We bought a 1500sqft 3bed/3bath house on a main road 40 miles from Boston 4 years ago for $180k and we thought it was alot. Now we can sell it for $400k+++
It used to be that banks would only qualify you to buy houses that would take up say 20% of your monthly budget. Nowadays with the majority of the financing being done by the builder's themselves, like M/I Homes or Dominion here in Columbus, they are willing to let you go deeper in the whole then a bank would. I've heard of some people getting loans that take up to 40-45% of their monthly budget. That's crazy. If anything happens in your life you're screwed.
The best bet is to get in with one of the federal FHA grants/programs for first time homeowners. They will help subsidize your loan and you can pay less or zero down on your first home purchase. That's how my wife and I did it. I beleive there was an income requirement, you couldn't make more than X dollars. I was making about $38K and my wife was making about $24K so we were not poor by any means and qualified. Another stipulation was that you had to agree to stay in the house for x number of years, 5 for us I beleive. Might be different for you. I've actually refinanced about 1 year into the loan because the interest rates dropped so much and the house values were skyrocketing in my area. I didn't take any money out of the house though so I'm not digging a deeper hole like some people are. I put it back into the house and have a decent about of equity in a house I've only been in for 3 years. Big YMMV.
I think you played it right cleaner. I was always taught that a general rule of thumb was to buy a house double your salary, and buy a car half of it. I guess that rule no longer applies these days. I have heard of 100% interest loans, but obviously it isn't for those who wish to actually live there permanently. I don't think the housing bubble will necessarily pop, but rather the rate of growth will just top off instead of decline drastically.
Ok I'll explain how it works. You get a 5 or 7yr ARM (adjustable rate) INTEREST ONLY mortgage combination, that 80-10-10 that people are talking about so you don't have to put any money down. You choose a stated income loan, meaning they go by what you TELL them in terms of your income, and you don't have to supply pay stubs to prove it. I've seen straight 5yr ARMs for close to 5% interest rate recently. Figure a premium of a point or so for the stated income/interest only features. You can still get a rate of about 6% which helps bring monthly payments down even on a 350K mortgage, and the fact that you don't pay any principal brings that down even further. Plus your mortgage payment, taxes, etc. will be fully deductable since you aren't paying any principal so your true payment, taking into account the tax deduction, is lower still.
IF you are sure you're not going to be in the house in 5-10 yrs, and IF you are disciplined to invest the difference, this kind of scheme can be a good idea.
A lot of people have doing that. The good news is that lenders are starting to get wise that it is a dangerous combination.
As interest rates rise, prices should stop rising so sharply. But a downside of waiting because prices are high is they are just going to get higher, and the interest rates will be higher to boot. If you can find a way to afford to live in your market, you're probably better off buying now. At least that way the house you buy should go up in value along with the rest of the market. If you can, buy the smallest/worst house in the best neighborhood.
IF you are sure you're not going to be in the house in 5-10 yrs, and IF you are disciplined to invest the difference, this kind of scheme can be a good idea.
A lot of people have doing that. The good news is that lenders are starting to get wise that it is a dangerous combination.
As interest rates rise, prices should stop rising so sharply. But a downside of waiting because prices are high is they are just going to get higher, and the interest rates will be higher to boot. If you can find a way to afford to live in your market, you're probably better off buying now. At least that way the house you buy should go up in value along with the rest of the market. If you can, buy the smallest/worst house in the best neighborhood.
Demon-Xanth
Lifer
- Feb 15, 2000
- 20,551
- 2
- 81
Around here:
$189,000-199,000 gets you the following:
1 bed, 1 bath shack BEHIND A BAR, next to a wood cutting facility, across from a place that does septic tanks, down the street from a truck yard and cement plant, within sight of a propane company and gas station, within 100 yards of a major intersection.
I can post a link.
Edit:
I can get a $180k 80+20 loan. So I can't even afford that place.
$189,000-199,000 gets you the following:
1 bed, 1 bath shack BEHIND A BAR, next to a wood cutting facility, across from a place that does septic tanks, down the street from a truck yard and cement plant, within sight of a propane company and gas station, within 100 yards of a major intersection.
I can post a link.
Edit:
I can get a $180k 80+20 loan. So I can't even afford that place.
DrPizza
Administrator Elite Member Goat Whisperer
The assumption that property values will always increase is false. As I stated in a previous thread, the property values in the county I'm living in have actually declined in the past few years.
Regardless, while in the front yard doing some yardwork on Sunday, I realized it was about a 1 minute walk to my wife who was also standing in the front yard. I'm happy with my 44K 3 bedroom w/ barn, stream, 17 acres purchase, even if it's going to go down in value over the next year. (actually, it went up in value because of some of the initial work we had to do on it.)
