Is Now the Right Time to Buy a Home?

 

Is the time right to purchase a home? If you have limited income and money for a down payment, what are your options? There are over 300 condos available in Washoe County price at $40,000 or less. Is a condo the right choice?

For a condo to qualify for a FHA, VA, or conforming mortgage, a minimum of 51% of the units must be owner occupied. Over the past 5 years, investors have been purchasing condos in our market for cash. The result is, very few condo associations now meet the 51% occupancy requirement.


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The other problem is Section 32 (Regulation Z; 12 CFR 226.32). Section 32 legislation limits the total points and fees payable by the consumer at or before loan closing to the greater of eight percent (8%) of the total loan amount, or a specified dollar amount that is subject to change annually. The 2011 amount is $592.

FannieMae and FreddieMac have set a fee ceiling of 5%. This is $2,000 on a $40,000 loan. The appraisal, escrow, title, recording, and lender fees total more than 5% making financing near impossible unless the owner will carry the note or you get a private or hard money loan

The condo is a part of an association, which maintains the common areas, plus the exterior of the units. The HOA fees I am familiar with range from $185 to over $300 per month. Each association has a reserve study, which dictates how much money the association has in reserve and also predicts the cost of painting, maintaining the roads, etc. When I was on the board of a condo association, our reserve study estimated $1,000 per unit to paint in 2004. Our association painted 8 units per year. The cost in 2004 was $3,000 per unit. This type of cost overrun  results in reserve shortages and either high monthly fees or a special assessment to bring the reserve total back to the amount required by the reserve study. At the time, the HOA fees were $220 per month. Six years later, they are $300.

If you think you can afford an inexpensive condo, I have great news for you. You actually can buy a nice house for the same monthly payment. I have compared the cost of owning a $38,000 condo with an $80,000 home assuming you could actually get financing on the condo. The HOA fees for the condo are $270 per month.

 


For the exercise, the buyer earns $3,000 per month, is paying $675 a month for rent, and is in a15% tax bracket.  I am showing a 3% seller contribution toward the buyer’s closing costs. Although the cash to close is slightly higher for the house, the gross monthly payment is about the same. Because a higher percentage of the payment is going toward interest, the tax benefit is much greater; your net monthly rent is $75 less for the house than the condo. If you insert your current rent, you will realize you’re projected saving.


 

Today’s low home prices and interest rates have combined for a perfect storm of opportunity. If you are dreaming of owning your own home and would like to find out what you qualify for, please give me a call @ 775-250-4421. We may never see another opportunity like this in our lifetime.