Home purchase with a minimal down payment

[scfr]

HOA fees can increase by quite a bit. Here is an example. The first home we owned was a condo. Following the Kobe earthquake, the condo owners voted to add an earthquake rider to our insurance policy. (With a condo, you as the individual unit owner insure from the walls in. The HOA insures the walls, roof, common areas, etc.) We happened to be one of the units that voted in favor of the earthquake rider, so we were happy with the outcome. However, every single condo owner, whether they wanted the earthquake rider or not, had to pay an association due increase to cover the cost which was not cheap. This was many many years ago, but I think our dues went up something like $60 or $70 per month. Some people ended up paying more for something they did not want or feel they needed, and I'm sure it put a crimp in some people's budgets.

As far as needing a larger emergency fund if you own a house, it depends on what you use your EF for and how you budget. If you start budgeting & saving from day one for the home repairs that will eventually come, then you may not need to touch your EF when you need a new roof, or need to have the sidewalk in front of your house leveled, etc. Whether you own a house or condo, you will need to some day repair or replace appliances, paint the walls, change carpets, call that plumber you mentioned, etc. My memory may be faulty on this, but I think I read somewhere that you should plan on setting aside 1% of a home's purchase price each year to pay for upkeep. (It would be less for a condo because hopefully the association is doing the same, setting some money aside each year and holding funds in reserve to pay for repairs. As MonkeyMama mentioned, be sure to check out a condo association's financials.)

[disneysteve]

Just to ensure I am prepared, when looking at a condo versus a regular house, what kind of expenses might I need a larger emergency fund for?

I didn't say you needed a larger EF for a condo than for a house. I said you needed a larger EF as an owner than as a renter.

A HOA can have a special assessment at any time (to cover structural repairs - they are responsible for structures, but the owners are the ones that pay for them, through dues and special assessments).

As such, it is really important to choose a HOA that is financially sound.

HOAs exist with single homes, townhomes and condos and many of the same problems can arise. Of course, with a single home, if the room needs replacing, that is up to you and the HOA wouldn't get involved. But if the road needs to be repaved, the playground needs new equipment, the swimming pool springs a leak or the snow removal company hikes their fees, that all comes back to you.

As far as being financially sound, that is a problem that has cropped up a lot in recent years due to the housing bust. Many condo buildings and housing developments have gotten into trouble due to a high rate of vacant units/houses. With fewer people living there and paying HOA dues, the expenses had to be shared by a smaller number of owners, thus higher fees.

[LivingAlmostLarge]

Condos are for people who can't afford homes. It doesn't always make sense to wait 20-30 years to buy a SFH and rent while trying to save to afford a SFH in high COLA. Most people who buy expensive condos live in areas where SFH are pricey.

I'm definitely in the category of people who've only owned condo/townhouse. My preference? No way in heck. But we bought within our means. Granted what we paid for our townhouse would probably cause a heart attack in most other states. But then what we sold a 1 bd condo in CA for also cost more than the average SFH in the US. So it's all relative.

I'd like to live somewhere that I can buy an SFH for $500k. That would be less than we're paying now. Ugh.

[disneysteve]

Condos are for people who can't afford homes.

I'm sure a lot of condo owners would disagree with you. Some people don't need or want the space of a SFH. Many people don't want the maintenance responsibility that comes with a SFH. Many are happy to buy a less costly condo instead of a more costly house, even if they can afford either one, and use the difference for other purposes.

[cypher1]

Some people don't need or want the space of a SFH. Many people don't want the maintenance responsibility that comes with a SFH. Many are happy to buy a less costly condo instead of a more costly house, even if they can afford either one, and use the difference for other purposes.

That's exactly my friend's sister thoughts. She choose a condo for less maintenance close to her work in downtown while easily affording a home. Eventually got promoted to move out of state, and still rented out while paid a service for someone else to manage. Two years later she moved back, but just the convenience for her work/location further helped.

[skruggie]

That's exactly my friend's sister thoughts. She choose a condo for less maintenance close to her work in downtown while easily affording a home. Eventually got promoted to move out of state, and still rented out while paid a service for someone else to manage. Two years later she moved back, but just the convenience for her work/location further helped.

