I used to be a renter.
No, a serial renter.
I’d live in one place for a year.
When the lease ended, I’d move.
When the next lease ended, I’d move.
I enjoyed that freedom for 3-4 years.
By the end, I absolutely hated the whole thing.
I hated having a roommate.
I hated the idea of apartment shopping.
I just wanted to put down roots and be in control of everything (see how off I was there a few sections down).
It looks so easy when you watch people do it on tv.
Of course, because they don’t want to show you the bullshit that’s involved–that doesn’t make for good ratings.
But it has certainly been a process over my decade-plus of homeownership.
Perhaps you can learn a few things upfront that I had to learn the hard way?
Shopping For A Condo Is Different Than For A House
Are you thinking about buying a condo?
Already shopping for one?
You may want to change the way you are approaching it.
I really don’t hate the condo I own, that’s not what this is about.
But if I had it to do all over again with the knowledge I have now it may have been different.
I most likely would not have ended up in my current place of residence.
There isn’t anything inherently wrong with buying a condo.
There are many issues that are specific to this particular kind of property that you may not need to consider when looking at single-family or townhouses.
When shopping for a home, the most common qualities people seek out are generally location, price, age, and condition.
Sometimes, depending on where you are looking, homeowners association fees (and what they include) are also a consideration.
Those were the main factors I was looking for when I was shopping for my condo back in 2006.
I spent a year shopping and even came back to my current home 3 times before making the decision to purchase.
So, what did I do wrong that I said I would probably not end up here if I had it to do all over again?
I looked at this purchase like it was a house, and not for what it really was–a totally separate animal within the housing environment with its own set of rules and characteristics.
What did I learn?
Well, I learned that the following things need to be considered and inspected when buying a condo:
Financial Stability Of Development
Every condo building or community has an operating budget–not a monthly budget but an annual one–that is paid for by the HOA fees that it charges.
This usually consists of maintenance of the grounds, landscaping, security, recreational facilities, etc.
My particular community had changed management associations so frequently that the budget was a mess and turns out that one of the prior firms completely mismanaged the funds, and the community was operating at a deficit.
What ended up happening was an increase in the monthly HOA dues, in the beginning, followed by the cancellation of community-paid cable television and internet service.
Essentially, I am now paying twice (in my mind) for my cable and internet since it was one of the costs covered by my dues when I signed up and I’m now paying for it a second time out of my own pocket.
The takeaway: ask questions about the status of the budget and ask about any provisions for shortfalls & how often they have increased the HOA dues in the past.
Association Rules Enforcement
Where I live, there are certain guidelines that must be obeyed (or at least that what the documents and subsequent follow-ups claim):
- There is not supposed to be any reverse parking.
- No hibachis or grills are allowed on the balconies (fire department law).
- The use of amenities by minors is prohibited without adult supervision.
- No skateboarding is allowed in the parking lots or on sidewalks
- Pets are supposed to be limited to one per unit and a 40lb maximum weight.
There’s some other stuff too, but those are the biggies.
What do I see on an everyday basis?
- Cars pulled into parking spots backward.
- Kids running in and out of the clubhouse on my way home from work.
- People using those cheap grills on their balconies (including the person below me).
- Huge dogs beings walked and shitting all over.
- And the worst one–kids smacking their boards on the ground while doing tricks right beneath my window on their skateboards.
I know that there are security people driving around in their little golf carts, but they seem to be more interested in being friends with everyone than enforcing the rules.
It may be nitpicking, but hearing skateboards slam the ground is quite annoying.
Seeing and smelling grills going when it’s not only against the rules but illegal is frustrating.
People taking forever to park because they have to take the extra time to position their car to back it in just pisses me off.
And kids messing around and breaking the stuff in the clubhouse or damaging the pool would really set me off if I had to pay for it (which happens when the new annual budget is set).
The takeaway: find out what the rules are and take note of how vigorously they are enforced when doing your tour. Ask the residents you may see if they are happy with how the place is run and policed. It’s about more than being a stickler for the rules, it can also save you from having to pay an assessment or other repair bill.
