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Some say buying a home is a means to financial stability, an investment in your future, the centerpiece of the American dream. But for me, I simply want a place to call my own.
I’ve moved five times in six years. I’ve lived in a basement apartment, a house with three roommates and a duplex I had to temporarily move out of for a month while it was being renovated. A home of my own means *I* get to finally call the shots on my living situation.
That said, owning a home is also a part of my financial plan. It’ll help me increase my net worth, and, if all goes according to plan, it could help me reduce my monthly expenses and potentially earn money in the process.
So I’ve set an ambitious goal: Become a homeowner within the next 18 months. Here’s how I plan to do it.
I’ll put only 10% down.
I know — standard advice is to put 20% down to avoid private mortgage insurance, or PMI. Banks may require this of homeowners because if you can’t put down at least 20%, you’re perceived as being a higher-risk lender, so the monthly PMI helps cover some of that risk.
But I’m choosing to accept the PMI charge for two reasons: 20% down on a home has become pretty unrealistic in many real estate markets. In Austin, where I live, the median house price is about $344,000 — 20% of that is $66,800! That would take me years to save, during which time the cost of housing could simply continue to rise. On the other hand, putting down 10% is a more reasonable $33,400. I already have a plan to aggressively slash my living expenses to reach my goal.
Second, PMI can sometimes be less than $100 a month, which is a cost I can deal with. Plus, I plan to add some value to my home with some light remodeling. If I can improve my property value through new floors or updated air conditioning, I could then lower my loan-to-value ratio, which would help me get to 20% equity faster (once you reach 20%, you no longer have to pay PMI). So I’ll put 10% down, keep a solid amount in a housing-specific emergency fund and accept the PMI charge until I can eliminate it.
I’ll tap first-time homebuyers’ assistance programs.
A lot of programs help first-time homebuyers afford a house, whether through loans, grants, mortgage credit certificates or other resources. They vary state to state, but here in Texas, I’m looking into two programs specifically for assistance: the Homes Sweet Texas Home Loan Program, which helps low- to moderate-income households, and the Texas Mortgage Credit Certificate Program, which allows homeowners to claim a tax credit for a portion of the mortgage interest paid in a year.
I plan to “house hack,” or rent out the rooms I don’t use, to cover my mortgage.
I want to buy a three-bedroom house and rent out two rooms through either year-long leases or short-term rentals via Airbnb. Ideally, I’ll be able to rent out both rooms for enough to cover my mortgage altogether. And eliminating a housing payment for me frees up my income to not only pay for PMI, but also to do those repairs and remodeling that can improve my home value. House hacking takes a lot of upfront work — you do take on the responsibility of playing landlord or outstanding Airbnb host — but it’s key to my plan.
Buying a home is a big deal and not a decision I’ve come to lightly. Trust me, I’m not going into it blind — but I’m also not going to wait to be priced out of the market entirely. By sticking to my plan and putting in some elbow grease, I’m expecting to become a homeowner before I reach 31.