Questions on mortgages, downpayments, monthly payments, etc.

[Alphathree33]

Situation:
- Graduating from college soon.
- Have employment lined up in Toronto at a good salary.
- Looking at housing options

Thoughts:
- Might as well look to buy right away since renting is just throwing away money
- Need only 1 bedroom at the moment; condo or apartment preferred
- Have time (6 months) to consider my options

Questions:
- I have money saved up for a down payment. Is there any way to 'guestimate' based on current interest rates what the monthly payment on a given mortgage would be? Suppose I find a condo for sale for $150,000. Okay, great.

Given current interest rates, a given period to pay back the mortgage (what's standard?), and say a $10,000 down-payment, how can I approximate my monthly cost?

- Does anyone have any general advice for someone in my situation?

Thanks.

 

[EagleKeeper]

Talk to your local bank.

They will be able to provide you with general information and current numbers.

 

[jonjoyner83]

- Money for downpayment

Unless you can make up 5% or more, it won't really be cost effective. If you go with an FHA, you need 3% to qualify. If you finance a 150K house, with an FHA and $4500 down you are looking at around 1K a month. You will have to pay PMI unless you can come up with 20% of the loan. If your credit is good, you could do a piggy-back, but the interest rate on the line of credit loan (which covers the down payment) usually will bring the payment up to the same level as an FHA 30 year conventional with PMI. Make sure your D-to-I is less than 38% with the payment included.

The rate right now is something like 6.375% on a 30 year conv (fixed).

Take your sale amount and deduct the down payment. Is the down payment equal to or more than 20%? No, then mutliple the TOTAL cost of the home by .005 and that is your PMI yearly. Divide this by 12 and you get what you have to pay the bank as insurance in case you can't make the mortgage payments.

You can also find out what property value is and divide by 12 and add to the P+I (principle + interest) do the same with HOI (home owner's insurance)

So...if you buy a 150K house, at 6.375, with 10% down, property taxes at 1500 yearly, and 500 in home owner's insurance....you get this

Mortage (P+I) = 873.42
Property tax = 125
HOI = 41.67
PMI = 58.33

Total = 1098.42



If I were you, I would hold off on buying the house. There are a lot of expensive items included with a house (such as YOU have to pay for the AC, repairs, termite inspections, deal with rise in property taxes). It is best for you to rent until you are certain that you want to carry that burden. Once you are POSITIVE that you can afford a house, buy the home. Contact a bank that will help you with an FHA. Several larger cities offer free real estate buyer training for first time home buyers. Read some books. Don't get TOO many mortgage quotes as credit inquiries hurt your rating.

Trust me on this though, that $10,000 chunk you have saved will save you a whopping $70 a month on the payment. Would you rather empty your savings or just pay $70 a month more on the home???

Once you get in the home it is a great feeling. Building worth while owning the biggest purchase of your life is fun....

 

[bctbct]

Try to fund your loan without having to have PMI.

 

[Scarpozzi]

I recommend buying a 2 or 3 bedroom place. Most people want a guestroom or a room to convert to an office. You'll have a much easier time selling a 2-3 bedroom later.

Get the best financing you can now and if you must, you can always pay a small fee to refinance if the rates drop.

 

[Alphathree33]

Thanks...

So, I suppose it would be interesting to run the numbers for two scenarios:

SCENARIO 1:
-- Spend all savings on downpayment, get mortgage

SCENARIO 2:
-- Keep savings invested and rent; also add money saved (mortgage minus rent, monthly) to investment

In both cases, I end up 'owning' something. In the first case it's a paid off house. In the second case it's a fat chunk of cash.

OF COURSE, once I've finally paid off the house, then I have to take into account that I wouldn't have any more monthly payments... whereas with renting, obviously, the payments would continue forever.

 

[NogginBoink]

The biggest question: how long do you plan on living there?

If it's <2 years, the cost of acquiring and selling the property may wipe out any benefits of ownership.

