The hunt is officially on! I’m looking for a condo, albeit much earlier than anticipated.
So why the sudden change of heart?
- I really want to live in a 1 bedroom place.
- I hate living in a studio, especially since having a chronic illness means I spend a lot of time at home. I’m convinced that having only one room is not healthy in the long term.
- The average 1 bedroom in this city rents for $2,100/month in my neighborhood it’s closer to $2,500. A mortgage payment plus HOA fees would lie somewhere in this range.
- Housing prices are rising quickly in my city.
- They’ve risen 10% in the past year. Should this trend continue a $300,000 house would be worth almost $400,000 in 3 years. I am not sure I can afford this sort of increase in three years.
- I came across the perfect mortgage through my local credit union and the interest rate is super low. I am considering other loans now too.
How will I come up with the down payment then?
I’ll be taking out a 401K loan.
I know this is generally ill advised, but I figure I’ll be ahead in the long run. I had been muling over various strategies to save for a 3-10% down payment plus closing costs over the next couple of years. Realistically saving for a down payment would entail me halving my current 401K contributions in order to save. I plan on taking a loan out for the amount of contributions I would forgo had I decided to wait a couple years to purchase.
How will this change my monthly budget?
I’ve come up with a few scenarios. The scenarios are in the chart below and show my post-condo monthly disposable income at various 401k contribution levels (10%, 15% and $18,000). For privacy purposes I don’t disclose my salary so I am going call the various salary possibilities (a) , (b) and (c), where:
- (a) – is my current salary;
- (b) – will be my salary in 2 months;
- (c) – is my potential salary in 2-3 months if I am promoted; and
- COLA – represents the cost of living adjustment (COLA) I’ll receive in January.
- I round all figures to the nearest $50
| Monthly Disposable Income Scenarios After Buying a Condo and Contributing 10 percent, 15 percent or the Max to my 401K |
||||
| Scenario | Salary Amount | Disposable Income Amount | ||
| 10 percent | 15 percent | Max | ||
| #1 | (a) | $200 | $0 | – |
| #2 | (b) | $300 | $100 | – |
| #3 | (b) + COLA | $350 | $150 | – |
| #4 | (c) | – | $550 | $300 |
| #5 | (c) + COLA | – | $600 | $400 |
What do I make of the above chart?
- If I don’t get promoted, I will likely contribute 10% of my income to my 401K.
- If I do get promoted, I will max out my 401K.
Alright, I’m off to fantasy hunt online!
A Tale of Finances 