What to do with these golden handcuffs (YANMFP)
December 15, 2022 9:35 AM Subscribe
I have a well-paying job that has really taken a turn for the worse in the last 6 months. I want to look for a new job, but it would almost certainly be a 50%+ pay cut. This would have been fine, except that I am in contract to buy a condo with a fairly big mortgage, bigger than I honestly feel comfortable with now that I am looking at things with clearer eyes. Is there anything I can do in this situation?
Some more specifics to my situation:
Some more specifics to my situation:
- I am in Canada.
- I work remotely for an employer who is overpaying me compared to the local market. The 50% pay cut figure is very real, based on my research and talking with local colleagues. I suspect that trying to find another remote employer willing to overpay me will have a low likelihood of success.
- The mortgage (plus property tax, condo fees, insurance etc) is affordable in relation to my current salary, about 30% of my take-home pay. This would jump to over 60% of my take-home with a new job.
- The condo is completing construction next month. I haven't signed a mortgage agreement but have most certainly signed a purchase contract and put down a 5% deposit. If I back out now, I will not only lose my deposit but the developer can sue for additional damages, since the housing market has continued to fall since I bought. Assignment of contract could be an option, but only if there is someone out there willing to buy (see above re: falling housing market)
- The space is too small to support a roommate living situation. I have a partner who could potentially help out with living expenses in the future, but at least not for a couple years (they are currently in graduate school in another city) and that feels like a risky thing to put my expectations on, anyway.
- Most (not all) of my cash savings are going into the down payment, but I do have other investments, that, if completely liquidated and accounting for taxes and such, would amount to ~40% of the mortgage principal. I've been trying to keep this fund untouched and/or growing, especially since the stock market has been down recently, but am wondering if I should use some of it to boost my down payment and reduce my monthly costs. I realize that this is exactly the situation that "fuck you money" is intended for, but how do I use it most effectively so I don't end up in the same situation with the next crappy job down the line?
Yikes. I would ask people at r/personalfinancecanada.
posted by cotton dress sock at 9:54 AM on December 15, 2022 [2 favorites]
posted by cotton dress sock at 9:54 AM on December 15, 2022 [2 favorites]
I suspect you won't be able to get a mortgage that's 60% of your take-home. What does your purchase contract say if you can't get a mortgage?
Right, can you get out of the contract if you can't get a mortgage? I am in the US so I'm sure things are different but my purchase and sale agreement had a "mortgage contingency" that meant I could get out of the contract with relatively little damage if I was unable to secure a mortgage. If you have a mortgage contingency it seems like taking the new job and letting the bank deny you a mortgage would be your best bet!
posted by mskyle at 10:04 AM on December 15, 2022 [4 favorites]
Right, can you get out of the contract if you can't get a mortgage? I am in the US so I'm sure things are different but my purchase and sale agreement had a "mortgage contingency" that meant I could get out of the contract with relatively little damage if I was unable to secure a mortgage. If you have a mortgage contingency it seems like taking the new job and letting the bank deny you a mortgage would be your best bet!
posted by mskyle at 10:04 AM on December 15, 2022 [4 favorites]
My (US) mortgage was over half of my monthly take home with <2>
I'm hanging on to investments / savings because of the risk of unexpected costs with the house and because my mortgage is at a low enough rate that it makes sense to keep money in the market. I wouldn't plan to pull it out until you need to.
posted by momus_window at 10:08 AM on December 15, 2022
I'm hanging on to investments / savings because of the risk of unexpected costs with the house and because my mortgage is at a low enough rate that it makes sense to keep money in the market. I wouldn't plan to pull it out until you need to.
posted by momus_window at 10:08 AM on December 15, 2022
You need to go through your contract very carefully to understand under what circumstances you can break it, and how much you would be on the hook for.
