A letter to a friend

I’m pleased to hear you are considering home ownership. Owning your own home is a wonderful blessing, but it can be a heavy burden–a curse even–if you borrow money before you’re ready.

I know you are busy, so if you don’t have time to continue reading now, please just scan my very quick, bulleted summary. It’ll be painless—I promise.

Even in America, big dreams take time

Like most good things in life, houses take time. Time to build, time to save for, and time to pay off. Although my wife and I feel a sense of pride every time we walk into our new home, many people now see their new homes as a prison because they bought before they were ready.

A few decades ago, families would build their own home with cash or they would borrow money for a few short years. Today, thirty-year mortgages have become the norm and some desperate people have contemplated longer contracts!

When you take on a mortgage, the bank owns the house. You are simply a glorified caretaker until the loan is repaid. And the price of borrowing can be very heavy indeed, both in dollars, but also missed opportunities. A mortgage can keep you trapped in a job you hate, stuck in a location you’ve outgrown, or become an anchor around your neck as it develops costly problems.

My wife and I feel this long term commitment is detrimental to one’s health and pocketbook.

Make your home a blessing

In order to ensure your new home is a blessing instead of a curse, please take on a 15 year mortgage instead of a thirty year contract. You’ll own your house sooner, cut your interest expenses in half, and you’ll be able to upgrade to a more expensive home if you wish. A thirty year mortgage will double the money you lose to interest!

Start with a starter home. Buying a modest home is okay—you won’t need to stay in your first home indefinitely. In fact, most people don’t. However, if you do buy an expensive home first, you just might be stuck for years to come.

Thanks to the nature of interest and big balances, the first few years you’ll hardly pay down any of your debt. On a 30 year 220k loan at 6%, you’ll have a mortgage payment of $1,320, but $1,100 of your payment will go to interest!

You’ll also be responsible for homeowners insurance plus another $200 in rent to the government (property taxes) each month. You’ll also be responsible for maintenance and bigger utility bills.

By the end of the month, you’ll have paid out $1,700-2,000. But only $200 of it will go towards paying down your mortgage. Translation—be prepared to be in debt for a long time.

Surely rent plus utilities is the less expensive option?

No wants to hear this, but…

Your down payment will also play a big role in your quality of life. I know down payments have fallen out of fashion, but they’re making a come back as the housing market softens and no down payment “home owners” increasingly have trouble making their payments.

A down payment of 20% or more makes a statement about you. Banks know that people who make down payments are less likely to default. That’s why you’ll pay private mortgage insurance (PMI) if you lack a 20% down payment.

Yes, I know some lenders are eager to lend you your down payment! But they’ll charge a hefty interest rate for the risk, which will just make your house more expensive!

Most of all, your down payment will tell you and your wife something important about yourselves—you’re serious about buying a house, you’re willing to make the sacrifices required, and that you’re prepared to buy your first home.

Choices, choices, choices

I’m not sure what type of house you have in mind, but there are a few options: new, old, or build your own. I suggest you avoid the latter in the strongest words possible. Our building adventure was a nightmare as many owner builders discover.

Many people choose a new home because they’re more energy efficient, require less maintenance, and they have that new car smell.

Older homes, however, often are closer to work, possess more character, and are located in established neighborhoods. The decision really depends on what you want and need in a home. Just make sure you have a thorough inspection done. Costly, unexpected repairs will decimate your savings.

And don’t kid yourselves, your house will need repairs: windows will break, kids will clog toilets, roofs will wear thin, and appliances will break. Count your blessings if no pipes burst or tubs overflow, because water damage is the worst.

Dealing with the unexpected

I’m sure you’ve heard about the importance of a rainy day fund or life happens fund. As a new home owner, it’ll be essential that you have savings equal to 3-6 months of expenses set aside. When your water heater breaks or your child accidently throws a bat through your window (done that), you won’t have to use credit cards to pay the bill.

And speaking of bills, you’re going to have lots of them. Water, sewer, trash, and lights. A gas bill will probably find it’s way into your mailbox too. Your county will be waiting with outstretched hands, they’ll be reaching deep into both of your pockets and probably your wife’s too! Don’t underestimate the burden of property taxes, as a renter, you’ve been sheltered from rapid increases—you’ll have no such luxury now.

Speaking of luxuries, most new home owners furnish their homes with several. From new blinds to new paint to new furniture–all financed on credit–you’ll be tempted. Just remember, there is nothing like the sweet feeling of sleeping on furniture you already own in a house that you almost, or will soon own.

Final thoughts

I’m sure I’ve left a few things out, but I wanted to keep this letter to a manageable length. I’m even more certain that you probably disagree with some of my advice and that’s okay. Some of my suggestions aren’t very popular these days.

I just want to make sure you move forward fully aware of the trade offs you’re making. We all face trade offs; unfortunately, most of us forget this when making exciting, life-altering decisions.

P.S. I know family has offered to help. Just remember that the borrow is truly slave to the lender (Proverbs 22:7). Loans have soured friendships and destroyed family bonds. Your mortgage will be burden enough, don’t make your life more complicated than it needs to be.

The best time to buy a home is when you have the money.

A quick summary

• Pay off any debts (except low rate student loans) before buying a house
• Wait until you have your down payment, closing costs, and an emergency fund equal to 3-6 months of expenses
• Don’t borrow money from family
• Get a 15 year, fixed-rate mortgage
• Decide on how much money you are going to borrow before house hunting
• Buy a starter house