Ever drive in a fancy development and ask yourself â€œHow does someone get here unless they are born with a silver spoon?â€
Most times people don’t stay in the original home they’ve purchased. The average time someone stays in a home is about 13 years. Some stats quote as low as 5-7 years. If your personal goal is to live in a large or expensive home but you weren’t born into money – I’m going to give you some specific strategies to help you move to the next step in short order time.
Buy a starter home as soon as you are able to. It doesn’t have to be expensive or fancy but the sooner you stop paying rent and start paying a mortgage – you are putting money in your own pocket.
2. Don’t stay too long. Analyze after 5-7 years. Huh? If you purchased a home in a neighborhood or development that is $200,000 and the top of the sales currently show $215-225 that is possible where it will level off. Of course each neighborhood is different but each one basically has a a cap of how much it will appreciate. If you stay too long – the prices of other neighborhoods you might be interested in may have increased significantly over yours and will be out of your reach.
Excuse my geekiness here but this is super exciting to me! If you had put down 5% on your original purchase – your mortgage would have been on 190k and set to pay off in 2046. Make the payments the bank sets up and in 5 years you owe $170,000 on your principal. BUT – send just $100 extra a month (cut out something to do it – it’s worth it!) you only owe $163,400 and you have cut 5 years OFF the life of your loan. People get used to the payments they make. If you start off at $100 extra per month – you may not even feel it. If you can do an extra $200 per month toward your principal in 5 years your principal amount is down to $156,700 and your loan is scheduled to be paid off 8.5 years earlier! That is HUGE.
If you move now and you sell at market price of $220,000 now you have approximately $63,300 to put down on your next house plus any other money you’ve managed to save over that 5 year period. Lets say you have a total of $75,000 to put down on a new home. Now, if you purchase a home that is $350,000 and you put 75k down, your mortgage is based on $275. When you only have 5% down, you have to pay Mortgage Insurance. Guess what? Once you put 20% down, there is no more mortgage insurance. Average Mortgage insurance on a 200k property can be $125.00 per month. You may not even realize that you’ve been paying that. Let’s look at mortgage principal and interest (not taxes and insurance) on the original amount of $190 and the new house of $275 (obviously you have a larger house – there are going to be more expenses. Check this outâ€¦.I’m going to use 30 years as the term and interest at 3.5% for this example.
Principal & Interest on 190,000 loan is $853.18
You’ve been paying mortgage insurance of about $125.00 per month
You’ve been sending in $200 extra per month with every payment. You’re used to paying $1178.18
A new mortgage on 275,000 Principal & Interest is $1,234.87 a difference of UNDER $57.00 per month.
I know it’s CRAZY!!! Strategically do this a few times over your adult years and keep paying the p
rincipal down and you’ll end up in one of those fancy houses without feeling strangled by a mortgage payment.