Condo Hunting

The hunt is officially on! I’m looking for a condo, albeit much earlier than anticipated.

So why the sudden change of heart?

  1. 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.
  2. 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.
  3. 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!

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