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I am unsure what restrictions Mesmer is referring to when selling. I do not know of any. There may be restrictions, actual and potential, about renting out a condo, but nothing that affects an owner/occupier. In fact, it may be illegal to place any restrictions on selling (I am not a lawyer and am not giving a legal opinion, just my own opinion)
The lending standards for condos is stricter than for single family homes. Some condo associations, wanting to ensure that they continue to meet lending standards, will restrict rentals in some form or another. This means that an owner might have to sell at a loss if they have to move. It will also cut down on your potential market. Some places have actually added these standards retroactively. Other associations may be financially healthy now, but if there are too many delinquencies or maintenance issues that drive up debt or the owner occupancy rate falls too much.... well, then again, you lose the ability to sell easily.
I'm not saying "condos are always bad" but I am saying that the long term value of the condo is tied very much so to the association. Because Austin is a hot market, more condos are going to be ok than in most areas. But to me it doesn't seem like the best play if you're not sure if you're going to be in that location or even Austin long term - in a condo, someone will have much more risk of losing big if the market takes a turn for the worse and they need to sell.
The term for a condo that is inelligible for fannie/freddie financing is an "unwarrantable" condo. Fannie/Freddie has certain rules regarding the percent that can be rented out, the percent of owners that can be in arrears, the percent of monthly main that goes towards reserves. The association itself has to provide this info in order for units in complex to be Fannie/Freddie eligible.
However, I own a condo that is unwarrantable. The plus side is most buyers are cash, or from credit unions or savings bank that keep the mortgage on the books and require 20-40% down and usually only on promary homes. They also take a much closer look at credit history of buyer since they are not selling loan.
This limits pool of buyers and causes prices to be less. Downside.
However, prices of condos are cheaper, future defaults/bankruptcies in building are lessened as new buyers will not go underwater as most have no mortgages. And it gives us lower property taxes than warrantable condos as your comps are lower.
The other downside of a unwarrantable condo it is a bit of a roach motel you can check in but you cant check out. Hard to sell.
If I were you, I'd immediately start saving up for a minimum of a 20% down while also having a sizable emergency fund in place. It doesn't sound like you have your financial house in order enough to be taking a huge risk in buying a home - in my opinion anyway.
It sounds like you have the common mindset that "renting is throwing money away"; but property taxes, mortgage interest, HOA fees, PMI (another reason to save 20%) etc are all also in the throwing away money category if so. Only a small part of your mortgage when you start out will actual go to your principle. And you probably won't come out much ahead on taxes since you already can claim a married standard deduction.
I make exactly what you make, have zero debt other than my mortgage, am 29 years old, and bought a 360k condo in South Central Austin (78704) with 25% down (270k mortgage) last year. You'll get a little better mortgage rate if you put 25 instead of 20% on a condo. With all that said, I feel like I spent close to the max that I would have been comfortable with. And I was saving close to 3k a month and maxing out my retirement accounts before buying my place while also paying 1400 a month in rent. I don't like taking big risks financially though - I know others in my situation would have been comfortable with a larger mortgage. Still, you only having 10-15k in savings is a bad sign unless you've been aggressively paying off debts.
I believe condos are a safer investment the closer to downtown you are since they are a viable and desired option to the more expensive houses, but the risks stated by other posters are all correct regardless of area. Do your research before buying. I wouldn't buy a condo in an area that isn't guaranteed to always have a high demand and is filled with fairly affordable single family homes.
I travel a lot and have little time for yard work / maintenance so a condo fits my lifestyle better also. And the place is brand new, has a lot of shared amenities, and is in a great area where I can ride my bike downtown in 10 minutes. I felt all of those benefits outweighed the risks.
Thanks for your response. So you are saying, with a income of $15000 (after tax) per month, still unable to pay $3500 in mortgage comfortably? It doesn't make much sense to me. I have several friends who make much less than that but paying their 3000-3500$ mortgage comfortably for a while (they have kids as well). $250K per annual is considered a very good income in Austin and I have seen folks with that income bought $400-500K home several times.
But anyway, what I was trying to say, I do not have any plan for buying that bigger house at this point. My question was, what should be the best option if I want to pay <2000$ in mortgage (considering no kids at this time, not the final home, etc). Thanks again.
I think you are overestimating what your take home would actually be. After taxes alone, your take-home pay would be more like $14,000. That doesn't include any other deductions such as health insurance. At that income level, I would hope you are maxing out your retirement accounts, which means about $23,000 a year into 401K and IRA (more if you contribute to an IRA for your wife), and you should also be putting a minimum of 10% into an emergency savings account. All of that comes out before you have even paid a single bill.
I agree with the others that you should sit tight and save, save, save. As someone paying a relatively low rent with no kids, you should have more in savings. Save 20%, then save some more in an emergency fund, then start looking for a house.
BTW, I think condos can be a really good investment depending on the fees and location. My mom bought a condo about 7 years ago, and it has proven to be a fantastic investment for her.
I say if you wanna own, go for it. I purchased my first home at 21 years old with 13% down and made less than you. I survived and even sold it at a nice profit (not saying that's what's going to happen to you, considering I was in New York City). I'm almost certain that you can find a home in the hi-200s and lo-300s in a good school district, over 2k sq ft, in Cedar Park, Round Rock, or even NE Pflugerville (which tends to have the better schools in the district). They are probably not new construction, but I don't see what the big deal is with new construction.
