I want to buy a condo but it seems like the payments would leave me
scraping by for years. With the price of housing, I don't understand
how homeowners manage these days.
I have never owned my dwelling before so I don't know all the details
of buying a house or condo. I've looked at some books and done the
calculations and it seems outrageously expensive to me.
I live in the Philadelphia area and earn around $48,000. I figured a
$80,000 loan on a $100,000 condo (I don't even know if I can find a
place for that price). The calculator shows a $532 mortgage payment,
$250 in taxes and insurance, and perhaps $200 condo fee. The grand
total would be $983 per month. That is close to half a month of my
take home pay.
Currently I pay $550 in rent. To have another $400 or more in expenses
sounds awful. I know I will get some money back in tax deductions at
the end of the year but I wonder if it would make much of a difference
in cutting expenses.
Do my calculations sound right? Can you offer any hope that it would
not be as unmanageable as it seems to me?
You buy down. No more than 1/3 of your take home should go toward housing
Remember you can reduce your tax withholding to account for the tax
deductions for mortgage interest and property taxes (and other itemized
deductions if you haven't been itemizing in the past).
Other than that, the condo fee seems a tad high, but to be sure, ask what it
is specifically for the place you are looking for.
Probably not $400 a month worth.
Well, you have to work up your budget of total expenses. If, after cutting
out what you absolutely don't need, you still don't think you can swing it,
then either downsize some more, or, cut some more expenses. It's times like
these that you realize that what you think is a necessity suddenly becomes
There are probably some places in your area that help folks with housing
counseling, where you can learn about budgeting and finances, along with the
financial responsibilities of home ownership. There surely are non-profits
that do that, and posssibly help with financing.
Paul Thomas, CPA
I've never itemized or had deductions before. I don't really
understand it. So about how much might I get back? Would it be
substantial, maybe $1000?
I haven't done a budget, but I believe I am more fugal than the average
person. I don't know if there's a lot to cut from my budget. I think
that having an additional $300 plus a month in expenses would be
difficult. I'm saving a lot of money for a downpayment but it doesn't
seem like that will make the expense much more manageable
I have talked to some counseling people. They don't know a lot about
the hard numbers of things like of tax deductions.
Thanks for the advice.
You'd have to play with your prior year return and create a dummy Schedule A
based on what you know (income taxes, contributions, etc) and what you
anticipate adding from the house purchase (mortgage interest, property
taxes) and see where you fall and how much that "saves" you.
Home buying isn't something to be taken lightly. It's THE biggest financial
commitment you'll ever make (short of getting married and having kids (or
getting divorced)). You ~~~need~~~ to work up a budget. One local
non-profit houmebuyer counseling center requires their participants to keep
a financial journal of all expenses (because most people don't know where
their money really goes) for two months. Take those figures and determine
your needs and wants and from that you can determine if you can afford a
house and if it's close, what you can cut to make it work.
There's always more waste than you think.
The $300 is just $10 a day. Almost the price of lunch or a couple of beers
Your savings will help in the loan process, showing that you are disiplined
enough to get a savings up (most people don't have any significant savings).
It'll help a little on the monthly payment (as a down payment), but I
wouldn't suggest dumping the whole of your savings into the down payment. if
you can help it. My reasons are below---v.
And they often don't due to liability issues. Most don't want to be
"on-the-hook" for giving tax advice that may play out to be wrong.
You can figure up your tax savings by playing with some basic numbers as you
begin to firm up what the number will be.
As mentioned earlier, you will most likely have expenses of getting your own
place you haven't thought of, like a lawn mower, drapes, etc and so on. I
have suggested to clients that you need about 2% of your home purchase price
to get "up and running". In your case it may be more, or less, depending on
the facts and circumstances. In the case of a $100,000 house (hard to find
in these parts by the way) you would need over $2000 just to get started as
You'll probably have utility deposits to make, you'll probably need to buy
lawn care equipment (mowers, trimmers, etc and so on), you may need to buy
kitchen appliances (nothing big, but often a refrigerator, washer and dryer,
etc.), you may need window coverings (even cheap blinds cost after a house
full of windows). And so on......work up a budget for those too. Price out
what minimum stuff you think you'll need in advance so you can plan to have
that set aside come closing.
Sometimes I wonder the same thing. Even with financial backing the cash
flow needs to be there to support the payments for house, car, etc. I
suspect many are on the edge of being wiped out financially if anything
goes wrong... not a good position.
There are many hidden expenses and pitfalls along the way. Been there,
Finding a decent home at a price you can afford is the first issues. If
you cannot afford anything at the moment, then perhaps saving for a
little longer is an option.
The estimated condo fee is high. I owned a condo in downtown Vancouver
(Canada) where I was paying $120/mth condo fee.
It is way too much to be allocating 1/2 take home pay to housing.
If you are not comfortable with this situation then don't proceed until
you are in a position where you will feel more comfortable... nothing
worse than worrying about finances every month.
On the other hand, there are some properties with an income potential
(apartment you can rent) that can be devoted to paying down the
mortgage. My parents did this... the rent from the upstairs of the
duplex made the mortgage payment for them. I'm not altogether this
scenario is still possible today because things have changed so much
since those days.
What about utilities? Are they currently covered by your rent? You'll also
have expenses the first month you move in, such as blinds, curtains, the
toilet will break, etc. Keep these in mind. Also, I remember when I bought
my house, I had to have two mortgage payments left in my checking account
after closing. I had nothing left, but thankfully my mother lent it to me.
This may not be required anymore, but it's something to check. The closing
costs were definitely higher than they said they'd be.
On 7 Jul 2006 10:38:20 -0700, email@example.com wrote:
In addition to all the other recommendations you should know that real
estate prices cycle. ( FWIW I have been told that we are in the
seventeenth year of this real estate cycle and the cycles have
historically averaged eighteen years.) If you can't afford a condo or
house now (1/3 of income to housing rule as Paul mentioned) you can
always save aggressively and wait for the down cycle.
O.T. If you want to read every real estate investors horror story
look up the Florida real estate boom and bust of the 1920s.
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