Can I afford to buy a condo? Help, please.

[RedPandaOne]

I was wondering if you guys could help steer me in the right direction. My Life Goal is to move out of my parent’s house and buy my own condo. But I am debating with myself if I can even afford to do so.

I’ve already read Philociraptor’s thread on first-time home buying and got a lot of useful hints from that. I’ve also been talking with my mom, but have yet to sit down and go over all my finances with her yet.

So here’s the deal:

I found a 1 bedroom condo. Price is 129,900. It's been on the market for a month and a half now so I think I could talk down the price. Would love to get it for 109,900 or even 115,000. Would need to talk to realtor about that. I have $20,000 to put down towards the down payment with closing costs included in that. I do still need to set up a walk-through to see if it's as nice as it looks online. But if I fall in love with it in person I want to make sure I can afford it!

Figuring out rough mortgage rates, HOA, groceries and all other monthly expenses, I would have roughly $400-$450 left at the end of the month. The exact number I can't remember, it's on my spreadsheet at home. To me, this doesn't seem like a lot. Is this "normal"? Or am I correct in thinking this isn't a lot of money to be putting into savings and having to spend on fun things like going to the movies and getting my hair done (which is roughly $140 every 6 to 8 weeks - around $120 for the hair dye & cut and eyebrow wax and a $20 tip). I would give up getting my hair done, but I'm already giving up archery to save money so I don't want to give up both things that I do for fun.

If I am correct: It is a 1 bedroom so I don't have the option of bringing in a roommate to help pay. I just found a listing for a part-time job as a receptionist at a college. The job location is about a 10 minute drive from my day job, and it would be roughly another 10-15 minute drive to the condo (maybe 20 in the summer due to tourist traffic in town).

I work Monday-Friday, 9am-5pm. The part-time job is 5pm-10:15pm Monday - Thursday and 8am - 1:15pm Saturdays, with a few holidays. That means Monday - Thursday I would be working 9am - 10:15pm. So long days, I would need to workout in the mornings, meaning longer days and figure out when I would get dinner. And I need to factor in when I would feed my two cats lunch and dinner. They get dry food at lunch and wet food at dinner. Granted, once they get a little older I can relax their feeding, since right now they are still kittens and this is the schedule the vet set up for them.

Well, shit. That looks just as bad written out as it did in my mind.

My other option is to wait while a new condo unit is being built, which will have two bedrooms. But the Affordable Units are being estimated at around $180,000 at the moment. That is $30,000 above my max budget, and I don't know if the price is negotiable. On the other hand, I do have a year before they are finished so that gives me time to save money and to possibly find a better paying job. I also have the option of bringing in a roommate to split the monthly costs in half.

Also, my car and student loans will be paid off in the next 4-5 years. That will be an extra $435 back into my income.

[Deslok]

The 1st step is to speak to a mortgage person who will take all your info and tell you what the bank will give you for a loan. A good mortgage person will be upfront and discuss all of your money questions and see if it makes sense for you to buy. There is no cost to do this.

 

You should ask about Mass Housing Loans for 1st time home buyers its a great program for anyone who doesn't currently own. Better then FHA imo. 

 

As far as making an offer because its been on the market for a while, this is a good idea. A real estate agent in your area can look at other condos that have sold in the last six months around the one you are looking at and tell your what a good offer would be.

 

I don't know where you live except that its somewhere in Massachusetts. I am a real estate agent around the Boston area but if you need help finding an agent around your area I can refer you to a good one.

[RedPandaOne]

Setting up an appointment with a mortgage person is top priority for me this week. I just need to get down to my bank when it's open and set up a meeting. Stupid place closes at 4pm and I get out of work at 5pm.

 

I haven't heard of that loan before, but I'll ask about it.

 

I live in Plymouth. Trying to look in Plymouth, too, but willing to move to Carver or Kingston. My commute to work is only 3 miles long and I would like to keep it around that! I do have a real estate agent, but thank you for offering to put me in touch with one. Luckily one of my neighbors is one and she has helped several people (and a few of the "kids" my age) in our neighborhood find good places. She came highly recommended.

 

Thanks for the information!!!!

 

Would you know anything about the Affordable Housing Unit...law(?). I qualify as a single person income, but if I got a second job right now I wouldn't, I would bump out of the $47,000 salary bracket. But, if I got a second job or a better paying job after I bought a place, would it affect me at all? Like, would I have the condo taken away from me since I would then make more than $47,000? The only information I have found is to qualify, but nothing about what happens after you buy.