Noise & Annoyance Control
This one really isn’t something you think about very often, or at least I didn’t.
In my complex, the doors are heavy and the type that close on their own.
The people here are such losers, that they don’t make the effort to hold the door as it closes, and they let the doors slam shut on their own (which is quite annoying).
In addition to that, the stairs are built in such a way that you can hear people walking on them even from the inside of the units.
Again, the people here don’t care and walk heavily up and down and don’t tell the kids not to run or jump on them.
I understand that it can’t be perfectly silent but there is such a thing as a common courtesy when it comes to certain controllable issues.
The takeaway: Ask the people who live where you are looking about any annoying noise conditions that exist. It will definitely save you some sleep especially on holidays and weekends when people are more likely to have parties.
Satellite Service: Probably Not
Being that I live in South Florida, where the entire summer is the rainy season and tropical storms and hurricanes are the norms, I was never one to consider satellite television service.
That was, at least, until a few months back when I got frustrated with my current service and the satellite companies started offering tremendous deals.
I was specifically looking into DirecTV service whereby I would get 200+ channels with a DVR and HD included all for $29.99 for the first 12 months and only $44.99 thereafter.
In addition, if I used a friend’s referral code, we would both get $10 statement credits for 10 months.
The average cost of the service would have been an average of $33.32 for 2 years, which is more than 50% of what I would have to pay from the cable company that services my area.
I called them, and set everything up, only to find out that my unit was not positioned properly to receive the signal.
Not only that, but the type of material used to enclose the balcony was not conducive to receiving the HD signal.
So, instead, I got rid of television service altogether since I wasn’t going to pay for something I wasn’t satisfied with, to begin with.
The takeaway: Call any service providers you plan on using before making the final decision to purchase. Find out beforehand if they service that particular area, and any specifics of the building (which direction you need to be facing, building materials that may degrade the signal).
All in all, owning a condo isn’t a bad thing.
The bad things simply come from a lack of preparation and not knowing the right questions to ask or the right qualities to look for.
I don’t regret my decision to buy one bit.
I just wish I had been more intelligent and knowledgeable about the process as it applies specifically to this type of property.
The Costs of Home Ownership: What “They” Don’t Tell You
There’s always a lot of debate about the upside of buying a home.
The rent vs. buy debate is always a big part of that.
But if you do decide to become a homeowner, you have to be careful.
There are costs involved.
Lots of them.
People concentrate on mortgage payments and real estate taxes but there’s much more.
You see, there are a bunch of things that you will be responsible to pay for aside from that.
They may not be buzzwords like “mortgage” or “property taxes”.
They may not even be significant individually.
But trust me, in the end, they add up to a nice chunk of change.
And, unless you are lucky enough to have a really good real estate agent or friend/family/coworker (or me!) to prepare you for any or all of these costs, you will have to find out the hard way–on your own.
You’re Paying More Than Just A Mortgage
When you go to contract on a home (whether it be a single-family, townhouse, or condo) the main numbers discussed are mortgage payment and closing costs.
You usually only worry about getting your credit in line so you can get the lowest interest rate and have to bring the least amount of money possible to the table at the closing and being able to come up with that money, naturally.
Unfortunately-and this usually happens to younger, first-time home buyers-what you don’t normally hear much about are the costs property owners have to deal with sometimes far off into the future.
Costs that no one warned you about.
Costs that don’t get the attention they should from bloggers and industry experts.
No one wants to be the home on the block to stand out for “negative reasons”.
Most people want to fit in with the neighbors and project a similar, if not a more lucrative lifestyle so they will do whatever it takes to keep up appearances.
Putting in a pool, getting a crew to design a beautiful landscape, putting a full entertainment center or outdoor kitchen on the patio all will cost you significantly.
It doesn’t end with just the cost of installation, however.
You also have to keep in mind the increase in the home’s assessed value when it comes to real estate taxes, not to mention the increase in your utility bills as well as continued upkeep.
Even if you do some of the things yourself, the time and work needed at any time is time that you don’t have to actually enjoy any of that stuff.
Yes, that’s correct, plural!
