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Looking to buy a condo
Orca
Registered User regular
Registered User regular
While cursing the person who left their laundry in the washing machine this evening, I realized I had finally saved enough money for a down payment on a condo.
I've done some research, and there are units available that would cost me something on the order of 28% of my pre-tax income per month (including insurance, property tax, HOA) assuming I qualified for a reasonable rate. If I go through the entire process, I'll be on the hook for an order of magnitude more money than I ever have before, and that scares me.
I'm in the Pacific Northwest, where house prices are high and getting higher. Seems like it's a seller's market out here. I have no debt (yet), a solid job, and not much in the way of expenses...yet.
Now what? What are the traps and gotchas? Recommended places for more in depth research? Plus, there's also the concern about moving. How do I estimate the time until I break even vs. renting? It's maybe financially possible, but how do I decide if it's the right decision?
Help!
I've done some research, and there are units available that would cost me something on the order of 28% of my pre-tax income per month (including insurance, property tax, HOA) assuming I qualified for a reasonable rate. If I go through the entire process, I'll be on the hook for an order of magnitude more money than I ever have before, and that scares me.
I'm in the Pacific Northwest, where house prices are high and getting higher. Seems like it's a seller's market out here. I have no debt (yet), a solid job, and not much in the way of expenses...yet.
Now what? What are the traps and gotchas? Recommended places for more in depth research? Plus, there's also the concern about moving. How do I estimate the time until I break even vs. renting? It's maybe financially possible, but how do I decide if it's the right decision?
Help!
Orca on
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Then remember that you can deduct on your taxes any mortgage interest you pay as well as the property taxes (provided that your mortgage interest + property taxes are higher than the standard deduction). Depending on the rental market in your area, you may already save money versus renting before factoring in the deduction.
Then remember that by owning you, well, own it, so when you stop living there you can either rent it out or sell it.
When you get serious about buying, ask around and see if anyone you know knows a realtor and a mortgage broker. You can get mortgages online and stuff, but I found having an in person broker indispensable (though this may not apply to brokers outside of California).
1. Hire a building inspector and have an inspection done.
2. Have your real estate agent get the strata to send you the last 2 years worth of meeting minutes. Read the minutes and make sure there are no major issues going on (huge upcoming repairs, outstanding litigation, etc).
You don't want to buy into a condo that is going to end up being a huge headache and potential financial drain.
Also, keep an eye out for depreciation reports. In the Vancouver, BC area they are required under the city bylaws, although stratas can vote to postpone obtaining one. One sign of potential problems or strata maintenance neglect is the absence of a depreciation report.
Also, remember to include strata fees and what may or maynot be included in them when calculating your monthly costs.
On the tax front, I'm not sure if it applies, but there may be things like a property transfer tax. Make sure you include its cost in your calculations.
I'm not sure how things work on the mortgage front in the USA, but in Canada I got a line of credit securitized against my mortgage. Each dollar I pay off on my mortgage increases a dollar available on the line of credit, up to the total value of the mortgage when the mortgage has been paid off. The interest rate for the line of credit is 0.5% higher than my mortgage interest rate. There will be expenses that come up and a line of credit can help tide you over. Around here, unsecured lines of credit tend to have interest rates of 7%, while secured are in the 3% range.
Also closing costs. Some of them are percentage based but they'll be a considerable number even if you go with a low down payment loan.
Always add another 10% on top of your down payment for associated house stuff.
I was surprised as I neared closing when I tried to buy a house just how much shit I'd have to pay for. Luckily it fell through.
Also look into what units are rent controlled or impacted by low income housing requirements and stuff.
Other thing is to make sure you're planning on staying put for 7-10 years, as otherwise it's more an anchor than a foundation.
Plus you get tax bennies for having interest on your loan (assuming you can itemize). There's not really an easy way to calculate it.
Rates are silly low right now in a historical way. I'd question if putting more money into the mortgage than needed is a great idea when you should get a better return elsewhere. Though both won't be terribly liquid for you so should be separate from a reserve fund for OH SHIT style of things.
Edit: Oh, and you were waffling between 30 and 15 I'll point out that 20 year loans are a thing.
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
1) try to get to get a feel of how many renters vs. owners there are in the building as renters in my experience tend to care a little less for the state and the community of the building
2) be extremely thorough when reading through the building rules (might HOA rules in the US) and don't be afraid to walk away from a building that has rules that clash with how you'll live
3) get a tough lawyer to read through contracts and regulations of the building
I was able to sit down in his office, and he walked me through the entire process of applying for a loan. He did all the work to search for the best rate. Him and his assistant did everything they could to browbeat my HOA into getting their stuff in shape to the satisfaction of the lender (in particular, my issue was that for condos only a certain percentage of the units can be delinquent on their fees). Without them, I'm not sure I would've been able to get the house I got.
That said, in California, mortgage brokers have a fiduciary duty to act in the best interest of their clients, so your mileage may vary.
Get something near work (within 30 minutes in normal traffic), near where a lot of jobs are if you need to change jobs, and within a reasonable walking distance (within a mile) of stuff like supermarkets, convenience stores, bars, auto repair shops, and restaurants. Even if it means a smaller place.
