Reflections on Homeownership: 4.5 Years In

 

Life was so busy this summer that I forgot to write my annual reflections on homeownership post, so here I am at 4.5 years in instead. I cannot believe that I am coming up on my five year anniversary of buying this wonderful condo come this spring! This fall marks 5 years since I started looking for a piece of real estate to buy.

There have been many discussions lately over the fact that in today’s hot real estate markets, you need to decide pretty quickly whether you are committed to spending several hundred thousand dollars on a particular piece of real estate. Yet, every week it seems we discover something new and fascinating about this condo in which we live.

Lately, one question has been “How much did I really think through this neighborhood selection?” Within a mile radius, we have what I thought was pretty much everything one needed: a post office, courier services, multiple grocery stores, a library, a drug store or two, a hair salon, barber shop(s), a gas station, park(s), and multiple restaurants. Yet, whenever we want to go to a restaurant, our first choices are never the local ones, which results in Uber’ing to another neighborhood. There is no takeout in the area that I like. (Is that a good thing or a bad thing? Probably not so bad for the wallet.) Our friend in the nearest proximity is a full mile away. It is pretty easy to get downtown and it’s easy for friends to park near us if they drive to visit. The commute to my job at the time was pretty good, as it is to my husband’s job, but my commute to campus is a bit inconvenient, as was my commute to my last job.

We finally finished the furniture tetris game I mentioned last time we talked about my ideas on homeownership. We now have furniture that we both love and that we chose together. We repainted many rooms. We’ve decorated together. It really solidly feels like our place. It is wonderful. Our home brings us joy again.

A realtor told me that they would list this condo of mine for ~45% more than what I paid for it. Two more years or so and that would run up against the $250,000 single capital gains exemption for home value increases, though we may not need to worry about that as we got married and that increases the exemption to a ludicrous $500,000. (I’m unsure what exactly the requirements are to qualify for the married exemption over the single one, however.)

In 2016, this condo cost a whopping $14,000 in housing expenses (mortgage interest, HOA dues, property taxes, condo insurance, electricity, repairs, interest lost from having the equity locked up, and tax savings).

I was pretty conservative in my calculations when I bought this place, which has now put my husband and I in the situation where our housing costs (including the full required mortgage payment of which only the interest is included in the $14,000 figure) are around 6% of our combined gross income in 2016. If you take out the principal portion of the regular payment, it’s even lower.

Perhaps I skipped the 4 year post back in the summer because we were super busy going to open houses every weekend. We were frustrated with our furniture tetris and unsure that we would ever figure it out, so we became convinced that we might need a larger place. This condo has two bedrooms and is relatively spacious in the lower 1000 sqft range, but we were not utilizing the space particularly well. With our then-existing furnishings, there wasn’t enough room for each of us to feel like we had personal space to pursue our home-based hobbies. The increasing market ranges mean that we would need to spend about 40-50% more than the value of this condo to get a three bedroom townhouse. We developed the mantra “Is this cheaper than moving?” (which is pretty much true for everything when your alternative is to spend several hundred thousand dollars) and we started trying new hypotheses. We hired an interior designer to help us refurnish the living room, who came up with ideas that we never would have. It was expensive, yes, but it sure was cheaper than moving. The designer asked us early in the process “How long do you plan on staying here?” and our answer was “So long as we stay in this city and don’t have children, quite possibly decades.”

Homeownership means that our lives revolve around our central home, rather than our home moving as our lives shift.

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Can I pay my mortgage off in 2015?

I’m going to be a bit slow in setting my 2015 goals with some job stuff out in the air. Last year, I set a goal to pay off my mortgage by the end of 2015. I’ve also doubted this plan occasionally. Now that we’re a year in on that plan, how am I doing?

After making my November mortgage payment, the balance is sitting at $147,700. I will make no additional payments until I start a new job so my mortgage balance will sit at $147,000 after the regular December mortgage payment is made. That post from last November calculated that I would need to have a balance of $91,284.28 at the end of this year in order to pay the mortgage off at the end of 2015.

