Thoughts on Purchasing a House or a Condo

A coworker explained to me that his income tax rate is about halved because of his tax-deductible mortgage interest. Halved? That’s insane.

I countered with “Well, I don’t quite have the cash to buy a place yet.”

He explained that you don’t really need that much and explained that you can put down 5% and get an 80/15 mortgage, which allows you to avoid the penalty for putting down less than 20% as a down payment.

I countered that I’m not quite ready psychologically to buy a place and explained that it took me almost two years before I even signed a cell phone contract. (I had been using prepaid cell phones for a number of years.)

My dad keeps telling me I should buy a condo. My accountant told me I should for the tax-deductible mortgage interest. And now my coworker is telling me that I don’t really need to put as much down as I am planning on.

I set $100,000 as a financial goal for a down payment partially because I figure that by the time I’ve saved that much up (in 2-3 more years), then I will be psychologically ready to buy a place. I don’t want to buy a place until my credit score is over 740, to get the best interest rates (that will be another year or two, probably). Also, condos and houses are both incredibly expensive where I live.

The ideas I’ve thrown around for the type of place are:

  1. Two-bedroom, two bath condo (apartment style) – use one as a den, one as a bedroom
  2. Three bedroom, two bath townhouse – use one as a den, one as a bedroom, one as a spare bedroom for guests (I have furniture from my parents that I would take to fill the guest bedroom)

I’m against living in a house all by myself as a single woman. I would feel safer in a condo or a townhouse complex. I also don’t really want more than three bedrooms for just me. Right now, I have one bedroom and a den in an apartment and I definitely don’t want anything smaller than that, but I don’t really need anything bigger than that either.

Realistically, I should expect to find a condo or townhouse in the price range $250,000 to $400,000. So to put down 20%, I would need between $50,000 and $80,000 saved in cash and to put down 25%, I would need between $62,500 and $100,000 saved in cash.

I am close to my $27,000 goal this year and it’s quite possible that I could save the same amount next year, resulting in $54,000 saved towards a down payment at the end of next year, which would allow me to afford a condo at around $216,000 to $270,000.

I could find more cash by reducing my investments next year. I could stop maxing out my 401(k), but I think that’s a bad idea since I can’t get that room back, as with my Roth IRA. I could stop contributing to taxable investments until I’ve purchased a place or sell existing taxable investments to raise more of a down payment. I think I would prefer to stop contributing to taxable over selling existing taxable investments.

I guess the answer here boils down to how much I want to buy a place and that’s where my confusion on life goals makes setting financial goals difficult.

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4 thoughts on “Thoughts on Purchasing a House or a Condo

  1. Sounds like peer pressure to me. I know that the 80/15 exist but what are the chances they are going to loan you one loan let alone two loans for a place to live nowadays. Same thing with the tax deduction on interest. How do you know if the ‘tax-deductible mortgage interest’ is actually going to be there in the future with all of the ‘fixing’ of the tax code that is on the news everyday. Then there is the issue of maintaining a condo. Then there are monthly HoA fees. It all adds up.

    I would continue what you have been doing. We are both 20-something and for our age, I believe that being tied down to a home/condo is not really in our best interest.

    • He backed off when I said that I simply didn’t *want* to buy a place at the moment, so not complete peer pressure.

      I’m definitely not comfortable with the idea of an 80/15 loan either – I will probably put down 20-25% when I do buy a place.

      I like the city that I live in and don’t necessarily see myself leaving it for awhile, but I think it could be a smart idea to wait until I change jobs before buying a place. Even if I change companies within the same city, the commute could still end up being a huge pain! So for now, I am just accumulating savings towards buying a place, eventually.

      It is fun, however, to do the math every once in awhile and see how possible it is :)

  2. I think you buying a place you can easily rent out is a good idea as a single woman.

    You never know, you might meet someone you will want to move in with, and if they already have a place then someone might have to “give up” their place :) (to rent or sell)

    Congrats on the solid net worth increases!

    I ended up liquifying some of my investments to increase my down payment. :)

    • Thanks Young! :)

      Agreed – the type of place that I am looking for right now is something that could be easily rented out. I also won’t buy a place if I’m in a relationship with someone who owns a place already that could technically fit both of us. If I was in a relationship with someone who also didn’t own a place, I would consider the level of commitment in the relationship before thinking about buying. But right now, I am single, so I want something that is comparable in size to what I have now (over 900 sqft), but just a bit more spacious and nicer.

      I’ll be talking, probably later this week, about where I could find funds to increase my down payment.

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