Time is one of your most valuable assets, and having a short commute, having a short distance to travel for chores after work, those are worth a lot, in time and in piece of mind. You don't miss them until you don't have them, and unlike renting, you can't change your mind next year if you make a mistake in location.
I went from a 2 bed, 1.5 bath, 1350 sq ft, new construction in a far away suburb to a 2 bed, 1 bath, 1050 sq ft, 100 year old house in a close to Boston suburb when I bought my second place, which should tell you how much I came to value location.
Well, that's the first rule of real estate: location, location, location. You can change everything else, but you can't change that.
For my first house, I should've purchased a 700 sq ft 1 bedroom or even a 600 sq ft studio in a 60 year old building in my current suburb or an adjacent suburb, instead of going with the larger, new construction, in a much further suburb that I actually bought. I should have compromised size and newness of construction, instead of accepting a bad commute.
In every measurable way, including house appreciation, a smaller place within 6 miles of downtown Boston would've been the better purchase, now that I've had the benefit of hindsight.
Thus, my hard won advice is to never accept a bad commute, if you have any choice in the matter. You are better off compromising elsewhere.
I think you're the only one that can determine what the "breakeven point" is, since we don't have any numbers or concrete information about where you are. Since it sounds like you live in a relatively hot market, you'll probably going to be paying enough in mortgage interest to itemize your deductions if you aren't already. That alone could potentially save you thousands of dollars, and in total you may wind up paying less than it would cost to rent an equivalent place, which means your breakeven time is however long it takes to pay off your closing costs (many of which are also tax deductible).
There's also so many soft factors in home ownership (like the current commute time discussion) that it may not be purely about the numbers.
Like, by the numbers, I definitely should not have moved out of the house I own (and am now renting out) to pay more in rent elsewhere. But I enjoy where I live now vastly more than where I did before.
There are markets where this is demonstrably NOT true (SF etc.)
If you're worried about workplaces - determine first if there are many other companies in your job field in the immediate vicinity or not, if not - is yours the outlier?
I'd also recommend just hanging out in different areas to get a feel for them and see which you want. This goes a long way towards helping. I generally have had a commute <15 minutes for my entire career, but there was a short period where it was occasionally 45 due to different office location, but the trainride early in the morning was very relaxing so I didn't mind. It's not only the length but quality of the commute.
Renter/Owner ratio. Some insurances companies will have higher rates or not insure if the renter ratio is too high. Be sure to look at the policy to include Wall In (I believe that's the term). There are two types of common insurance policy for condo where they will fix up to the wall and no appliances, or everything inside, walls, floors, appliances.
Check the meeting minutes, budgets, etc. Be sure they have a health budget in the reverses. Normally that's about 2-3K per unit in the association. Ask about the age of the common use items: roof, common stairwells, elevators, boiler, water tanks. (Again this could depend as I have my own water tank and heating in my unit that I am responsible for). Be sure to ask about any recent or upcoming reviews/assessments. If the owner selling has not paid their assessment, they cannot sell their units (at least that's in my state)
In terms of the years of mortgage, there are many factors to consider and you really need to know your budget and how flexible you are. 15 years is much shorter, but higher monthly payments. 30 year is longer, but lower. Just be sure when looking, see if there are any penalties for paying early or over paying. Some companies restrict you to remain in the full term of the loan and fine you a fee for paying out early.
Check out the location and see if you like it. Depending on the condo unit, garden/townhouse/etc, knock on the walls and the floors. My condo unit is a garden style, but each unit is separated by drywall, brick, then concrete. I don't hear my neighbors at all and I can stomp on my floors without bothering anyone. At my friend's condo, you can clearly hear people running around/going up and down stairs. It may not bother you, but it would suck if have crappy neighbors above/below you who can make a lot of noise.
Looking for Edith Finch Pin!
Unless you are incapable of maintenance, condos suck. The pitfalls are many with the benefits being based on the condo association being healthy. 1) Economic downturns hit condos hard. The loss of "owners" causes payments to sometimes skyrocket. 2) HoA/Condo Associations are private communities... that means many legal protections a whole-homeowner has for their own property is likely not the case for condos. Your HoA/Condo Association needs to spend four weeks (realistically eight weeks) working in your unit? You have zero ability to tell them to leave. They can also raise fees without any oversight nor any reason. 3) You simply aren't in control of the property you buy. Sure you "own" it, but that ownership ends when the association decides they don't like you. You may get forced to sell at a loss due to extra-legal condo "rules".
Lastly, HoA and Condo leans are... horrific. Even a bank who is completely morally bankrupt doesn't do what condo owners are allowed to do under the law. In my working with upwards of 5k+ families to keep their homes (including many from here in H/A when I had my sticky up during the crisis) the ones who had no hope were the condos who were free to do awful things because they were private.
https://forums.penny-arcade.com/discussion/comment/20790264/
We're in a mostly-older aged condo & apt complex and it's been fine for 10 years. Took a bath as we bought in 2007, but the unit and building have been fine. Neighbors pised me off for awhile but they've quieted down, and having a big patk and a pool basically outside my door has been great.
So shop around, and look into the unit, the building, and the Association.