I still think it’s possible. Or so my spreadsheets say. I’ve been following a more irregular repayment plan the last few months than I was. My income in 2014 turned out to be a bit under my optimistic projections. I will likely end up with an unpaid break between jobs. I still don’t have an accurate picture of my 2015 savings plan. But I’m still optimistic that I can pay off my mortgage in 2015, based on my current income predictions.

My plan all along has been to empty my savings account and possibly other non-retirement investments in order to pay off the mortgage entirely. My calculations show that with the mortgage paid off, I’ll be able to save $4,500/month after maxing out my 401(k). All of my past “emergencies” have cost under that amount: my car getting broken into, needing to move on short notice, and non-emergencies such as last-minute trips. Plus, any medical issues should be covered my Health Savings Account funds. Future emergencies could include replacing any number of the 10+ year old appliances in my condo, but unless they all break at once, $4,500 should suffice to replace the dead one(s). That means that emptying my emergency fund to pay off the mortgage isn’t that scary, especially considering that I will be saving just over 2 months’ expenses each month with the mortgage gone.

I’m still going to make my 2015 Roth IRA contribution at the beginning of the year and max out my 401(k) for the year, especially since it’s looking like the mortgage will be paid off very cautiously in December if it is paid off in 2015. I’ll hold off on making my 2016 Roth IRA contribution though until the mortgage is paid off in full.

Here’s to ending 2015 with no mortgage!

Reflections on Home Ownership: 2 Years In

Woo! I have lived in my condo for over two years now. In some ways, it feels like it has been far longer (my mom was convinced I’ve been here three years). And you know what that means? The next time I request one of my credit reports, I only have to list this address :)

If I sold my condo today for the exact same amount I bought it for 2 years ago, I would have spent about $9,019.23 more than I would have renting over the same time period. If the market has truly gone up by as much as it looks like it has by the sale prices around me, buying would be cheaper than renting today by $76,284.27. Buying should be cheaper than renting at my purchase price by the end of 2014.

The mortgage balance at the end of June sat at $152,167.66. It was at $187,552.40 at the end of December, so I have paid down $35,384.74 in the last six months, for a total of $133,832.34 in the 24 months that I have owned my condo, while still maxing out my 401(k), Roth IRA, maintaining my $20,000 emergency fund, and occasionally adding to my taxable investments. I now have 57.5% in equity (assuming purchase price) and have paid off 46.8% of the original mortgage balance. If I didn’t make any more pre-payments, I would have just under 15 years left on the mortgage, which is pretty good considering that it was a 30 year mortgage 1.5 years ago.

What interesting things have I bought for my condo in the last six months?

  • ~$2,500 on the closet organizer install and painting. These have been absolutely wonderful and my only regret is that I didn’t do it right away after moving in! Spending $2,500 on it then seemed a lot harder to fathom than it did this year.
  • ~$110 on replacing the two programmable thermostats in the condo. We will see in December whether this reduced the electricity from heating at all, but the new thermostats are definitely far nicer to use and they do seem to detect the room temperature better. I’ve also been considering installing another heating vent in the master bedroom as it gets chilly on the end of the room without one in the winter. That would probably cost $500.
  • ~$140 on a new container, a second perennial and then some annuals.
  • ~$100 on replacing all of the lights in the kitchen, hallway, second bedroom, and some of the lights in the master bathroom with LEDs. If all of my light bulb electricity is in the second tier and each of these lights is on for an average of 3 hours per day, it would take 382 day to break even or slightly over a year, shaving $7-26 off each bimonthly electricity bill.

I got a bit frustrated with how much my property taxes and HOA dues went up this year ($700 from last year), but then I realized that if I was still renting, my rent would be up probably $300/month from last year, so I’m quite happy with where things are sitting at the moment.

