3 Housing You Can Afford
Housing You Can Afford
I thought that this month I’d write about what is likely a major monthly expense for most of you, housing. I know it used to be the most significant bill I had to pay every single month. You may note the use of the past tense in the preceding sentence. I’m quite ecstatic about recently paying off my home. No more mortgage payments for me! I’m not trying to brag about this, but rather to emphasis the point that if I can do it, you probably can too. Why do I say this? Because I’m still a fairly young guy (pushing the mid thirties) and when I look at the adjusted gross income on my tax returns (which I don’t cheat on) I’ve never exceeded $20,000 in any year of my working life. In fact, many of those years never got past $10,000. I think it’s fair to say I’m not in an upper income bracket, yet I now own my own home and have thus substantially reduced my cost of living while improving my quality of life. This should be possible for you as well. In this article I’ll discuss how I got to this point with my housing situation in the hope that you will find information adaptable to your situation.
As you may have gleaned from my other articles, I’m all about eliminating or reducing wasteful spending that brings me little fulfillment. In my mind rent, at least in terms of housing, is all wasted money. I hate it. At the end of the month the only thing I have to show for all I spent is the next month’s bill. I could rent an apartment for 40 years and still all I get is a bill for the next month. On top of that the costs will likely keep rising with each new lease period. So unless you know you’re only going to be in a region for a short period of time, renting your housing seems like a poor choice.
When I moved out of the parents home I knew I didn’t want to rent an apartment, but I didn’t think I could get a bank loan to buy a home. In retrospect I probably should have at least investigated this option. What I did was reduce what I rented to the land, and bought my dwelling. What this translates into is moving into a mobile home park. I could buy the mobile home and have a tangible asset. Then I would just have to rent the lot it was on each month.
However, I didn’t just go out and buy any old mobile home. You can lose a ton of money that way. I knew from a friend’s experience that mobile homes can depreciate quite dramatically, and having your assets depreciate is not how you squeeze the most from your funds. By continually watching the trailers that went up for sale I was able to see that there is a point where the depreciation stops, which varies based on your local I’m sure. As long as the place is livable the value doesn’t go any lower. This is the point at which I wanted to buy my mobile home. I also noticed that the smaller the mobile home the lower the price. No real surprise.
I hadn’t honestly thought I’d be ready to buy a place when I did. I expected to spend a few more months living in the parents home and saving my earnings, but then one day there in the classified ads was a small 10’ x 50’ trailer for $1500. It seemed crazy cheap and I figured surely the place must be a real dump, but I decided to call the seller up and take a look. Here’s the secret I learned that day. No one seems to want the mobile homes that small, in fact, most parks in the area wouldn’t even allow them in anymore. This one was there due to a grandfather clause. The trailer itself was in excellent condition. It was just small. Being single it worked just fine for me. I bought it for cash the next day.
Where I lived there was a bit of a stigma about mobile home parks. I imagine this exists elsewhere around the country too so let me present my home as I experienced it. I had some good neighbors, some great neighbors, and some bad ones just like anywhere else. Everyone was packed in pretty tight as the lots were rather small, but if I were living in an apartment my neighbors would have been much closer. Basically, for $1500 down I got a 500 square foot home with my own yard and two parking spots for roughly $200 a month. At the time, in my area, I could easily have been paying double that to live in an apartment of the same size. I was still wasting money every month in rent, but I was wasting less.
From the start I knew this little trailer was just a stepping-stone. I didn’t want to rent anything. You never pay off rent. It’s always there, and my lot rent was increasing in cost every year. However, by starting with this very cheap little place I was eventually able to save up enough for a down payment on my current home.
Do you think you couldn’t possibly afford to buy a home? Maybe you think you could never get a bank to lend you the money? My question to you is have you looked into it? It wasn’t easy for me mind you, but I, with the meager income of a food service worker and a trickle from my art business, was able to get a loan. It also took me two years to find and close the deal on property that suited my needs and was affordable for me. There are programs out there to help first time homebuyers. Talk to a real estate agent or banker. Just remember to carefully evaluate what they offer you. They are trying to sell a home or home loan after all.
As with my first mobile home, I was continuously watching what was on the market and not buying for prestige or status, but strictly for function. Here is the key thing; I didn’t buy the grand home I really want to retire in. To do that I’d need a significant loan, which would equate into a large monthly mortgage payment. This would mean two things. One, I’d have to be bringing in a substantial income each month, which didn’t seem likely when building an art career. So to pay such a mortgage I would need a regular, full-time job, taking time and energy away from my artistic dreams. The second repercussion from buying a home beyond my means is that I would likely have to run the mortgage out for the full term because I’d never have much extra to pay directly on the principal. This means I waste huge amounts of money paying interest, and I mean huge! Interest is like rent; it’s wasted money that provides little fulfillment.
