Property Virgins: Is a condo a necessary step to buy a house? (or the stability vs. freedom debate)

A few months ago when I wrote about being a property virgin and looking at our first potential home to buy, I said the two main reasons for wanting to buy a house are the desire for more space (for the million babies we plan on having) and/or for an investment. However, I consciously omitted what is most likely the most significant reason of all to buy a home: stability.

I held off on mentioning stability as a driving force to becoming a land baron because I felt it was a part of a much bigger discussion on how I am feeling torn between wanting the stability of a home, and still wanting my financial freedom. Of course I want to lay down roots and build a stable, crazy-landlord-free home for my family, but I also covet and appreciate my ability to take a job because I am passionate about it, and not necessarily for the money (or the stable pay cheque that will be needed for the next 25 years). As much fun as it is to dream about buying a home right now, am I willing to give that freedom up?

SO first, to investigate what kind of financial commitment we’d be making, we met with the bank. And I promised to share anything I learned about this frightening and mysterious process with the Grown-Up Party community, so here is what I found out:

[sidenote: if your down payment is under 20%,  you have to buy “default insurance”, which gets added to your mortgage (so to be paid over 25 years) and ultimately just raises the price of the home. And of course the more you can have for your down payment the cheaper the house and monthly payments will be because the default insurance premium will go down.]

For a $750,000 home with a down payment of $50,000:
– default insurance is $19,250.00 (so house price becomes $769,250)
– with a mortgage rate of 2.89 (+ property tax of roughly $300 a month), monthly payments = $3,663.36
– Alternatively with a mortgage rate of 5.14 (+ property tax of roughly $300 a month), monthly payments = $4,700
BALLPARK: $4,000 a month

For a $650,000 home with a down payment of $50,000:
– with a mortgage rate of 3.19, monthly payments = $2,977.00
BALLPARK: $3,000 a month

For a $350,000 home with a down payment of $50,000:
– default insurance is $4,987.50 (so house price becomes $354,987.50)
– with a mortgage rate of 3.19 (+ strata fees of roughly $300 a month), monthly payments = $1,600.00
BALLPARK: Under $2,000 a month

I know these are not all the costs when purchasing a home that you have to think of. And whether you are buying a condo or a house, as this CBC analysis points out (passed on from awesome pal Amanda!), either way ideally you need a solid down payment to avoid the default insurance. And I know you can get a lower (or be stuck with a higher) mortgage payment. And I want to make it clear that these figures do not mean we have the money to make this happen (right now at least). But if we just look at these as rough, ballpark figures, basically buying a condo could be equivalent to paying rent, while buying a small $750,000 in Vancouver (if you can find one) would be a huge financial stretch, and ultimately taking away lots of financial freedom, and replacing it with lots of financial stress. [No surprise here I know].

But this is where my next big question comes in: Is buying a condo/apartment the middle ground of that stability vs. freedom conundrum, and is it a necessary step before buying a home?

Personally I have been resisting the option of buying a condo/apartment for fear of not being able to sell it once we are ready to buy a house, but is buying a condo the balance I need of stability and freedom? Of owning our own place, but still being free to take a job for passion or not feeling stuck in a job if I want to switch careers or take some time off? And perhaps more importantly, is this how everyone ultimately gets to buying a house and I am just unaware that this is a necessary step?

I would LOVE to hear your thoughts. And as I become more open to the condo possibility (while still looking at Vancouver homes just to keep our options open), I again promise to share anything I learn about condo/townhouse/apartment buying here, and I already have LOADS more questions I plan on asking: Is it hard to sell an apartment? Should we look at buying a used apartment, or are those even harder to sell?

So stay tuned for more tales of the property virgins.

PS. Do you walk around Vancouver at night and look at homes/condos/sweet pads that people own and wonder “how did they buy that house!?” I DO!!!!! In fact it kind of walks the line of creepy. But I’ve decided that I am going to start getting to the bottom of those stories and share them here on  Grown-Up Party. If you know someone with an especially sweet pad or home buying story, please let me know! I’d love to chat with them.

photo(88)

Photo taken on a night walk in Mt. Pleasant when I wander around the hood with my husband house-dreaming.

 

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3 thoughts on “Property Virgins: Is a condo a necessary step to buy a house? (or the stability vs. freedom debate)

  1. Stability vs. Freedom? You express such interesting issues. Yes, it would be nice to have some clarity around this.

    How would the purchase of a house fix your course, or factor into the freedom issue?
    I don’t think BUYING my house fixed my course as much as my CHOICE TO STAY.

    If you want something else in life, you can SELL the damn house and do something else. However, that freedom of choice can be hard to remember once home ownership becomes part of your life.

    In retrospect, I think freedom is something that we have to claim, in any situation. I mention this because from time to time I have forgotten that. If you buy a house or condo, don’t buy the illusion that you need to stay on any particular path. If stability appeals to you, great. Go for it. But remember, freedom is the courage to make choices, and you don’t need to ever give that up, no matter how much stability you achieve.

    Just my 2 cents.

  2. A major thing to consider is the balloon payment mortgage structure. There are still people out there getting them and depending on what you decide to do with your first purchase, this could be a helpful or terrible option. Many people planned on buying a modest priced property such as a condo and living in it a few years, making improvements, assuming the housing market will increase and therefore get you some great equity so you can sell it for a nice quick profit. A balloon payment mortgage structure will allow for lower payments usually so you aren’t too strapped for monthly cash and can use the extra for improvements. Then when you sell it you can use the profit to avoid the mortgage insurance you mentioned.

    The problem is many times the market has not increased as people had hoped and then they’re looking at a very large lump sum to pay off in a few years. If you are going to purchase a house you think you’ll be in for a long time, the balloon payment mortgage structure is probably not the best idea and many lenders are getting rid of them altogether even before they have to.

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