Paying off Debt with $18,000 a Year Income

I got the house I wanted. Now what? Time to pay off the ball and chain known as a mortgage.

Most blogs out there I’ve read have said the same thing. Budget!

But the problem with most blogs is the person who is saying they paid off $95,000 in debt in 2 years had to learn basic financial intelligence. They had jobs that paid them $40,000 or more a year and they just went crazy with credit cards and buying stupid things and racked up bad debt and then couldn’t afford more then the minimum payment. All they have to do is learn basic financial intelligence such as, don’t buy a new car every year, don’t buy stupid stuff that has no value in their life like 8 pairs of shoes just because they are the new hip thing to own.

Let me tell you my situation.

I work full time at a job I like but I don’t make much money. I make about $27,000 a year – gross. What does that mean? I make 27k a year before everything is taken out of my paycheck. Taxes, insurance and benefits are all taken out before I get my paycheck. So in actuality, I make about $18,000 per year – net. Net is the money left after expenses.

So I have to pay off a mortgage with $18,000 a year and my base mortgage payment is about $850 a month or $10,200 a year. That is without the extra principal each month.

So what is someone like me to do? How am I going to pay off the mortgage early?

Here is what I do:

Live with someone

I live with my girlfriend and she helps pay for bills and the mortgage by giving me $600 a month. You can do the same with a room mate or someone you know that can live with you. I’m the kind of person that will go into debt to escape room mates. My girlfriend however is with me in the regard. We both hate room mates but can live together no problem.

Start budgeting

I’ve done this on a mental note my whole life but never in a serious way. I knew that I need a certain amount at the end of the month to make the mortgage payment so I don’t get foreclosed on. But lately, I’ve upped my game on budgeting. I’ve started a spreadsheet that tracks my reoccurring costs such as bills and non reoccurring costs such as home and car maintenance.


This is the first iteration of my budget and I’ll adjust as I go but this is the basis what budgeting looks like.

The income is pretty much fixed. I’m looking into starting a side hustle for extra income but at the moment, this is how much income I get per month.

Bill expenses are the fixed expense. My bills vary from those numbers. For example, my gas bill can be as low as $19 all the way up to $30.  In my budget, I put the highest the bill was ever in my time living in my house. That way, I’ve budgeted for the highest amount that I could spend on that particular expense so if I do a good job and my gas bill goes down to $15 for this month, I have extra money left over at the end of the month that I can put towards the mortgage principal. Over estimating on expenses can really help you in being frugal. If you think that your bill is going to be higher then usual, you won’t want to spend as much on non fixed costs like non food items to make sure you will have enough at the end of the month.

Important! You may notice that my mortgage expense is higher then what I said it was in the beginning of the post. That is because I budget my minimum mortgage payment with some principal already added. So if I cut my budget too short one month, I still can add some extra money to the principal.

The other expenses category is non fixed expenses. My car needs gas about ever 2 and half weeks if I only drive to work. If I decided to go out of town, I’ll need to get gas 3 times in a month rather then 2 so my budget of  $60 of gas may be getting close to the limit since I budget for only 2 trips to the pump. What I plan on trying is a combined non bill expense category of a fixed amount such as $400 a month. That $400 is used for everything else that isn’t a bill. Food, gas, non food items like clothes and car and house maintenance.

Car and house maintenance get their own budget because anyone smart who owns a car knows that they have a lot of maintenance up keep. Oil changes, new tires, new batteries, fluid changes. I still drive my first car that was hand me down when I turned 16. A 1996 Honda Civic with 215,000 miles. I do all the work on it myself and have saved thousands in repair costs. Most people are intimidated by car maintenance but we fear what we don’t know anything about. The cure for fear is education. In the age of the internet, there is nothing you can’t learn in a few minutes of searching and reading.

An example for car work would be, driving around in my car and then I hear a grinding sound when I brake. Get onto Google, type in “grinding sound when I brake” and you’ll get a myriad of results on what the problem might be. People will even post how to videos for your particular car and how to do the work yourself with what tools you’ll need. There is personal and financial investment in car care, but the dividends greatly outweigh the cost and you can keep a 20+ year old car on the road running great.

House maintenance is another one that like car maintenance, likes to pop up at the worst possible times. But, like car maintenance, you can find the solution to your problem by searching for it online. I bought my house with no knowledge of building anatomy (what’s a joist?) and used the internet to my advantage. As things go wrong, I search up on the internet what the solution is.

A real life example on my own house, I live in an area in the U.S that gets a lot of rain. Drainage is very important on the exterior of a house. In my home inspection report before I bought the house, it said that the gutters let out too close to the foundation. So I searched online for solutions. There were tons of options available. Some fancy options such as hiring contractors to come to your house and dig trenches for french drains that connect all the gutters to the street gutter and DIY options for digging your own trenches with regular corrugated plastic pipe attached to the downspouts and lead the pipe away from the house. Guess which one I did? I went to the hardware store and bought a 30ft roll of corrugated plastic pipe, dug out a trench just deep enough the hide the pipe and run it in the ground away from my foundation. Total cost? $75 for the materials and shovel and a lot of personal labor.

