Over the years I have known many people that spent too much on a home they bought or a place they wanted to rent. Then something happens to them like a job loss or going to a new job where they made less money and now, they couldn’t make their payments anymore.
That is a reason that we taught our boys to have their total Home Mortgage plus Property Taxes and Insurance to be less than 25% of their take home pay. Same goes for if they are renting a place to live instead of buying a place.
Of course, our first choice for the boys would be that they would pay cash for a house they decide to buy someday. The second option if they do decide to buy a house before they have enough money saved then they get a 15-year mortgage.
As always, I am not giving you any Financial Advice and you should seek advice from your Professional Advisors to see what is best for your situation. See my Disclaimer at MillsWay.com. This is for entertainment only.
We want the boys to stay debt free their whole lives but if they choose to go into debt for their house then we hope they will follow the Mills Way to Financial Freedom steps that we taught them and pay it off even faster than the 15 year old mortgage they took out.
For instance, if they brought home Income after taxes was $4,000. Then they would have $1,000 a month to pay for Rent and Insurance or towards a Mortgage, Taxes and Insurance. Now of course if they were married and both made the same amount of money, they could go up to $2,000 a month.
For fun let’s use $4,000 a month as the example. So, they could spend 25% or $1,000 a month a 15-year mortgage at 3.65% interest rate, plus taxes and insurance. So, they could buy a house for $150,000 and pay 20% down, then taxes at a $1,000 a year and Insurance at $600 a year then they would be spending roughly $1000.06 per month.
The 20% down payment is a key for them so they wouldn’t have to normally pay for PMI Insurance or called Private Mortgage Insurance. I just call it PMI Insurance or other ugly words. In my younger years before I was wise on ways to get Financially Free, I had paid PMI Insurance and I didn’t enjoy it. Back then when I started buying houses you get normally buy a house with 5% down and some you could buy with no money down. Then we had the Real Estate Meltdown and mortgage rules tightened up some.
Then if you buy a house that is in a HOA or Home Owners Association then you should factor in those costs also. I am not a fan of HOA Monthly Fees myself. When we bought our last house the HOA Monthly Fee was $38 per month. Then each year they came up with different reasons to raise it up. It is up to $42 per month currently. That is cheap compared to houses we have been looking at. Though we don’t have a community pool or live in a gated community or have trash or lawn service included like some do.
Houses we have been looking at in other areas had HOA fees from $150 per month up to $320 per month HOA fees. OUCH… On top of higher HOA fees on the houses we had been looking at they also had higher taxes than we pay currently. The Taxes ranged from $1,200 to $3,000 higher a year than we are paying now. I guess that is an advantage of our current house is the low HOA fees and the low taxes. We had a friend that lived in Chicago, IL area and they paid over $12,000 a year just in-House Taxes. WOW…
My vote has been we stay in our current house and save more towards our Financial Freedom goals. Plus, we would save on moving costs, selling costs and more by staying in our current house. Plus, the houses we were looking at in another state had higher State Income taxes than we pay here in Arizona. I like living in Arizona.
We want our boys to think things out and not let their emotions come into play when they are deciding were to live. We want them to use the math and look at all the possibly costs of moving to a different place to live.
What percentage of your House Mortgage or Rent payments running you currently? Even with our house paid off we pay 3.96% of our take home Income in Taxes, Insurance and HOA fees.
Here are some positive quotes I like;
“Get your Money to Work for You… As hard as You Work for it.” By Napoleon Hill
“1. Make Money. 2. Use the Money to Make More Money. 3. Repeat the Process.” By Warren Buffett
“There is no way to happiness; happiness is the Path.” By Buddha
“Change Your Thoughts – Change Your Life” by Wayne W. Dyer
Let me know your thoughts about this blog and let me know of others you would like me to do in the future. I feel we can all learn from each other. That is why I am in the helping people retire early, enjoy life more and be more successful. Also, please see my Disclaimer page.
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