[Kaylya]

What's the cost of renting a place vs. the cost of the condo in your area?

I know here, older condo buildings sometimes have to raise their fees quite substantially at some point (as they realize they're behind on maintaining them), or, throw in a temporary special fee to cover some specific maintenance project. With $400-500 left for anything other than regular monthly absolutely required expenses, that doesn't leave a ton of room if they need to do something like that.

[RedPandaOne]

Unfortunately, the cost to rent vs buy are pretty much the same. Average rent is around $1,200 a month. Split between two people (if it's a two bedroom place), it comes out to be about the same as a mortgage, sometimes a little bit higher. It really is the one thing I hate most about living in Massachusetts. My cousin and her husband lived in Ohio, her husband got an opportunity to be promoted with a sizable pay raise if they were willing to move to Boston. They ended up turning it down and moving to Texas because even with the pay raise, if they had moved to Boston they would have ended up with a pay cut due to cost of living. That is just insane.

 

Ugh, that I didn't know could happen. I'll file that under the "wait for the new condo building" column. The condo/townhouse I am eyeing is not new construction, so I guess there is the possibility that could happen :/

[Ripple]

For a single person, I think that having $400-$500 left after all expenses are paid is completely doable. I recommend You Need A Budget to help you manage your finances, and it's what I use to manage our family finances. The idea behind YNAB is that you plan for your non-regular expenses so that they aren't such a massive blow when they happen. For example, instead of being short $140 every 8 weeks for your hair cuts, you set aside $17.50 out of each paycheck (if you are paid weekly) or $35.00 out of each paycheck if you are paid bi-monthly. You could also budget for things that might happen, like unexpected condo fees. Take even $20 out of each paycheck and watch a nice little reserve fund build with relatively little pain. You are also budgeting last month's income for this month's expenses, so you have a month of reserve funds built right into your budget which eliminates a lot of stress. I recommend beginning to use the software NOW while your expenses are low so you can begin to build your month of reserve funds and an emergency fund. 

 

Also, I know condos are a bit different than traditional housing, but will you have to pay PMI if you don't put down 20%? You are so close to making your 20% down payment with the amount you already have set aside for a down payment that I'd recommend waiting until you can put the whole 20% down to save yourself the monthly PMI expense (Assuming PMI works the same way on condos as it does on traditional housing. I actually have no idea since I've never purchased a condo.) 

 

You also should educate yourself about condo resale in your area, especially for a 1 bedroom condo which has an extremely limited market of buyers. How long are 1 bedroom condos typically on the market in your area? Is there a good market for them? If you are buying on a tight budget and you need to sell quickly (loss of income, life circumstance change, etc.) you  may not be able to afford to wait months for your condo to sell. Where I live the condo market is terrible, but housing is also ridiculously affordable so condos simply aren't that popular. It may be different where you live, but I advise you to do your homework. 

[RedPandaOne]

Thanks Ripple! I had never heard of that website/app. I think I'll take a look into it, or at least use the basic idea of it. I never would have thought of putting aside some money out of every paycheck for the haircuts. I just always take the full amount out of one when the time comes.

 

As for PMI, yes, I would still have to pay it if I don't put the full 20% down. Luckily, I just added $5,000 to my budget. My dad informed me yesterday that my grandmother left me the money when she died and he thinks that this is the perfect time for me to use it. So I think I will when the time comes.

 

Unfortunately, my rough estimates of my mortgage of when I posted this and what the mortgage guy I meet with later are not matching at all. His numbers have me coming in around $200 each month in the end for my savings. He's giving me a rate of 4.625%, all my estimates I was doing were with a rate of 4.125%. So I'm going to shop around and see if I can get the lower rate and if it will help at all. I'm pretty sure I can. Not to brag, but I do have a near perfect credit score and no blemishes on my finances. The guy was practically drooling when looking at my info and kept on saying how he wished everyone was like me that came in. Buying the house/condo is no big deal, it's affording it month to month after I buy it is where I'm running into the issue.

[Robpocalypse]

For purposes of developing a budget, the best thing you can do right now is to use a smart phone tracking app, track your purchases for three months and take a hard look at your expenditures. This helps prod foggy memories and makes sure you are not forgetting something.

