The Costs of Buying My First Home, Or: Going From Spender to Saver and Back Again
I have to remind myself that I planned for this.
I first started saving for a house when I was eighteen years old. I worked at a bank and the investment dude set me up with a few mutual funds in a Roth IRA. $100 faithfully disappeared from my checking account once a month — not enough to max out my contribution, but enough to get me in the habit of long-term saving.
Unfortunately, at the same time as I was dutifully planning for my future, I was racking up thousands of dollars worth of consumer debt. Part of the issue was not making enough money while living in the most expensive cities in the world, but mostly it was a fundamental misunderstanding between needs and wants.
So, for about five years, I juggled balance transfer deals, worked 3–5 part-time jobs on a given day, and mercilessly tracked my spending. Days off were a thing of the past. My goal was to monetize every hour. Every extra dollar beyond the absolute necessities was funneled into my credit card payments on a weekly basis. I was determined, I was exhausted, and I was terrified of ever getting into that much debt again.
I paid off just under $20,000 worth of debt, and kept that monthly $100 automatic IRA transfer running the whole time. With the power of compound interest—and the fact that I had maxed out my IRA contributions during flush years—I had around $15,000 saved up in my Roth IRA.
A few years after that, thanks to a generous windfall from my family and a stable job with an upward career path, I had enough money and security to consider buying property. I decided to withdraw a portion of the money I had saved in my Roth IRA (up to $10K for your first house purchase!) to help with moving costs.
I wasn’t expecting that it would take years for me to find a home I wanted to buy, and even longer than that for an offer to be accepted. I socked my windfall away in low-cost index funds when it became obvious the hunt would take far longer than I had anticipated.
Meanwhile, I lived in the cheapest apartment I could stand while fielding daily emails from my realtor about places I could barely afford, but it was a seller’s market and the three offers I made over the years were easily outbid by people willing to pay cash. I couldn’t compete, so I continued to stash away money month after month, hoping to up my down payment so I could afford something that wouldn’t require a complete gut remodel.
Every side gig, every Craigslist sale, every bonus went into the house fund. Every time I bought something nonessential, I asked myself: will I want to move this into my hypothetical new home?
Finally, I fell in love with a little studio by the beach — pretty much the opposite of the home I had been looking for, but who can question love? I put in an offer at the asking price of $459,000 the day it went on the market, and my offer was (finally!) accepted. We began the heart-wrenching process of escrow.
(A piece of wisdom I wish I had known at the beginning of the process: escrow sucks for both parties. Money will start pouring out of you for things you never could have anticipated, like the mold test I had to get done, and that time I had to switch mortgage brokers two weeks before close because of a FEMA technicality that restricted big four banks from funding loans for the property and ended up paying more in closing fees because I had no negotiating chip with the deadline looming. Oh, and there was a last minute negotiation as to who would pay for repairs when it turned out there was a giant hole in the wall that the seller had not disclosed and had attempted to drywall himself after I had signed off on all my contingencies a day before I was supposed to get the keys.)
At the beginning of escrow, I began to systematically sell my shares in the index funds that I had invested in when I received the windfall. These funds had netted me a relatively modest profit in order to afford the down payment ($91,800), pay for closing costs (always way more than you think they’re going to be — I think mine ended up around $3,000), and of course, moving costs. (It cost me $120 to get both my apartment and my condo professionally cleaned, along with $500 in moving costs that my boyfriend generously gifted me. I received my security deposit back in full, so that offset some of the expenses.) I filed the paperwork to withdraw funds from my Roth IRA without penalties. I began to sell, donate, or trash half of my stuff, as I would be halving my living space. Yes, I KonMari’d, and it was very effective. I don’t miss a thing.
It was a more than a little anxiety-inducing to watch tens of thousands of dollars disappear from my net worth the day I took a cashier’s check to the escrow office. I was investing in a tangible good, a piece of property, but I was also signing up for hundreds of thousands of dollars worth of debt.
Even with the hiccups in escrow and with my questioning every decision I had ever made, I closed and got the keys, and the money continued to pour out as I prioritized projects and made daily trips to Home Depot:
There was the home insurance and the home warranty, which I’ve already used twice ($600).
There were the repairs that needed to be made immediately (around $1,000 for replacing rotted wood and sealing the bathtub).
There was the closet renovation that I decided was the highest priority as I needed more efficient storage in my new, tiny living space ($3,000).
There was the new light fixtures that I didn’t realize I would need an electrician to install ($500).
I’m still in the process of buying new furniture to better fit in a studio atmosphere (so far I’ve spent $2,000 on new chairs, nightstands, a side table, and poufs, and I still need a rug).
And there’s the property tax assessment that I was not expecting when I calculated my PITI payments (an extra $500).
I budgeted for these sorts of things and have the money sitting in my checking account, liquid and waiting to be spent for this exact purpose, but I still have anxiety as the money quickly disappears week by week, no longer to a bank account to which I have limited access, but into little changes around the home that make my life easier.
I have to remind myself that I planned for this. I still have an emergency fund and a (much smaller) nest egg. I am still saving for retirement; however, this year is the first time in years that I won’t be able to max out my Roth IRA and 401(k).
I still take every extra opportunity to make money, but rather than exclusively save it, I budget some of my bonus income for work on my little home. I am planning on spending around $10,000/year in home improvements and have a buffer of $5,000 for emergencies.
Every nonessential purchase still prompts the question: do I really need this? Do I want to move this into my tiny home knowing I will have to figure out a way to store it? Would I rather own this or save the money to reface my cabinets?
But rather than focusing on turning money into more money for fear of scarcity, I’m turning my house into a home.
Morgan Balavage teaches yoga in Santa Barbara.
This story is part of The Billfold’s Change Series.
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