We were just looking, since we decided not to buy a house, remember?
Eric had actually seen this home online, and I was less than in love with the online photos as they left a lot to be desired. But I agreed to take a look.
And of course, we both fell in love with it.
Our Checklist for Our First Home
It just seemed to have a lot of what we’re looking for in a first home:
- Quaint and manageable
- Nice outdoor living space
- Three bedrooms, 2.5 bath in our desired neighborhood
- Within our price range
- A fixer-upper that’s in good condition (read: you can upgrade after you move in, not before)
- Potential to be a rental property in the future
I think you can kind of guess which amenities are my requirements and which ones are Eric’s.
We tried not to get too excited, but how do you not when you start thinking of all the possibilities that you might become a homeowner?
Eric started making a list of the house projects he could work on, and I started crunching numbers to see how this would impact our budget.
And then we got the financial numbers.
What PMI Costs on an FHA Loan
What we originally thought would be a $2700 mortgage (remember we live in southern California), turned into an almost $3500 mortgage.
Here were the numbers:
Sale Price: $477,000
5% Down Payment: $23,850
Loan Amount: $453,150
Principal & Interest 4.25% 30-year fixed: $2229.21
Home Owners Association: $299
I was shocked to see that PMI (Private Mortgage Insurance) on the FHA loan, which is for first-time homebuyers who can’t put down 20%, was $445.
That’s like a car payment for a really nice car!
Why FHA Loan is Bad for Us
I thought that FHA was a stepping stone for first time homebuyers who can’t save up $100k to meet the 20% down payment requirement on most loans.
But apparently, you’re better off waiting until you have a 20% down payment.
Otherwise, you’re throwing $445 a month toward nothing.
Are FHA loans bad for all first time homebuyers? Probably not.
I know that this isn’t the case in most of the United States where you can actually buy affordable homes. Perhaps PMI is a lot more reasonable on a smaller loan?
Which makes me wonder—how do people our age afford homes in a competitive market?
I feel like first-time homebuyers our age who are buying in an expensive area like ours are either getting help from their parents, never had student loans, or are drowning in house-poor debt.
All of which are perfectly okay, I’m just a tad bit jealous.
It wasn’t a huge blow to see that we couldn’t even afford a home that we thought was in our budget. If anything, it reinforces our decision to just keep saving up.
At the rate we’re going, we’ll most likely have that $100k down payment in another three or four years. And we’re perfectly happy where we’re living now.
Stupid house, I didn’t want to buy you anyway.