HousingOct 7, 2019
Truliatrulia

Sample Calculations for Home Buying

Hi, Married couple here, no kids, early 30s, plan to have at least one kid in a year or so (maybe one more in future). TC: $425K/annum, good credit score (750+). Home budget: $800-850K We are thinking about buying a condo in MTV/Sunnyvale area or in San Mateo county (husband works in the city, wife works in the South Bay (SFH is out of the question for that budget). Note, we plan to buy and live in the house for the next 6 years. We don't know what we would want to do or where we would want to live after 6 years. Let's take this particular house as an example: https://www.zillow.com/homedetails/2255-Showers-Dr-APT-184-Mountain-View-CA-94040/19510850_zpid/ Assuming it goes for the listed price, Zillow's mortgage calculator shows monthly costs to be ~$4K with ~25% down (we have that handy). It would cost almost the same to rent a 2Br1Bed apartment. So, why not buy the house? 1. We are breaking even on rent vs monthly payments. 2. It would allow us to raise the first kid and accommodate visits of the other family members. 3. Even with 1% annual appreciate, if we sell it after 6 years, we would break even (as 5-6% seller agent's fees would need to be paid). 4. We are aware of SALT deduction cap, so we are not even factoring those calculations in. 5. While alternatively the 25% downpayment money could be parked elsewhere and a higher return could be earned (Vanguard, etc.), frankly at this stage with an incoming kid, the convenience and peace of mind that we would at worst be breaking even short and long term is worth paying 25% downpayment upfront. I think 1% annual appreciatation for the next 6 years is probably not a bad assumption to make. Let us know if we are missing any crucial points. Thanks, Blind community!

2255 Showers Dr APT 184, Mountain View, CA 94040 | MLS #ML81769300 | Zillow
2255 Showers Dr APT 184, Mountain View, CA 94040 | MLS #ML81769300 | Zillow
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J3sus Oct 7, 2019

Would you be okay with the house depreciating if the market were to take a hit? It's been going up since 2008 and only recently started to plateau, but where it goes from here is anyone's guess...

Trulia trulia OP Oct 7, 2019

@J3sus: Thanks for pointing out the risk. If it plateaus, we lose 6% (realtor fees). If it drops, we lose even more. If it appreciates at a modest 1% annually, we break even. I guess, at this point, it is anybody's guess as to whether which of these 3 scenario plays out.

Verizon Media Atinlay6 Oct 7, 2019

Do you have enough savings to cover all expenses for 6 Months? Don’t forget the HOA. If the market dips. These will be the hardest hit. With that said, don’t offer anything over 775k for something like that. It’s already overpriced

Trulia trulia OP Oct 7, 2019

@Atinlay6: Thanks for not posting the standard smiley as a response! Yes, we won't offer the current listed price, but just wanted to run the house as it is listed an an example.

Verizon Media Atinlay6 Oct 7, 2019

Also look at the price history for the true story of how the demand is for these places

Facebook enzuyah Oct 7, 2019

Are you factoring in property taxes every year? That said, if your monthly rent and mortgage would be nearly equal purchasing would most likely be best in the long-term. Obviously this assumes some kind of home value appreciation.

Trulia trulia OP Oct 7, 2019

@enzuyah: The monthly payment of ~$4K accounts for principal + interest + property taxes + homeowner's insurance + HOA.

Fannie Mae mdarkroom Oct 8, 2019

Also factored in repair costs and increase in taxes and HOA? 20 years old. Howevrr well maintained, problems are bound to come.

Amazon sRMG32 Oct 7, 2019

Also another thing to consider, you lose 6% in realtor fees when you sell the house. Plus maintenance throughout your living.

Amazon sRMG32 Oct 7, 2019

Also consider the returns on your down payment if you decide to rent. Calculate everything. If you plan to stay in the house long term, it’s good to buy.

Trulia trulia OP Oct 7, 2019

Are realtor fees still as high as 6%? I thought they were coming down to 4.5-5%. Secondly, yes, I did factor that in in my assumptions. I'm assuming a modest 1% of annual appreciation for next 6 years (after which we may sell the house).

IBM bbWI22 Oct 7, 2019

If you have 25% down, consider buying a SFH in Redwood City with 20% down instead. lack of HOA can make up the difference in some circumstances

Trulia trulia OP Oct 7, 2019

Thanks, I'll look into that.

IBM bbWI22 Oct 7, 2019

https://www.zillow.com/homedetails/518-Scott-Ave-Redwood-City-CA-94063/15566715_zpid/ My house cost the same amount as this, and I pay around $4500/month including utilities and taxes (but there are 5 adults in the house, so your cost will be lower)

Cisco ipf Oct 7, 2019

$4k rent for 2Br? Where are you renting ? If in Sunnyvale or Mountain View , you can get decent 2Br for <2500 . You just need to search at right places

Trulia trulia OP Oct 7, 2019

Thanks. Yes, there does indeed seem to be some stock available for <$3K, but not as good quality. But you are right if we would be willing to downsize our expectations of the apartment community, we could potentially rent in way less.

PwC bobagirl Oct 7, 2019

Depends on how you define ‘decent’. No way you find a decent 2br with less than 2500 in the area u mentioned

Voya Blind867 Oct 7, 2019

Besides the fact that you should buy Your calculations are off. Your monthly mortgage payment includes principal, so calculate your equity you're paying yourself in your breakeven as well. It's actually 3 years if you have 1% growth because each payment (assuming 600k loan @ 3.75) you're getting 903/mo towards principal. Also in your calculations verify tax (zillows calc is usually off) and maybe run a condo quote just to know a good estimate for insurance (condo is usually cheap). If rent and mortgage are equal you're ahead because of that principal payment, and if you can one day rent out higher than your payment thats great too. Additionally check with multiple financing companies and see if you can put down 20 and what mortgage ins looks like if you out less. For our recent purchase it was only 35/mo to put down 15 rather than 20, and that 5 will earn better at market rate.

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justgo Oct 7, 2019

Just buy it if you have money then. However, I don't think it's worth it. https://www.trulia.com/for_rent/Mountain_View,CA/

AT&T MsdR32 Oct 7, 2019

Have you considered buying a duplex/triplex and renting out the other units? It is often a much better financial decision.

AT&T MsdR32 Oct 7, 2019

Big reason not to buy a house - repairs and depreciation. You may have big repairs needed, like a new roof, plumbing or electrical issues. Also, house prices may go down. It's a gamble.