Financial reasoning aside, a condo is attractive to me for this reason as well. I'm also hoping I can fing something in a complex with a pool and gym.

[disneysteve]

Financial reasoning aside, a condo is attractive to me for this reason as well. I'm also hoping I can fing something in a complex with a pool and gym.

Yep, that's another reason I meant to mention. Condos often have amenities that SFHs don't have, like a pool, a gym, a community room, organized activities, etc.

[skruggie]

Update -

I'm putting a lot of thought into this, i was wondering what the consensus is on this plan?

Rather than pressuring myself for a downpayment on a condo that is at the bottom of the baseline for L.A. at 250k - what if what I really want is either an attached 2 story townhome, or really a SFH. It will be closer to 400k - 450k( than to 250k to get what I really want.

I just feel like I am really done with apartment living, which I think is where this need really has come from.

So, what if I step back, take all this pressure off of myself, and take the next couple of years to save significantly more money. I will also have a higher salary in 2-3 or so years than I do now, which will change the scope of what I can afford anyway, and there is a pretty good chance I will have been promoted by then as well.

So, what if I alter my plans a bit to rent either an attached townhome or a SFH in a neighborhood I really want to live in, and get out of my apartment situation. My rent would be about $100-200 more than I currently pay, but nothing that I couldn't afford.

I think this would give me time not only to step back and think about what it really is that I want, but also enough time to really save money and not rush myself into something that I don't really want, and may not actually be ready for yet.

I had an incident this morning with the plumbing in my apartment that really shed light on this - lord knows how much it would have cost if I didn't' have an apartment manager to call and take care of things this morning. And bye bye to a chunk of my emergency fund, just 24 hours after having to deal with unexpected car maintenance.

What do you folks think of this plan?

[bjl584]

Update -

I'm putting a lot of thought into this, i was wondering what the consensus is on this plan?

Rather than pressuring myself for a downpayment on a condo that is at the bottom of the baseline for L.A. at 250k - what if what I really want is either an attached 2 story townhome, or really a SFH. It will be closer to 400k - 450k( than to 250k to get what I really want.

I just feel like I am really done with apartment living, which I think is where this need really has come from.

So, what if I step back, take all this pressure off of myself, and take the next couple of years to save significantly more money. I will also have a higher salary in 2-3 or so years than I do now, which will change the scope of what I can afford anyway, and there is a pretty good chance I will have been promoted by then as well.

So, what if I alter my plans a bit to rent either an attached townhome or a SFH in a neighborhood I really want to live in, and get out of my apartment situation. My rent would be about $100-200 more than I currently pay, but nothing that I couldn't afford.

I think this would give me time not only to step back and think about what it really is that I want, but also enough time to really save money and not rush myself into something that I don't really want, and may not actually be ready for yet.

I had an incident this morning with the plumbing in my apartment that really shed light on this - lord knows how much it would have cost if I didn't' have an apartment manager to call and take care of things this morning. And bye bye to a chunk of my emergency fund, just 24 hours after having to deal with unexpected car maintenance.

What do you folks think of this plan?

I think that you are on the right track.

[Radiance]

This one seems to be a very comprehensive mortgage paymen calculator to get the full figure:

Total cost of home ownership payment calculator by Florida Realtors

Add something for Maintenance...

[snafu]

Be sure to include the added cost & time ratio to maintain your house and property. Get a l-o-n-g list of reliable tradesmen qualified to do the work. Those issues added to house security when we are away drove us from SFH to condo. The point is you need housing that meets your needs, budget and lifestyle.

[skruggie]

Well I took a break from this whole idea but I'm back in the game, with the goal to be ready to purchase early 2012. I have decided to stick with a conventional loan, with either a 20 or 30 year fixed. The rates are looking really good with my credit union, but of course that is subject to change.

It's interesting to me that conventional loans are available with 10% down know, I didn't realize that when I started the research, and it was pretty much a game changer for me. The more I read about FHA the less appealing it is for me

I'm still looking at condos, as a SFH is nothing but a pipe dream for me in L.A., but I'm feeling much more focused about my action plan. Right now I'm in serious savings mode. I've started looking at condos and I'm working with a real estate agent, getting a sense of what I can actually afford in my price range.