If you take on a mortgage, more likely than not, you will be forced to take out an insurance policy with certain minimum coverages.
Then, you have to obtain other insurances based on your location (ie: flood or wind zones) that may require secondary policies if your primary provider doesn’t offer such coverages.
What happens if you’re investing in collectibles such as comic books or Pokemon cards?
Of course, it is also an integral part of financial planning to have your investments and other personal items, particularly valuables and/or family heirlooms insured in case of unforeseen events.
It is also not something that is talked about much when the discussion comes to buying a home.
Things won’t always turn out as you expect them once the purchase process is complete.
You may realize that your furniture just doesn’t fit the way you envisioned when you did your walk-through.
Appliances may break, even if they are reasonably new.
You may do some damage when moving into the home.
Heck, you may be moving into an area that is always impacted by hurricane season.
Stuff happens, but sometimes we don’t plan for it or even consider the possibilities of it happening, and they generally don’t happen just once.
It’s important to understand all of the various mishaps that can occur and be able to handle them financially.
Having an “emergency fund“, or whatever you want to call it is a good start.
Just understanding the fact that these kinds of things can take place will put you ahead of the curve in terms of not being completely taken off guard and scrambling to figure out what to do next.
Homeowners or Condo Association Fees
Again, this depends on where you live.
Your homeowners’ association sets the rules by which you will have to abide by, and you even get to pay them to do so!
And, that’s generally on our mortgagee payment unless the community you buy in has some sort of escrow requirement that the lender works into your payment.
Many communities have associations that require monthly or quarterly dues to pay for common areas such as pools, clubhouses, parks, and facilities.
They also cover the landscaping, security, and possibly certain utilities if the community has a contract with the cable company for example.
These associations set guidelines such as the colors that exteriors can be painted, parking rules, and “policing” the properties in order to maintain the property values by ensuring that the landscaping is done, roofs and sidewalks are clean, and lots are kept up to standard.
Every home needs upkeeping, whether it’s replacing appliances, air conditioning maintenance, pest control, landscaping, whatever.
If you live in an area that has an association, certain things are likely to be required, such as the landscaping and power washing of the roof and sidewalk (as mentioned above).
Some people will say that it’s more financially prudent to take a do it yourself approach, but it is always best to hire a professional if:
- You have no experience in doing something like climbing onto a roof with a pressure washer, or
- Your time is better spent on other tasks and a professional would get the job done in a more efficient manner.
It isn’t always about the money outright, but a combination of the money and the opportunity cost of doing things yourself.
Not to mention the health risks posed by trying to use power tools you have never touched before in your life or attempting to handle electrical work when you have trouble tying your shoes.
This one is iffy, which is why it’s down at the bottom.
Many times, especially if you aren’t putting down 20% the mortgage company will demand that you pay a portion of your annual property taxes each month as part of your monthly mortgage payment.
If that is the case, you are already aware of the costs because they will tell you when you are presented with your mortgage offer.
However, if you are not having your property taxes escrowed, you may be in for a shock come late October when most bills go out unless you did your homework.
It’s relatively easy to research the property taxes in your desired area, but that just isn’t one of the things that most first-timers consider unless they are well prepared and taught to do so.
There’s also another problem that never gets mentioned…rising home values.
In general, that’s a great thing because it increases your “paper equity”.
The downside to that, however, is the increased property taxes that coincide with valuation increases.
You’re going to have to account for those increases in your housing costs too, which can be substantial in some areas.
Not Everything Is Deductible
Now, one of the biggest reasons to own a home used to be big tax deductions.
Mortgage insurance premiums.
Real estate taxes.
People started getting it in their heads that everything they paid in conjunction with homeownership was a tax deduction.
However, those are the only expenses that are allowed as deductions.
Property insurance, maintenance, association dues, PMI…none of these are deductions to homeowners who occupy their homes.
A kitchen or bathroom remodel is not deductible.
You don’t get to take depreciation on your primary residence either.
Even tax credits for installing a high-efficiency air conditioning unit aren’t available anymore.
