Help for young couple buying a first-time condo with FHA?

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Submitted by Balboabride on January 19, 2009 - 4:02pm

I have been enjoying this site for a while, and wanted to enlist the advice of those who have been on the site longer.

We are a young couple that have just married but have been together for several years. We are in stable, but medium-paying jobs (110k together)and we are currently renting a 1 BR condo in Hillcrest.

We have seen prices in condos take a serious dip in the past 2 years and we have been saving up to buy. We have saved 15k for a down payment and have been pre-approved up to 300k. We'd like to spend closer to 160-220k on a 2 BR.

With the market saturated with inventory (both good and bad)...does anyone have any advice on a "good area" that will hold its value in the long term? And a realtor that can show us around?

Our plan is to live in it for 5-10 years and then rent it out. We like our area...but it seems expensive to buy in Hillcrest-- where you are constantly pan handled and pay HOAs for no amenities whatsoever.

Suggestions? We don't "know" the areas outside of central San Diego well enough to choose one over the other...also...we need a dog park nearby.

Submitted by patb on January 19, 2009 - 4:09pm.

downtown will always be popular but be aware until the
option-ARM waves washes through and that will be
this summer, the condo market will continue to lose ground

Submitted by sdrealtor on January 19, 2009 - 4:29pm.

Kensington is great if you can find anything there. Very few condos but what is there should do better than most.

Submitted by sdnerd on January 19, 2009 - 5:10pm.

Do you have 6-12 months emergency cash fund in addition to that $15k?

Submitted by barnaby33 on January 19, 2009 - 7:14pm.

Mission Hills seems the obvious choice, but I haven't seen anything in that range. I also like some of the pockets in 92116, for example right across the foot bridge from Ralphs.

Submitted by sdjdguy on January 19, 2009 - 9:05pm.

First of all, congratulations on your marriage. I completely understand that you want to buy a home and get settled in and start your lives together. You said that you want to buy a 2-bedroom condo and that you plan to live in it for 5-10 years and then rent it out. Have you considered that you might have children within the first 10 years of marriage and that a condo might not be the best setting if you do? Are you sure you are cut out to be landlords? Here's my advice: try to resist the temptation to buy now. I know it's a strong one. I feel the same way; I hate renting and want to buy something of my own NOW (but I'm waiting until at least late 2009). With your combined income, you would easily qualify for a $400,000 home (if not more) if you had more saved for a downpayment. Here is what I suggest you should do: defer buying for a year or two. Continue renting while you save as much as you can toward a larger downpayment. Have as your goal saving enough to put down at least 10% and do not use FHA for your loan (HLS can explain to you why not ... briefly, it is a bad deal due to the 1.75% up-front fees plus PMI for 5 years). And then, once you have $35K to $45K saved up, buy a single-family house in an area of your choice with good schools (Clairemont, La Mesa, Rancho Bernardo, and many other areas would work). If you buy a condo now with only 5% down, I think you will ultimately look back and wish you had waited, saved up a larger downpayment, and bought a house. Prices will probably still drop more, and do you really want to live in a condo for 5-10 years? When the market reaches its bottom, with your combined incomes, you will be able to buy a single-family home in a good school district with a yard for your kids to play in. If you decide to buy a condo now, though, make sure to buy in a complex that was built as condos (i.e., not converted during the recent market bubble) and that has good reserves and no deferred maintenance. Mission Valley would probabaly be a good place to look. It is centrally located, and HOA fees are generally reasonable. You might want to check out Escala (Friars Rd. across from Costco/IKEA). The units were built in 2004-2005, the design and floor plans are modern and attractive, HOA fees are reasonable (roughly $220/month), amenities are good (great pool, fitness center, etc.), and prices have dropped a lot. Best of luck.

Submitted by urbanrealtor on January 19, 2009 - 11:35pm.

I would check out Normal Heights north of Adams.

I just showed a house on Mansfield there (about 1300 sqft) and about 250-300k asking.

Thats pretty much the price of a 2br apt in central Hillcrest.

I host open houses there (Hillcrest) constantly.

As an alternative, I would look at North Park east of 30th (probably north of Upas).

Finally, I would have a peak at some of the places in South Park (basically greater North Park South of Juniper). I have seen several places there (especially those with the 92102 zip code) that really make a lot of sense.

Okay and one other area to check out.
Sorry, I am a geek about this.
This is more for those who don't have kids and are more interested in really gorgeous historic neighborhoods. Its a touch sketchy but Sherman Heights (east of the ballpark and south of 94) has lots of buildings that are more than 100 years old and can be bought for cheap. Again a sketchy neighborhood but truly incredible homes.

Submitted by Balboabride on January 20, 2009 - 9:04am.

Thank you so much for all your responses! To answer your questions...yes, we DO have an emergency fund saved up (certainly not 12 months, though! We just paid for our wedding and that ate a lot. LOL!) and we do not want children.

We will definately check your suggested neighborhoods...although I fear some of your suggestions are way out of our price range(We want to top put at 220k so that we can still continue to save aggressively) Is there anywhere North or East of Central San Diego that is in the low-end range but a good investment?

