As I shared in this post. My husband and I recently bought a home in the Chicago Suburbs and are counting down the days until we close on the house and start the move in process. We close in less than a month…but who’s counting!?
While it feels like a waiting game we have been keeping busy pulling together the required documentation for our lender, booking movers, dreaming up home design ideas and making sure we have an action plan in place once we move into our new home.
Sharing with you all how we are handling this time between having our offer accepted and moving day to make the move out to the suburbs as smooth a transition as possible.
Are you guys sick of me talking about budgeting yet?
Now, more than ever, it is so important that we have a handle on our new budget that incorporates our new line items that come with owning a home. As an example, we will now have to pay separately for cable and internet, something that was bundled into our apartment rent. Not only is it a new line item but we also need to find a carrier and schedule them to come in post close to set everything up. Another new expense will be a monthly train pass for my husband who will continue to work in the city. For those of you who live in the area and commute, you know the train pass is not inexpensive and needs to be accounted for in our new budget.
Throughout the house hunting process, we ran the numbers (using these excel spreadsheets) for each of the homes that interested us to make sure our income could support those costs. The first few times through, the numbers were not perfect in that it included estimated costs. At this point in the process, we have the actual figures for our mortgage and property taxes from working with our lender and were able to update our cash flow spreadsheets for a clearer picture of our future spending. It continues to give us comfort to see all these expenses in one place and allowed us to understand our new essential expenses. Which brings us to emergency funds.
An emergency fund should be funded with somewhere between 3-6 months of essential livings expenses. A common theme that has popped up again and again on The Financial Fashion Planner. If you are in the process of moving, like we are, you should expect your emergency fund to “move” as well. The emergency fund that worked while we were living in the city no longer applies to our new home in the suburbs. Specifically, we have had to adjust up our emergency fund to take into consideration the new essential expenses I mentioned above.
I am not an actual homeowner, yet, but it’s been suggested to me by family member and colleagues who are homeowners to add $5,000 on top of the 3-6 months of expenses to cover any unexpected home improvements or appliance replacements. This is one element of renting that I will miss, not being responsible for repairing or replacing appliances that break…like our fridge that decided to stop working week seven of quarantine. That was fun…
Are you surprised that this wasn’t at the top of the list? I’ll explain why in a minute.
From working with our mortgage lender, we had a really strong understanding of how much home we could afford based on various down payment scenarios. As we get closer to our closing date, we have been running our numbers to see if we can potentially set aside even more for our down payment than initially planned.
During this time, we have been diligent about our savings and are currently sitting on a pretty large pile of cash. While yes we could technically up our initial down payment we have made the decision to stick with our original plan and not send all our cash in one place and would encourage you all to consider the same.
Our approach has been to account for our total cash balance and immediately earmark funds for a healthy emergency fund to have on hand after our home purchase. We are also accounting for our furniture budget, closing costs and home insurance. The amount leftover, after accounting for all these items has informed our down payment percentage.
Again, I would strongly encourage you to NOT use every dollar on hand to put towards the down payment. This is where the term “house poor” comes from.
This has been my favorite part of the pre-move process. For those of you who read this post, you know that I wanted to be an interior designer when I was growing up. We started the space planning process by mentally moving our current furniture into our new home. From there, we’ve been taking inventory of furniture gaps and making a list of the furniture we want to purchase after we move in. Because we aren’t made of money (surprise!) we’ve started to make a list of all the furniture purchases we hope to make in the next year to fill our home and prioritizing those purchases. What does this remind you of?
For example, we would like to buy a dining room table, an outdoor dining set with plush seating, office furniture, couch and TV set-up in our basement and some equipment for a home gym. You get the idea; the list is long! Because the list is so long we recognize that this isn’t going to happen overnight. Our approach has been to prioritize purchases and set spending limits for each item.
Once we get through the home purchase, we will be setting up a sinking fund to strategically save money earmarked for the larger furniture purchases. Not sure how long it will take to complete but we are committed to filling our home in a financially responsible manner.
One final thing we are using this time to complete is purchasing life insurance. Homeowner’s insurance and mortgage insurance (if applicable) are required and will be being handled as part of the lending process. As morbid as it sounds, my husband and I have recognized that if something should happen to one of us, that the surviving spouse would struggle to support the monthly payments for our home by themselves. Because this is the case, we are going to fill this potential gap by purchasing term life insurance.
I shared in a previous post that the equation to use is 10x salary + liabilities to determine life insurance needs. Which is the approach we will take to ensure we are being properly covered. This is something that can be done before the home purchase is complete and in many cases the sooner/younger you are when applying for life insurance the more cost effective. Don’t forget to add the monthly premiums to your list of essential expenses!
I’m hoping you can sense my excitement as we start this next chapter of our life! I’ll be sure to continue sharing updates if you find posts like this helpful!