To be a voice of concern, and I really hate to be, but your projected savings of 200 dollars per month, I feel, is in the short term low )but sounds like it will loosen up). You are one accident (car, pet or health related) from triggering a debt spiral that will be exceedingly difficult to recover from. Now you do have some flexibility here, if you have 6-8 months of expenses in liquid funds in reserve after you lay out your down payment and closing costs, I think the projected monthly savings is a bit less of a concern. With your loans paid off you will bump you excess up to 600 which gives you much more breathing room.

No significant credit card debt?

Couple of condo specific things: Fees can and will change. Find out when the last increase was, also ask if there are any standing special assessments or future projects that have been voted on for assessments. Either of these could tank you budget wise.

Car in good shape? High miles could mean timing belt, tires or brakes and tank your budget.

In my experience the things that most commonly blow people's budgets are pets, cars, dental & general health. If your squared away there, you have a good starting point. You mortgage payment (assuming PMI, taxes, insurance are included) should be mostly fixed, it's the other stuff that runs the risk of draining your account (assuming you decline a variable rate mortgage).

Plan to set aside ~1k upfront for house stuff that you never knew you needed before.

Now from a tax standpoint, property taxes and insurance are usually the kick off point when it makes sense to start itemizing your return which could have a signifcant affect on lowering you tax liability. If you're tax savvy you can calculate your expected tax refund and adjust your withholdings to free up more liquidity during the year (at the expense of one lump sum refund).

With all the above in mind you can do it, if your other debt and risk of short term debt is minimal, but the first year will be tight. Once your loans are paid off and you can get the firet benefits of the tax breaks you get more breathing room.

[RedPandaOne]

Robo - I was having the same exact concern.

 

I do have two cats, so I need to make sure I can take care of them if anything happens. They are still young so thankfully a lot of the health issues are 8+ years down the road, but they are kittens and can get themselves hurt. And thankfully my car is only a year old and just reached 10,000 miles the other week, so any major repairs (aside from an accident) aren't in the near future. Thank goodness for a 3 mile commute! And perfectly clean credit history. I pay my credit cards in full every month, so no debt there.

 

After the down payment I would have roughly $17,000 left in savings, which should be enough to cover 6-8 months if need be. I just hate to be living with such a strict budget for 4 years. Anything can happen in those 4 years. I've got my eyes out for some cheaper condos, but they are all in places my mom has forbidden me to move to, and I agree with her on that. They are not safe complexes to be in. I'll just keep searching and saving until something else comes up, or until I can truly afford what I want.

[Robpocalypse]

It sounds like you have a pretty firm handle on your debt and finances and 17k is a very stable reserve! How are the appliances in the condo, good condition?

A couple of other things I would normally mention would be variable expenses related to seasons. I live in New England and gas is already up 15 cents heading into prime driving season, plus its almost time for my annual 300 monthly power bill thanks to air conditioning. Both these are likely mitigated by your shorter drive and single room condo.

All in all it sounds like you're in pretty good shape, you're asking the right questions and considering the appropriate financial rammifications. I know a lot of people fall in love with the concept of owning a home without thinking through all the finances, so I'd say you're already a step ahead in the strategy department by not falling down that trap.

There is a huge amount of varied opinion, but a good rule of thumb is craft your budget around ratio formula of 50/25/25.

50% percent of your take home income should be devoted to life essentials. Shelter, food, fuel, car, power, groceries.

25% percent should be devoted to financial obligations. Debt, savings, retirement.

25% percent is discretionary.

Good luck with the decision! Its the biggest purchase you likely have made to this point, so don't let anyone rush you!

[RedPandaOne]

The appliances were in good condition. Nothing fancy, but they would last long enough for me to put aside some money for better ones in the future when they died.

 

Ugh, I haven't put gas in my car for like two weeks. Need to do that today. I didn't realize it had gone up by 15 cents already. And $300?! Well, I guess that makes sense. Luckily I do tend to like it more on the warm side so I don't actually run my a/c much during the summer. And being near the coast does help, get those lovely sea breezes.

 

Thank you for your help so much, Rob! I'm going to take that budget ratio formula and play around with the numbers some more. And I want to apologize for calling you Robo in my earlier post. I read the 'b' and as 'o' in your title. Guess I need to get my reading glasses cleaned.

