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The author, right, with her husband and dog at their home.
Courtesy Sarah Sharkey
My husband and I bought a house in 2020, and we decided to stick to a mortgage payment of $700.We were qualified for a lot more, and we’ve spent a lot of time on renovations, but it was worth it.Emergency expenses — like removing a fallen tree — would have been so much harder with a more expensive house.
Back in March 2020, the world had shut down and mortgage rates had fallen sharply. Although there was a lot of uncertainty floating around the economy, my husband and I trudged forward with our home search.
We had been searching for a home to purchase for around six months. By the end of April 2020, we were the proud new owners of our first home. And, of course, we had a new monthly housing payment to fit into our budget. Here’s how we decided on how large of a mortgage payment we could afford.
We started by looking at our rent payment
Making the transition from renting to owning requires a lot of legwork. While you’ll often hear the 28% rule touted as a solution for determining how much house you can afford, that’s not the route my husband and I chose. Instead of keeping our monthly housing costs at 28% of our gross monthly income, we looked at how much we were already paying in rent each month.
At the time, we were paying $700 per month for a two-bedroom apartment for ourselves and a new puppy. With that number in mind, we decided that we didn’t want to spend too much more than $700 per month for our mortgage payment.
The idea behind this decision was that if we could handle our rent payment, then that size mortgage payment should work out in our budget.
With this limit in mind, our home search was limited to smaller homes with some issues. Eventually, we settled on a three-bedroom, one-bathroom house that needed a facelift.
After tackling some extensive DIY renovations, including installing new floors, painting, and removing the popcorn ceilings, we were excited to call our approximately 900-square-foot space home. But if we had a bigger budget, we could have easily been happy in a slightly larger home that needed fewer repairs.
Why we kept our numbers conservative
Based on the 28% rule, our income could have supported a much larger mortgage payment. With a combined household income just shy of the six-figure mark, the mortgage lender we worked with was happy to provide a larger loan amount.
Of course, it was tempting to look at larger homes when we found out how much the mortgage lender was willing to lend us. But while homeownership was important to us, we didn’t want this home purchase to stretch our finances too far. As a freelancer with an irregular income, I wanted to play it safe. In my opinion, opting for a smaller mortgage payment than we could technically afford opened up more room for financial flexibility.
The impact of our relatively affordable housing payment has given us the opportunity to build a safety net and grow our investment portfolio as we pursue financial independence. Beyond aiming for lofty financial goals, the lower payment offers some peace of mind in case my freelancing career is cut short.
The hidden costs of homeownership
The hidden costs of homeownership can add up quickly. Before we purchased our first, my husband and I thought that we understood exactly how homes can come with hidden costs. But the reality of homeownership is quite a bit more expensive than I expected.
Before closing, we knew that we would be making some renovations to the house. Although we expected to spend a few thousand dollars, our DIY renovations went a bit over budget.
And that turned out to be just the beginning of the costs. Since closing three years ago, our mortgage payment has grown to around $770 per month. The increase is due to higher homeowners insurance costs. Luckily, we are able to absorb these costs into our budget. But if we had opted to purchase a nicer house with more space and fewer projects, we might have regretted the decision.
In addition to higher insurance costs, homeownership has come with some surprising costs for our budget. For example, we recently had to spend thousands of dollars to remove a large tree from our property. When we decided to put up a fence, it was another expensive purchase.
Our relatively low monthly payment gives us the financial breathing room we need to take care of the house we call home. Although it might be nice to have some extra space or live closer to nice amenities, our home purchase has helped us stabilize our financial situation. For me, the peace of mind offered by the lower payment was worth all the upfront work to find a house that worked for us and our budget.