Buying a home should be a great experience, not your worst nightmare.
Let's jump right in. There are two sides to this Move: Home Buying and Paying It Off. The latter portion seems logical. You don't want a mortgage payment, so you knock it out as fast as possible. There is, however, some debate about whether or not to pay off your home early. Rather than posting a separate article (which I may still do) I am going to answer that right now. The Motley Fool says "Let's say you're in the 25% tax bracket and currently pay $24,000 in mortgage interest per year. That's a $6,000 tax break you'd be giving up by paying off your mortgage."
Think about that for a second. You are going to pay $24,000 in interest on a home, annually, to get a $6,000 tax break. Does that make sense to you? If it does, we need to talk. This goes back to the philosophy of Move #4: No payments is better than payments. Moreover, if you did not have a mortgage payment that is more money you can allocate towards your Flex Cash which will inturn help you retire in a better position.
Let's look at home-buying for a moment. In the 9 Moves booklet, I call these "Rob's Rules for Home-Buying":
- Don’t let your payment, interest, taxes, and insurance total
over 30% of your monthly net income. This isn't a hard and fast rule, it is just something to be mindful of. You don't want to wind up "house poor" and have all of your monthly capital going towards housing.
- Put at least 10% down and have some money banked. You always want to go into a home with some equity. I strongly recommend 20% to avoid Private Mortgage Insurance (PMI), but I'll settle for 10%.
- Survey the neighborhood. When my wife I first went home shopping, we called a local police department to get some information on an area of Lansing that we weren't familiar with. They were very helpful. Friends and co-workers are great resources too. You never want to move into a bad neighborhood. Make sure it's solid before you move!
- Choose a smart mortgage. Adjustable rate mortgages (ARM) and other variable rate mortgages are very risky. The best types of mortgages are 15-year fixed and 30-year fixed
rate mortgages. I would try for a 15-year mortgage if you can swing it!
- Don’t be pressured. I hear people tell young couples who are renting that they need to buy
a home instead of wasting their money renting. You may not be in a good financial position to purchase a home. Don’t succumb to pressure. You know what's right for you.
On the other side of things there's the payoff. If you can cut your mortgage payoff in half, that's a huge win. Don't forget to have fun so you don't get burned out. If you want to drop more cash into retirement during Move #8, that's fine as well. Just make sure it's a justifiable decision that makes logical sense. I don't want to see anyone shackled to a mortgage into their retirement. Flex Cash leads the way on this Move.
There are two pieces to this "what". Once you've develop a plan to knock your mortgage out early, you can start prep work on Move #9. Once you've finished paying off your mortgage, execute Move #9 like a pro. You've come this far, never turn back.