[Robpocalypse]

You're welcome and good luck! Buying your first home is nerve wracking, thats for sure.

If you have any follow up questions feel free to holler!

[RedPandaOne]

Okay, I do have a follow up question.

 

Can I put an offer on a townhouse that is in pre-foreclosure, and if so, how should I go about doing it?

 

There are a couple of townhouses in a complex that I looked at a couple of condos in. They aren't foreclosed on yet, but are listed on zillow as pre-foreclosures. The estimated price is right, and I do prefer townhouses to condos. Condos feel too much like apartments while townhouses feel more like homes to me. Plus, both of these townhouses have two bedrooms. So I could bring in a roommate and get my monthly savings even higher.

 

I did a little bit of reading about on zillow, but still a little hazy. If I have all my financials in a row and have my pre-approval from the mortgage company so I just have my realtor contact the homeowner and try to get a walkthrough and then try to buy?

 

I'm seeing my realtor tomorrow to see a different condo for sale and I plan on asking her about it, but I want as much info going into that discussion as possible, so any help would be greatly appreciated!

[Robpocalypse]

A pre-foreclosure is just a property where the lender has filed a notice of default. If the property is listed for sale, and has a broker attached to it, you can set up a viewing and make offers through your agent like any other property.

If you find a property on Zillow or Trulia and it's flagged pre-foreclosure with an estimate (no MLS listing) thats usually just the site pulling the public notice that the mortgage is delinquent, the property might not be for sale and the owner might be trying to work out an arrangement with the lender. Notice of default is usually a public filing, which triggers the pre-foreclosure flag, and the property might not ever wind up being on the market.

Short sales and foreclosure properties can be very frustrating experiences..most of the people I know who have tried to negotiate short sales encounter a lot of frustrations and months of delays. Not to dissaude you if you find something you like! Merely be prepared to be patient

[Robpocalypse]

I agree btw that townhouse is definitely better than a single room condo.

[RedPandaOne]

Thanks for the info! That's what I had gathered from reading, but wasn't exactly sure.

 

I agree, I want to avoid short sales and have avoided looking at foreclosures for the most part. But I got curious and looked. From watching HGTV they seem like a bitch to buy. And yes, I know I shouldn't base what I know from TV shows, they amp up the drama for effect. But you still learn a lot once you learn what to dismiss.

[Deslok]

And yes, I know I shouldn't base what I know from TV shows, they amp up the drama for effect. But you still learn a lot once you learn what to dismiss.

 

Those home buying / flipping shows are great to watch but terrible for teaching people how purchasing real estate works. (some shows are totally fake btw (ie House Hunters)). The best way to find listings is through your agent who has access to the most up to date information. Although Zillow and Truilia are very good for looking at properties their information is sometimes wrong &/or out of date.

 

I agree with Rob about short sales I have seen deals go on for over a year and then just fall apart leaving everyone frustrated and unhappy.

 

Rob you seem very knowledgeable (really smaht), what line of work are you in?

[RedPandaOne]

Those home buying / flipping shows are great to watch but terrible for teaching people how purchasing real estate works. (some shows are totally fake btw (ie House Hunters)).

 

You have no idea how disappointed I was last year when I found out House Hunters was fake. But it made sense, they seemed to buy those houses and move in way too quickly. I'm assuming the same goes with Property Brothers - that they already have the one bought but are shown another crap place just for comparison. But I mainly watch that show for Jonathan, so I don't care! Lol,

[Robpocalypse]

Thanks for the info! That's what I had gathered from reading, but wasn't exactly sure.

I agree, I want to avoid short sales and have avoided looking at foreclosures for the most part. But I got curious and looked. From watching HGTV they seem like a bitch to buy. And yes, I know I shouldn't base what I know from TV shows, they amp up the drama for effect. But you still learn a lot once you learn what to dismiss.

Looking is the fun part! The property shows are interesting, but everyone always seems to come out a winner in the end which is pretty far from reality The negative of the shows is that it sets unrealistic expections for new buyers (Not saying you!) New buyers now expect to walk into a home with central air, crown molding and granite counter tops.. when they see the reality of the homes on the market they tend to avoid many very good starter homes that can just use a little TLC and get stuck looking for the perfect image of their dream abode.

The other problem your going to run into with Zillow and Trulia is that they are slooooooow to update. I had a signed offer on a house last year that took 3 weeks to update. This is where agents can really come in handy with their quicker access to the MLS system.

