Profile picture for ryissaco

Am I in a good enough position to buy a condo?

Hi!

My name is Ryan and I have a few questions.  I am 24 years old and have been saving to buy a condo in San Jose, California.  I have a great job at a large high tech company in the area and get paid 75K a year with a whole lot of room for growth.  I have 21K saved as of now and plan to have 50K by the end of next year.  My credit score is 780 and I have zero debt.  I question whether or not its a good idea for a few reasons.  The average price of a decent condo in this area is 350K, if I put 3-5% down I have calculated my monthly payments to be somewhere in the area of $1,900-$2,200 a month (excluding insurance and other home owner fees).  I take home $3,500 a month after taxes but feel that I will not have enough money to really enjoy myself  : (.  Is it the right time for me to buy?  Should I wait until I am older (28-30) and just  rent in the mean time?  Are prices over-inflated and wait for a similar dip in housing prices as in 2008?  Lots of questions I know haha
  • June 04 2014 - North San Jose
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Answers (6)

It seems like you should wait a while...but the only way to be sure is to get loan preapproved so you will know the maximum price you can afford, then do a search for properties within that price and see if you like any...contact a mortgage broker, direct lender, or mortgage banker...$Good Luck$
  • June 12 2014
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I'm hard-pressed to imagine that owning is not the best financial decision. Our local economy/market is so strong and expected to remain so for at least the next 3-5 years. I suspect the primary reason to not buy is that you would lose sleep worrying about making the mortgage payment. As long as this seller's market continues, you could always sell quickly and probably make a profit.

As to the loan, go talk to a lender. It is free and no obligation. They will run the numbers an provide you with a pre-approval letter that tells you your maximum price. Their requirements vary by lender, so you might need to use a mortgage broker to find the right lender.

Generally, they will allow your monthly payment to be up to ~42% of your gross monthly income ($2,625 at $75k/yr).  This payment includes principle, interest, property tax, HOA dues and mortgage insurance premium and any other payments (car, student loans...).  Use a mortgage calculator with current interest rates to calculate the amount of loan you qualify for.

The downpayment is the other variable. The lender will probably require that you retain about 2 months worth of mortgage payments in reserve (to ensure that you can make payments). That will reduce the size of your available downpayment. FHA loans go down to 3.5% down, most lenders will down to 5% without paying FHA costs. Most any loan under 20% down will require mortgage insurance.

A bit complicated and varies by lender. My recommendation is to talk to a mortgage broker to determine the best lender program for your situation. Pretty easy from that stand-point. Then you have the information to make your decision. And if not, then you can set goals and a plan to get there as quickly as possible.

Let me know if you would like an intro to a good mortgage broker.

Bryan Sweeley
Alain Pinel Realtors
BryanSweeley.com
  • June 05 2014
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I am in San Jose so I know how you feel. It is good you start thinking about these things.
Suggest you defer your purchase dream for now.  Many young people your age are frustrated 
with two high tech programming or engineers jobs and are unable to find a place.  Overbidding is the norm, Save money for a bigger deposit. Those with stock options are doing min 20% down to keep the payment low.

Attend investment seminars and save, save ...
Sam Shueh
Keller Wms Cupertino Realty
 
  • June 05 2014
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Profile picture for valuatemyhouse
Ryan,

Good time to buy market is trending North.  My only concern is that you are correct on your DTI (Debt to Income) which would personally max you out.  Also you need to take into account most Condo's have HOA dues so you have to add that your DTI.  Than take into account Electricity, Water, Amenities.  You could of maxed yourself out.   Another factor to add is Condo's Association may not let you rent if you choose to leave in few years.  You may need to get condo report showing the current renters to owners in the association.  Some lenders may not lend on a particular Condo Association that has higher renters than owners.

Possibly look at some of the neighboring Cities building homes or area you can live and play.  Possibly buy a bigger home not condo and have few roommates.  Have them pay your mortgage so you can play.

Good luck!
  • June 04 2014
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Profile picture for Tony Ngai
Ryan, sounds like you are well ahead of your peers.  Buying your first home will be the biggest decision one can make.  Although it is still a seller's market, there are reasonable condos in the North San Jose area that are below $400K.  Although 3-5% is the minimum down payment, the more you can down the better chance your offer will get accepted.  If there are multiple offers, your low down payment will be a factor.  Best of luck.  
  • June 04 2014
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It all depends on short term/long term goals. the NY times did a very good job at figuring out a Renting v. Buying analysis that is pretty accurate. you can google buy vs rent and it will pop up.

 

It could help give you an idea which makes more sense. It's not perfect but it will give you an idea and put things in perspective.

 

The big thing about buying vs. renting is when you buy something you obviously have an asset, and San Jose (not having much low income housing) has a good chance of appreciating property values which could be an added benefit in the future.  Other factors to include would be, in the future if you want to buy something new and keep the home as an investment property, how much could you rent it out for? Would it pay for the mortgage? Or you could always sell it, and use your equity for a down payment for something bigger when you are ready to upgrade. It can definitely be a good platform for you, but it really depends on what makes sense for you and type of lifestyle you want to live now and in the future. If you want me to run some hypothetical numbers for you I would be happy to do that for you. feel free to contact me through my profile.

  • June 04 2014
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