First-Time Condo Buyer?

Question

There are some new condos in my area that are selling in the low $300K range. By the time they go on sale, I would have about $10K in savings. I would also plan on living there for only about two years, before my significant other and I buy a home together.

My first question - do you think it'd be worth it? I don't want to rent, but I also don't want to waste my money on a condo I'd only live in for a relatively short time.

Second question - if it WOULD be worth it, would I have enough money to put a down payment on it? What kind of loan/mortgage would I have to get for it, and how long would I be paying it off? If I sold the condo after two years, would I likely get my money back for it?

Please use the most baisc layman terms you can, and please explain any mortgage/loan terms, as I'm not at all familiar with them. Thanks!

The condo is in North Jersey, right across the river from New York City. Hence the (unfortunate) giant price tag!

Answer 1

It would be a very expensive experience. First the closing cost will be several thousand so most of your 10K will be spent on that. Then you will need to or three loans to get the condo and they will all be high rates unless you have excellent credit, even then they will be something like 7% for the first and 12% for the rest. Your payments will be something around $3,000 a month.
After paying for 2 full years when you have paid your down payment, closing cost and 2 years payments you will have about $80K paid in and then need to sell. The sale will mean probably paying a commission of about 6% plus an closing cost you have to sell I would budget about 20K as cost to sell so you will have about 100K in cost to live there 2 years. You need to compare this 100K to what happens to the condo's value in 2 years. If you sell for 400K you would break even but have lived two years rent free. If you sell for less than 320K you will need to bring money to get out of the condo.
If homes are appreciating more than 25% a year you may make a good purchase if prices are falling it will be very expensive to only own 2 years. But it would save you the two years rent so you have that on the good side of the ledger if you were paying 2K a month in rent instead that is 48K you will have less in overall cost.

Answer 2

Suppose you purchase the condo and want to sell it in two years. What would you need to sell it for to get your money back? Probably around $330,000*, which means you would need the property to appreciate at 5% a year, which is not happening in much of the country right now.

You indicate that the property is being built. In two years, you are likely to still be competing with new units when you sell.

The mortgage payment would be, let's say, about $1600/month, with another, let's say, $400 in taxes and $250 condo fee. That would be $2250/month in carrying costs. Over two years, you've paid $54,000 to live in the condo. Suppose you could rent a similar place for $1500/month. After two years, you've spent $36,000 to live in the apartment. The savings, $18,000 could be put in the bank and be yours.

You would have to sell the condo for almost $350,000 to get the same gain. That would mean about 10% increase in value per year, which just is not happening anywhere right now. It did over the past few years, but it does not seem likely in the near future.

*I've assumed the seller will pay your closing costs, but assumed you would have to pay them when you sold. That and the RE Agent fee is the $30,000 minimum difference you will need to get to break even. I've also assumed that you have not paid back any principle, as you really don't pay that much back in the first two years.

You know the actual numbers. Find out the difference between rent and ownership using the steps above and you'll have your answer. But I'm thinking your answer will be not to buy.

Answer 3

Lots of questions! Some are really hard to answer as I dont know what your market is like. Is it an up market or down as most of the rest of the country? This will have a huge impact on the correct answer.

If you only want the condo for two years realistically you will probably lose money. Closing costs can be up to 5000.00 in addition to the interest you will be paying on your loan. Unless you are in a really hot market where prices are on the upswing, you will not make a proifit selling in only 2 years.

There are tax advantages to owning but you really need to be there for more then 2 years.

Also everything is negotiable and variable. For instance some condo builders are doing no closing cost loans just to get the condos sold. In that case it may not be a bad option.

Anyway, without more information its hard to give a good answer. My best advice is to get a buyer's agent in your area. It doesnt cost you a dime and they can advise you on the best way to go.

It might be that you are better off saving for another 2 years and buying what you really want then.

Kay

Answer 4

Without knowing your area very well, real estate normally appreciates around 7%. I have no idea if you are getting a deal, so I'm just going to assume your place will be purchased right on par. If your home appreciates at 7% a year, it will be worth about $343k in 2 years at best. If you pay 10k up front to put into it for down payment and closing costs, your sales price is down to 333k. Once you pay 6% for realtor fees in two years, you'll pay about $21k... your sale reduces to $312k... chances are that your mortgage, home owner's association, and tax payment even after taxes is 25% higher than if you rented so that eats up the other $12k... in two years, you'd break even if you were lucky....

I'd recommend buying it and holding onto it for as long as possible... maybe even rent it out... real estate in the long run never goes down in value. best of luck to you.

Answer 5

good question
first depending on what credit score you had would determin what you HAD to put down

rick is partly right but there is a bargining chip most dont paly that they can called seller paid consessions simply put the selleer agrees to pay 3-6% of your closing costs. thats 3-65 of purchase price its a buyers market and many will do this to sell thier property. It can save you big$$$

all markets are different it could be in your area you are not as hard hit as others also he forgot about the write offs for those two years interest tax etc that could be written off of your income. right now as a renter you pay taxes on all of it!

i would look at the big picture what will it cost now what will you save. what could you rent it for if you wanted to hang on to in it.
can you rent it to cover mortgage if and when you move. chances could be that you could rent it for almost what you are paying and depending what condo values are doing over the next 3-4 years i dont think anyone is going to say they are going to fall for the next 3-4 years!

talk to a professional and he can figure out what you would be paying and what you can save. BIG picture if property values climb just 6% yearly your ahead! but talk to someone that can put it all down on paper.

it is possible to find out what condo values have done gong back 20 years that is the real picture you need to see.

if you put in a request for location of condo and values they will provide you with statistics to help make your decision

Answer 6

300K for a condo?!?! WOW. I have a 2,100 square foot house in a gated community in Texas for $150K. Where do you live?!?!?!

No, it would not be a good plan. The realtor fees on the buy and sell would eat up a bunch of money. You should typically plan to live in a house at least 4 years for it to be worth it.

Typically, you would want to put 10% down (20% if you want to avoid PMI).

If I were you, I would start saving up and have a heck of a down payment when you get married and buy the house in two years!