 

[jonjoyner83]

Originally posted by: Alphathree33
Thanks...

So, I suppose it would be interesting to run the numbers for two scenarios:

SCENARIO 1:
-- Spend all savings on downpayment, get mortgage

SCENARIO 2:
-- Keep savings invested and rent; also add money saved (mortgage minus rent, monthly) to investment

In both cases, I end up 'owning' something. In the first case it's a paid off house. In the second case it's a fat chunk of cash.


OF COURSE, once I've finally paid off the house, then I have to take into account that I wouldn't have any more monthly payments... whereas with renting, obviously, the payments would continue forever.

You will never save enough money for a down payment on a house to justify it. For every 10K you put down, you save $70. The larger the house gets, the more it takes to meet your 20% requirement to avoid PMI. Save a decent pillow of cash in the bank (20K), and then go rent a larger home or buy a lower end 150K home that you can appreciate and possibly live in it until you are gaining equity. If you buy a house and after living in it for 6 months decide to sell, you will loose money unless you put down a great deal of cash on the forefront. Selling costs 6% as well as the inspections and other seller duties....

 

[Scarpozzi]

Just so you know.... Another option is to get a 3 bedroom place and rent one room out to a college student. I did this when I first bought my house and was bringing in an extra $400 flat per month. It covered all of my utilities. The only thing I had to deal with was the b.s. of living with someone, but I didn't mind....it was worth the money to me.

 

[jonjoyner83]

Okay I read the above and confused myself....

What I mean to say is this:

1) Realize your budget. You can afford a 1K house payment, but can you afford a 150K home? A 150K house costs 1-3% for regular maintenance yearly.

2) Can you afford a $1000 water heater replacement and pay your mortgage at the same time? If you keep your savings account fluffed, you should be able to.

3) How bad are you wanting to build equity? Getting a home at an early age is good, you just have to know what you are doing.

Until you can answer your own questions, I would wait. It took my this long to figure this out and I am still nervous about home buying.

 

[GasX]

Originally posted by: Alphathree33
- Might as well look to buy right away since renting is just throwing away money
.

This is a flawed assumption and depends on a multitude of factors including:

the local rental market
the local retail market
the local job market
how long are you planning on living in Toronto?
et cetera...

 

[PowerEngineer]

Renting might seem like throwing money away, but buying a house/condo before you're familiar (I mean really familiar) with a city you're moving to can also be a costly decision. I might want to rent for a while.

Just my two cents (Canadian)

 

[jonjoyner83]

Originally posted by: Mwilding

Originally posted by: Alphathree33
- Might as well look to buy right away since renting is just throwing away money
.

This is a flawed assumption and depends on a multitude of factors including:

the local rental market
the local retail market
the local job market
how long are you planning on living in Toronto?
et cetera...

Especially since the market bubble is somewhat deflating...You could get yourself a good deal, you could also get stuck with a house that will never resell...

How old are you anyway? Do you need to buy a house right now? Maybe you should focus on building a career base first as you are just leaving college...

Don't put yourself in 150K of debt until you are financially and employment stable...


I just moved 9 months ago. Until you can firmly gauge what real estate should cost in the area and are certain that you can stay in the place you buy the home for over 3 years, don't put yourself through the pain. If you just got out of college, the equity can wait. Also, there is no guarantee that you can get a mortgage. You usually can't get one without past employment history dating back over a year. And, as a college student, you don't rank up on the qualifying list for mortgages.

 

[mrzed]

If you can stand living with roommates for a while, get into shared housing and continue to save. If you can't, just rent a cheap apartment yourself. I doubt you would lose out on building equity in the Toronto market over the next year, chances are, prices will remain flat at best. Live in the city(you from there?) for a while before deciding what you want to tie yourself to.

Also, rent/mortgage ratio is the really important thing. Lots of new condo construction in the last few years in Toronto means there should be plenty to choose from, and rental prices are going to be a fair bit lower than what it would take to own similar.

