In case you missed it, we finished paying off our six figures of student loan debt! In the end, we paid $144,046 in principal and interest for the JD/MBA that my husband finished in 2012.
We’re so glad to have that behind us and move on to other goals. As much as we love living in my in-laws’ unfinished basement, saving for a house is our next big goal. We are immensely grateful for all that they have done for us by letting us live rent-free for the past four years, but we are really (really!) eager to get our own place!
However, before we run straight for the next major goal, there are a couple of smaller goals we want to tackle first. During our laser-focused effort to pay off our debt, there are a few things we have neglected.
Retirement
It’s been eight years since we’ve contributed to our IRAs in a meaningful way. We want to max them out from here on out. That means putting in $11,000 between now and April 15th. We started saving at the beginning of our marriage (which unfortunately was when prices were high) and our accounts still aren’t back to what they were at the peak (sad face). Still, it’s a start.
For more on our retirement investments, check out this post.
Our goal is to save $11,000.
Car Fund
I know this will be a relief to many of you who followed our van saga (part 1, part 2, part 3). Right now we are both driving 19-year-old vehicles. It’s only a matter of time before one of them goes. When it does, we want to be prepared to buy something that will last longer and be more reliable. We will keep driving the cars we’ve got for as long as possible (and hopefully retire them through the vehicle retirement program.)
Our goal is to save $10,000.
Those first two goals take care of the areas we’ve neglected during our debt payment marathon. Our third pre-house goal is of a more preventative nature.
Pre-paying tithing
If you’ve kept up with our monthly financial reports, you’ve noticed that our income is up higher than it has ever been. We’ve already earned more money in the first half of 2016 than we made in all twelve months of 2015. This is great, of course, but it also means taxes are going to hit harder than ever before.
We are hoping to implement one savings strategy our tax advisor suggested. Earlier this year, Mr. SixFiguresUnder wrote a detailed post about timing our charitable contributions (He’s smart and a good writer. I bet you’ll enjoy it).
In the past we’ve always taken the standard deduction, but this year it will be better for us to itemize. We faithfully pay a ten percent tithe on our income, which is tax deductible, but we’ve never had enough deductions to merit itemizing. In addition to deducting our 2016 charitable contributions, we plan to prepay our 2017 tithing before the end of this year. That will reduce our taxable income and hopefully result in a significant tax savings. In 2017 we will have no tithing to deduct and hopefully few enough other deductible items (mortgage interest, state taxes, etc.) that we can take the standard deduction instead.
I won’t go through all the details here, but you can get a thorough and easy-to-follow explanation in his post.
Our goal is to save $12,000.
What about the house?
Ahh yes, the house!
Our three pre-house goals– retirement, car fund, and pre-paying tithing for tax savings– puts us at $33,000. That is a hefty sum to save before starting to save for a house.
We started mentally setting these goals during the last few months of debt repayment. We initially set the end of this year as our deadline for the $33,000 (another stretch goal), so that we could start in on saving for a house in January.
We’ve been peeking at houses on the market in the past weeks and it sure has us feeling antsy. We even met with a mortgage broker to get an idea of what we’re shooting for.
When we bought our first house (our law school house), we put 20% down and had a 15-year mortgage. We felt great about that and it turned out well, as we were blessed to have it sell in its first month on the market after finishing school.
The housing market in the Midwest is very different than what we’ve got in California now (well, ever). A 20% down payment for most of the houses we are looking at now is right around the purchase price of our law school house! That is insane to me.
Our original plan was to save a 20% down payment for our next home (which, like I said is the equivalent of buying a Midwest home with cash). A 15-year mortgage is nearly out of the question.
Income-wise, we are kind of at a pivotal point, which is why we wanted to talk with a lender. Using our 2015 tax return, we could be eligible for the USDA Rural Development Loan program which allows financing of up to 100% of the purchase price at attractive rates. Once our 2016 tax return is filed, our income will probably exceed the limit, so the USDA home loan will no longer be an option. In October, there will be some changes with the USDA loan to make it a really great option, so if we decide to purchase sooner using the USDA program, it would be between October 2016 and April 2017.
On the other hand, if we wait until our 2016 taxes are filed, we’ll qualify for a larger mortgage and never have to pay mortgage insurance (assuming we wait until we have 20% down). We don’t necessarily want to max out on the mortgage we qualify for–we’re super frugal, remember–but it would be nice to have a wider range of options.
Either way, whether we finish our three pre-house goals and then wait to buy until we have a 20% down payment, or find a perfect home we just have to buy sooner than that, we will be living frugally. With the first option, we we’re saving every penny for a down payment. With the second option, we’re putting all our extra toward the mortgage principal to get rid of mortgage insurance as quickly as possible.
