Cutting Back on Expenses-Mortgage

I am a firm believer in spending less than you earn, but if things were that simple everyone would be debt free and whittling wood in our rocking chairs with our Grandpops.  Most of us out there have spent more than we have earned and in return accumulated credit card debt, loans from the bank for our new car, or made the choice to have student loans in college and now pay those years after we wore our graduation cap and gown.  This may have continued even further buying a new house with that enticing low interest rate spread over 30 years of payments.  Which leads me to how I cut back on my mortgage by making a couple simple choices.

When we first moved to Chicago from Florida, we searched for houses before we moved that would meet our budget, but due to time constraints ended up renting a smaller apartment close to public transportation for the first year.  While it was not intentional to rent an apartment that first year it ended up being a smart move.

Take your time and research the market and neighborhood that is right for you. 

We were pre-approved for a large amount for our mortgage, we did not take this letter and look for a 300K house (arbitrary number), instead we looked for houses that were almost half of this number during our search.

Don’t take your pre-approval amount to mean you must buy the most expensive house on the block

These first two planning tips could literally save you thousands of dollars, these tips are about BIG WINS.  If some of you have read about banks and other mortgage lenders they might not be the best choice in deciding how much money you can borrow.(here’s a good summary article on the Mortgage Crisis).  Make your own decisions do the research, plan ahead, and look for the Big Wins, this isn’t cutting coupons to save $5 at the grocery store, this decision could literally affect the rest of your working life, treat it that way!

If you have followed the game plan you are looking at houses with your Realtor, checking out the MLS property lists like its the Royal Wedding plans ladies and guys like Michael Jordan is coming back to the NBA, this may be flip flopped, but in our household this is spot on.  Before you make that decision for the house that is your dream house consider two more BIG MONEY tips………

Create your own equity by buying a fixer upper.

One of the things we especially looked for during our house search was a property that was not perfect and needed some fixing up.  This was exactly what our search was for:  foreclosures and fixer upper’s, 100% of the time.  What this does is create equity in your home, while also getting the home you really want.  This does involve spending more money to have the house updated, but we budgeted for this by cutting our house budget in half already from the pre-approval letter, mentioned above.  Imagine buying a 150K home, putting 50k into the property and immediately have your house appraise at 250K, that’s what we did (numbers are arbitrary).  This tip does not save you more money, rather it creates immediate equity and when you decide to sell will create a BIG PROFIT.

The above tips have included Big Wins and Big Profit.  The last one does both, buying a multi-unit property.

This can be a number of different property types, but the most common are:  duplex with similar houses side by side connecting, Single Family Home with a basement rental, and our property of choice the Multiple Unit Building.  Buying a multi-unit property starts as a Big Win because you are paying less rent due to the tenant paying some of your mortgage, in many cases the tenant is paying the entire amount of your mortgage, sounds like a Big Win to me.  This can even create a Big Profit, now it might not immediately like our fixer-upper from above, but eventually the mortgage is going to be paid off and those same mortgage payments are now all Rental Income, that’s a Big Profit.  One of the best ways to build wealth is through real estate and in many cases this is done through having tenants pay for your mortgage.  Not coincidentally this is what we did, we are currently living in one of our units while renting the others.  For those of you out there who say I can’t be a landlord, my quick witted response is most people say they cannot imagine ever being a Mother or Father, but you learn what you need to do.  It’s the same with owning and managing a rental property.

If you are interested in Big Wins on cutting expenses and Big Profit from owning real estate, take these tips into consideration.

Just a quick recap:

  • Take your time and research the market and neighborhood that was right for you
  • Don’t take your pre-approval amount to mean you must buy a house as high as your bank will allow
  • Create your own equity by buying a fixer upper.
  • Consider buying a multi-unit property.

This is part of our plan to financial independence, we will use real estate to provide future income, these tips are almost identical to what we did with our current home.  I’m not a contractor or handy man, the best I can do is mow a “mean lawn”, but I am honest, want the best for our tenants, and I’m able to talk to people to get things done.  I encourage everyone to use these tips when purchasing a home.  I’m not a financial adviser and the advice is as valuable as the price you paid, free.

