I bought a condo!

It’s been a huge effort to keep quiet about this on the blog over the last month or so, but now that the deal has closed, I’m ready to announce that I have purchased a condo!

You’ve probably seen how I’ve gotten a bit frustrated with not finding what I was looking for. There haven’t been many condos coming on the market that meet my criteria. I don’t think it’s just me being picky – I think the inventory has been a bit low as well. So when I accidentally happened across this amazing place, I was ecstatic! My price range was between $275,000 and $400,000. Ideally, I would have purchased a place in the low to mid $300,000 range, but I really liked this place and with the lower HOA dues, it was still completely affordable, both in the upfront costs and the monthly costs.

Some details about the condo itself:

  • It has 2 bedrooms and 2 bathrooms and is not only a good use of space, but has a really good amount of square footage.
  • It is in a quiet area in the city – no street noise, but close to restaurants and walking distance to my office and downtown!
  • The purchase price was in the high $300,000 range.
  • The HOA dues are actually lower than any other building I’ve seen in the area (and I’ve seen quite a few at this point). My monthly carrying cost (P&I mortgage payment, property taxes/12, HOA dues) will be less than my monthly renting cost has been.
  • It was recently updated and I like the way it was updated, so there are no renovations to consider doing other than painting.

Where did the money come from for my down payment, closing, and moving costs?

  • My vehicle replacement fund that was at about $4,000 as of May 31st.
  • My down payment savings account that was at about $72,100 as of May 31st.
  • I have increased my July budget to account for the moving costs, which means that there is less money from my June paycheck to go to savings. I would prefer to pay for expenses out of cash flow and reduce money going into savings rather than spending down savings whenever possible.
  • There was some money left in my down payment savings account after closing, which I’m going to keep around to help with any additional small things like closet shelves or small furniture that I want to buy. Or a barbecue to put on my balcony!
  • I left my taxable investments alone! I’m still planning on actually investing this money in something after my July RSU vest and I’m super happy that I had enough other cash around that I didn’t need to touch them to purchase the condo.

I chose to do a 5/1 ARM at 3.00%. The lender I ended up going with is the credit union I use for my daily banking and they are really awesome. My first mortgage payment is due August 1st, which worked out quite nicely since I only had to pay rent for part of July, leaving me with some extra cash flow to cover moving costs directly.

As I talked about before, I elected to not use an escrow account. Insurance is pretty cheap on condos (around $200 for the year) since it’s mostly just contents insurance, so it’s not bad to pay that out of pocket, and the property taxes really aren’t that expensive either.

The place is absolutely gorgeous. I am super excited about painting, moving in, and living in a bigger space that is all my own!

On Monday, I’ll talk about my plan for paying off the mortgage :)

The condo purchase marks a new chapter in my financial life. I’ve been running into troubles coming up with topics for posts, so I’m going to take a step back from blogging. I don’t think I’ll completely disappear (I kind of like doing the big-picture monthly net worth updates and I always have finances on my mind), but I just can’t come up with enough to talk about for 3 posts per week.

Deciding on Property to Buy: Life vs. Financial Decision

When you are looking at buying property, there are two ways to look at the decision: life and financial. Both sides must be in agreement for this to be a good decision. I talked previously about deciding how much I could afford to spend financially.

In all honesty, I think that the best long-term investment would have been a 3 bedroom townhouse with 2 full bathrooms. Assuming that the person I want to marry doesn’t already own a place, we could easily raise two children in a 3 bedroom townhouse. The down payment and monthly housing costs would have been low enough for me to afford them on my income, which would mean that they would later be affordable on one income between two people.

The best short-term investment probably would have been a 1 bedroom condo since they are in the price range of the high $100’s to the mid $200’s. This would have reduced my monthly housing expenses now, not required me to borrow very much from my other savings buckets. The HOA dues would have been lower with the lower square footage than a 2 bedroom. With the low cost of the monthly payments, I could have paid off the loan faster and/or invested more. I would have been taking out a smaller loan since the total cost of the condo would have been less and I would be paying less interest. My property taxes would be lower.