So what’s the plan?
Long story short, we’re going to start by saving for (and reporting to you) our three pre-house goals for now. If the right house pops up in the right location for the right price and the timing works out just right, we might just jump on it. In that case we will be redirecting some of our pre-house goal funds, but for now we will enjoy having very measurable goals with concrete finish lines.
No matter which way you slice it, our main focus right now is to earn and save, save, save!
What do you think?
Choosing to focus all of our energy on debt was pretty cut and dry. Now we’ve got a lot of options out on the table.
It’s probably not often that you are invited to chime in on other people’s personal finances, but honestly, I would be happy to hear your thoughts. You are welcome to disagree and throw out other perspectives as long as you do so respectfully using nice-people language (which you seriously always do– I’ve got the best readers).
What would you do in our situation?
Update– Here’s how things worked out with our pre-house goals.
House goals always seem to change, regardless of good intention! My fiance and I were saving up for a house. We had just drafted our Golden Plan to make it happen in two years. Then we had an issue with our apartment dwelling that showed us we couldn’t wait anymore–long story there. We ended up having to finance 100% on our house and get a 30 year mortgage, but qualified for a Downpayment Assistance Loan through the State Finance Commission.
We always pay extra for the escrow now, as the area we bought in is seeing an increase in property values, and we pay extra toward principle and at least $100/mo toward the loan. It ended up working out for the best, but it’s not the way most finance experts would recommend one goes about this sort of thing!
You’ve been greatly blessed. Thank God for those blessings and above all else remember to those who much is given its for the blessings of others not yourselves. Tithing is not the same thing. I think our world would be what Jesus wants because He gave us all yet we hoard and bless ourselves constantly while we have others in dire straits if we but look, and the biggest lesson of all none of this world including your life is yours it’s all His…
God is good always, His greatest command is to love. Love defined by Him not this world or materials. God bless you always and thanks for sharing your journey. You did it because He allowed all of it.
This is all so exciting! Maybe call Dave Ramsey and get his opinion?
These are some pretty impressive goals, Stephanie. You and your husband are smart and together you’ll make the best decisions for your family. I hope that when the time is right your dream house comes on the market for a rock-bottom price so that your husband can stop the craziness of a 3 hour commute – and until that happens, I hope your cars hold out for you!
What Casey is referring to is the Up Front Mortgage Insurance Premium(UFMIP) and it is a conventional loan product. With this option, you really still need to put down 10%(at least), but you won’t have to worry about mortgage insurance down the road. And regardless of how much equity is in a home, it’s difficult to get rid of mortgage insurance, PMI(private mortgage insurance via conventional financing) Conventionally financed loans are supposed to drop the mortgage insurance at 80% loan to value, however, you have to pay for THEIR appraiser to come out and determine the value is there. FHA loan with a loan to value of 90% or more will have lifetime monthly mortgage insurance(unless you refinance). When I was a loan officer, I always said, 20% down and the (house-buying) world is a much better place. I did have a couple thoughts/questions, Stephanie:
1. I know you met with a loan officer(I think you said you met with a broker)…will they allow you to use your husband’s part time income despite the fact he hasn’t been doing it for two years? (It’s fine he hasn’t been at his full time job for two years, he has a work history as an attorney to show there). But normally, you need to be at both jobs for two years(full and part time). And maybe he has been doing his side business for two years and I lost track. 🙂
2. Have you checked out first time homebuyer programs in your area? I know you owned a home before, but with many first time homebuyer programs, as long as you have NOT owned a home for three years, you are considered a first time buyer again. Income differs from state to state because of differing costs of housing. For these programs, much like USDA, a two year income average is taken and you can use it with the USDA program(or conventional or FHA). In fact, many banks(banks, not lenders, two different entities…banks will usually use their own programs, lenders will use the state and federal programs) also have their own first time buyer programs…the rules will differ from State and Federal programs, but you should check all that is available.
Okay, I rambled on enough for today. 🙂
It sounds like a great plan!
I may have missed it-how long do you think it will take to save the 20%down payment ??
Hi Kristy! We didn’t say how long it would take. A lot depends on whether we need to save $70 K or $100 K and our side income fluctuates greatly. What we’re aiming for right now is to accomplish the three pre-house goals before the end of the year. Then we will start saving for a down payment (unless the right houses comes on the market for the right price after October and things work out with the USDA loan option).
Have you looked into Buying Out the Mortgage Insurance? I’m not sure if it is still offered and I don’t think they advertise it, but we were able to buy out the mortgage insurance with a lump sum payment when we bought our house 8 years ago. We did a 100% loan and qualified for the first time home buyers program which gave us roughly $3000. We then used that $3000 to pay all the Mortgage insurance up front at a steeply discounted rate, which saved us thousands over the last 8 years. We would still be paying it today had we not opted for the buy out. I think you have set some great goals! We are currently working on saving for a better vehicle too.
