My husband and I moved to Denver a few years ago, looking to explore an exciting city far away from our roots.
We’ve enjoyed our time here, but last year we came to an important decision - it’s time to move back to Indiana and buy a house. We could probably afford to buy in Denver, but our money will go much further in the Midwest.
Thinking about our dream house has been exciting, but the process of saving for a down payment hasn’t been all sunshine and roses. We’ve had to make sacrifices and come to terms with what we can realistically afford.
Here’s how we prepared to buy our first home - and what we learned along the way.
How We Decided We Were Ready
I never used to understand why people wanted to be homeowners. Every time I visited my parents, they were always working on their home, planting flowers in the backyard, rearranging the furniture or picking out new lighting fixtures. It just seemed like a lot of unnecessary work.
But now that my husband and I are almost 30, we’re ready for home. We want a backyard for our two dogs, a real dining room and a home gym in the basement. Every time we call our landlord about a recurring plumbing issue, we think to ourselves, “If we owned a house, we could handle this better.”
How We Determined Our Budget
Before you start saving for a house, it’s important to figure out the kind of mortgage you can afford and what you want in a home. We decided to aim for a mortgage payment equal or less than our current rent.
Some people want to upgrade when they buy a home, so they end up increasing their total housing expenses. But the less you pay every month on housing, the more you can save toward retirement - our main financial goal.
Like most couples, we’ve had to make some concessions in order to find a place within our budget. For example, we’re ok with just two bedrooms and one bathroom, but we need at least 1,500 square feet and a decent backyard. We also can’t afford to be right in the heart of downtown, but we want to be within a 15-minute drive.
Once you know what kind of house you can afford, you need to start saving for a down payment. We allocate 30% of our budget toward the down payment, closing costs and moving expenses. The down payment fund sits in a separate savings account and every month, our checking account automatically diverts money toward our house fund.
How We’re Getting Our Self-Employed Finances Ready to Buy a House
When you’re applying for a mortgage, the lender will look at your credit score, income and employment history. To keep our credit scores high, we’ve avoided opening new credit cards within the last year so as not to have any recent hard inquiries on our credit report. I check our Credit Karma scores once a month to make sure there aren’t any negative marks or errors.
My husband and I are both self-employed, so qualifying for a mortgage is a little bit harder. Lenders like to see stable employment, so freelance income can make them nervous. If you’re self-employed, you need to have at least two year’s worth of tax returns to be eligible for a mortgage.
Banks usually only look at your net income, so we’re taking fewer deductions on our taxes this year. Our income is also higher than last year, so it shouldn’t be too hard to convince a bank that our income is stable.
Overall, we feel well prepared and ready to start the next chapter of our lives.