The point is learn to do things yourself. Not only will you learn some useful life skills that doesn’t get taught in school, but you’ll save money on doing things anyone can do. This applies everywhere in life not just physical work. I could have paid someone to do my budget for me and no doubt they would have done a great job, but it’s an added expense that I don’t need.



Over estimate your expenses. Work on decreasing expenses even if it’s a small amount.  Work on supplementing your income with side work to increase income. Learn financial intelligence, spend money on things that matter and not on things that don’t.

Tips for the First Time Home Buyer

In December 2017 I completed the long and emotional journey of a first time home buyer. While my experience was not as bad as some, it took almost a year from finding a home to closing.

This site is going to be about paying off a mortgage so why am I giving tips on how to buy a house and get into the most debt a person can accumulate?

Home ownership isn’t for everyone.

I’m targeting that person who is done renting or done living with room mates /family that eat your food and leave their clothes in the washer and dryer and never do the dishes.

The person who is ready for the challenges of home ownership. Who is ready to crawl on their belly into the crawlspace to patch a plumbing leak, who will climb on the roof to wash the outside of the windows and inspect the roof. Sure a mortgage is a lifetime of debt for some, but the reward of home ownership is far greater then owing the bank a large amount of money. The freedom is worth it.

My take ways from buying my first house:

1.Getting pre approved before starting your house hunt

I didn’t realize it at the time but having a pre approval from the bank I chose was a real time saver. The bank told me how much I could afford based on my income and gave me an estimate on how much house I could buy. This saved me and my realtor a lot of hassle of looking into houses I could not afford.

There is also the issue of which lender to go with. I decided that since I already bank with Wells Fargo ever since my first job at Safeway back in 2006, I decided to go with them. I didn’t realize it at the time but they offered the lowest interest rate. Being a first time buyer and not shopping around, I got really lucky. I only submitted pre approvals with Wells Fargo and US Bank. Remember, being pre qualified and pre approved are two very different things!

Learn from my mistake: Do research for your lender. What interest rate and loan terms are they offering? Will they have an option to add principal to every mortgage payment? How much are the closing costs? Don’t just go with one lender and hope for the best like I did. You may end up with loan terms that don’t work for you. 

2. Finding a good realtor.

Here is my next mistake. Being an introvert and having phone anxiety, I didn’t call realtor companies in my area and interviewed each one to find one that worked for me. What I ended up doing was going to a home listing site and requested a showing at a house that I liked. I got a call later that day from a realtor who ended up maker herself my realtor. Luckily, she was good with first time home buyers but there are some out there that are not so first time buyer friendly.

Before I worked with my realtor, I had some other realtors I “worked” with. There was a gentleman from another company that talked me through a listing I had requested for more information on Zillow. He was knowledgeable about his work but he lacked something that I needed most: Local knowledge. When choosing a realtor, you want someone who knows the area better then you. They may know about the noisy 24/7 convenience store that has nightly revving competitions by the local car club or the nearby rendering plant that melts hog fat but is closed on the day you go see the house in person.

Your realtor must know how to handle problems. My first accepted offer was on an older manufactured home that had tenants living in it. The owners of the house had planned to give the tenants their 60 notice to leave after the house would close. Me being a first time buyer had no idea what I was getting into. After telling my family about my exciting (to me) home purchase they told me to back out. The owner of the house, after closing, would not have to be liable to kick out their tenants after the house closes. It would fall on me to do that. I wasn’t a landlord at the time and I didn’t know what to do so after a frantic text to my realtor, she figured out a way to get me out of the contract without losing my earnest money.

Learn from my mistake: Choose your realtor wisely. They represent you in the buying process. You want someone who is in the 21st century. By that I mean, you want someone to send you documents to sign electronically and someone who knows how to text. You will be signing a lot of documents if you put in lots of offers and it helps to do in from home on the computer to save you trips to the realtor’s office. If a realtor cannot do things electronically, move on and let the dinosaur find other clients. Don’t waste your time.

Find someone that works in the area you want to live in. They will know the area and which houses are worth looking at. They will let you know that the $200,000 house has plumbing problems and the $100,000 house is all cosmetic problems.

3. House hunting. Patience is key.

This is a big one. Let me tell you my situation. I was living in an apartment and they just raised the rent from $800 to $1050 per month. At the time, typical house payments were in the $700 range. Along with this rent hike, they removed the month to month option that I was on and forced me to sign a lease. Timing the lease ending with a house closing is not an easy task.

House buying is already expensive. I haven’t even gotten to the down payment yet! And now I’m going to tell you to have extra money to cover extra rent payments? Reluctantly, yes if you are a renter. Getting a house to close at the time time as a lease ending is very hard. But it is possible.

