((update: I discovered that due to an oversight on one of my spreadsheet calculations, my income was not correctly represented. I have updated figures below, marking them bold if they have been changed. If some of this doesn’t make sense, it is because the text was written about different numbers.))
After discussing it last night with my father, it has been clearly stated that (barring unforseeable financial changes that make anything I could possibly calculate now meaningless) my father is ‘kicking me out’ of the house in or around January 2006, about 6 months from now. Financially, this creates some challenges for me. The following is my own rambling, basically for my own benefit, on the subject.
Feel free to skip it entirely.
Right now my total outstanding debts combined are about $17,000 across three accounts (I paid one off in May). With my new pay rate and an aggressive strategy for paying one of my accounts down far enough that the remainder can be transfered to my lowest-interest account by January, I can be down to two debt accounts totalling $14,000 by the end of January, 2006.
Theoretically, if my living conditions and living expenses didn’t change and I continued this aggressing strategy, I could be debt-free in 2 years, 7 months. Alas, my living conditions will be changing in January.
So, let’s see. At my current income, if I don’t cut back on anything, don’t stop saving or going to the movies, but I do start paying for my own cellphone instead of just an additional line on my family’s plan… and I stop the aggressive debt reduction and switch to near-minimum payments, moving the debt-free date to about 6 years out… I can afford to pay $515 a month for rent and all utilities. (Including internet – that’s a utility, right?)
Now, I’m currently spending at least $60/month at movie theatres, watching movies (I went over a bit last month. Sigh.) and if I cut that down to one movie a month (yeah, sure, I can do that!) that’s another $50 or so for rent+utilities, or $665/month.
If (by which I mean ‘when’) Heath takes the car when this all goes down, then I don’t have to pay for gasoline or insurance anymore, but I will probably have to pay for a bus pass, depending on where I end up living. That’s a savings of roughly $80/month (though a loss of roughly 50 hours a month, based on my current bus commute times), which brings the available money for rent+utilities to $645/month.
I’m also putting roughly 10% of my money aside into a savings/”writing expenses” account. Any time I buy writing supplies, it comes out of this account, and all the money from book sales goes into it. “Writing supplies” includes paper and pens and pencils, of course, but also appropriate software (such as iWork ’05, which includes Apple’s word processor, Pages), all orders of my own books for me to sell in person, and recently the less-obviously-for-writing purchases of a new bookcase (to organize my space and reference materials better, and to create a better work environment), and modafinil (to give me more time to write in). I also sometimes borrow against my savings when my bills and my paychecks don’t quite match up, but I’ve been very strict about paying myself back. I expect that if I am as aggressive with my debt-paying as I mentioned above that I will need to dip into this account a bit more in order maintain a reasonable level of happiness, but imagining I didn’t spend another $1 from it before then, it would have roughly $1250 in it by January. Since everything changes in January, I may need to stop saving in order to afford living. So, if I take the money I’m putting into savings now and apply it instead towards rent+utilities, my new monthly total available for rent+utilities comes to $775/month.
Now, assuming the car thing happens whether I make other changes or not, that gives me a range from roughly $595/month to $775/month, the high end of which leaves no room for error in my budget at all – an emergency comes up and I stop eating for a week or two to pay for it. Looking at renting an apartment, this could get me a semi-reasonable placeby myself, or, if I could find a roommate, a very comfortable place, and not be killing myself financially. Well, except for the fact that I’d be “throwing money away” on rent. So let’s look at buying my own place:
I have a good credit score, a few points above 700 (over a dozen at one of the reporting agencies, last I looked), eight years of credit history with zero missing or late payments ever reported, zero accounts in default, and no accounts opened in the last three or more years. (Citibank opened an account for me without my permission three and a half years ago, I think – it was open for the three days it took their letter to reach me, and then I called them and there was much screaming, and they closed it again – and it appears on my credit reports.) These are all pretty good things.
