Home Body

Posting’s been light this past little while as I get used to new routines, husband home, time change, etc.

But here’s a quick link to a great post I found on Gail Vaz-Oxlade’s blog (she of the Till Debt Do Us Part tv show) about transitioning from renting to home ownership.

I’ve been having conversations with quite a few friends lately who are looking at purchasing their first home in the near future. Her post outlines almost exactly the process we went through as we were working toward buying, and it worked really well for us right from saving for the down payment through making it through the sales process to living with a mortgage.

So now we come to the Gail’s Great Advice part. This is where you figure out if you’re ready for the responsibility of home ownership. If you can come up with $2,277.05 a month for your savings (less whatever you may be paying to keep a roof over your head right now), then you’re ready.

Hey, I’m not talking about if you can THEORETICALLY come up with the money. I’m talking about taking that money and socking it away every single month. So if you’re currently paying $1,000 a month to keep a roof over your head, you’d be committing to socking away $1,277.05 every month to your Home Buying Account.

She’s also got some great tips for coming up with the real monthly cost of home ownership (above and beyond the mortgage), which is also helpful. But we did one extra thing that she doesn’t mention: finding out what we could actually afford each month in terms of housing, then working backward.

The general rule of thumb is to spend no more than 30% of your gross income (that’s income before taxes) on your total housing cost: mortgage, utilities, taxes and maintenance. Knowing what we could afford before we started looking at properties, then extrapolating what percentage of that would be our mortgage and aiming for house prices that would give us that monthly payment amount in the mortgage terms we want (we were aiming for a 25-year or less mortgage) gave us a firm point to hold on to for a sanity check as we looked at different places.

Mostly I posted this because it makes me feel smart to have come up with a strategy, all by ourselves, that a financial planner is recommending. And it’s always nice to see real-world examples of these somewhat abstract suggestions. It worked for us, so of course I can recommend it.

Anyone else have some good strategies that have worked as they traveled the long road to homebuying? Any other tips or lessons learned to pass on to others who are moving down that path?

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8 thoughts on “Home Body

  1. Laura

    This is an awesome post with a good link to Gail Vax Oxlade’s blog which I will be checking out later on when I’m not at work. I feel like I’m a bit behind the curve compared to my peers when it comes to home-buying, considering that I am now single so I’m dealing with saving on one income instead of two, and I spent all my savings in Europe last year so I’m now starting over from scratch. But I’m determined that I will get there if I’m smart about it. This will give me a good, realistic way to set up my budget. Thanks!

  2. airdrie

    I like Gail. I watch the show and she tells it like it is. I’ve recently started a family budget. Even the kids are in on it. It is very transparent, and the goal is to do less impulse buying, more eating at home, and saving up an emergency fund for a rainy day (or future trip to Hawaii??).

    Some people feel that blogging about money (personal finance) is tacky or inappropriate. I believe that we should ALL talk about money more. It’s such a neglected topic. I wish I had been better educated by my family and friends about budgets etc. as a young adult. I might have worried less over the years.

    My current budget allows for $300 per week to cover food and entertainment (Family of Four). We take out cash on Sunday, and only spend cash. So far the only problem has been when I forget to take the cash from the cupboard to my wallet, and end up using debit anyway…..hmm.

  3. Sue

    My father-in-law told us that you should always be prepared to budget 1% of your home’s purchase cost (or current assessed value) per year towards repairs and maintenance. Whether you spend that in a given year or you put it aside for when the roof goes or the hot water tank blows… that’s the annual cost of keeping up a property.

    If you’re in a strata, you should find out what % of your strata fees go towards actually maintaining the property (or a contingency plan) vs. miscellaneous fees or management. If only 75% of your strata goes into real repairs and maintenance, and that represents only 0.5% of your purchase price, then you’ve got to pony up the other 0.5% of your purchase price either on current expenses, or save it for the future.

    It’s an interesting rule of thumb. I’ve tested it out by asking everyone I know who owns property, and they’ve either said it’s accurate or the figure is more like 2%/year.

  4. Sue

    Oh yeah, and people shopping for houses ALWAYS forget to calculate the property tax as part of the cost of home ownership!

  5. Nicole

    Hey Jen… I just started reading your blog when Jen (Closs) recommended it. I’m always interested in money/budget talk. With a grad student income, it’s impossible not to have to budget well, and I’ve actually made it a bit of a hobby over the past few years. It’s actually fun, if that makes any sense. Anyway, three things: 1) I’m sure you’ve read it, but I REALLY liked ‘Smart Couples Finish Rich’. That book kick-started our grown-up money management and I think it’s saved us thousands, which is saying a lot because we’re fairly pragmatic people when it comes to money in the first place. 2) In terms of a mortgage, my advice is to base your affordability on once a month payments with a 25 year mortgage, then when it comes time to make the payments, switch to 2x a month (that’ll take a few years off right there) and bump up your payments as much as you possibly can (of course, you’ll need a flexible mortgage to do this, but I think most are these days). We did this very gradually, adding $50 or so a month every few months once we got used to the reduced cash flow until we eventually got to our max allowable payments. It took more than 10 years off of the mortgage, saving 10s of thousands in interest. 3) Use a mortgage broker! In our experience, real estate agents are useless (to be fair, we had a particularly incompetent one), and the mortgage broker was amazing, especially given that it was our first purchase and we had no clue what we were doing.
    OK, sorry for the long-winded comment… just feeling wordy today 🙂
    Nicole

  6. Derek K. Miller

    Here was an interesting, heavily-Dugg article from 2007 about why it was a good idea to rent until the bottom dropped out of the home market, i.e. that buying after the bubble bursts (like now, I guess) is a better idea:

    http://efinancedirectory.com/articles/This_is_Why_I_Rent%3A_Median_Incomes_Do_Not_Support_Median_Home_Prices.html

    There’s also this argument to rent forever, as many people do, especially in expensive cities:

    http://www.bargaineering.com/articles/rent-forever-dont-buy-a-home.html

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