So why did I pick a 2 bedroom condo over a 2-3 bedroom townhouse or a 1 bedroom condo? It is still in my monthly and upfront price range. It had 2 bathrooms instead of just the one in the 1 bedroom condo. It is a corner unit, so it doesn’t share very many walls with other units. Notably, the master bedroom doesn’t share ANY walls with another unit. It had a lot more windows than the 1 bedroom condos we saw (except for one that was a corner unit). It felt like a home. The condos felt more secure than the townhouses since there is no external door directly to my unit. As a single woman living alone, safety matters a lot to me. The condo I ended up choosing is centrally located to a lot of neighborhood amenities like restaurants, bars, gyms, libraries, grocery stores, and pharmacies and on a direct bus line to my current office. The townhouses that I was looking at were further away and buying a townhouse in my price range on a direct bus line to work would have taken quite a bit of patience looking for the right deal.

I pretty much knew that I was going to buy the condo I ended up putting an offer in on as soon as I walked into the unit. Maybe I’m completely crazy for making this particular decision based on emotion rather than straight-up numbers, but it’s also important that I’m happy in the place that I chose. I think that the numbers will be fine in the long run. Last year, I borrowed money from my down payment savings account to fund my vehicle purchase and within 5 months, the down payment savings account was back up to its previous value. My emergency reserves will not dip below $10,000 and at today’s stock price, my taxable investments and emergency reserves would be fully paid back by the end of July.

I could have chosen to stay in my apartment for another year, dealt with the crazy rent increase, and continued to save money towards a down payment. That probably would have been a “safer” move financially. I want to stay in this city for the foreseeable future – I could even see myself retiring here – and I think I’m ready for a change from my current place. But buying a condo just makes sense. I’ve run the numbers, I’ve thought through the life decision and the process, and I’m still definitely on board. So I’m doing this. This is real. This is happening.

Deciding How Much I Could Afford

The biggest financial decision in this process was deciding exactly how much I could afford. There are two parts to this: 1) how much I can afford upfront and 2) how much I can afford monthly.

Upfront

When I opted to buy a condo instead of a townhouse, I decided that I was going to put only 20% down, to allow myself to keep more in cash reserves post-transaction.

The upfront costs I have seen include:

  • Loan closing costs and prepaids – I looked at loans from several credit unions, with the closing costs and prepaids varying to the tune of $5,000!
  • 20% down payment
  • Purchasing appliances, if the place is missing them (around $700 to $1,500 each, depending on desired quality) – one place I looked at was missing ALL appliances and would have cost me $10,000 to replace them.
  • Moving costs (renting a U-Haul van and paying friends with food or hiring movers, moving your utilities over, etc.)
  • Inspection
  • Appraisal
  • Various move-in fees related to the Home Owner’s Association (HOA)

I added up the funds in my down payment savings account, in my car replacement savings account, the value of stock shares in my taxable account that I wanted to sell and some that were at a loss, and the funds that my parents promised me. I took a look at how much I would need to borrow from my emergency reserves and decided that I was comfortable with my emergency reserves going down to $6,000. My job is pretty secure (my manager regularly tells me how awesome I am) and that would cover around 2 months of my current expenses in addition to the buffer from budget categories that I keep in my checking account.

This meant that I could afford the upfront costs on a place up to $350,000.

Monthly

I added up my monthly housing expenses that would change if I bought a place (rent, water, renter’s insurance, hot water, sewer, trash, and electric) ~$1,400.

This means that if my monthly housing expenses don’t change then my mortgage payment (principal & interest), property taxes, and insurance difference would add up to that amount. I currently have about $1,000 in buffer room in my budget each month, so my housing expenses could at the very most be $2,400.

To keep my monthly costs the same or less, assuming condo fees of $350/month, I would be looking somewhere between a low end of $210,000 and

  • $440,000 for a condo where I can bus to work
  • $345,500 townhouse if I can bus to work
  • $305,000 townhouse if I have to drive to work
Conclusion

In the end, I realized that, life-wise, I wanted a two bedroom/two bathroom condo within busing distance to work (20 minutes or less). With that in mind, I was able to fine tune my price range to under $350,000 and managed to find the perfect place! Now I am patiently in the middle of the waiting process to see what happens. I am under contract with the seller and the loan looks good.