Do you fundamentally still want to live in this location and in this property? If you were open to moving to a higher salary location, would that give you different options? Could you buy the condo and rent it out for some length of time? Can you hang on in your job? Can you get a second job or a side hustle? How much would you lose if you sold straight away, and is that more or less than you'd lose by breaking the contract?
posted by plonkee at 10:14 AM on December 15, 2022 [6 favorites]
Do you fundamentally still want to live in this location and in this property? If you were open to moving to a higher salary location, would that give you different options? Could you buy the condo and rent it out for some length of time? Can you hang on in your job? Can you get a second job or a side hustle? How much would you lose if you sold straight away, and is that more or less than you'd lose by breaking the contract?
posted by plonkee at 10:14 AM on December 15, 2022 [6 favorites]
The mortgage (plus property tax, condo fees, insurance etc) is affordable in relation to my current salary, about 30% of my take-home pay. This would jump to over 60% of my take-home with a new job.
Don't feel like you need to give more information here, but I'd note that while percentages matter, so do absolute numbers. There is a huge difference between spending 60% of a $45k salary on housing (leaving an uncomfortably small amount for food, travel, clothes, etc ) and spending 60% of a $450k salary (which would leave a lot of money still in absolute terms). So you will want to look at how much actual money you'll have to cover all of life's expenses after paying for the mortgage, regardless of what percent that is.
Having said all of that, at most "normal" salaries 60% on housing seems uncomfortably high and potentially unworkably high, and I think you are right to be concerned.
posted by Dip Flash at 10:24 AM on December 15, 2022 [11 favorites]
Don't feel like you need to give more information here, but I'd note that while percentages matter, so do absolute numbers. There is a huge difference between spending 60% of a $45k salary on housing (leaving an uncomfortably small amount for food, travel, clothes, etc ) and spending 60% of a $450k salary (which would leave a lot of money still in absolute terms). So you will want to look at how much actual money you'll have to cover all of life's expenses after paying for the mortgage, regardless of what percent that is.
Having said all of that, at most "normal" salaries 60% on housing seems uncomfortably high and potentially unworkably high, and I think you are right to be concerned.
posted by Dip Flash at 10:24 AM on December 15, 2022 [11 favorites]
Start by reading the contract very carefully and then see if you can consult with local real estate lawyer about what it would cost you to get out of it. As people said above, usually if you don't qualify for a mortgage,the contract would provide a way to get out of it (maybe for free, maybe for 5% but at least without a breech of contract penalty) Even without that, I know people fail to follow through on these contracts regularly - I don't know in your area how likely it is they would try to get more than the 5% from you especially if you indicated you were not going to pay and/or got a lawyer involved (at least to the point of sending a letter on legal letterhead)
At least where i live, going through with the purchase and then trying to resell will lose you money - not just the falling house prices but real agents fees (as much as 6%) and other costs of selling and closing on the sale. It is probably cheaper to just default on the purchase.
posted by metahawk at 10:24 AM on December 15, 2022 [1 favorite]
At least where i live, going through with the purchase and then trying to resell will lose you money - not just the falling house prices but real agents fees (as much as 6%) and other costs of selling and closing on the sale. It is probably cheaper to just default on the purchase.
posted by metahawk at 10:24 AM on December 15, 2022 [1 favorite]
Don't put extra money in your down payment. The benefit is spread over the entire lifetime of the mortgage vs. having the extra money in the bank to be used to help you make monthly payments when you need it and having it be liquid in case you need it for something else.
posted by metahawk at 10:26 AM on December 15, 2022 [4 favorites]
posted by metahawk at 10:26 AM on December 15, 2022 [4 favorites]
Please consult a lawyer on this. I feel you probably have options to get out of the contract. If you don't even want the place anymore because you want the flexibility to quit your bad job, you definitely should do what you can to not commit to a mortgage.
posted by potrzebie at 10:43 AM on December 15, 2022 [7 favorites]
posted by potrzebie at 10:43 AM on December 15, 2022 [7 favorites]
This may depend on the province you're in but if you're in Ontario and you signed your agreement more than 10 days ago then it doesn't look good for you to get out of the contract but you should definitely have your lawyer look over it to see if there's a way out.
