A question by :
I’m buying a house and want to get ahead of my mortgage payments, just so I don’t have to worry about my largest bill. I feel I have a solid plan, I just want some thoughts behind it, especially if I’m missing something that I’m not seeing.
Hypothetical Scenario: my mortgage is 1950 a month including taxes and I saved up a year’s worth of mortgage payments ($23,400) prior to moving in.
Hypothetical income: I have a job that pays me $3600-$4000 a month
My plan is to use my savings to pay for mortgage every month like an automatic payment and for every time I get paid biweekly to refund the 1950$ back into savings. So i believe virtually I would always have $23,400 in savings as long as I refund myself back. Leaving me with a remainder of $1650 – $2050 monthly for other expenses such as utilities, personal bills, and insurance.
Am I forgetting anything? Is this a solid plan? Is this plan already a system in place that I don’t know about ? Is it realistic ?
I have a unique situation for income. I have the ability to travel for my job 3-month contracts, longer if I decided to extend. But typically, 3 months at a time. When I’m not traveling i have a job at my home base. My home base is documented above. My travel income is double (plus stipends) the amount of what is documented above. This is why I was approved for more than what is shown.
The advice I need is virtually on the system/ plan behind making the payments. With working one travel contract, I’m able to afford a year’s worth of my mortgage.
This hypothetical is for when I’m not traveling and I’m working at my home base.
Provide a response using the comment section. After review we will update the answers.
“I’m buying a house and want to get ahead of my mortgage payments” raises a question. Are you wanting to pay a year’s worth of mortgages from your savings in advance, then pay back your savings throughout the year? Most mortgages require excess payments be applied to the principal. Your next payment would still be due the next month.
Then later you say to want to pay your mortgage from your savings, then repay your savings from your regular pay. Why? Just pay your mortgage from your regular pay (and pay a little into savings to keep the account active – dormant accounts are closed due to no activity).”
“Sure, that’s easy. I do something very similar.
I have direct deposit at work, with the option to have my pay split into as many as 4 bank accounts.
I set that up so that each paycheck (every 2 weeks) half of my monthly mortgage payment gets deposited into a separate account that I keep just for mortgage payments.
I also have automatic recurring transfer set up so that each month at the end of the month, my bank transfers the amount of my mortgage payment from that savings account into my checking account.
Then I have automatic bill pay set up with my bank, so at the beginning of each month they automatically send payment to my mortgage lender.
You could do the exact same thing. if your employer doesn’t offer direct deposit or won’t let you split it, then just set up transfers so it happens within your bank after the money is deposited every payday. If your bank doesn’t offer these options then shop for a new bank that does.
Personally, I keep my emergency savings separate from this mortgage account since it’s for any emergency, not just housing related emergencies, but there’s no reason why you couldn’t keep the extra money in that account.”
“There’s a much shorter way to say all of that. It’s called ‘budgeting’. Many of us do it.
My home is paid off, but I always paid the mortgage out of my checking account, along with my other bills. I budgeted in my head. It’s also called managing cash flow.
We took short-term loans to buy our cars, and when those were paid off, I started taking the monthly car payment amounts and putting them into a sub-account. I do the same thing with a vacation fund. I take the difference, monthly, between a high option health plan (costs more, covers more) and the low option I have (costs less, covers less) and put that in another account. I use it to pay for things my plan doesn’t cover, and I’ve saved several thousand dollars (in premiums I didn’t pay). I have another sub-account that I’m using to budget for future remodeling on my home. Each month, my savings grow but if you look at the checking account, it doesn’t look like it.
In your case, I suggest doing what you want to do for the first year. Write down the total you have in all accounts at the start, and then have that separate account to pay the mortgage. Pay the mortgage out of it and pay it back from your main account.
At the end of the year, if you still have the same $23,400, look at your total savings to see if that has gone up. If it has, then you are able to pay the mortgage just fine out of your monthly income. That $23,400 needs to be invested to get a better return than sitting in the bank.
“Currently I have about $21,000. There is no way that I would consider buying a house, and having a mortgage.
Anyway, I think a good plan would be to invest in something, and pay it all off in one shot.
What do you think would happen to your home if you no longer have work? I think this is something you should consider.”
“It’s a very good idea to have a savings account at all times so that you can weather things like a job loss, illness or a home repair. Six months of income is a good idea and that’s about what you are planning on.
Your payment to your savings account should be more than your mortgage payment so that when you have a big expenditure you will have some reserves or at least be accustomed to paying extra to replenish your savings. If you break your leg skiing and can’t work for two months, that 23k isn’t going to last very long and it will take you a very long time to save it up again.
What concerns me most about your scenario is that your mortgage payment is consuming more than half your take-home pay (doubtful you would get approved for that). After taxes and mortgage payment you’ll have about $1200/month to live on. It will be very difficult to live and maintain a home on that amount let alone invest for retirement. You know why the government lets you put 19k/year into a 401k? Because you’re going to need 3-5 million to retire comfortably.
So yes, cash reserves are good. But you’re living above your means and neglecting your retirement planning.
“Problem here. If your mortgage is $1950 a month, your gross pay is supposed to be $5850 a month or higher, so why is your pay so low? You should not be able to get a mortgage at $1950 a month with such a low income.
Your savings goes towards a down payment and closing costs.
Is this some kind of hypothetical plan that fails off the top because you can’t afford the payments?
It starts with your documented gross pay, all debts, credit rating, and savings amount.
With a location we can estimate taxes and insurance, and from there we’ll know how much mortgage you will be allowed.
You assume that banks and lenders work with YOUR plan. They have their own criteria. What you show gets scrapped and start again.
Per comment, if approved for a higher mortgage, you don’t pay ahead. Money sent in goes to principal and reduces the payoff time and interest total. If you have 20% down payment, you can opt out of an escrow account and pay property taxes and insurance directly. If not an FHA mortgage, I think 10% down payment may waive mortgage insurance. To pay mortgage, you can invest the cash and withdraw as needed. If the mortgage is approved, how you use available cash is either in paying down principal and continuing monthly payments, or investing the cash.”