I haven’t looked into that. It might only apply to conventional loans. We will definitely look at that option! Thanks for the idea! 🙂
The main downfall of a Rural Development loan is you have to refinance it to get rid of the mortgage insurance. I would try to qualify for conventional. Good luck!!
Yes, with the USDA loan we would want to refinance eventually, but the mortgage insurance rates are better than with FHA or conventional loans. So for the conventional loan to compete, we would need 20% down (at least that’s my current understanding). A lot of it will be when the right house shows up. Location is a big deal for us (this 3 hours on the road for my husband isn’t cool). 🙂
with your income from the blog being so high do you think it will take you so long to save for these goals? You have had some amazing income months so hopefully you’ll be able to get through your goals much quicker!
actually I just looked at your report from last month and your blog income isn’t as much as I thought … I must have confused you with another blogger I follow! sorry 🙂
It would be nice though! 🙂 I won’t stop dreaming. It’s pretty incredible what is possible!
My husband and I got a Rural Development Loan and financed the full price of our home. This allowed us to get out of his parent’s home sooner and on our own. We are very happy that we qualified for the program, and we pay a bit extra toward our principal each month to stay ahead.
That’s great to hear Sarah! I’m glad it worked out well for you. That’s encouraging. Great job staying ahead!
Hi Stephanie! It probably won’t be a problem for you (with your husband being a lawyer and all), but when you do buy and it is required, read the PMI literature very carefully. I had trouble getting my lender to stop the PMI after I was under the 80% because I prepaid the principal. It took some months and a great deal of back and forth to get it accomplished. I tell everyone about it, because it made me so mad! Best of luck!
I think PMI cancels automatically when you get down to 78%. You can cancel it when you get to 80% by sending in a letter. At least that’s how it was about 20 yrs ago. Congrats on being debt fee & good luck with your next stage!!
That’s my understanding as well Mona, but I think that it can vary based on the loan type. Thanks for the kind words Mona. 🙂
One note to add to this it’s 78-80% of the original appraised value, not increased value (unless you refi).
I’ve heard some frustrating stories about trying to get rid of PMI. I’m sorry you had to go through that. I’m glad you’re warning others. 🙂 Thankfully my husband is very meticulous about reading anything that he signs his name to.
Good for you for saving for retirement – is it possible for your husband to open up a SEP IRA for the portion of his income that comes from self-employment? My husband is self-employed and, as a single member LLC, has been able to save up to 20 percent pre-tax of his income. That also goes a long way toward reducing taxable income. Truly, I think it is so exciting to see what you and your family have accomplished — good luck as your amazing journey progresses! 🙂
I will have to talk with him (and our tax guy) to see what options are there. Thanks for the idea! We’ll look into it.
We have gone back and forth on our housing goals quite a few times too. We know we want a paid-off mortgage, but we have waffled about building or moving to a different house. Right now, we are in flux a bit because I am still in school and that goal is priority #1, but we have other issues that are making us rethink staying in this house. The big issue is my arthritis, and needing a house with one story. The second big issue is worrying about my in-laws, who are 4-5 hours away and in declining health. We have been trying to broach the idea of them moving down here and living with us or building two houses on one large piece of land for us and them. In the meantime, we have decided to max retirement, budget for travel, and save the rest. We can make that house decision later. We figure we will get a sign at some point telling us which way to go.
I’m glad we’re not the only ones with potential waffling. When something is right, you can tell. 🙂
In all honestly, our financial goals have changed a lot over the years and especially in the last 3 months! We were planning on paying down student debt completely before buying a house (when we lived in an insane housing market like New York) and then we moved west and our income changed and we had to put it aside for a moment and then we decided to put every penny towards a down payment for a house because we felt our children needed to not be moving so much. That was the plan and we made a chart to show them how it would happen and we were talking about it every first Monday or Sunday (depending on when we had family night that week) of the month to see our progress and to involve the kids (your post about “we can’t afford that” has made an impact on how I talk about finances with our kids). And now in the last three months it’s changed again! Only on a slightly faster buying scale than before. Sometimes the right opportunity comes and you feel like you need to do what your family needs in the moment and yet it’s very right. Anyway, the only tough thing that we are finding is having to tell everyone our plans changed and dealing with the backlash. 🙂 But most people have agreed we need to do what’s right for our family.
That’s exciting that you’re involving the kids in your goals Sara! I am excited to hear about what has changed in the past three months. That can be hard getting backlash from others who aren’t onboard with changing your goals, but you’re right, you have to do what’s best for your family and sometimes that means changing your timeline.