My monthly housing costs are going to be about $1,900 including principal and interest, property taxes, and HOA dues. This will leave me about $600/month to save beyond maxing out my 401(k), vacations and car replacement ($250/month each), which I think is perfectly fine. (I max out my Roth IRA using my bonus income since it is what could/would push me over the income limit.)

Offered!

I received a notice from my landlord indicating the new rent schedule if I choose to re-sign my lease. It is going up an insane amount, which has validated my decision to buy. When I moved to this city, I picked this apartment with the intention of staying here for a few years, until I had the funds to buy a place. Thanks to my savings level over the last few years and an early inheritance gift from my parents, I do now have enough funds. I want to do as much of this as I can on my own, but I am very grateful for the funds that my parents are gifting me.

I’ve run a lot of numbers and determined that I can afford total monthly housing costs (mortgage payment, property taxes, and maintenance/HOA fees) between $1,400 and $2,400 comfortably, with a preference for keeping the total under $2,000.

I’ve been quiet here because I found a place. It’s in a safe neighborhood with stuff around and within a reasonable bus commute of downtown. It’s a 2 bedroom, 2 bathroom condo. I have put in an offer and now I’m sitting, waiting, wondering. This is incredibly nerve-wracking!

Looking at Craigslist, I think I could easily rent the condo out for $2,500 to $3,000, which would cover my mortgage payment, property taxes, and HOA dues with a $500 to $1,000 profit.

Looking at how much my property taxes and mortgage interest will add up to for the first year, I will save almost $2,000 in federal income tax next year, which is insane.

I have estimates from a few credit unions and am pre-approved from one, with a good feeling from another.

Tomorrow, I will make contact with some inspectors. There are a few things that the place is missing and I will need to buy, so I’ve started investigating those.

I have a gazillion spreadsheets, which I will talk about later.

I think I need to find a way to make this less stressful or at the very least, shift my focus away so I can sleep better. One method that I am working on right now is reading trashy romance novels as I try to sleep – those totally distract me from finance spreadsheets, numbers, and moving.

On top of buying, I have forgotten how complicated moving is! I’m trying to make a list of all of the places that have my address and I’m sure I’m forgetting something. And I’m going to have to pack everything! I have acquired so much stuff over the last few years. I suppose that makes this a doubly good time to donate some old clothes.

Buying a house shouldn’t break my bank

I hate it when people make statements like “I can’t go on X vacation because I bought a house” or “I can’t afford to go visit my family for the holidays because I bought a house”. (I also don’t like it when people make statements like “You should be able to go do Y because you make $Z”, but that’s a different story.)

One of my biggest rules in the idea of buying a townhouse is that it cannot break my bank. This means the following:

  • I should still be able to afford the same level of vacations that I am taking now. (~$3000 per year)
  • I shouldn’t worry about how much money I’m spending on a daily basis – my monthly spending plan should still be functional.
  • The increase in my housing and transportation expenses shouldn’t be too steep each month.
If any of the above three are not possible, then I shouldn’t be buying a place now. It does, however, look like these will all be possible. I realize that my lifestyle will change somewhat with a property purchase, but my monthly savings level is currently $1500-$2000, so there is some room to budge before I start to run into my allotted monthly spending amount. One of the questions that I am working on answering right now is how much I am comfortable increasing my housing and transportation expenses overall.

Buying a place: Property Search and Life Decisions

I have spent so much time doing math. I know that it makes financial sense to buy. I know how much I can realistically afford to spend per month and how much I am comfortable borrowing. I know that I want to stay in my current city for at least the next 6 years.

I’ve started looking at places, in person. I think I have a good idea now of what I’m looking for inside, but I’m having a hard time making the distance vs. price trade-off.

I think I have pretty much decided at this point that I *want* to buy in the next couple of months and I would strongly consider going month-to-month on my lease if I don’t find a place quite in time or I need a little bit of time to do renovations though that would make cash flow a little tight to pay rent plus a mortgage payment in the same month.

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 college, the pieces fell into place quite nicely: I finished college 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.