Have you used any of the tips to cut your expenses with your mortgage?  Do you own a multi-unit building?  



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13 Responses to “Cutting Back on Expenses-Mortgage

  • Such good advice to not go for the biggest home you are approved for. Might I add, only buy what you can reasonably pay off in 15 years or less. We are thinking of doing property management when we downsize.
    debs (@debtdebs) recently posted…Curve Balls – When You Are Hit With Unexpected Financial EventsMy Profile

    • EvenStevenMoney
      4 years ago

      When we bought our home we did not have intentions of paying it off in 15 years or less, but after becoming more knowledgeable about finances and my personal beliefs, I agree we will pay it off in short order. I have some time to think about the property management in the future, I think it inevitable.

  • Buy more house than you can afford and more car too for that matter. It’s the American way right? The real estate industry really sold all of us in the last 30 40 years that home ownership is the American dream. Sure, get roped into a huge monthly payment with interest for 3 decades maybe even 4. The whole concept of a mortgage is just crazy. If you can pay for your house almost in full go for it. Get a small mortgage. Calculate interest paid for 30 years and inflation and see how “ahead” you are with your home purchase.
    DivHut recently posted…Hail This High Yield TAXIMy Profile

    • EvenStevenMoney
      4 years ago

      Yeah America certainly has changed that’s for sure. I like getting paid interest for 30 years when we pay it off early, so yes @Divhut i’m right there with you.

  • It drives me nuts when people on shows like house hunters buy out of their budget. They’re setting themselves up for YEARS of financial stress.
    Stefanie @ The Broke and Beautiful Life recently posted…That’s a Wrap: What Is “Good Enough”?My Profile

    • EvenStevenMoney
      4 years ago

      I wish instead they would break it down like like this: House #1 costs 500K, will be tight on your budget and will take the full 30 years to pay off, you should be about 60 when you have it all paid off assuming you don’t refinance. House #2 costs 250K, this will be half your budget so you can breathe a little easier, if you make the same payments as house #1 during this time you can pay it off in 7 years, you will be 37.

      So which house do you think is “prettier”?

  • Some fantastic advice Even Steven (with disclaimer noted!), and such a powerful message that just can’t be reinforced enough. Especially when you’re surrounded by peers or colleagues where the ‘norm’ is in fact to buy the biggest house you can afford. It can mess with your head occasionally, which is why it’s so great to hear sensible advice being reinforced from people like you Even Steven, and all the other great bloggers around here!

    I seriously get this advice to ‘stretch yourself’ to buy a huge house all the time from people I work with, telling me what a ‘smart’ move it is. I’ve realised that there seems to be a culture of encouraging new partners at the firm in particular to borrow as much as they can – to help them ‘focus’ on having to win lots of new work for the firm. Just madness!!
    Jason @ Islands of Investing recently posted…How NOT to react to market headlinesMy Profile

    • EvenStevenMoney
      4 years ago

      Thanks for the kind words. It’s tough to go against what the bank and mortgage company tell you that you can afford, but their only interest is paying the debt back and most cases they don’t even care about that because they are packaging the mortgages and selling them off so they don’t have to worry about them.

  • Banks and mortgage lenders don’t tell people what they can afford. They pre-approve based on set parameters.

    I actually do think that first time homeowners should buy a house that gives them room to grow in. Too many people look for a starter home and need to upgrade in less than 5 years.

    Also, multi family homes are great but are probably not realistic for the first time homeowner. They are a great way to wealth but they can also be a lot of work.

    • EvenStevenMoney
      4 years ago

      Essentially they do tell people what they can afford, since most pre-approval’s are factoring in a 40% DTI. You are right about people buying a home just to get only sell and buy a bigger home in less than 5 years, in very few instances would that be the right move for your budget. I personally am a first time homebuyer and we purchased a multi family home so it’s definetly possible, buying a duplex is easier than buying an apartment buidling of course, I’m sticking with the 2-4 units where you can still get a regular mortgage. Thanks for stopping by again!

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