In this ongoing series, Mic readers submit their money confessions — and we’ll ask experts how to help solve these difficult financial issues. Send your own anonymous confession to firstname.lastname@example.org to get advice on your situation here.
“I’ve always been a good saver. I made it easy for myself by using apps like Digit. In Boca Raton, Florida, buying a place is usually preferable to renting since [monthly] mortgage payments are about $600 to $800 lower than average monthly rents. I found a [mortgage] lender who was willing to finance 85% of a condo, and I put down 15%, but then halfway through my escrow period the lender informed me I’d actually need to put down 25% because the condo association doesn’t have the best financials. I had to drain my remaining savings to pay the difference, and I know I am in trouble for a while until I can build my savings back up because I have no emergency fund if something goes wrong with my townhouse. My AC unit is near the end of its life and will be costly to replace, for example, and any purchase over $500 right now would put me into credit card debt. I love the place and don’t regret buying it, but it is a little scary.”
Why this is an issue
Unless you’re really wheeling and dealing and aiming to own a private jet, a home could be the largest purchase you ever make. Buying one likely requires setting that goal and saving for years on end. But as important as housing is and as grown-up as home ownership feels, the purchase should not eat up one’s entire net worth.
“The problem with buying a home on a mortgage is twofold: First, you consume a large chunk of your savings on the down payment, often leaving you cash-poor,” Janet Alvarez, a personal finance expert at Wise Bread, said in an email interview. “Second, monthly mortgage payments, property taxes and maintenance fees can slow your future rate of savings, making it harder to accumulate other assets. If your home depreciates or you lose your job, you’re really in trouble.”
There are few hard-and-fast rules in the realm of financial advice, since so much depends on individual situations — one’s age, salary, family, city — yet Mic’s experts each gave one when it comes to buying a home.
“I would never put down more than 80% of my savings for my house payment,” Michele Cagan, CPA, author of the new book Budgeting 101, said in a phone interview. “That might mean I have to wait longer to own a house.” Purchasing requires so many more costs than an already enormous down payment, she noted. “People forget about the utilities, the water, parking, maybe a homeowners association, closing costs… Closing costs can be 5,000 bucks!”
Alvarez’s rule is “Never — and I mean never — draw on your emergency fund to pay for a down payment,” she said. “If you can’t afford a down payment and an emergency fund of at least six months of living expenses, then you can’t afford to purchase the home — period.”
“The first and obvious recourse is to cut all unnecessary expenses — cable, vacations, gym memberships, etc. — until she accumulates a six-month emergency fund,” Alvarez said. “If cutting back isn’t enough, I’d suggest she also consider renting out a room in her home via AirBnB, or finding a side hustle to help her replenish at minimum her emergency savings.” There’s always driving an Uber or Lyft, or selling old clothes on Poshmark or other items on eBay.
A side hustle doesn’t need to be a whole other business; there are apps and websites that give you a couple dollars just for testing them out or clicking through their ads, which you’re doing anyway if you’re a person on the internet. (More info on those type of sites is available here and here.)
Cagan also has a tiny trick to find money where none exists. “One is look at your tax withholding,” she said. “If you’re having a really bad emergency right now, and you normally get refunds, you can reduce your withholding to get more cash coming in now. Yeah, you may have to pay something in April — but you can worry about that in April.”
She also offered some advice to help our letter writer breathe more easily. “She had to put more money down. Putting that much more money down probably made a significant dent in what she was expecting her mortgage payment to be,” Cagan said. “The difference in a mortgage payment between 15% and 25% is probably a good couple hundred dollars a month. That can rebuild savings pretty quickly.”
So yes, it’s scary to have so little savings in the short term — but ultimately, she is rewarded with more equity in the house. A little belt tightening and a deep breath, and it’s probably going to be okay.
Do you have a horrible money habit keeping you awake at night, such as spending too much on Uber or ignoring your medical bills? Are you struggling to figure out what it means and how to solve it? Send your situation to email@example.com (we can keep your identity anonymous!) and we can work it out in a future column of Money Confession.