Also, if you're in Ontario, be aware that you can expect to pay the builder an additional $15,000+ on closing for various adjustments, so keep some of your other funds in reserve to deal with that. You should ask your lawyer provide an estimate of the total adjustments and closing costs so you know what to budget there.
posted by any portmanteau in a storm at 12:51 PM on December 15, 2022
Also, if you're in Ontario, be aware that you can expect to pay the builder an additional $15,000+ on closing for various adjustments, so keep some of your other funds in reserve to deal with that. You should ask your lawyer provide an estimate of the total adjustments and closing costs so you know what to budget there.
posted by any portmanteau in a storm at 12:51 PM on December 15, 2022
Real estate has fallen, but rentals haven't fallen suit. Could you rent out the condo and cover your costs, and not be as dependent on your employment income?
posted by kate4914 at 3:03 PM on December 15, 2022 [2 favorites]
posted by kate4914 at 3:03 PM on December 15, 2022 [2 favorites]
How much is this new home worth to you? Is it important enough to put up with your current job for at least a couple of years?
If your contract has a 'finance dependent' clause, you could get out of it by changing jobs, then applying for a home loan you probably won't get. If it doesn't, you run the risk of owning the home at the end of the contract and not being able to pay for it.
You're in a very good position in that you have reasonably liquid reserves and could use these to help you over the first couple of years to cover the monthly cost. So sticking with the purchase and then changing jobs doesn't by any means seem impossible. The alternative of using that reserve to cut down the size of your home loan significantly seems sensible at first glance, but you then don't have any reserves left if things get tight later on. To me, either of these options is a good use of your 'fuck you' money and it's not doing you any good just sitting there, where getting into the real estate market will (provided you buy well) pay gains over the longer term. Perhaps some mix of the two (use some to boost your deposit and keep some for later) gives you the safest position, ensuring you don't end up underwater if the value of the home falls a bit and you do need to sell.
Buying the home then renting it out may solve some issues, but may also change your home loan/insurance/body corporate/tax situation, so careful investigation would be needed with this option.
posted by dg at 5:06 PM on December 15, 2022
If your contract has a 'finance dependent' clause, you could get out of it by changing jobs, then applying for a home loan you probably won't get. If it doesn't, you run the risk of owning the home at the end of the contract and not being able to pay for it.
You're in a very good position in that you have reasonably liquid reserves and could use these to help you over the first couple of years to cover the monthly cost. So sticking with the purchase and then changing jobs doesn't by any means seem impossible. The alternative of using that reserve to cut down the size of your home loan significantly seems sensible at first glance, but you then don't have any reserves left if things get tight later on. To me, either of these options is a good use of your 'fuck you' money and it's not doing you any good just sitting there, where getting into the real estate market will (provided you buy well) pay gains over the longer term. Perhaps some mix of the two (use some to boost your deposit and keep some for later) gives you the safest position, ensuring you don't end up underwater if the value of the home falls a bit and you do need to sell.
Buying the home then renting it out may solve some issues, but may also change your home loan/insurance/body corporate/tax situation, so careful investigation would be needed with this option.
posted by dg at 5:06 PM on December 15, 2022
Depending on how aggressive your contract is in favor of the developer, even if you quit your job and couldn't get mortgage on your new salary you may have a problem, because it would be easy to demonstrate that you voluntarily reduced your salary by a significant margin and that (not circumstances beyond your control) is the sole reason you couldn't get a mortgage. I would get a lawyer for sure if you want to get out of this. Also: fyi, any evidence that you are actively seeking to get out of a contract like this is just that and could be used by the developer in their favor. Most contracts like this will give you an out in situations where you *want* to proceed but can not. In situations where you just don't want to proceed, well that is why the contract is in place: to force you to do so.
Good luck!
posted by desert exile at 7:51 AM on December 17, 2022
Good luck!
posted by desert exile at 7:51 AM on December 17, 2022
This thread is closed to new comments.
posted by gregr at 9:43 AM on December 15, 2022 [8 favorites]