Things haven’t been super exciting on the mortgage front these last six months. The mortgage is almost half gone though, which is pretty exciting! Some days, the chart below astonishes me at just how much of the mortgage I’ve paid off in two years. $133,832.34 is $66,916.17 per 12 months or $5,576.35 per month on average, which is a lot of money!

June 2014 Mortgage Balance

$430,000

I’ve been using Mint, not for budgeting, but to make logging into all of my bank accounts easier. I recently told it to use Zillow to calculate the value of my condo. That shot my net worth up to…

$430,000

(a bit of rounding here)

It really does feel like I’ve “won the game”, not that I can stop working forever, but I have quite a bit of financial freedom now. I’m 25/26 and the sum value of all my assets is over $400,000 and my income is in the high $100,000 range? I also think that Zillow is low by about $50,000 in how much my condo is worth, which would put my full net worth somewhere around $480,000 or about 11 years of current expenses. I’m going to continue counting only the purchase price of my condo in my net worth spreadsheet until I sell it, but it’s still kind of cool to see these numbers.

Also? I saw just under $1,000 in dividends across my investment accounts this quarter. (Note: I do re-invest dividends, so I just find this an interesting metric to watch increase.)

This is probably related to why I haven’t posted much lately – everything is just chugging along and not much out of the ordinary is happening. I’m not really discovering much new in relation to my finances lately either. I will have a post up at some point reflecting on two years of homeownership though!

Reflections on Home Ownership: 18 Months In

As we speak, I am coordinating the installation of improving the closet storage space in my master bedroom. Hello home ownership! I’m so excited for this improvement as I’m utilizing very little of the existing closet space, which has been frustrating me lately. You’ll see the cost of that update in the December/January net worth updates and the 2 Year home ownership check-in.

If I sold my condo today for the exact same amount I bought it for 1.5 years ago, I would have spent about $13,301.33 more than I would have renting over the same time period. If the market has truly gone up by as much as it looks like it has by the sale prices around me, buying would be cheaper than renting today by $32,808.67. Buying should be cheaper than renting at my purchase price by the end of 2014.

The mortgage balance at the end of December sat at $187,552.40. It was at $229,752.70 at the end of June, so I have paid down $42,200.30 in the last six months, for a total of $98,447.60 in the 18 months that I have owned my condo, while still maxing out my 401(k), Health Savings Account, Roth IRA, maintaining my $20,000 emergency fund, and occasionally adding to my taxable investments. I now have 47.5% in equity and have paid off 34.4% of the original mortgage balance. The mortgage is currently projected to be paid off by June 1st, 2016 with no intervention from my savings account.

Now let’s compare the charts to where the mortgage was six months ago!

With my December 1st payment, I paid barely over $400 in interest and will pay about $390 with the January 1st payment. I paid $480 in interest with my June 1st payment.

Mortgage Payment Interest Versus Principal Mortgage Payment Interest Versus Principal Dec 2013

 

I’ve paid so much of the mortgage down that I’m now tracking towards a 3.5 year payoff rather than the original 5 year plan. I’m about $26,000 ahead of the 5 year payoff target for the end of 2013, and about $7,000 behind the 3.5 year payoff target.

Mortgage Paydown Versus Five Year Track Mortgage Paydown Versus 3.5 Year Track Dec 2013

 

I’m projecting that with my next update at the end of June, the mortgage balance will be sitting at around $145,284.12 or another $42,268.28 gone!

Reflections on Home Ownership: 12 Months In

6 month post

I’m having a really hard time distinguishing between home ownership and this being the place I live in now. Do I love this place because it’s my favorite of all the places I’ve ever lived in or do I love it because I own it? Maybe it’s a little bit of both. I’ve changed some of the little things that I don’t love about the place, learned to live with the others, and will change more as time goes on. I may not be the home decor fiend like many other home owners are, but I’ve definitely made this place my own.

