As the title implies, a lot has changed for us in the past few months. We are new homeowners! But that update will take a while to unpack for the purpose of this blog, so I’ll try to get into it. Perhaps the easiest way is to bare our current debts, and then walk through an explanation of how we got to where we are. So here is the current breakdown:
Jos’ Student Loans – $52,959.46
Personal Loan – $2,863.36
Credit Cards – $4,924.65
Car Loan – $8,289.29
Total Current Debt (not including mortgage) – $69,036.76
The student loan balance was falling sharply over the course of 2019. Our beginning balance in January 2019 was $75,147.74 if you can believe that. So we actually made a lot of progress on those loans over the course of the year. This progress was generally put on pause (we are just making the minimum ~$600/month payments on them currently) as we saved for a down payment on a house.
This gets us to the second debt listed here, the personal loan. I took out this small loan as “insurance” as we were working towards closing on our house. Basically, I wasn’t sure if we would have enough cash to cover the down payment and all of the closing costs. This was sort of dumb since this could have wrecked my credit right before getting the mortgage dispursed, but I feel that explanation must come in a separate post. Looking back, I probably would have done this differently.
I will briefly touch on a few things regarding being a first time home buyer. There is so much we didn’t know until we came face to face with it in the closing processes. Your credit score matters a lot both with your interest rate on the mortgage, and if you get PMI, or Private Mortgage Insurance. The amount you will pay for PMI also relies heavily on your score. The amount you put down on the house impacts the interest rate you can qualify for. If you put even slightly more down (which we did, and this stretched us) your PMI can go down, and you can also lower your monthly mortgage payments this way. As I write this all out, I am realizing that to do all these topics justice, I may need to post a few times this week.
The credit cards are cringeworthy since I had basically sworn them off in the past few years. I hate them. The thinking here was to get an interest free for 15 months credit card to put some initial expenses on as we moved in. We were strapped for cash down the stretch as we saved every dollar we could to put down on the house and on closing costs.
Last up is my car loan, which I haven’t explained much up to this point. Late this past summer I purchased a used 2016 Chevrolet Spark EV with 36,000 miles on it. When we moved back to Missoula from Portland, I knew that the Miata was no longer going to be a viable primary vehicle for me. It is very small, unpractical, and having a convertible in Montana is asking for trouble. I bought the car right after we got married a couple years ago for $5,500, and was able to sell it this past summer for $5,000 which I was super excited about. Outside of the usual insurance and fuel costs, the only real thing I had to do to it was get new tires on it, which were inexpensive for such a small car. All that to say, I was basically able to drive a first-gen Miata around in Oregon over two years for only $500. Pretty much a steal.
Being back in Montana, I knew that the Miata wouldn’t cut it especially as the weather turned in the fall. I have been pretty interested in EV (electric vehicle) technology in the past few years. I researched them a bunch and found that the options were basically to get a very expensive one (over $30k in most cases, all the way up to $100k for a Tesla Model S), or get a used, compact one off-lease for a little under $10k. I found the Spark EV, a car that GM did almost nothing to advertise to the mainstream marketplace. I believe they only built a couple thousand of them in total. They were basically compliance cars for GM to balance out their gas-guzzling portfolio of vehicle offerings. The Spark EV was never meant to be a standout or a money maker.
These cars originally retailed for almost $28k from 2014-16, the only years they were ever built. I was able to find one in Idaho Falls for about $8,500, huge savings over the new cost. I couldn’t resist. We’ve since put about 3,000 miles on our Spark EV. It has proved great in the snow (with snow tires, of course) and it uses no gas at all. It is rated to travel 82 miles on a single charge. Not much, but more than adequate and really ideal for around-town travel, which is what we use it for. Okay wow, I am way off-topic. I’ve been meaning to write about the Spark more, perhaps another post is in order for that in the near future.
We have decidedly gone against a few of my primary principles of finance in the past few months: taking out a loan for a car, taking out a personal loan, spending more than you make, and using credit cards. All that said, there was some method to the madness.
Housing prices in Missoula and around the country continue to rise each year. Just looking over a housing report for the past eight years or so in Missoula, the median home price has risen at a rapid rate each year. Sure, the housing market could take a dip at any given moment, and it may still, but right now, that is not the case. Interestingly, from the time we made an offer in early December until now, houses that are nearly the same as ours on our newly developed street have already risen in price $10-15k in some cases, in just a few short months. Things do not appear to be cooling off. We decided to jump on the train now, and suffer some short term debt in order to get in before things continue to climb.
Buying a house is always somewhat of a gamble. Things could always tank. But we knew a few things: we didn’t really want to rent again, we likely aren’t moving away from Missoula anytime soon, renting in Missoula is expensive, and in the end we really just wanted to be in a house.
I can’t recommend the steps we took to everyone. I think in an ideal world, I would have loved to pay off all our debt, save up a proper 20% to put down, and maybe even tried for a 15 year fixed loan instead of a 30 year. But life comes at you fast, and sometimes you’ve got to call audibles and make changes on the fly. We are loving our house, we are able to start building equity, and I definitely don’t regret this decision. It does come with a set of consequences that we are working through currently.
To help balance out all these new costs, we’ve tried to cut back on our spending in other categories like eating out, entertainment, and gas (the Spark EV helps out a lot here). The new approach will be to make minimum payments on everything we owe on and start knocking down our smallest-balance debts first. If my projections are correct, we should be able to be debt-free, other than the house, in the next three years. If we really dig into it, or get raises or different jobs that pay more, that time frame could shrink.
As I said a few times in this post, I think I’ve got a lot to unpack about intricacies of buying a home, some of the related costs, and how to best plan for it. I wouldn’t say we did the best job handling the transition, but things are settling out now and I can see a clear action plan to continue making progress on our debt-free journey. I hope this is helpful to you as you read through my mumbo-jumbo.