Author Topic: Ok home with mortgage or better with mortgage  (Read 1198 times)

moiskula

  • 5 O'Clock Shadow
  • *
  • Posts: 3
  • Location: finland
Ok home with mortgage or better with mortgage
« on: July 07, 2017, 04:47:38 AM »
Before I can ask the question I explain my background a bit. I'm from Finland and I'm super new to this mmm/frugal/savingfor-fi -lifestyle but unknowingly I've been doing it since I were in diapers (parents have been doing it since forever, meaning since they started their work careers). I am 23y student between schools (going uni next year) so I don't have real, good paying job but I have 3 different jobs where I work all the time that I don't need for school. So I have been able to save +50k that do 2,5% per year profit in savings account (by the time I will use it the sum will be around 60-80k).

My question/problem is about housing. I have enough savings to buy an ok apartment about 10km from my future school in my hometown (small town in Finland). To do that I wouldn't have to take mortgage or if I if i did it would be minimal (5-20k). But I've been thinking should I rather buy bit smaller closer to university and also in the bigger city. This apartment would be almost double the price, about half the size but would have better chances to sell with large winnings in future and make it rental. It would also mean that I had to take mortgage for 100k.

So should I buy small from big city and take loan or buy big from next town and do it without loans?

Goldy

  • Stubble
  • **
  • Posts: 213
Re: Ok home with mortgage or better with mortgage
« Reply #1 on: July 07, 2017, 05:30:59 AM »
Are you planning to stay in that town after you graduate?  If not I'd personally lean toward renting as selling fees usually remove the bulk of profits when selling a house in the short term unless you live in a booming Vancouver/California market.

PapaBear

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Re: Ok home with mortgage or better with mortgage
« Reply #2 on: July 07, 2017, 07:28:37 AM »
If i rent, it will eat my savings really fast because I don't have any stable income. During winter and school I make about 100-400 only and renting good place costs 300-700. So renting is not option at the moment.

How would you plan to pay the mortgage, if you don't have a stable income?

//EDIT: I guess the post that I quoted is not there anymore. Anyways, the question of the mortgage financing remains.

A few more questions that might influence your decisions:
- Is there a holding period in Finland to be able to sell an apartment without capital gains tax? If so, how long is the holding period?
//EDIT: 2 years, if I interpret that correctly... not too bad, I guess (https://www.vero.fi/en/individuals/housing/selling_your_home/)
- How expensive are selling fees in Finland (notary public, realtor fees etc.) as % of the sales price?
- What are your commuting costs for the 10km distance per month or year? Next to the big city lifestyle and potential higher increases in value, that is basically your savings with the apartment in the city
- Where are potential jobs located after you graduate?

To be honest, as a student, I would have never thought about buying real estate. Too inflexible and too much responsibility. With potential relocation for a semester abroad/internship or a change in the life situation (e.g., significant other), I always preferred the liquidity of a diversified stock/bond investment.
« Last Edit: July 07, 2017, 07:49:40 AM by PapaBear »

moiskula

  • 5 O'Clock Shadow
  • *
  • Posts: 3
  • Location: finland
Re: Ok home with mortgage or better with mortgage
« Reply #3 on: July 09, 2017, 01:29:30 AM »
Thank you for the questions. Those gave me few thoughts that hadn't crossed my mind before. Few answers:

- Because the apartment is first one where I own +50% of it I get this special mortgage. For the time I'm student I have only have to pay the interest and I will get 30-50% back from taxes.  With owned home, every time I am able to pay extra it will be for me, not for rent and that is my reasoning for owned instead of rental. I will be studying at least for 4-7 years so the amount I would be paying for rent would be anything between 20 000 - 60 000.

To help with payments I will also get few hundred per month as financial aid from the government. That added to my estimated paychecks from my jobs I would be able to live and pay mortgage/rent and because of tax refunds mortgage payments would be bit smaller probably.

- For the commuting I have to buy bus card that is 33 for month and I get to use bus as much as I want. I would have to buy it even if I bought the the apartment from the city.

- Jobs after my graduation, for my first studies the jobs are everywhere in Finland, some places I would be able to do more hours than here but I would be able to do it here too. After my second graduation I have no clue. At the moment job situation changes really much in short time here so after 5 years I have no idea what I'll be able to do as work or where it will be. But since the city I'm talking about is one of the biggest here, I am probably and hopefully able to stay here.

PapaBear

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Re: Ok home with mortgage or better with mortgage
« Reply #4 on: July 09, 2017, 10:10:57 AM »
Quite interesting concept of supporting home ownership in Finland. I guess the subsidized loan changes the picture a bit pro buying.

To be honest, in your case I would draft an  excel spreadsheet with a scenario comparison. I'm a rather data-driven person, so that has worked for me well in the past:
- 4 options (buy home in small city, buy home in big city, rent in small city, rent in big city).
- Then I would add in all the financial considerations per month to end up with a mock budget for each situation incl. your income, study subsidy, rent or mortgage, approx. tax refund for mortgage payments, as well as other housing related cost (you would still need to pay utilities and I guess something like HOA fees - fees for the homeowners association of your apartment block. In the end, you would come up with a monthly surplus/deficit for each of the scenarios, helping you to decide the financial matters of the housing situation.
- Additionally, I would include the mortgage balance at the end of your approx. study terms.
- Next to the financial consideration, I would also add qualitative factors that the different options would have: e.g., closeness to university/short commute, closeness to friends/social activities etc., responsibility for the apartment, tied up capital etc.

The scenarios don't need to be tied to a specific offer, just need to be somewhat close to what is available in the market realisticalyl right now,
With these four scenarios, you would have a good overview of the different options and I guess in the process of compiling it, certain preferences will already emerge.
If you want, you can also post a summarized version here and a few people from the forum can chime in on the financial side of the scenario analysis.
Seems like a lot of work, but buying a flat is also quite a big decisions - especially for someone in your age.