HGTV is good for giving you ideas.. and zillow is great for scoping out pictures (use google maps and earth to get an idea of the surrounding area) but your going to do the bulk of your work down and dirty in the trenches trudging from house to house

[Robpocalypse]

Rob you seem very knowledgeable (really smaht), what line of work are you in?

I just use really long posts to trick people into thinking I have something important to say

I'm a professional accountant by trade, but I bought and sold 4 homes in the past 5 years so I got a bit of a real estate crash course.

[Briguy]

It looks like you have a lot figured out from what I read on your savings and such.  Most of the suggestions I have are for someone living with parents that might not have a savings, but it works either way.

I moved back in my parents so I could save a little money and maybe save towards a down on a place of my own, now I am stuck since I don't work because of health stuff.

You have a substantial amount in savings as well as a down payment, that is good.  Keep adding to that and it will help with getting lower payments.  A couple things I noticed though is a lot on the hair, and you just deduct that as the time comes, one person mentioned taking out portions each check for it, that helps have a little more control.  Also the new car you have, that is awesome, I've always wanted a new car, but you have those payments to worry about, if you do end up getting that second job, use it and pay off the car, its a nice to feeling to own a car and not have to make payments on it every month. Also where you live do you help pay with any of the things? My parents charge me a small amount per month to help with utilities and such, I also provide all of my own food.  This makes a big difference when you leave if you aren't used to getting your own stuff (I joined the military, so I didn't have to worry about food as much when I left, after that I had to learn how to shop and cook for one.)

 

I would also suggest a financial course, I really liked Dave Ramsey's FPU.  The Envelope System helped me organize and find out where my money was going (only made about 25,000 a year).  One thing he stresses is the credit card, you don't need it, if you have that much in savings then just get a debit card and don't have it attached to savings for overdraft, you can then put the money in and not worry about something coming up where you miss or are late on the payment and have to pay more. Use an envelope system for food, hair, entertainment, car, all that stuff and keep putting a little aside for emergencies.

While your waiting start making payments, well, setting it up as a payment.  Look at what your spending your money on,  worried about not having enough extra? Find out where it all goes, adjust it a little, learn to say No, I don't want to go out and spend $200 at the bar, lets go for a drive in my awesome car I just paid off.

[RedPandaOne]

I currently live with my parents. The only things I pay for are my own personal products/everyday things. However, my parents tend to travel a lot (for a month or two at a time sometimes), so I've had to go grocery shopping for myself. I've kept tabs on how much I've spent each time, so I got a good reading of what I spend. My last 2 1/2 years of college I was also in apartments and didn't have much of a food plan, so I had to go grocery shopping. We also never bought shared food among the roommates (or very rarely did) so I've got that number in my head as well.

 

I'll look into taking that class. I do have myself on a monthly budget for fun things. Once the money is used up, no more fun for that month. If I want that book, I need to wait until next month to buy it. I think this is what has helped me save so much money.

[Robpocalypse]

Briguy has some food info, the only thing I would argue with is that credit cards are not always the devil, provided you can manage the debt load smartly.

Smartly managing debt can be a valuable tool!

[DaemonCorax]

Just to play devil's advocate:  Have you looked at the rentals?  I know you said it costs almost the same to rent, but your have many  many more bail out options.  If your job isn't permanent and you might be moving in the next five years I wouldn't buy.  The closing costs and other costs associated with buying and then selling later don't make it a winning situation.  Unless you're in an area where you know (magically) that the value of your place is going to appreciate quite well, I would rent cheaply and buy later.

[RedPandaOne]

I thought about renting, but in my own opinion, I think renting is a waste of money. If I'm going to be spending $900+ a month on rent (not including utilities) I'd rather be putting that money towards something that I will own. Otherwise it feels like I'm just flushing money down the drain. If it were cheaper to rent, I may consider it more. Move out, rent and save. But if I did that, I would have no money to put towards saving. But since here rent is either the same price or higher than a mortgage, I'd rather buy.

I totally hear what you're saying though. And I always appreciate people coming in and being a devils advocate makes you think. But I have a steady solid job and currently live rent free, so I'm going to continue to save and keep my eye out for a place to buy. The place that I originally posted about ended up having a lot of issues pop up in other people's inspections, so my realtor and I have decided not to pursue that one. So I'm still looking.