Regardless, while in the front yard doing some yardwork on Sunday, I realized it was about a 1 minute walk to my wife who was also standing in the front yard.
I'm happy with my 44K 3 bedroom w/ barn, stream, 17 acres purchase, even if it's going to go down in value over the next year. (actually, it went up in value because of some of the initial work we had to do on it.)SunnyD you couldn't begin to imagine how much it pisses me off too because I've been wanting to move back to FL forever and now I see it's going to be tougher. I looked online at properties in Central and South FL and you cannot find a four bedroom home without spending a substantial amount more than I paid for mine. It's very frustrating and disheartening to say the least.
Demon-Xanth
Lifer
- Feb 15, 2000
- 20,551
- 2
- 81
DrPizza:
Around here, the only way housing prices are going to peak, is when people start forclosing on homes or going bankrupt. Most families are double income, so if you got a single income, you can't compete.
Around here, the only way housing prices are going to peak, is when people start forclosing on homes or going bankrupt. Most families are double income, so if you got a single income, you can't compete.
Banana
Diamond Member
- Jun 3, 2001
- 3,132
- 23
- 81
At least you can get a Free Burrito.
Save up a little more to afford a house that suits you, or lower your expectations. I think it's risky to get a mortgage that you can barely afford. Do you have a cash reserve for emergencies? Home ownership incurs a lot of other expenses not seen in renting, so you gotta be prepared for that too.
Save up a little more to afford a house that suits you, or lower your expectations. I think it's risky to get a mortgage that you can barely afford. Do you have a cash reserve for emergencies? Home ownership incurs a lot of other expenses not seen in renting, so you gotta be prepared for that too.
are you making 15-20% profit on your investments in schwab? if not you maybe trading one good investment for a bad one.
DrPizza
Administrator Elite Member Goat Whisperer
Hopefully I'm wrong (for everyone's sake), but it seems to me that way too many people are getting over-extended... too large of a percentage of their income is spent on housing; then they're in debt up to their eyeballs because they can take out home equity loans as if the market is never going to stop going up. It just seems like there's too much potential for a chain reaction - interest rates go up; housing prices don't go up as rapidly; people with the interest only loans get screwed; a small flood of housing enters the market as a result of bankruptcies/foreclosures; supply increases more rapidly than demand, housing prices fall... I've only taken a few economics courses, so of course, I'm probably missing something.
interest only loans are pretty risky if rates rise 1 or two points. When the loan is refi'd and you have to start paying principal on it then a lot of people may not be able to afford their home. If everyone is planning to sell and take the equity in this case, then you have to make sure there are going to be buyers at that price point plus the higher rate.
ack, I'll never buy a house at this rate
double income=even more freedom that i'm not willing to give up in the near future
Anubis
No Lifer
Vic
Elite Member
- Jun 12, 2001
- 50,422
- 14,337
- 136
Calling your home appreciation "profit" just doesn't make sense to me. The only way to cash out on it is to incur new and increased debt. Or to sell your home and move to a different area where home values are much less. Otherwise, your neighbors' homes have appreciated just as much as yours has.
Personally, I wish my home wouldn't appreciate so much. I don't have MI to worry about, I'm only interested in paying it down, and I'm sick of the way my property taxes keep skyrocketing because of an increased assessment every year.
That's the exact reason I've capped my budget to 120k. I *know* I can afford that, and I *know* that I can maintain it even under the worst of circumstances (for a while at least). It just hurts because the bottom rung of "acceptable" in my case is around $20,000 out of reach.
Yo....socal zip 90064 2bed 1 bath built pre 1950 = $750K so chizill out. I figure I'll be able to afford it in 6 years when I'm 28 and married.
Still counts as positive networth, so why wouldn't you want it to be higher? Property Taxes, I can understand, but other than that?!?!
its fairly starightfoward to leverage the increase value of your home as equity to make other investments like other homes that you could sell or rent or whatever you wanted.
with asset values increasing and there being an easy way to leverage the value of your asset as cash, real estate seems like a very good investment to me.
Back in 99, my family looked at 150 houses. The budget started at $350k. It finished at $550k. If we would have gone with let's say $450 earlier instead of spending a year looking, the house would have been worth more.
mooncancook
Platinum Member
- May 28, 2003
- 2,874
- 50
- 91
stop jacking up prices on houses that you don't live in. there are lots ppl who need affordable homes! in my area housing cost is going up like crazy and there are lots empty homes. damn those bay area ppl!!! that is invasion!
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