I’ve been watching the real estate market around my place and I think that I could sell it for enough to make buying make more sense than renting already, one year in. Isn’t that crazy? If I could sell my place for the exact amount I bought it for, buying would be cheaper by the end of 2014, so another year and a half.

Now that it’s been a year, I want to take a look at the math on renting versus buying so far.

  • Over the course of the last 12 months, I’ve paid out $14,096.17 in mortgage interest, HOA dues, property taxes, condo insurance premiums, electricity bills, repairs, and improvements. I also saw credits to the tune of $227.52 when I refinanced my mortgage loan back at the end of 2012 and saved $906.81 on my federal income taxes due to itemizing thanks to paying the mortgage interest, among other things. I’ve lost out on $879.14 in interest by buying the condo and pre-paying the mortgage instead of leaving my entire amount of equity in an Ally savings account earning 0.84%. So, one year in, I’ve paid out $13,840.42 to own and live in my condo.
  • If I had continued living in my previous apartment, I estimate that I would have paid out $22,618.27 in rent, parking fees, building utilities (water, sewer, gas, trash), renter’s insurance, and electricity, which is $8,777.85 more than I’ve paid out to own and live in my condo over the last year. At that rate, it would take me slightly over 3 years with these numbers to recoup the transaction costs of selling the place.
  • Assuming I could sell my place for exactly what I paid for it, I would be out $13,921.98 if I sold it today. I expect staying here to break even (assuming no change in sale price) by February 2015. If the market has truly gone up as much as it looks like it has by the sale prices around me, buying would be cheaper than buying today by $23,846.65.
  • The mortgage balance at the end of June sat at $229,752.70. It was originally at $286,000.00 when I bought the place last June. I’ve paid down $56,247.30 (19.7%) of the mortgage balance over that year while still maxing out my 401(k), Health Savings Account, Roth IRA, maintaining my $20,000 emergency fund, and occasionally adding to my taxable investments. That means that, at this time, I am pretty much on track to pay off the mortgage in five years from origination. I also now have about 35.7% in equity and will be pretty close to 50% in equity by the end of 2013.

Now for some charts! Note that these were accurate as of posting and assume only the normal payment for the rest of the year (August 1st payment and on), which is unlikely to happen :)

I am paying SO much less interest than when I first started out last year, especially since the refinance. My first payment was $708.07 in interest. The first payment with the refinance was $527.60 of interest. I’m estimating to pay less than $400 in interest by the January 1st, 2014 payment. It’s been really fun to watch the interest go down each month and the principal portion of the payment go up.

Mortgage Payment Interest Versus Principal

I feel like this chart doesn’t really do justice to the fact that I have paid down over $56,000 of the mortgage in just 12 months. Or very close to $60,000 if you count the pre-payment I sent in with my July 1st regular payment. That is a pretty decent chunk to pay down in just one year. This chart shows how I’m doing against the 5 year payoff balance for each month. As you can see, I’ve paid off enough as of today that I am ahead of schedule through September 1st. With the lump I plan to send in later this month, I should be ahead of schedule through January 1st, 2014.

Mortgage Paydown Versus Five Year Track

Today, I’m glad I bought. I love this place so much and it’s turned out to make a good deal of financial sense so far. Paying down the mortgage is pretty addicting too.

Reflections on Home Ownership: 6 Months In

I’ve now been a homeowner for about six months and it has been a little over a year since I started the home searching process. Am I happy with the condo I have now? Absolutely. Do I think that I should have started the home searching process last fall and actually purchased a place? No.

