I've been doing a lot of thinking about trying to buy a condo in 2008. I sat down and ran the numbers to find out what my approximate monthly cost would be including principal, interest, escrow, savings for maintenance, etc. I also sat down and figured out about how much my take home pay would be if I adjusted my withholdings to account for mortgage interest and taxes. Based on my approximate calculations, I can cover the costs but my monthly savings would shrink to about $400. That's not too bad, but when I'm currently putting over $1,000 in each month now, it seems so small. Plus, I would be almost starting from scratch because I would be using most of my savings to pay for the down payment. At $400 a month (without counting pay increases), it would take quite a while to get back to where I want to be savings wise.
I'm still contemplating, but I'm starting to lean more towards not buying. It would also give me greater flexibility if I decided to move somewhere else (within the area or out of the area). With my dad's illness and their current financial situation, I would also be in a better situation to help them out if all of my money wasn't tied up in my home. Hopefully my dad's current job will continue or he'll get a new job now that he's starting to get healthier. But it's kind of up in the air for the moment. He's about 5'7 and weighs less than 120 pounds.
The leasing office for my apartment is starting to inquire what I will be doing when my lease ends since they require a 60-day notice and my lease ends at the end of February. The guy said that to keep me in the apartment they would be willing to keep my rent the same as it is now. That would definitely be great.
Monday, December 17, 2007
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11 comments:
Investing in a home is definetly worth a look. One thing you may also want to include in your calculations is the cost of insurance. I went from paying $100 / year for renters insurance to almist $100 / month for homeowners insurance, which is something I wasn't expecting.
Thanks for your thoughts budgetboy. Insurance was included in the cost of escrow (insurance and property taxes). Most likely I would buy a condo, so the insurance won't be much higher a year than renter's insurance since you're only having to insure the inside of your unit rather than the whole thing like a house. My friend has a condo here and pays about $300 a year.
Maybe you could use half of your savings for the down payment and look for a slightly cheaper place (so the total mortgage would be the same). There's a lot to be said for having a huge pile of cash. Well, so I hear anyway!
I live in the DC metro area. There's not a lot in this area that is decent and has what I want for much under $200k. I have enough money for a 10% downpayment. With the mortgage industry the way it is, it's getting harder to get a mortgage with much less than that. And a lower downpayment would mean a higher monthly payment, which would eat even more into that $400/month savings.
Good luck with your decision...I have to admit that I would be frightened to purchase a home right now...because I don't know where I want to be in a year...
I don't think it makes sense in your situation to buy. Things are not stable enough for you to categorically say you will stay there for the 5 years the market will take to finish declining and recover. However, before you renew your lease, check out the rents and leasing incentives for competing apartment complexes. You may be able to negotiate a rent reduction or some other renewal incentive by showing the comps to your management company.
I had a lot of extra expenses that I didn't (entirely) take into account when I bought my condo (the dishwasher broke, a door needed to be replaced). I had money in my savings to cover everything, and I intentionally bought less condo than I could afford so that I would continue to be able to save, but I definitely haven't been saving as much as I originally estimated. I'm not suggesting that you should necessarily wait, but it's something to consider.
Did you take HOA fees into account? Also, consider this...if your Down Payment is less than 20%, you might pay Mortgage Insurance (sure there's the argument that it's tax deductible but the fact is, it's still a monthly expense!) for (1) one loan above 80% loan-to-value.
Of course if the purchase is for a conforming loan amount ($417,000), you could do a 1st and 2nd combo...the 1st mortgage would have an excellent rate attached to it but you'll carry a higher 2nd. This might be less but you really have to run the numbers to determine it.
Either way, I think you're being very conservative in your approach...which is a great thing! Too many people are quick to jump in only to soon realize their in over their heads :(
Anyway, just sharing my thoughts!
Having owned a house before helps in the planning. However, my house before was brand new construction and had brand new appliances and a 1-year builders warranty. I won't have that this time. That's another thing that makes me nervous about depleting so much of my savings if dealing with the unexpected.
Ricardo...having talked with my friend who would be my mortgage broker, most likely I would go with a loan that would have a slightly higher interest rate, but would allow me to avoid PMI. But yes, I realize that other than that, I'd either have to pay PMI or have a 2nd mortgage. I had a 2nd mortgage on my previous house.
Home ownership can be a great investment and it will give you a lot of pride to own a home. If you are unsure if you should buy perhaps you should wait or see a financial planner for advice.
Merry Christmas!
My thought is you never ever buy anything, especially a home unless you are absolutely 100% sure...and then some. Good luck with your decision making!
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