Finding the right home takes patience. I personally went to 25 houses with my realtor before I found the one I live in now. Most of the time I didn’t get a house was because of competition. People were offering more then the asking price. How is a first time buyer with a measly $125,000 pre approval supposed to compete? The answer? Patience.

There was always another house for sale. There is no sense in getting into a bidding war with other buyers and raising your mortgage payment higher then the area average rent. This is why you need a calm head while looking at houses. Don’t get too attached to a place you like. Just put in your best offer and wait. Sure there are things you can do like sending personal letters and cookies to the seller but I won’t get into that here. I found the home I live in now with the alerts on Zillow and as soon as I saw it, I sent a text to my realtor to schedule a time to see it. Turns out she was already thinking the same thing! I saw the house, I loved it, my girlfriend loved it and it had everything that I wanted in my house. I put in an offer but there was already an offer in place that was accepted. My realtor jumped in before I said forget it and told me to put in a back up offer. She said that first offers fall through and back up offers do end up getting the house. So I did just that. Long story short, my back up offer got accepted and I closed on the house. Woo!

Learn from my mistakes: Research as much as you can about a house. There are tools such as the County Assessor that lets you access public files about properties for free. Learn if the house is up to date on it’s taxes, who the owner is and (depending on your Assessor’s website) loads of other things. Just Google your county assessor office and it will give you the website of the assessor’s office. Just type in the address you are interested in and it will give you the information.

If you are stuck on a lease at your apartment, talk with the manager on site. You might get lucky and end up living an extra month lease free so you don’t have to sign a new lease as you close on a house. The manager at my apartments didn’t care too much and let me live for 4 months on a 3 month lease and I was able to get out in time for my house to close without signing a lease.

Be patient. If you miss out on what you think was the perfect house, keep looking. Don’t give up. More houses will come up for sale and you may find one that is even better then you one you found before.

4. Don’t forget about closing costs!!!

If you ask any first time buyers if they are prepared for the closing costs, a lot of them will say, “Closing costs?”

That’s what I said when I found out about them, The secret about home loans is closing costs. They can range from $2000 to $6000 depending on how much you buy the house for.

Closing costs are the bank fees, escrow fees, tax fees, fee fees and the fee fee fee. There is a lot of details in closing costs but what you need to know is when you have a house under contract (accepted offer) and you get the necessary information to the lender (W2, pay stub) and the loan underwriters will accept your loan application and you will enter what is called the closing phase. The money is sent into an escrow account which is a fancy way of saying third party that distributes the money.

Your down payment, insurance payments (you have to pay a year worth of home insurance and or flood insurance upfront) any taxes owed and any loan fees. Good news though! Remember that earnest money check you wrote when they accepted your offer on a house? That comes back to closing and goes towards the closing cost. Put down $1000 earnest money? Your closing costs went down by $1000!

So your total will be the down payment, and all those upfront costs combined. Yikes! That’s a lot of money!

Learn from my mistake: Don’t just budget in your down payment. Budget in your closing costs. If you talked to a lender that you went with, ask them the typical closing cost amount. It will help you a lot when it comes time to close.

5. Downpayments

The biggest hurdle for potential home buyers is the down payment. Good news that these days there are way to circumvent the down payment hurdle. Some exmaples:

FHA Loan

Some lenders offer FHA loans which are insured by the Federal Housing Authority. What you need to know about FHA loans are they allow down payments as little as 3.5%. Found a $100,000 house you like? All you need is $3,500 for the down payment!

The downside to these loans are, super long closing time. There is a lot of paper work involved with FHA loans. Also, you are required to live in the property for 1 year if you use an FHA loan. Most first time home buyers this won’t be an issue but if you move a lot in short time frames, this may be a problem. Don’t try to get an FHA loan, move in for a few months and then move out and put renters in your house. That is mortgage fraud and it is a felony.

Down payment assistance

A quick Google search will show you many options for down payment assistance. These can work as interest free loans, grants, or debt you pay off when the house is paid off. Depending on where you get the assistance from will determine what terms you will get.

USDA Rural Housing loans

The same USDA that grades the meat you buy at the grocery store offers home loans. The best part? You could get a loan that is 0% down! The downsides? You have to be in a rural area. The USDA site has a map where you can type in the address of a house and you may be surprised to see it is considered rural. Some obvious points, if you are in a big city such as San Francisco, don’t even bother looking. But if you are considering living out of the big city, this is definitely something to look into.

Learn from my mistake: I didn’t know about low down payment loans at the time I bought my house and I could have saved a ton of trouble coming up with the down payment for my house. I planned on living in my house full time so I was the perfect candidate for an FHA loan but went with a conventional loan. Luckily my lender had a first time home buyer program that didn’t require 20% down and I was able to put less but had I known about other loans, I wouldn’t have had to scrounge out the money for the down payment.

If you’ve read this far, Thank you! It is a giant wall of text but these are actually experiences I went through during my home purchase and I hope that future home buyers will find something of use here.