I probably don't follow the popular opinion, but I am who I am. I value where I live highly, so I am willing to spend extra money when it comes to a home. It's not a matter of keeping up with the Jonses, but I don't want to have to deal with the process of buying/selling all over again when I outgrow a house. I want to live in a good, quiet neighborhood in a good school district. I want a home that is visually appealing to me and I feel good living in it. A home is more than four walls and a roof to me, it's the place where I retreat after a hard day's work. I believe in moderation as well -- I save, yes, but I also spend. Sure, I could probably save some more. But I'm happy with what I'm doing now. I have enough to bail me out until I get on my feet, yet I spend whenever I want (not on credit). You can't take your money with you when you die, so while I work and earn it, I'm going to enjoy it as well as save it.
My husband and I don't make $200k/yr yet we will probably purchase a home in the $350-480k range. Since we aren't addled by revolving credit debt, we can still save some and have extra for discretionary spending. It just means that maybe our discretionary income will no longer be the $$$$$$$ that it is now, but that's ok. It's worth it to get the home that will serve our needs for the next twenty years.
Another advantage to Craigslist listings is that you are usually speaking directly to the seller. Don't be afraid to ask for seller financing as it might well be available. You will need at least a 10% down and a reasonable FICA score (or more down if score is not high). The term will usually be 5-7 years bullet, but with a 20 or 25 amortization so that the payments are lower than if a 5-7 year amortization. The rate will always be higher than conventional financing.
That gives you time to look for permanent mortgage financing (15-25 year amort and term) while you have an equity position rather than paying rent.
One thing that has not been mentioned here. I am an ex-commercial banker and have seen lots of personal balance sheets. It is the norm that by far the largest percentage of the average person's net worth is the equity that they have built up in their home, both by paying down their mortgage each month over several years and by the inexorable rise in home values.
There are few things I am certain about. One is that over a period of years there is a strong long term uptrend in home prices. Of course there are ups and downs around that trend line (think 2008 for a huge down), but for the long term it is a no brainer.
Land is a fixed resource
Inflation causes construction costs to go up
Stiffer code regulations causes construction costs to go up
Cost of materials rise.
Population increases
Etc, etc, etc
Don't forget if you put less than 20%, you also have to add on monthly mortgage insurance which most lenders require.
You can also pay the PMI premium up front, which is an option many people don't know about. That's what I plan on doing. Either that or an 80/10/10 loan, where we'll avoid PMI.
If I were you, I'd immediately start saving up for a minimum of a 20% down while also having a sizable emergency fund in place. It doesn't sound like you have your financial house in order enough to be taking a huge risk in buying a home - in my opinion anyway.
It sounds like you have the common mindset that "renting is throwing money away"; but property taxes, mortgage interest, HOA fees, PMI (another reason to save 20%) etc are all also in the throwing away money category if so. Only a small part of your mortgage when you start out will actual go to your principle. And you probably won't come out much ahead on taxes since you already can claim a married standard deduction.
I make exactly what you make, have zero debt other than my mortgage, am 29 years old, and bought a 360k condo in South Central Austin (78704) with 25% down (270k mortgage) last year. You'll get a little better mortgage rate if you put 25 instead of 20% on a condo. With all that said, I feel like I spent close to the max that I would have been comfortable with. And I was saving close to 3k a month and maxing out my retirement accounts before buying my place while also paying 1400 a month in rent. I don't like taking big risks financially though - I know others in my situation would have been comfortable with a larger mortgage. Still, you only having 10-15k in savings is a bad sign unless you've been aggressively paying off debts.
I believe condos are a safer investment the closer to downtown you are since they are a viable and desired option to the more expensive houses, but the risks stated by other posters are all correct regardless of area. Do your research before buying. I wouldn't buy a condo in an area that isn't guaranteed to always have a high demand and is filled with fairly affordable single family homes.
I travel a lot and have little time for yard work / maintenance so a condo fits my lifestyle better also. And the place is brand new, has a lot of shared amenities, and is in a great area where I can ride my bike downtown in 10 minutes. I felt all of those benefits outweighed the risks.
OP, I would really start with a Realtor and local lender for pre-approval. We can all offer advice but everyone's financial picture is a little different.
Another advantage to Craigslist listings is that you are usually speaking directly to the seller. Don't be afraid to ask for seller financing as it might well be available. You will need at least a 10% down and a reasonable FICA score (or more down if score is not high). The term will usually be 5-7 years bullet, but with a 20 or 25 amortization so that the payments are lower than if a 5-7 year amortization. The rate will always be higher than conventional financing.
That gives you time to look for permanent mortgage financing (15-25 year amort and term) while you have an equity position rather than paying rent.
One thing that has not been mentioned here. I am an ex-commercial banker and have seen lots of personal balance sheets. It is the norm that by far the largest percentage of the average person's net worth is the equity that they have built up in their home, both by paying down their mortgage each month over several years and by the inexorable rise in home values.
There are few things I am certain about. One is that over a period of years there is a strong long term uptrend in home prices. Of course there are ups and downs around that trend line (think 2008 for a huge down), but for the long term it is a no brainer.
Land is a fixed resource
Inflation causes construction costs to go up
Stiffer code regulations causes construction costs to go up
Cost of materials rise.
Population increases
Etc, etc, etc
Actually over long term real estate has an inflation adjusted rate of return of near zero. It is a no brainer it is a bad investment over long term.
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