In regards to the condo vs. house question...children are not in our future and we work and travel a lot. My husband does numbers for a he is not what you would call "handy".

That said, do you still think that waiting to buy a house is the right thing to do? I worry that a house is too much work and...just too much space for a young couple and their dog....

I am interested your opinions, because we are getting this advice (wait and buy a house) from a few people---but I still think if we could get into a "easy to care for" condo at a low short sale price right now-- we'd enjoy a great tax benefit that would be "easier" on us as a couple than "stretching" our budget to get into a house.

Is the advice about buying a home because condos are hard to resell and therefore a bad investment or is it because owning a house is, in your opinion, an "ideal"?

Thank you so much for your input...we are truly open to ideas and wish to make a sound investment for our future together.

Submitted by 4plexowner on January 20, 2009 - 9:41am.

"Condo loans with less than 25% equity will cost .75% more than a house."

now why would FNMA want 3/4's of a point more for condos than for single family houses?

could it be that condos are a bad investment?

Submitted by NotCranky on January 20, 2009 - 9:42am.

There are houses with tiny yards in the areas Urban realtor is talking about. They won't require much more work than a condo. I guess prices there will come down significantly in the next year or two. Depending on relative purchase price HOA fees could go towards maintenance.

I don't really favor condos from any perspective, except maybe as a way to afford life in a really great community. Each to their own of course.

As long as you are still considering them and have asked about eastern areas, You might look at Rancho San Diego. This is less dense, suburban area east of town on the 94. Some of the condo grounds have a somewhat open feel, if one prefers that to living in a box next to another box, as is the situation in many centrally located buildings. The units should be priced lower per sq. foot the further east you go. You might consider how important a unit with a small patio might be to you, your husband and the pooch. Just in case you aren't aware of it, it gets quite a bit hotter in the summer as you go east,especially in the valleys.

La Mesa is nice. Maybe one of the best balances of urban/suburban in the county.

Submitted by NotCranky on January 20, 2009 - 9:54am.

4plexowner wrote:
"Condo loans with less than 25% equity will cost .75% more than a house."

now why would FNMA want 3/4's of a point more for condos than for single family houses?

could it be that condos are a bad investment?

Seems to me that other than purchase price and rate, there are not many posters who seriously consider investment angles on this blog... in reference to their owner occupied homes.I am not trying to sound judgemental there. It seems about average.

Submitted by LV Renter on January 20, 2009 - 10:00am.

You used the term good "investment". There are no good investments in condos in SD right now. You mightbe able to find a place that yields a mortgage payment less than rent, but it is not a good, "investment"

When you buy a condo you buy the building, not just your unit. Most buildings with units in the price range listed have serious DQ HOA issues. If they do not have them now, they likely will in the future as more people bail on their upside down loans. The HOA DQ will lead to an assessment or inability to maintain the property. Does that sound like a good "investment" to you?

If painting the walls black and not needing to move every few years is the most important thing to you. You should buy, but just remember this is a lifestyle spend (like expensive clothes, meals, or cars) not an investment.

Further, you need to understand the tenant you are likely to get when you do move out. The price you are talking is a lower end unit. The tenant will aslo be lower end and seriously damage the place.

Submitted by 4plexowner on January 20, 2009 - 11:37am.

lower end condos are likely to be condo conversions as well - opens up a whole new set of issues - mostly having to do with quality

yes, I look at RE mostly from an investment perspective - I have my owner-occ situation well taken care of so my only interest in SoCal RE is investment

and I might suggest that anyone contemplating a purchase of something costing $200K+ could spend a few moments considering the investment aspects of that purchase - the OP even mentions renting the place out down the road

Submitted by Balboabride on January 20, 2009 - 12:02pm.

Right. I get that an "investment" to someone like me is different to someone will larger savings, bigger salary, and greater buying capacity.

I was using the term "investment" to mean being able to sell a condo for more than I bought it for in 5-10 years. If it is not possible to do so, please educate me on the subject or point me towards a resource.

The people who we rent from now are doing this-- the condo we live in this their "kid's college fund". They bought a "lower end unit" (it is actually pretty nice...and so far we have been able to not seriously damage the!) and lived in it for 5 years before using the equity plus their savings to buy a home.

Is this a bad way to go? Are these days over?

Submitted by NotCranky on January 20, 2009 - 12:50pm.

We had a thread about whether a first time buyer's purchase is an investement or not. I was in the yes camp. The point I take is that if you do it wrong it hurts.It could be part of a slippery slope up down or a ladder up.
I don't think you can look at what you are thinking about and say it is a no brainer. When you find something that is, then I would bet it is a good investment. I am not going to go into what that might be because you are the one who has to be able to live there. I'd process it though,as you are sensibly doing, and wait until I could move into something that made me laugh all the way to the bank.

First time buyers who have waited until now will likely have as good of an opportunity to do that as anyone ever had. That is if they can sacrifice a little somewhere. It might be comfort it might mean looking a little poor.Depends on where you are starting at. Doing it right is what matters. "These days", like your land lord lived,are not over just consider the timing and other options very well.