[snafu]

What ride did you eventually chose? Have you worked out 'must have' features for a condo? Keep focused on location as the most valuable feature since appliances and decor can easily be changed to match your personality and express/reveal yourself to others.

If you prefer the current fav silver appliances, ask for a price reduction equal to replacement costs. It's extremely expensive to put appliances on a 20 yr mortgage especially since appliances have a shorter life span and even shorter style quotient. I suggest you stay aware of how mortgage amortization tables work. Most new home owners don't realize the payments at the beginning are almost entirely interest with only a teeny amount applied to principal.

Concurrent with your condo search could be best mortgage rate and closing cost supplier.

[skruggie]

What ride did you eventually chose? Have you worked out 'must have' features for a condo? Keep focused on location as the most valuable feature since appliances and decor can easily be changed to match your personality and express/reveal yourself to others.

If you prefer the current fav silver appliances, ask for a price reduction equal to replacement costs. It's extremely expensive to put appliances on a 20 yr mortgage especially since appliances have a shorter life span and even shorter style quotient. I suggest you stay aware of how mortgage amortization tables work. Most new home owners don't realize the payments at the beginning are almost entirely interest with only a teeny amount applied to principal.

Concurrent with your condo search could be best mortgage rate and closing cost supplier.

Ah, I should have prefaced this with the fact that I came to my senses and did not by a new car. I was able to get my issues with my current car fixed and the assessment is that it should last for a long time to come, so decided to be responsible and keep what I have. Which thankfully means that I didn't waste money that should be going towards a down payment.

I am almost positive that I am going to go with a conventional loan 10% down - I am indeed aware of quite a bit of what you pointed out, as I have been researching this decision for months. I've also found a couple of zip codes that I am focusing on. None of them are cheap areas so it will definitely not be easy to find an affordable condo that meets my standards in one of my neighborhoods of choice, but I am not in a rush and want to take the time to make sure I am completely happy with my choice. I do expect that I will want to do my own appliance upgrades so to your point, what the kitchen looks like is not high on my list - I'm more concerned that it has room to move around in, which I don't have in the kitchenettes in my current apartment.

I am planning on staying put. For at least 7 years once I make this purchase, if not longer. So I need to make sure that I am making the right decision here. Slow and steady wins the race

[Frugal]

I agree with Disney Steve, and it is good he pointed this out: as an owner, your costs are phenomenally higher than as a renter. We just found that out with the new house we bought back in the fall of last year (2010). Love that you must put in the entire irrigation system and grass and ANYTHING to make it look liveable with a new house. They put in the tiny, narrowest strip of land possible in the front of the house to make is sell. We got a one-year warranty, or we would already be in the hole financially. We had to have them replace the dishwasher once and the sink three times after only five months of living there. Oh, and last week they replaced the sink in the master bedroom...it was completely broken, and they said it would have stopped working soon altogether. We are still waiting on the warranty people to do some minor repairs and tear out the dead tree they put in our front yard...and this home was 100% brand new and just COMPLETED this fall. Imagine the costs of an older house! I can tell you they are through the "roof" (pardon the pun; I just caught it!), because I grew up in old houses that were unfortunately under constant remodeling and renovation. They take a lot of time and money and can become a full-time job in and of themselves. My poor dad was working all the time on the house.

I personally think you should only buy a house if you can make a MINIMUM of a 20% downpayment. Wish we could have done 30%, but we managed 20%, which was difficult enough. It is worth the financial stress initially of such a high downpayment, when other people get by with less, because you will pay much less interest, etc. over the life of the loan, and your initial loan principal will be much smaller. Additionally, you will save if you don't have to pay for mortgage insurance each month, which was required in our situation if we made LESS than a 20% downpayment. Think it may hurt the credit score a bit, too, but not sure if mortgage insurance affects this or not.

In CA, I kind of wonder how strong the real estate market is? I know we could sell our house tomorrow if we needed to, but I would honestly be a bit more hesitant if I were in CA...I have heard in parts of the state the market is really bad. Foreclosures are common even here...it worried us about reselling our own house when we drove by some in the city we live in. They are everywhere.