First Person: Buying Our First Home

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Buying our first home was an interesting and exciting time in our lives. While the home ownership experience certainly didn't turn out the way we expected, it was a valuable one nonetheless.

There was a lot of planning that went into purchasing that first home, and there were certain factors that we understood going in and helped guide us through the home buying and home ownership process.

Associated Costs

There can be a variety of associated costs that come with a home. We knew this going into the home buying process, and it helped us in determining our home search guidelines and building a budget.

First off, we realized that property taxes in the Chicagoland area were higher than many other Midwest locales. Therefore, we ensured that when looking at homes, we reviewed previous property taxes paid on the informational flyers that we picked up. Factoring in about $400 a month in associated property tax amounts, about $250 a month in utilities (up about $125 from our apartment's utility costs), $50 a month for homeowners insurance, and $200 in maintenance costs, would add around $900 on top of our regular monthly mortgage payment, and making such estimates helped us build a budget that properly estimated our homeownership costs before we ever bought.

Calculating Mortgage Rates and Interest

Maybe one of the most important pieces of financial information that my wife and I took into our home buying experience was being able to calculate mortgage rates and interest.

Realizing that just one point in interest could add thousands or even tens of thousands of extra dollars to our mortgage over time had me calling our mortgage broker weeks in advance to check mortgage rates before we locked into one.

Knowing the effect of interest over time also helped us make a decision regarding the duration that our mortgage was to last. Calculating that the amount of interest paid on a 30-year mortgage could be nearly double that paid on a 15-year mortgage (recognizing that a shorter term mortgage would of course increase our monthly payment amounts), we took on the shorter loan, cutting our interest owed over time by about half. This knowledge also led us to put a larger down payment on our home to reduce the loan size that we would have to pay interest upon, cutting tens of thousands of dollars more in interest from our mortgage in the process.

Knowing the Benefits

While we took time to factor in all the costs of owning a home, we considered a few of the financial benefits ahead of time as well. Of course in 2008 (when we bought), those benefits were becoming harder and harder to find. However, we planned for items like the area's homeowners exemption to cut about $1,000 a year off our property tax bill, and the mortgage interest and property tax deductions to help us recognize some savings on our annual income tax bill as well.

Unfortunately, Illinois phased out the extended homeowner's deduction shortly after we moved in, allowing us only one year of our expected savings in that area and teaching us a valuable lesson about relying upon tax credits for savings, as they can be swiftly taken away by forces outside our control.

Understanding Our Financial Situation and Abilities

It was important when preparing to buy our first home that we understood our financial situation and abilities. We made sure we didn't tie up available cash for our downpayment in non-accessible investments. We calculated how much of a downpayment we could easily and reasonably afford without overextending ourselves. We ensured that we left ourselves a cash cushion should one or both of us suffer a job loss or income crunch.

This way, even when the housing market started drying up and we decided to sell, we were still able to sustain ourselves, our home, and our financial stability without having to default on our loan or face foreclosure or a short-sale situation.

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The author is not a licensed financial or real estate professional. The information provided in this article is for informational purposes only and does not constitute legal, financial or real estate advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.


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