And by simulating I don’t mean carrying a plastic baby around that poops and cries all day. That would be insane—why would I want to simulate the lack of sleep and shrill screaming that everyone complains about when they have a kid?

The simulation I’m talking about has to do with budgeting. Want to see if you can cut back on X or Y when the baby comes? Well then do it for a couple of months before the baby comes.

Makes sense, right? Well to that I say why the hell would I want to penny pinch and stay home every night by choice when I’m going to be forced into doing that when the baby comes?

I should be doing the exact opposite—partying every night, spending every cent I can afford to spend out on the town, and overall living it up before that baby comes kicking and screaming into the world.

Right?

There are two sides to the argument. The responsible personal-finance blogger would say to go ahead and simulate the budget beforehand. Otherwise, how will you know if you can pull it off?

But here’s where I split with conventional thinking. Life is still about happiness and living to the fullest, not about making the number match.

Am I scared? Sure. But I’m not about to start our lives as parents before we actually have to.

I’m obviously talking from a place of great ignorance, so I’m curious to hear what the parents out there have to say. Start living the life now or live it up before the big day?

Looking for a home looked like fun. We would know—we watched every home-buying show under the sun: House Hunters International, My First Place, Property Virgins, Property Ladder, etc.

After watching so many people (our friends and strangers on TV) realizing the “American dream” of owning a home, we figured it was our turn to take the plunge.

Our First Mistake
We weren’t ready. Looking back, it’s painfully obvious. But at the time we thought that if we found something, we would buy it.

Just like that.

The reality is we were in browsing mode. We wanted to see what was out there and test out what we could afford. Which turned out to be: not much.

High Rises
When we moved in together, we chose a high rise because it was by the lake, convenient, and had a pool on the roof. We liked it so much that we started with those set parameters: we told ourselves we wanted to look at high rises near the lake and not too far north (this is in Chicago, by the way).
So we called up my friend’s broker and he had his assistant pick us up and show us some places. Right away there were some problems:

•    We didn’t want his assistant, we wanted the main guy since my friend spoke so well of him
•    The agent was a friend of my friend’s family, so he had done them a favor by representing him—he typically sells million-dollar homes
•    We did not have a million dollars

I think you can see where this is headed.

But we went out around three times with his assistant and looked at high rises near the lake. That we could afford (I ran some rough mortgage calculations). They all sucked. They all needed work. They all made us feel poor and stupid for thinking we could afford a high rise near the lake.

This was not renting—it was a totally different beast.

We only saw one place that encouraged us: it had decent square footage but would need a lot of work. And because the price was low, we could probably afford to do the work it needed. Or so we thought.

Pain in the Assessments
But then we got our rude awakening: a little something called assessments. Typically, these range from $150 to $300/month. For high rises, you’ll see them go from $600 up to $1,300/month.
It’s almost like you’re buying and you still have to pay a rent for the right to live there. Insane!

This was our second mistake: we fell in love with the idea of living in a high rise. It got it stuck in our heads that that’s what we wanted and that’s what we were going to get. We saw the numbers, we could do the math, but we clung dearly to the idea despite what the reality was: we could not afford it.

That first year we probably saw around 20 places and never came close to making an offer. As fall came and the weather started to get cold, we decided to take a break and wait until next year, when we would make a point to go out with the actual broker and not his assistant.
That’s when the real fun would start.

Check out part II here.

So we are buying our first place—very exciting. But now we have to decide between a few options of how we’re going to finance it.

Only one lender is offering the so-called “piggyback” loan, while the rest only offer a conventional loan with PMI.

Huh?

Here’s the deal: when you don’t have 20% to put down (which we don’t), you have to pay private mortgage insurance (PMI). Typically, this goes for about 0.6% of the mortgage. So it can be anywhere from $90–$160 depending on your situation.

This serves as insurance for the lender basically saying “this person didn’t put 20% down so they might be a little riskier. So we’ll charge them PMI to cover our asses. Just in case.”

Once you pay off your mortgage to the point of that 20% threshold you can get rid of the PMI.

But lenders found a creative way to avoid PMI by creating two loans: one for 80% of the purchase price (which makes it seem as though you put down 20%) and another for 10% of the purchase price. The remaining 10% gets paid via down payment. This second loan is called a piggyback loan (aka 80/10/10 loan).

That second loan typically has a higher rate but the overall payment is usually some $20–$60 less than the PMI version.

Great, right?

Well, that’s where it gets sticky. PMI may seem annoying, but you can get rid of it pretty quickly. That second loan can take a long time to get rid of (our lender is offering it at 15 years) depending on how much extra you put in to pay it down.

On the other hand, paying PMI means you’ll have just one loan at one low rate vs. two loans at different rates. Sometimes you’ll pay closing costs on the two separate loans. And with piggyback loans you’re payments are all going towards your interest and your principal, while PMI goes up in smoke.

I’m curious to hear from the people with home-buying experience on this one: what has your experience been with these two products?