After a year, evaluate your options again. I would bet the overall Ontario economy will be struggling a little, and you'll have no problem finding deals.

 

[AStar617]

Renting isn't necessarily throwing away money, if the amount you pay allows you to live comfortably and still stash away a good amount every pay period.

Whatever you do, never spend every last cent you have on the down payment for a home, because the first *moderate* expense you come across in regular maintenance (furnace, hot water heater, pipe burst) will likely be 4 figures. This is nothing to speak of needing a new roof or siding, which could be 5 figures. If you decide to buy, it is definitely worth it to put as little as you possibly can down, because the savings month-over-month is nearly negligible (as pointed out above) and you still have a $afety net in case of dire emergency.

Owner/occupant of a 3-family house in Cambridge, MA (epicenter of the Northeast bubble ) and a tenant-occupied condo about 45min west.... ask me how i know

 

[Alphathree33]

Thanks for the comments, folks.

A few more comments from me:

-- I think I will probably rent for at least a year before seriously considering buying.

-- My singular goal is NOT to live with anyone else except perhaps my girlfriend. I have been living with nosy, bitchy, stupid, messy, lazy, butthole, moron, ****** students for more than four years of university and I'll be damned if I ever CHOOSE to invite such people to CONTINUE TO LIVE WITH ME! </rant>

-- The point about selling being expensive was a good one. Most of my initial mortgage payments would go to interest, meaning little of the principle would be paid off after only a few years. Add in the cost of selling, and you're right, it doesn't make any sense. So I suppose I need a 'long term' plan for my life. But who has one of those? I know I'll be in Toronto for at least a few years, but I'm not sure about beyond that.

 

[ponyo]

Most of us live in the US and don't know Canadian rates, taxes, and rules. Talk to a bank or mortgage broker in your area.

 

[z42]

Originally posted by: Naustica
Most of us live in the US and don't know Canadian rates, taxes, and rules. Talk to a bank or mortgage broker in your area.

:thumbsup:
very good point.

One little thing I'll throw out there for those of you who are doing the "buy a home with an extra room to rent out" thing. If you charge rent and have a contract it counts as income and you have to pay taxes on it. If you have someone you trust living with you, you tell them that they have to pay $xxx for utilities and maintenance instead.

 

[mrzed]

Originally posted by: z42

Originally posted by: Naustica
Most of us live in the US and don't know Canadian rates, taxes, and rules. Talk to a bank or mortgage broker in your area.

:thumbsup:
very good point.

One little thing I'll throw out there for those of you who are doing the "buy a home with an extra room to rent out" thing. If you charge rent and have a contract it counts as income and you have to pay taxes on it. If you have someone you trust living with you, you tell them that they have to pay $xxx for utilities and maintenance instead.

It does count as income, but depending on the details, it hardly adds to the tax burden.

We rent out our basement. $900 a month counts as income, but against that income we can deduct:

1/2 (based on size of suite) of the interest on our mortgage payments
1/2 of all general household expenses and repairs
100% of any repairs done to the suite
1/2 of our utilities (included in rent)

It is worth the small additional tax after deductions to us to keep it all legal.

 

[cavingjan]

Renting for the first year is also a good option not only for finding where you want to work but also making sure that you are going to like your job and the company.

I would wait to find out about any hidden suprises at your company (I've had 2 people out of the 5 that left my department in the past month quit their new jobs within 6 months because they were not told about everything up front. Something I am very proud about saying we religiously do. We try to scare them off with the bad side of teh job and if they still think the good outways the bad then we've got someone who will be happy for several years with us. But that is another story.) and find out what pay raises are to be expected.

Also your first year out of school is the most expensive. Furnishing a new place. Starting student loans. Starting your 401K and retirement planing.

You can then better judge your lifestyle (AKA spare time) and money situation for owning and MAINTAINING a house.