Heck, even now with the Tax Cuts and Jobs Act 0f 2017, more and more people will lose out on the deductions that used to be selling points of owning a home.
Doubled standard deductions combined with a cap on SALT taxes of $10k make it quite difficult to take the deductions for mortgage interest or real estate taxes (as well as for charitable contributions).
Buying a home can be very confusing and overwhelming even for even the most organized and prepared person, let alone someone who has never gone through the process before.
Even if you have reliable people helping you out, it can still be a hectic process and one which you may want to just get over with.
The key is to arm yourself with the most knowledge possible and to take things one step at a time regardless of how slow it may feel like the process is going.
It is better to know exactly what you are getting into beforehand, rather than make the purchase and then discover additional costs here and there as time passes.
Just remember, renting a home is still a very viable and responsible option as well.
If you aren’t ready to be a homeowner, or you’re not sure that you can account for all of the costs involved in owning a home without stretching each paycheck to its limit, then don’t.
Buying a home when you are ill-prepared or not financially ready will certainly leave you “home rich and cash poor” or worse yet, completely broke.
Being A Homeowner Doesn’t Give You Absolute Freedom
Did you recently become a homeowner for the first time?
Are you expecting to relatively soon?
In either case, you’ve most likely gathered as much information as possible.
After all, this is/was a huge step for you.
No more worrying about what to do when the rental lease comes do.
An end to worrying if the lease payments will increase each year.
No more packing and unpacking for yet another move.
You have finally decided to set roots and make some lucky place home.
You may have been warned about the hidden costs of owning a home.
Stuff like insurance, maintenance, upkeep, etc.
But did anyone tell you that you may still have someone to answer to regarding what you do to your new property?
This may come as a complete shock to some people, especially those who have never owned a home before.
It may even come as a shock to those who are seasoned homeowners as well.
The thing that many people don’t realize is:
You’re Not In TOTAL Control
You’re probably thinking you yourself:
How is that possible? Are you nuts? How can anyone take you seriously when you write stuff like that? Of course I’m in control of what I do. It’s my home that I pay for, no one can tell me what I can or cannot do to it!
You are justified in your reaction if this is the case, but that doesn’t change anything.
You may very well have to answer to another party when you want to make changes to certain aspects of your new (or old) place, even if you own it free and clear.
So who could you possibly have to answer to?
When you purchase a house that is an area that is governed by an association, you must sign a contract with the association stating that you understand and will abide by their rules.
This means that you have to get approval for any change in the outward appearance of the home.
If you want to paint your home, you better check with the board so you can choose from the approved color palette.
Want to put up a satellite dish, better check with the board to see where it can be placed.
If you need a new roof, you have to keep the same style and color arrangement that matches the exterior paint.
The same goes for the driveway; you can’t stain or change the colors that don’t match their guidelines.
If you live in a condo, it goes even further.
You cannot even change the interior structure such as re-configuring a kitchen or bathroom without first going through the board for approval.
Even something as simple as window treatments probably has to be a specific design.
But, even if you don’t live in an area with an association, let’s not forget about…
The City You Live In
This is something people rarely think of.
In reality, they have a set of rules all their own independent of the associations.
One such example is landscaping.
Some cities have laws that, unbeknownst to most people, lay out exactly how many and the species of tree that is required to be on a property, as well as where it needs to be placed.
Ask my parents, they will tell you.
They got a notice from their city planning board (or whoever it was) that stated the tree they had removed needed to be replaced, as well as two that were missing from the back of the property.
The letter told them what kind to buy and even gave them a list of possible places to shop.
Of course, the city wouldn’t respond to their question of what other course of action they could have taken when the tree’s roots got so big, they started breaking through the sidewalk (since that is city property after all).
You also need to be careful of city policies pertaining to things like storm shutters and other protective measures.
Some places have rules that outline how long you can leave up hurricane shutters after the threat has passed.
Perhaps it has something to do with ugly silver things covering windows or maybe it’s the potential safety hazard they represent, but if you don’t abide by this particular rule, you face the chance of fines.
You also need to hassle with permits for certain structural improvements and appliance installations which not only cost money but take time too.