Why do I think I wasn’t ready last fall? I didn’t have enough in savings. Here are what the numbers looked like:

  1. Down payment savings: $24,709.14
  2. Next vehicle: $3,213.54
  3. Vacation savings: $2,458.49
  4. Emergency reserves: $18,037.51
  5. Taxable investments that are currently at a loss: $2,901.60
  6. Miscellaneous savings that would take some significant effort to retrieve: $7,005.37
  7. Taxable investments that are currently at a long-term gain: $2,587.44 (selling would cost $168 in long-term capital gains taxes in April plus $9 in commissions) – post-selling value would be $2,578.44
  8. Auto loan payments: $858.94 (not available – will use to make the last payment on the auto loan this month)

That adds up to:

  • Emergency reserves: $18,037.51 (~6 months)
  • Money available to buy a place: $33,411.72 (down payment savings, vacation savings, taxable investments currently at a loss, taxable investments at a long-term gain)

So when I first started looking at buying a place, I had only $33k in cash available to me. But a realistic budget was $250-400k for a condo. $33k would only make a 20% down payment on a place worth $165k and that is ignoring closing and moving costs. The first places I looked at were clearly not places I wanted to live (though they were quite nice) and the process was quite frustrating. My parents gave me a sum of money that made the decision actually a viable one, but I really shouldn’t have gone ahead with the process last fall. Instead, I should have re-signed my lease and kept on saving for another year. I would have had about a $73k down payment fund right now and I would have had plenty of time to look for a place. I would have saved myself a lot of stress, about $4k in moving costs, and many months of lost social life. (All those dates I went on in the first half of 2012? I think I would have had better luck had I not been so stressed out with the condo hunt. That said, I am thankful for my now-boyfriend and wouldn’t change that part at all.) Sure, my rent would have been almost as much as I’m now paying for my condo per month, but I would have had more time to find what I was interested in and I would have known better questions to ask so I didn’t end up with a super pushy real estate agent who just wanted a quick sale.

Things worked out in the end, but I don’t think that I was ready financially when I started the process. If I’d lost my job, things would have been disastrous. Surprisingly, that’s about how things went when I bought my car as well…

I always, like Krystal, thought that I would buy a place with someone. I also thought I would be at least in my late twenties before I even considered buying a place. After university, the pieces fell into place quite nicely: I finished university somewhat young with an amazing salary, a job that I love and is quite stable, and made the smart decision of moving to a city where I would consider staying long-term. The piece of a significant other isn’t there, but that’s okay. I can most definitely afford this on my own with my income. – Buying a place: Property Search and Life Decisions (November 5, 2011)

Now that I’m in a serious relationship, I’ve questioned my decision to buy a condo on my own. It’s definitely weird trying to build this place into my home at the same time as my boyfriend and I are building our relationship. If he owns his own place, we would be in a weird situation of owning two places and if he doesn’t own his own place, we would be in a weird situation of me building equity and him not. (I’m looking at it from all directions so as to not discuss his financial situation whatsoever.) Also, I picked this place, but it’s possible that he never would have picked it in a million years. There are a few ways this could go/could have gone:

1) We eventually get married and move in together. We could buy into each other’s place(s) or declare them separate property in a pre-nup if the other party doesn’t have the funds to buy in.

2) We eventually break up and date other people. I keep my condo, he keeps his if he has one and nothing is really lost or changed. The situation would repeat with my next potential partner.

3) If I hadn’t bought a place and he didn’t have one, we might have moved in together in a rental some day, saw how that went, and then if we wanted to get married, bought a place. This probably would have meant several years out of the real estate market since I wouldn’t buy a place by myself while serious with someone, but I wouldn’t buy a place with someone without being married. Estimated down payment fund (just me): $73k (2012), $114k (2013), $165k (2014), $216k (2015). This wouldn’t have really been the end of the world. I/We probably would have skipped the “starter” condo/house phase and gone straight for a long-term house.

Back to my place, I definitely love this place! There are a few things I would change or would have done differently myself, but they’re not broken, so I won’t do anything about them. I’m definitely keeping notes on what appliances I will buy when the ones I have die a tragic death. I like the settling down feeling, I like the nesting feelings of wanting to make lots of little changes here and there. I also love the cost so far! My monthly costs are lower and more stable, so ignoring the cost of selling the place, it was immediately cheaper to own. I’m also really enjoying the location – I think it was a perfect choice for me.