40 times rent, PMI and why I always carry an umbrella

Exiting my building it’s not long before you’re met with a barrage of trash roaming the seats. Plastic bags, empty potato chips bag, empty beer bottles and crumpled brown paper bags from the bodega makeup the carnage. Some residents have decided to bypass the hallway trash compactor in favor of throwing trash directly out the window. While this disaster is cleaned throughout the day, the process repeats itself day after day. It’s always been like this. Part of me rages because if the needless littering stopped this would improve the neighborhood without the need of any government funded program. Secondly, why would one purposely contribute to the pollution of the very community they live in?

When I was younger riding the 4 train into the city was always an adventure. From the 161^st street stop to the 149^th street stop the train shifts from aboveground to underground and right around this stop the human vending machines traveled from cart to cart, selling their wares. For me, the real magic occurred almost every time I got off at 86^th street or below. I would exit the station and the streets were sparkling clean, no garbage whatsoever. The air was fresher, the buildings had doormen and the basketball hoops in Central Park still had the nets. As naïve as I was, this to me was the symbol of success. The goal was to get apartment there.

40 Times Rent

When I returned to city after college, my “salary” was $27,500. Used to college level rent – $275 with utilities included, I started my apartment search. That’s when the music stopped. Every apartment I looked at required a salary of at least 40 times rent. Rent in my “dream zone” was right around $1,800. So to even apply for the apartment I needed to at least have a salary of $72,000. There was the option of adding a cosigner to the lease but they needed to earn 60 times rent. Unable to afford the dream (not even on lay-away), I kept looking north, so north that I ended up in the Kingsbridge area of the Bronx. The realtor was unaware I grew up a couple neighborhoods over and I knew that statements such as “a vibrant neighborhood filled with potential” was code for “small studio, high rent and potential critters as roommates”. Rent was $1,550 but “she could let it go” for $1,400. Brokers really are there to make you broker. Silly of me to let the opportunity go.      

PMI

Years later when I started looking at the housing market, I once again was met with reality. Of my friends who purchased a home, many were secretive with the details (down payment amount, down payment source, house purchase price—like c’mon, this last one is public record!), so I was unfamiliar with the process. I knew you put twenty percent down, but I never quantified that number until I started looking at house prices. My search in the greater New York area returned a range of $350,000 to $500,000, $70k to $100k is a lot of green to save. Turns out many use Private Mortgage Insurance (PMI) to purchase the property. Don’t have 20% down? Cool, come with a lesser amount (as low as 3%-5%) and take out a PMI loan. The additional cost for this luxury? Only a couple hundred bucks per $100,000 borrowed per month. On a $350,000 30 year loan (using today’s rate), a 5% down payment ($17,500), results in (essentially) another mortgage payment a year ($211*12 = $2,532). I’ll pass.

Umbrella

I tend to ignore the hot topic “should-you-buy-coffee?” debate, as for most people the big three expenses are: housing, food and transportation. Control the big three and the rest is (almost) negligible. One of the lessons I took from the above experiences is, if you can’t afford to live somewhere you either have to make more money or move. No matter how good the dream, don’t let the dream turn into a nightmare. Driving twenty minutes away to save twenty cents on gas won’t matter much if housing is 65% of your budget. Until I move or hit the jackpot career, don’t mind my umbrella, I use it in case of raining garbage.