Then there is my personal favorite.
The city I live in, Coral Springs, has a contract with a tiny little cable provider called Advanced Cable Communications, which only serves two cities in the entire South Florida area.
This deal gives Advanced Cable exclusive provider rights to the two cities, essentially eliminating the choices residents have when it comes to cable television or internet service.
Even worse, for someone like me, whose condo doesn’t face the “right direction”, satellite tv is not an option, which completely takes away any choice when it comes to television service.
You Can’t Rent It Freely
Here’s a little something extra to think about when you buy a property that is in a community overseen by an association.
If you ever decide to rent it out or even move, you don’t have the autonomy to do so on your own.
You need to go through the association in order to do either of those things, which you will need to pay for, in addition to being at its mercy when it comes to processing time.
Mortgage Escrow AKA Banks Stealing Your Money
There are a variety of reasons not to like any bank or mortgage loan servicer.
They make it more difficult than it should be to refinance a mortgage, even with government intervention.
They essentially gave free access to money which led to the housing market collapse (although consumers are accountable for taking on loans they knew they couldn’t maintain or still signed even if they were unsure of what the terms meant).
There is an endless runaround when trying to get a straight answer to a question when calling customer service.
Various inflated junk fees are charged to pad the bottom line on loans.
There will always be something that strikes a nerve with consumers.
Allow me to present yet another reason to harbor distrust and disdain for such businesses: they steal from you!
Escrow = Legalized Theft??
Yes, when it comes to a home loan that requires you to escrow real estate taxes or homeowners insurance the lender is stealing money from you.
This isn’t a direct type of theft, like, say, taking money for a service then not delivering.
Rather, what they do is steal from you in a more subtle manner.
When you are required to pay amounts on top of your principal and interest on a mortgage, the reason given is generally that the lender wants to be assured of your compliance with keeping current with property taxes as well as being certain that the asset is insured.
It is a generally accepted practice that is viewed as standard for the industry and is never challenged nor questioned.
What many people do not realize is this is also a way for the lender to make money.
Just like the income tax refund scenario, you are giving the lender an interest-free loan.
It is the equivalent of having too much federal withholding taken out of your paycheck–the lender controls your money, earning interest on it for itself, then paying the taxes or interest on your behalf when either is due.
In essence, they are robbing you of the earning power of your own money in terms of not being able to keep it in an interest-bearing, principal-protected account such as a high-yield CD or high-yield savings account.
Taking it a step further (admittedly this is an extreme view), the lender is also stealing from you by forcing you to pay additional points at closing in order to remove the requirement for escrow. And, that is only if they deem you “eligible” to do so!
The interesting thing, however, is that Congress saw legislation back in 1992 and 1993 which would have forced lenders to pay interest on escrowed funds, but like anything that relates to truly benefiting its constituents, Congress failed.
Don’t get me wrong, for many people having their real estate taxes and insurance in escrow is a great benefit.
It helps ensure that the money is available when it comes time to pay them, which is especially helpful for those who are less than responsible with money.
Unfortunately, the loss of additional income is the price that is paid for such security.
Some people may consider this to be the “service fee” for the lender handling everything.
I don’t see how a “service fee” can be charged on a mandatory service with little choice on the part of the consumer.
I simply call it the lender stealing my interest.
Private Mortgage Insurance & How To Cancel It
If you are one of the many people who took advantage of the free-flowing credit offers (you know, during the early 2000s when people just
asked wanted to know “how much I can borrow” without a second thought) to purchase a home with less than the standard 20% down payment, you are undoubtedly aware that you are paying extra money each month in addition to your principal, interest, and in some cases taxes and interest.
What many do not understand, however, is just what those extra payments are for, why they are being charged, or how to get rid of them.
And, the interesting thing is that for all those who tried to use a mortgage payments calculator, none of these tools ever mention this additional cost in the calculation, nor do many financial articles that dealt with real estate or mortgages.
So, for the uninformed, those extra dollars represent private mortgage insurance or PMI.
What Is Private Mortgage Insurance (PMI)?
