Six months after college graduation, I got an email reminder for a bill — student loans! At that time repaying those loans consumed my financial life. However, as I watched house prices in my hometown fall, rise, fall again and steadily rise, that I would have to make a huge decision despite the financial risk. The housing market could change in an instant, but I knew I had something to work for.
Should I save for a house?
With my income at the time, repaying the minimum on the loans each month wasn’t a problem. The average interest rate on a 30-year fixed rate is 4.27 percent according to interest.com. Even if I only made minimum payments throughout the course of the repayment period, I would consider the amount lost to interest worth the price of my first home. Although I wanted the loans out of my life, I could live with paying that over time if it meant saving tens of thousands of dollars on a home and mortgage while rates are low.
Making a Plan
Student loan payments accounted for roughly 20 percent of my income at the time, while rent and utilities accounted for about 40 percent. After other expenses, I had around 10 percent leftover — not enough savings to purchase a house like I planned. In fact, I needed to save nearly five times more! After all, I wanted to make a 20 percent down payment.
Supplementing My Income
To save more, I had to make more. In addition to my nine-to-five, I decided to dive further into freelancing work to bring home some extra bacon. This involved writing articles, doing translation work and teaching English. While jobs seemed to come and go at random when I started seriously pursuing a freelance career on the side I managed to drive up my monthly income by 30 percent within a year. I put two-thirds of that toward the house down payment and one-third toward chopping off more student loan debt.
I knew I could increase my savings by spending less. When my lease was up, I moved to a cheaper place outside the city center, saving $125 per month on rent and utilities. I also found ways to save on groceries and started cooking at home more. As impossible as it appeared, I cut my nightlife expenses in half by capitalizing on happy hour and staying at home with friends. Public buses and my bicycle became the only form of transit I recognized. Over time, I noticed that I was spending $210 less per month than I had been previously. Again, I set two-thirds aside for the house and one-third aside for loans.
Lowering My Expectations
At first, I envisioned a house with a nice lot in a private setting. I was dreaming. So I lowered my requirements significantly. This has made it much easier to financially prepare to make a house purchase. As I am beginning to look for a house now, I regular check out cheap foreclosures and houses that need some fixing. Sometimes I am shocked by how inexpensive certain places are.
Sticking to the Plan
While the seduction of travel has tripped me up from time to time, I, for the most part, am right on track. Working more, reducing spending and looking at cheaper properties has been the key to my successful saving strategy. Getting pre-approved for a mortgage is something I hope to have handled shortly. If all goes through, my dream of becoming a homeowner will soon be achieved.