Wednesday, August 16, 2006

My plan to make myself mortgage-worthy

As I wrote about previously, there's a possibility I'll be in my city for another five or so years, depending upon the events of the next year, and if that is how things are to be, I'd like to buy a house. I realize this is a fairly ambitious goal for somebody a year out of college, but house prices in the Midwest are not too bad, and since I don't have children and don't plan to have school-age children while I'm in this potential house, I can live in the less-pricey areas just fine. (They're not scary areas, actually they're just fine, but the schools are city schools.) My income is not likely to rise substantially so I know I'm limited both in how much mortgage I can qualify for, and in how much money I can save or use to pay down debt.

My plan as outlined previously was to try to do a little of both. Since I'll be using DealBarbie money to pay down the small credit card that I had been aggressively paying off, I'm re-allocating the money I was spending on that card partially to paying down the larger card, and partially to increase my savings. My savings will go from $71 per month to $168, and my payments on the big card will go from $150 to $250. I've additionally increased my Roth contributions to $125 from $100 per month. I will also throw any extra money I have lying around at the big card instead of into savings as I had been doing.

If I decide to buy a house, I'll probably start looking in about 18 months or so. (Since I have flexibility on my side, there's no need for me to buy in the warmer months - the peak selling season.) I also expect a 3.5% raise in October, which I will put towards savings. I want to maintain at least $2,000 outside of my house fund, and get together at least $3,000 in the house fund in order to get at least a 97% LTV loan. (Getting a 95% LTV loan would be even better - that would be $5,000 saved.)

So if I save $168 per month with August and September's paychecks, $228 (which includes the raise) from October 2006 to September 2007, and $300 from October 2007 through December 2007, I will have saved about $3972. I'd make about $300 in interest. Hopefully I can scrape up another $700 from various places to make $5,000 - and then I've got 5%. If I don't quite make the goal (which I might not, since I need at least another thousand to make my emergency fund) I'll at least be able to do the 97% LTV loan, which is lots cheaper than a 100%.

Simply having a plan makes me feel all warm and fuzzy. I like to make concrete steps towards defined goals, so I feel like I'm really getting somewhere, and that I can do it on those terms. Which is why I like to run numbers so much - it reassures me that this is doable, and what it's going to look like when I finally get there.


Jessica said...

see i like to have plans to, but being that i can't A. deal that well with numbers and calculations and B. never have any concrete figures to work with, im afraid my 'house fund' will be managed pretty haphazardly.

im feelin your plan though. always learn so much from you!

prlinkbiz said...

You already are mortgage worthy, but I love that you have a plan of attack!

Then Things said...

congrats on increasing both your savings and your payments towards your ccs! that is awesome!
I recently reached the $5,000 mark in my savings account and that's what finally made me feel like all the frugality and not spending money when I wanted to was adding up to something.

Tiredbuthappy said...

Kira, sounds like a good strategy. And I bet you'll find you manage to save even more than you think you will.