Author Topic: Special mortgage rate from new job  (Read 616 times)

dragonwalker

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Special mortgage rate from new job
« on: October 11, 2018, 11:02:30 PM »
I recently started a new job at a regional credit union and I found out some amazing details about their employee mortgage program which I wanted to run by some of you experts here. First off a little about me. I'm 30, single, no children, live in the suburbs of Los Angeles renting at $554/month. Cash and short term assets: $220K, 401K=$120K. New job pays $52K/year +$2K in cash bonus+5.2% of salary but this goes to 401K. Itís very modest.   

Several years ago I had come close to buying a condo but in part from the advice given to me on these boards I chose not to do it. In retrospect I'm still not clear if that was the right decision but I was fortunate and made a very nice return investing in apple which I still have about $55K of my short term assets in.

The program: it's a 5/5 ARM that the company offers to its employees at cost. The current rate is 1.29%+closing costs. If I do leave the company it converts to the same 5/5 ARM that regular customers get, currently 3.99%. Ask me what details I should know? I just found out these details today so I haven't read over the fine print but from the explanation of the savings it substantially increases my options. Now I still would be considering a 2 bedroom/2bath condo. My plan then and now is to rent 1 bedroom at a minimum I should get $600/month. I believe I could comfortably put down up to $200K down. The market price for a condo in the area where work will be should be around $300K. Prices are high, perhaps 4 years ago when I last considered these prices might have been around $250K. Perhaps someone could do the math and see if this is sensible? Basic principal and interest would be $335 on a $100K loan. Of course I know there is HOA $300+/month, property tax, utilities, and other unforeseen expenses.

Some of you might look at how much I am paying now and say itís not worth it. The thing is itís a room in a house that has 8 bedrooms that Iíve lived in for the past 5 years. Financial sense aside I think going into my 30s means a time for transition even if it costs be a bit more.

I donít think I would be doing this very soon because our new company headquarters is being belt in this area and is expected to be complete sometime in fall 2019 but I wanted to start thinking about this now. By that point I would have gotten a very clear picture of where I see myself down the line. This company is so unlike where I came from, I feel there is so much opportunity and it seems very much like they are there for the employees. I feel so grateful.       
 
I have my bachelorís and Iíve been taking night classes the last few years toward a CPA and plan to use that at my new job perhaps to go in the accounting department. Whatís incredible is that the opportunity is there, just down the hallway! I could potentially spend the rest of my life here.
Now itís time for a more objective opinion on all of this. Thanks!

Dicey

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Re: Special mortgage rate from new job
« Reply #1 on: October 11, 2018, 11:32:39 PM »
My first response was holy shit! Where in LA can you get rents like that? Then I saw 8BR house and now I'm really curious. If you want to pm me to satisfy my curiosity, it might change the advice I have to offer. Otherwise, this is what I have for now. I know LA well, even though I'm a Bay Area transplant.

I had to google 5/5 ARM just to be sure what it is.

Is there a cap on how much the interest can increase at the 5 year mark?
 
Is there a penalty if you leave the job?

Any prepayment penalty at all for any reason?

How close to the new work building can you afford to get?

What if the building is delayed and you have to commute to the old location for longer than expected? What's that commute like?

Barring any crazy answers, I'd totally do it, but only under one two condition(s): You promise to only put 20% down. Because the loan rate is so favorable and the payment affordable, especially if you have a roommate (more on that in a sec), you would be wise to invest the difference. Plus, leaving yourself with only $20K after DP is too damn tight.

You must also pay strict attention to the HOA fees and the Reserves before you buy and you must promise to join the HOA Board, or at the very least attend the meetings, but being on the Board is preferable. You can really learn a lot that way, and possibly save yourself from an expensive mistake or even prevent a special assessment (#askmehowiknow).

And depending where you live, I might know a great roommate candidate for you. Paging @wooljaguar...

wooljaguar

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Re: Special mortgage rate from new job
« Reply #2 on: October 12, 2018, 03:12:40 PM »
@Dicey I am preeeetttyyyy sure that the price for a condo anywhere within easy biking distance of my work is going to be over the price range she mentions there (2bd condos in my neighborhood are closer to $500k!!), so my guess is that it's not doable for me, but thanks for the heads up! :)

Dicey

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Re: Special mortgage rate from new job
« Reply #3 on: October 12, 2018, 07:45:11 PM »
@Dicey I am preeeetttyyyy sure that the price for a condo anywhere within easy biking distance of my work is going to be over the price range she mentions there (2bd condos in my neighborhood are closer to $500k!!), so my guess is that it's not doable for me, but thanks for the heads up! :)
Well, I was pretty sure there was no such thing as a decent place to live in LA for $554/month, so it was worth a ping.

affordablehousing

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Re: Special mortgage rate from new job
« Reply #4 on: October 16, 2018, 02:47:13 PM »
I would think of the special mortgage as just another work benefit. If you take the delta in the special rate versus normal, you're saving 2.7% on interest. Forgetting amortization, that equates to $2,700 ($2,250 after taxes) net benefit per $100K you borrow. So ditto on the advice to borrow as much as you can. Do keep in mind, even on a $375K condo, you're adding under $7K to your total comp, so I would think of this very much as part of your salary comparison when thinking about the job relative to other opportunities. my .02.