This is not to say that you, or anyone else,has to look at their home as a launching pad to good real estate investing....but the question did come up. It it beats being "upside down" going nowhere.

Sorry if I get worked up about this.LOL.

Submitted by sdrealtor on January 20, 2009 - 1:28pm.

LV Renter
How can you make a statement that most buildings in the price range have serious DQ HOA issues? There is no way anyone could make that statement. There is no way of knowing this information and your comments are wild eyed speculation at best. Are there problems at some complexes...absolutely. But most? That's a rididculous statement.

Submitted by urbanrealtor on January 20, 2009 - 3:58pm.

An example of what sdrealtor was saying:

Suncrest villas in Normal Heights has lots of foreclosures and short sales.

Lots of delinquent dues.

However, they are in no danger of a major assessment or or some giant raise in dues.

Since they are a big complex, they just raise dues 5 or 10 bucks a year.

This is typical in the larger developments.

Also, I have helped procure renters several times in cheaper condos (including conversions). There has yet to be an issue with somebody "seriously damaging" the place.

LV renter, you make assertions that do not jive with what I see on the ground. Where do you get your info?

Submitted by sdrealtor on January 20, 2009 - 8:37pm.


Submitted by urbanrealtor on January 20, 2009 - 8:58pm.

sdrealtor wrote:


Submitted by thebazman on January 20, 2009 - 10:30pm.

sdnerd wrote:
Do you have 6-12 months emergency cash fund in addition to that $15k?

That is a good point ... Do 401(k) savings count for emergency fund? I have $15K saved up in the bank, and also $25K in the 401(k) ... of course that value has sagged all the way down from $30K last year and even hit a low of about $22K in November of 2008, LOL...

Lucky for me I live in a low-end apartment, as it keeps my expectations from getting out of line. Hahaha. The O.P. is lucky to be able to afford a house -- I would not be able to in a nice, central SD area until they are at $150K, at which point investors will probably be snapping them up. :(

Submitted by LuckyInOC on January 20, 2009 - 11:53pm.

Balboa Bride,

Please read this previous thread on HOA's.

Before you make an offer, make sure you review the Reserve Study from the HOA to reduce you risk of any potential special assessments. Make sure to read and understand fully the HOA's CCR's. Also read and study the state law about PUD's. You will need to know your rights when you live in a PUD.

In very general terms, very old complexes (30+) may have costly reserve problems coming due very soon (roofs, pools, etc.). Newer complexes (2001-2006) may have monthly cash-flow shortfalls due to foreclosures. You need to verify the monthly receipts cover monthly expenses for at least three years.

You are not buying just one unit. You are buying 1/nth of the complex. You could be responsible for the actions of others (board members).

I don't have a big problem with HOA's, just know what you are getting into. HOAs are government and politics in a small scale.

Good luck...

Lucky In OC

Submitted by Balboabride on January 21, 2009 - 8:57am.

Thank you for the valuable information, Lucky in OC!! We will definately do our due diligence...I will post back here with the results!

To the guy that wants to buy in central SD...we have a friend who just had an offer in the 150's accepted for a condo in 92116 that was listed much higher. I think it depends on the unit, the seller and the bank. Good luck.

Submitted by thebazman on January 21, 2009 - 9:03am.

Thanks for the info, B.B. Sounds like there is hope. :)

Of course, then I get greedy and want to get a single-family residence and hope it drops to the same price.

Submitted by PCinSD on January 21, 2009 - 12:41pm.

Clairemont is an area that could meet your needs. As luck would have it, "Clairemontian" is thinking about selling:

Seems like a perfect fit. No need to pay me any commission :)

Submitted by Blissful Ignoramus on January 21, 2009 - 1:22pm.

Briefly, I don't like the math. I simply wouldn't do a 90-95% LTV on a condo in San Diego in this environment. Even if you are sure you will stay long enough to break even or perhaps do better, I would save for a year or two to get the down payment percentage up to 20%. In the meantime, prices are due to continue dropping. That 20% is likely to be 20% of a much nicer place in a year or two. And this way you have no second mortgage (if you can even get one) and no PMI, a nicer place, and a much more reasonable equity cushion. Assuming reasonable habits and income growth, you can pay the thing off in your 10 year window (that may be true either way).

Another observation: How many people here bought their first place, and expected to live in it much longer than they actually did? I know I'm raising my hand right now. The market is likely to encourage you to stay put far more than it did me, but there are many unforeseen reasons for which people end up moving. Just sayin'...

Good luck!

Submitted by NotCranky on January 21, 2009 - 2:47pm.

That's funny Pabloesqobar.

I thought we were going to scare this young lady straight though, not sell her somone else's falling knife. Sorry Clairemontonian, just goofing around. How is the HOA?

Submitted by sdrealtor on January 21, 2009 - 7:33pm.

When Fred Flintstone needed help or an answer he called for his martian friend The Great Kazooo! My reference to Kazooo is that he's getting his information from an imaginery friend.

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