Hey everybody! Welcome back to Momming on a Budget! This is the final part of a three part series on cutting your top three expenses. As a mom, your decision on where to live is super important to your child(ren) development. Not only must you focus on location, but also, the schools, safety, yard size, ability to baby proof, the list goes on and on. I can't promise you that you will get everything off your wishlist, but you may change your priorities after reading this.
The best way to win the housing game is to own your home, renting will always be money thrown out the window. There are a few ways you can go about this: purchasing a foreclosure/auction in cash, buying a fixer-upper and invest in the renovations, or the traditional route of FHA and a 30 year mortgage loan. But, how do you go about buying a home without paying all the additional fees. By learning to organize, downsize and save like crazy. As a young parent I felt pushed into home ownership, feeling the need to provide stability to my child. But, looking back on the situation a year later I realize I should have given myself a little bit more time to prepare to avoid the costly fees I am currently paying. The fees associated with home ownership are as follows:
private mortgage insurance, if you don't put down at least 20%
maintenance and repairs
homeowner insurance, for fire or accidents
property taxes, paid into escrow monthly
I know this list seems overwhelming for many people but trust me, it's better to invest your money into home ownership than to allow it to get eaten up by rent. Here's where people hurt themselves, by paying the set payments the entire 30 years. That's ridiculous you end up paying nearly double the price of the house in mortgage and PMI fees. I realized how crazy housing contracts are when I realized only $177 of my $900 mortgage is being applied to my principal! The way to truly come out in an advantageous situation is by paying extra on your principal monthly.
Here's a few examples of how making an additional payment goes a long way. In this example the house is $150,000 and the interest rate is 4%, which equates to a monthly mortgage payment of $716 (keep in mind this does not include the other fees). The individual has been making regular on time payments for one year. If these payments continue to be made regularly with no additional principal payments the grand total spent repaying this loan would be $257,805.
Paying an additional $100 monthly would result in a shortened repayment schedule, 5 years and 11 months shorter to be exact. The final amount paid for the home would be $234,455, a savings of $23,350.
If you were capable of pitching in an extra $200 a month the repayment schedule would be 9 years and 9 months shorter. The total spent in this scenario would be $220,084, a savings of $37,721 in interest. How many of us could point out $50 a week of junk in our budget? Are to willing to sacrifice these things or add the replacement income needed to save 10 years off your mortgage?
$300 more a month results in a total savings of $47, 535 with a final payoff of $210,271. The amount of time cut off the contract would equal 12 years and 5 months.
If you could afford to add $100 a week to your mortgage the savings would rake up to $54,689. This would cut 14 years and 5 months off of a 30 year mortgage. Coming up with an additional $5,000 a year would cut your mortgage in half!
From here down I'll just post the stats. $500 month, repayment shortened by 16 years, $60,148 in savings.
$600 month, repayment shortened by 17 years and 3 months, $64,456 in savings, final payment of $193,349
$700 month, repayment shortened by 18 years and 3 months, $67,946 in savings, final payment of $189,859
$800 month, repayment shortened by 19 years and 2 months, $70,830 in savings, final payment of $