any additional principal payments. It seemed like a waste of money to me. The only way I think it may be worth it is if you can guarantee your house will appreciate in value more than what you are putting towards PMI.
I felt really strongly about 30-year compared to 15-year when choosing my mortgage term. I can’t deny that there are intangibles to paying off your house early. However, even if you have the means to cover your monthly payments for a 15-year, I think that it is always best if you go with a 30-year term. Here’s the math:
My mortgage rate was 4.125%. When shopping for rates, I was able to secure a 15-year mortgage with a 3.65% interest rate. I think my monthly mortgage payment for a 15-year loan was ~$600/month more than my 30-year. That is $600 per month I could put towards an S&P 500 Index that returns on average 10% per year, instead of my fixed mortgage rate.
Bottom line is, mortgages are cheap! It’s all about how you maximize your return on your money, and you can also have immediate liquidity if you needed the cash.”
A single 25-year-old female living in Minneapolis, Minnesota
Income: $75,000 (pre-tax)
Down payment: $10,000—I think it took me about a year to save up (no help from parents)
Townhouse in a Minneapolis suburb; 1,600 sq. ft.
Interest rate: I can't quite remember, I think 4.5%
Total monthly payment: $1,200
*Note from KG: This friend of mine is 35 now, so this entry is from 10 years ago. Her hustle is indescribable. She works full-time, teaches yoga almost every day, and has an 11-year-old daughter.
What she said...
"I had minimal student loans and paid them off by 30. [Meaning she bought the townhome with 5 years of payments left.]
I knew I was going to buy because I wanted stability for my daughter. So a friend recommended a mortgage lender to me, who ended up being great. We went through all my finances and the pre-approval process, which made me feel comfortable that I could actually afford it.
Then he connected me with a realtor that was easy to work with, patient, listened to what I wanted, etc."
I love that these two entrants both had student loans and got no outside help, especially because only one of them was making a fairly ludicrous salary.
The second entrant makes it especially obvious just how within-reach home ownership really might be for some of us, if we're willing and/or able to just put 5% down. Conversely, the first entrant makes really good points about doing the math surrounding some of these scenarios.
In his example, he makes the point that your money really may be better off in an S&P 500 index fund than paying off an aggressive 15-year mortgage term. Moreover, he makes the solid point that a PMI really only makes sense if you have reason to believe (risky) that your home will appreciate quickly and significantly enough to offset that expense.
I'm still learning how to apply that type of math to my own decision-making in all areas of my life; fleshing out different scenarios (some of which are based on assumptions) to make better, more sound decisions.
Did you notice the first entrant mentioned paying for all this stuff on a credit card to get points? He's a savvy one, and we'll be checking back in with him in the near future—he has 13 credit cards across which he distributes his regular spending for #MAXIMUM #RETURNS.
(If nothing else, I hope that case study will show you why credit cards are not [read: don't have to be] scary and irresponsible.)
Lastly—and perhaps the most important takeaway—is that, within reason, there's really no singular right way. Every entrant had a different approach. Some started with a lender and went through pre-approval, then started looking. Others started on Zillow. Still others bought from friends or family.
Some put 20% down. Some didn't even put 10%. All feel that their way worked for them. (Although... there are definitely a lot of WRONG ways; see housing market crash 2008).
A lender will almost always approve you for way more than you should actually be spending. If you're thinking about buying, explain your plan to a few trusted adults (like, 50 years of age or more) in your life and see if they spot any watch-outs or call-outs. Research your market.
Our last entrant pointed out that she bought a home because she wanted stability for her new daughter. Sometimes, buying a home extends beyond financial reason and the benefits far surpass your ROI.
I hope you enjoyed this series. If you'd like more housing diaries, let me know—I have several I never ended up posting. If not, we'll be moving onto credit card strategy and more philosophical discussions around frugality.
The young woman's money guide for all the things you're too embarrassed to ask your friends. Build the life you thought you were too broke to afford through managing your spending habits, travel hacking, and simple, smart investing.
Full-time Brand marketer at Southwest Airlines, part-time Yoga Sculpt teacher, occasional Waffle House Model and reformed materialist.
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