Daniel, a senior test engineer, is a savvy first-time buyer who decided a little sacrifice was worth saving some cash. We were excited to catch up with Daniel less than a year after he bought because his story intrigued us. He put 5% down, chose to live just outside the city, and found multiple roommates to help with the mortgage.
Miranda: You bought a home in the last year, and we’re excited to learn about how that all went down, but first, chatting about who you are, would be great!
Daniel: Sure! I grew up and lived in Bellevue, WA until I was 22. I went to UW (University of Washington), then moved to the Bay Area after college. I lived there for over 5 years, but wanted to move home to be closer to family & I knew I couldn’t afford to buy a house in the Bay Area. Buying a home was important to me, so I wanted to move back to be by family, go to grad school and be able to buy a home.
M: What did you buy, where did you buy it and why?
D: I bought a townhome in Bothell – I knew if I bought in Bellevue, Redmond, Kirkland or anywhere nearby there, it’d be twice the price. I made a small sacrifice on the commute time to work. That little bit of sacrifice, meant I saved $250,000, just by being up north 5 miles. I knew that Bothell was just on the edge of the really expensive places, so the value would have to spread. People would have to buy on the outskirts of those cities and the home prices would go up.
M: When did you buy your home and how did you pay for it?
I bought in September 2016 for $350,000.
M: We’re a down payment company, so I have to ask: how much did you put down and why?
D: I only put down 5% – a lot of people still think you have to put down 20%, and that’s a common misconception. You have to pay more for private mortgage insurance when you put less than 20% down, but my PMI is just over $100 a month. So for me, I looked at it like this: If I’m only spending $100/month on PMI, and my home goes up over $1000/month in value, I’d be losing $900/month by not buying!
M: How’d you decide to buy a home?
D: My friend got a great deal on a condo, and I looked at another unit in his building. That’s what got me interested, initially. I did a lot of research and realized the market was crazy! If I didn’t get in soon, I’d never get in. The home values are going up so fast. And I think home values are going to keep going up – there are more foreign buyers investing here and with taxes increasing in Vancouver B.C., Seattle prices are going to rise over the next 5 years as more people buy here.
M: How long did you save for your down payment? Did you have help?
D: I’d been saving up and investing for 3 years prior to buying. When I got back from the Bay Area, I had very low rent so I could save money quickly during the 6 months before I bought. The people who sold my home also helped by putting in $5,000 in cash. They technically sold it to me for $355,000, then gave me $5,000 cash back so I could use that for the down payment.
M: How much has your home appreciated since you bought?
D: I bought 9 months ago for $350,000. Zillow says it’s worth 384K, Redfin says $405,000. So even going with the lower number, that’s an increase in value of $34,000 in 10 months. So back to the PMI… I’m paying $100/month in PMI. $34,000 divided by 10 months means my home has appreciated almost $3400 a month. A $3400 per month gain to pay $100/month for PMI… that’s worth it to me.
M: Before you bought, what was your housing situation and what’s your situation now? How do your monthly payments compare?
D: Before I bought, I lived in a house with 3 roommates, and rent was super cheap.
For the first 8 months of living in the house, I was paying the same as my rent before. That’s because I knew the mortgage payments would be tougher, so to adjust for the higher mortgage, I found 2 roommates. My mortgage payment turned out to only cost me ~$800/month.
By this November, it will just be my girlfriend and I living in the house. If I have any extra money at the end of each month, then I’m going to pay off my mortgage even faster. I’m trying to get to the 80% level, so I have 20% equity in my home as soon as I can, to stop paying the PMI.
And the best part is that while I’m investing, I have a beautiful and comfortable 3 bed, 3 bath townhome that I’m living in!
M: What do you love about your home?
D: I love how spacious it is. It has a master bedroom and a guest room with a full bathroom inside it. It’s super comfortable for guests.
M: Is this this a forever home for you?
D: No, I wanted to own a place that would grow in value in the next five years-ten years, so that I can buy a home to grow a family in. I’m taking a risk and making an investment now, so I can buy a much larger family house later.
M: Do you feel like you have more flexibility? If you wanted to move, what would you do?
D: When I bought, I knew I’d be here, so I bought it with the intention of staying in it for at least 5-10 years. But if I wanted to leave in a year, I could sell and it’d still make enough money. Or if my HOA allowed, I could also keep the place and rent it out for a great amount.
M: Was it the smartest financial decision you ever made?
D: Ask me in 5 years! So far it has been, just based on the data. I’m an engineer, so I look at data. If in five years, I sell it at 500K, then yes, it’s on track, so far, to be the best decision I’ve ever made. It’s the best decision I’ve ever made tied with investing in my 401K from a very early point. If you really want to invest in a home, figure out what the monthly mortgage payments will be, and then make sure you would still be putting a healthy amount in your 401K, too. Free money from your employer shouldn’t be passed up. It is important to spread out financial investments and one way to do that is to put in money in both the housing market and a 401K program.
That’s great advice. Thanks, Daniel!