Let me take a moment to drive home this point with some figures. (I apologize to the math phobic souls out there.) The formula I have for figuring interest is that it is equal to the principal amount times the interest rate times the duration of the loan. For a real world example I have a good friend who just bought a home for $174,000. His down payment was $30,000 so he is borrowing $144,000 from the bank at an interest rate of 6.25%. It’s a standard 30-year loan. So to figure out the interest he’ll pay we take his principal, 144,000, and multiply by the yearly interest rate, .0625, multiplied by the duration, 30. 144,000 x .0625 x 30 = 270,000. So if he only pays his monthly mortgage amount and never pays extra on his principal, by the time his home is paid off he’ll have spent $270,000 on interest. This is on top of the principal cost in the home loan, $144,000, and the down payment, $30,000. The total cost for his home would be $444,000! If this is scaring you out of buying a home, remember that with rent EVERYTHING is wasted each month. The point I’m making is that the farther below your means you buy, the more money you should have each month to pay on your home’s principal and reduce the money wasted paying interest.
Let me return to my particular story. I wanted to quit renting a lot, which is endlessly draining my precious income. I wanted to finally buy a home, but I was looking for the least expensive home that was still functional for my needs. Eventually, for just under $30,000 I found the place. Now I have to admit that at the time this was the most I could borrow, but I knew I could afford it easily. It was still a mobile home (which I’m not ecstatic about) though it’s just that little bit larger at 12’ x 55’, to be comfortable for me. However, it comes with 1.5 acres of land in a quiet, spacious country setting, with six outbuildings. I’ve fixed up two of the outbuildings to function as studio spaces, with the others being storage. The two-bedroom mobile home is my living quarters and office space. Here’s the great part, when I had a mortgage it was only $262 a month. That’s just a little bit more than the lot rent in the trailer park and still way less than I would be paying to rent an apartment! There are other costs with owning a home, which I’ll discuss more later, but buying my home was still cheaper than the average apartment rent.
You won’t see my dwelling in any magazines showcasing beautiful homes or architectural wonders. However, it is a fantastic estate for achieving my dreams and living a fulfilling life as an artist. It’s a beautiful, rural setting, with only a half hour drive to the nearest major city. Heck, when I lived in that city it took me a half hour to get anywhere with all the traffic and congestion. Most importantly, I was never over burdened with the mortgage payment. This allowed me to work part-time jobs and focus more effort on developing my art career. It also allowed me to quit those extra jobs and become a full-time artist sooner, because my income needs were so low. Devoting my full attention to my art has developed my business further with a corresponding increase in art sales. What I’ve been doing is pouring this extra income into my home loan, paying down that principal amount. Now it is paid off. I no longer have any monthly payment for housing and I saved thousands upon thousands of dollars I would have paid in interest. My job as an artist has become much more secure as a result.
As I’ve alluded, though my home is livable, it’s not everything I’d like it to be. What I can do now is much more quickly build up money in savings and then buy my next home with cash avoiding interest payments all together. In the mean time I’ve not been burdened by housing costs forcing me to work a higher paying, regular job I’d dread every day. I’ve been exulting in the freedom to create art on a daily basis. That’s what living is about!
As I mentioned earlier owning a home has costs other than just the mortgage. Though many think you don’t have to pay these when renting a place, you, of course, do. It’s just incorporated into your monthly rent. These costs include such things as property tax, homeowners insurance, repairs, and maintenance. My tip for saving money long term is to keep your home smaller.
Smaller homes usually cost less to begin with, and will likely result in lower tax and insurance rates. It also means there is less to repair and maintain. If you need a new roof there’s much less square footage to cover. If you want to better insulate you home there’s less wall space to fill, fewer replacement windows to buy, etc. Heating and cooling costs should be much less as well. You also need less to furnish a smaller home. In fact, a smaller space can serve as a restraint from buying and collecting “stuff”.
Do you own a home now? Are there rooms in it you rarely go into or hardly use? Here’s an interesting place to apply that real hourly wage figure I wrote about last time. Figure out the cost of those underused rooms like you would for the “business use of home” section in your taxes. Then divide that number by your real hourly wage. Is it worth that many hours of your life to have that room? Could you reduce your cost of living and improve you quality of life by selling your current home and getting something smaller?
Since housing costs vary so drastically from one region to another you should also consider how attached you are to a region. Would you be willing to move to another town or state if it meant you could afford to be an artist there? The nice thing about an art career is that you don’t necessarily have to live where you sell your work. I love the Western Michigan region where I live. My roots feel firmly planted here. However, by moving out just beyond the higher prices of Grand Rapids and its suburbs I’ve found a comfortable, affordable place to live. I can still visit all my friends or attend cultural events and the savings more than offsets the extra transportation costs.
Our homes are a major expense in our lives. When trying to reduce living costs all major expenses need to be carefully scrutinized. Is your home enabling you to live your life to the fullest or is it imposing a burden on you?