The only really bad thing, and it is a thing that banks care about a lot, regardless of your credit report, when deciding how much to loan you, is that I have a lot of debt. This is high when measured a couple of ways: I carry high balances on my accounts. I have a high debt-to-income ratio. So, of the accounts I have balances in, those balances are nearly “maxxed out.” I stopped actually closing accounts I’ve got paid off within the last year or two, so that they exist, add to the average life of my accounts, and lower the % of my available credit that I’m using, but it’s still pretty bad. Likewise, looking at just the minimum payments on my currently open accounts, my debt payments per month represent about 21% of my gross income. (About 31% of my net income after taxes.) For first time home buyers without a down payment (that’s me!), most banks want their total monthly debt payments, including their mortgage payments and car payments and student loan payments and credit card payments and all other forms of debt payments, to not be higher than 33% of their gross monthly income. Some lenders will go as high as 38%. So, let’s say I find a bank that’ll let me go to 38%… with my current accounts/balances, that represents a monthly mortgage payment of roughly $325. Which, on a 30 year loan with interest around 6.5% gets you roughly $51,000 worth of house. A more conservative lender (ie: one that only wants me to have a 33% debt to income ration) might only approve about $36,000.
That’s not a lot of house.
If my aggressive debt-payment strategy works, and through some miracle of timing I pay off that one account before the banks look at my credit, and I find a bank that allows up to 38% total debt to income ratio, they’ll allow a mortgage payment of up to about $400/month, or a loan of about $63,000. Now we’re into condominum range, how about that?
Of course, it’s more complicated than that. First off, the 20% down payment to match a $63k loan is roughly $15,750 (bringing the total value to around $78,750, and buying a pretty nice place) – but I don’t have $15,750 for a down payment. Heck, I don’t have $1,575 for a down payment. Not to mention closing costs. Anyway, what that means is that I need to pay mortgage insurance, which banks consider part of the cost of the mortgage, and which thus reduces my buying power. Whatever the mortgage insurance costs, it comes out of that $325-$400/month the bank thought I could afford. Some websites I’ve looked at put the insurance costs as high as $350/month. Most weren’t that high, but the more ‘aggressive’ the loan, the higher the insurance, generally. Plus, since we’re talking about condo-sized loans, we should consider that most condos are part of an HOA, and there are HOA fees to consider. Annecdotally, I’ve heard of HOA fees in the valley ranging from $150/month to over $500/month. Sometimes these include some or all of your utilities, but they always have restrictions and requirements on what you can and can’t and have to do with your property.
So, thinking back to the $595-$775/month I said I could afford personally for rent+utilities (or here, mortgage+insurance+HOA+utilities), I could still theoretically afford to get a place of my own. And assuming I could find a place that my debt-to-income ratio allows me to afford and which is large enough for them to live there, with a roommate I would have NO trouble paying all my bills comfortably.
Roughly, estimating, if I could get a bank to loan me enough for about $60k worth of condo, and get the seller to pay closing costs and/or roll them into the loan (since I really don’t/won’t have that kind of savings on hand), and I get a reasonable rate (which is where my good credit score comes into play), the mortgage (plus taxes and mortgage insurance) will be around $500/month. With another $250-$300/month for HOA fees and utilities (that’s room for higher bills in the summer), let’s say $800/month total, and I just have to find a roommate I can live with who will pay $400/month (half), and I’d be well within my own ability to pay AND not have give up things like internet and movies and savings (savings which will come in handy in case I get another roommate who stops paying, or who moves out entirely without notice, which 66% of my roommates who weren’t Angela have done, historically, costing me over $3200 in bills they didn’t pay).
So, that’s good news, I suppose.
It means that … well, even without finding a better/higher-paying job, even without help on a down payment (which my father talks about wanting to do, but which may not be possible), even without selling my video game or getting a publishing deal, I should be able to afford to rent OR buy a reasonably-sized place – so long as I have a roommate. And that if I can’t find a roommate, I’ll be living someplace small and sleazy and (probably) “throwing away money” on rent, since I’m not sure I’m mature enough to give up all my creature comforts (movies, internet, et cetera) just to be able to afford the mortgage payments on a small, sleazy place… even knowing that I would be “building equity” that I could use as a down payment on a nicer place in the future… but we’ll see what comes to pass. Last night/this morning, and especially with my initial calculations (Did I mention that the mortgage calculator at the Desert Schools FCU website intially projected that I could afford a house costing roughly NEGATIVE thirty-thousand dollars?), I was pretty upset/anxious about the whole thing, but now I’m not feeling so bad.
I’ll keep working on other income-boosting projects (including applying for other jobs), and I’ll certainly work on trying to find a roommate and looking at the ‘market’ for good locations, but I’m not thinking I’ll end up starving or living on the streets, so that’s good.