In January, I started a new job in Philadelphia's Center City area. Around the same time, I moved into my first solo apartment, so I'll be here for at least a couple more months or longer if I want to. But when should I look to buy a house, a condo, or continue renting or possibly moving?
Situation:
I have net income around 3020 a month (after the deductions for taxes, retirement account, etc).
My rent is 925, internet is 50 but I also pay my mother's house's internet for another 50, then electricity is usually 45. Other utilities are included in the rent, so the price is about 1070 a month. It costs 3.50 per laundry load, and I usually do two loads for 7 total, and I do it twice a month, so that's 1084 a month in total.
Food-wise, I spend about 90 twice a month on shopping trips or 180 a month. Then I buy out at work on maybe 4 out of 5 days a week for 10 dollar meals, totalling 40 a week or 160 a month. That's 340 a month, but I also go out with friends about 2-4 times a month totaling about 200. So altogether 540 total on food/fun.
Then for toilet paper, toothpaste, copay, meds, etc, it's probably less than 40 a month. I don't pay or use much and have no car and walk everywhere, including a workplace about 5 minutes away.
Total estimate I have is 1084 + 540 + 40 totaling 1664 used up of my net 3020. That leaves about 1356 in net savings and for spending on anything else. It's not much, but I do have savings from past work too (bit over 50k). No debts in anything.
I'd say I'm not unhappy with my situation since the work commute and area is nice, and my landlords are great and apartment is clean too, but it's pretty tiny for a studio (so I can never host friends over), and I kind of want a bigger place.
But I also worry for the increase in price if I got a bigger apartment and feel like it would be financially unwise?
I read that you should spend no more than 33% of net salary on rent (so 996 for me), and my total is already 1084, and it'll definitely go up 50-100 next year according to a neighbor. (Though I'm also guaranteed yearly raises with my job for a few thousand each time, so that minor bump doesn't worry me too much if I stay.)
I also considered buying a house or condo with my savings, but I don't have much to be affording one (and would lock me in place for 5y+), and I'm not even sure if I'd like living in one since it would be in a new area and introduce new hassles of mortgage and slightly more maintenance and repairs, plus HOA/insurance etc if a condo.
Sorry for the wall of text but just wanted input and advice. Thank you.
How long to stay in current apartment and when to start looking to buy a house, condo, or continue renting?
byu/AnokataX inpersonalfinance
Posted by AnokataX
4 Comments
How much do you have saved?
How much house can you afford?
Can you put down 20% on a home?
Would you have a sizable emergency fund after you bought a home?
If you’re paying $925 for rent, you’d need a massive down payment to have a mortgage of $925. Unless houses are under $150,000 where you live, which I doubt.
I don’t understand the rush to buy housing. Rent. Save. Save some more.
Find a place you’d think you like.
Do you have 20% of that saved? Would the mortgage (remember to add property tax and insurance) be tolerable? Bonus if it’s not much higher than renting, but nowadays good chance it is.
That’s just the basic affordability part. Then will you be in the area a long time? Have an idea of what the place provides (Do you need more room, starting a family, etc).
Buy a house when…
* **You can afford it**. Ideally, this means a 6+ month emergency fund and enough in savings for closing costs, moving costs, and a 20% down payment. The monthly payment should already be worked into your budget. Don’t just hand waive expenses you’re going to cut in order to afford the increased monthly costs (factoring in for repairs and maintenance). Actually make the cuts first.
* **You expect to stay in the house long enough to make it worth it**. There are a lot of transactional costs involved with buying and selling a house, which makes buying for short term stays inefficient. The general rule of thumb is 5+ years, but there are rent vs buy calculators that help pinpoint that based on your specific situation.
* **You want to own a house and are prepared to deal with the added responsibility**. Simply put, it’s not the same as renting and you should actually want to own and put up with extras. It’s not strictly a financial decision. It’s also a lifestyle one.
I wouldn’t look to buy now. You can keep saving up. Interest rates and houses are high right now.
Look for 1 bedroom apartments and see how much they are. You could also rent a room in a house/condo if you want to live with others and save money.
You want to have a 6 month emergency fund of expenses. Which for you is $10k.
So you have $40k for a down payment (minimum 3.5% with mortgage insurance, 20% without) and closing costs (roughly 4%). How much are houses/condos that you like?
It seems like up to $175k would be affordable (20% down and 4% closing costs is $42k). Monthly roughly $1167 if no HoA. So a condo you’d have to go cheaper because of the HOA. Morgage interest and property tax has income tax benefits