PMI is the money that mortgage lenders charge as a hedge against homeowners falling behind on their payments and eventually defaulting on the loans.
It isn’t insurance for the benefit of the borrower, but rather a protection for the lender; a fee that is charged on loans that, when originated, represented more than 80% of the sales price of the home.
It used to be that banks would not loan money for the purchase of a home if the prospective buyer could not afford to pay at least 20% of the property’s sales price upfront.
PMI was established to help potential homeowners reach their goals of homeownership faster by enabling them to put less money down and pay this insurance cost to cover the lender’s increased risk.
How To Get Rid Of PMI
Since PMI is insurance coverage for paying less than the standard down payment, it is going to be part of your mortgage for some time.
There are, however, 3 ways to have the insurance eliminated from your payment:
- Cancellation: This is a manual process by which you put in a request with the mortgagor to have the insurance payments removed. To qualify, the account must reach a loan-to-value (LTV) ratio of 80%, but there is a catch. The catch is, the basis for this calculation is the original purchase price of the home, or the current appraised value of the home, whichever value is less. What this means is that if you want to take the initiative to remove the PMI from your loan account, you need to obtain an appraisal, and if the current value is less than the original purchase price of the home, then the loan balance must be at most 80% of this new value. Should the appraisal come in higher than the original purchase price, then the balance has to be at most 80% of the that original price. In a bad economy, this option is less likely to occur since most homes have been devalued in many areas of the country.
- Automatic Removal: On July 29, 1999, the new Homeowner’s Protection Act of 1998 was enacted which by law, made this an automatic process that should require no action on your part. If you stay current on your mortgage, the lender is legally required to automatically remove the PMI from your account when the balance reaches 78% of the original purchase price. The lender has 30 days from the date your account reaches this 78% ratio point. Additionally, if there are any unearned premiums charged by the lender they have 45 days from that date to return those premiums to you.
- Final Termination: If, for some reason, neither of the first two situations occurred, the lender is required to terminate the insurance the month after the midway point of the loan. Basically, if you are on a 30 year loan which has 360 payments and have not had the insurance cancelled, then by the month following the 180th payment (the midpoint of the loan’s lifetime), the coverage should be removed.
A Point Of Caution Regarding PMI Removal
There have been many people who say that making extra payments on loans, or having an appraisal improving the value portion of the LTV equation will accelerate the process of removing PMI.
Unfortunately, the wording in the Homeowners Protection Act is quite clear and contradicts those claims [for automatic cancellation].
The document (on page 2) states in plain English that the thresholds for determining LTV are “based solely on the initial amortization schedule, in the case of a fixed-rate loan, or on the amortization schedules, in the case of an adjustable-rate loan, regardless of the outstanding balance”.
What this means is that on no date other than the date determined by the original amortization schedule when the loan reaches the desired LTV can the PMI be [automatically] canceled.
How You Can Avoid PMI
There are 2 ways to avoid having to pay for PMI on a mortgage:
- Pay 20% of the purchase price of the home up front in the form of a down payment; and
- Obtain a second loan (commonly referred to as piggy-backing” in order to come up with the required down payments
Which method will work best for you will depend on your situation?
In some cases, it will be impossible to come up with the 20% down payment, and sometimes obtaining a piggy-backed loan may require significantly higher interest rates, which will make carrying PMI a more affordable option.
The best way to approach the situation is to have all of the pertinent information available and take the time to analyze all of the options to see what best fits your financial plans.
There’s always something to learn!
When I went into the home buying process, I thought I was well prepared.
As I was sitting with the bank rep to apply for the mortgage she said that I was the most prepared prospective buyer she’d dealt with in some time.
Sure I had been in banking with a degree in accounting and working at a CPA firm at the time, but there are plenty of “smart” people who don’t have common sense or handle basic things like managing money lol.
No matter how “prepared” I was, some of these items took me by surprise when I found out about them.
It just goes to show you that there is always something you can learn!
If you’ve gone from renter to homeowner recently (keep it relevant–only the last 10-15 years or so) what tips do you have for people thinking about doing it? If you’re thinking about going from renter to homeowner what are your concerns and worries?