Can I really afford a $250k house?

[pontifex]

What they are approving you for is the maximum amount of money they'd loan you for the house. They are not telling you "spend $180k on a house," they are saying "should you need a loan, the most we'll give you is $180k."

no shit, that's what i said in my post...

 

[tfinch2]

But most non-retarded people do their finances by the month since, well, bills are paid once/month.

Week to week is for people who get their shit from Rent-A-Center.

 

[slayer202]

I say do it. Hopefully your income will be increasing in the future. I think it's smarter to start paying off a house vs. renting, even if it's more expensive. In the meantime, while you work towards paying it off and eventually only paying utilities/maintenance/taxes, you'll have a nicer home to live in. You can manage the payments if you're smart.

Only thing to stop you would be kids or breaking up with your girl.

Another thing to consider, for the people living in the middle of nowhere, a 250k house is very entry level in certain parts of the country. Under 200k and you are getting something beat up in a bad neighborhood. 3 times your salary isn't reasonable. Rent is expensive also, so it's not as simple as saying "so don't buy"

 

[Golgatha]

If you can't put 15-20% down, you really shouldn't be looking into buying a house. You need equity so you won't go under water like so many other homeowners. And, with 15-20% down, that $250K house becomes $200k and the mortgage payments become much more affordable.

I bought my house when I made about $75K and had a 30 year mortgage @ 4.25%, and had about a $170K loan. Had no problem with house payments. What's nice is your payments stay the same but you make more money as your career progresses, so it only gets easier.

I'd say 20% down or whatever their requirements are to avoid PMI + 5% (so they can't envoke PMI if your home value declines).

 

[Zargon]

If you can't put 15-20% down, you really shouldn't be looking into buying a house. You need equity so you won't go under water like so many other homeowners. And, with 15-20% down, that $250K house becomes $200k and the mortgage payments become much more affordable.

I bought my house when I made about $75K and had a 30 year mortgage @ 4.25%, and had about a $170K loan. Had no problem with house payments. What's nice is your payments stay the same but you make more money as your career progresses, so it only gets easier.

I'd say 20% down or whatever their requirements are to avoid PMI + 5% (so they can't envoke PMI if your home value declines).

yeah PMI sucks now, it doubled under my refi. Can't wait to get out from under it. but at 3.875 its the lowest interest I am going to see on anything


80-10-10 is another good option to avoid PMI. I thrashed my credit in my early 20's being a drunk tard so it wasnt a good option for me at ~690 credit score

 

[Golgatha]

What does 'afford' even mean? Once again it's kind of a relative term. Let's say in a situation where a person has absolutely no debt other than the house, lives in an area with low property taxes, etc.

Very true. I pay out roughly 35% of my monthly income into our house. I can only "afford" to do this because we have no other outstanding debt. For example, if I had two extra car payments, I could no longer afford to max out my IRA account for retirement each year, and this would be unacceptable to me. Personally, I think people live much more fulfilling and less stressful existences by living well within their means.

FWIW, my situation is roughly 67k in income and my wife's income is guaranteed because it is a payment from a trust setup by her grandparents. We also anticipate her going back into the workforce soon, as my youngest will be in public school next year. We owe roughly 140k on a 225k property.

Just for fun, let's budget:

We pull in around 4k per month after taxes and 12% into my 401k.

1) 15 year at 3.375% = $1400/month Mortgage with taxes and insurance figured in.
2) Roughly $500 a month in utilities.
3) We put everything (gas, groceries, bills that aren't utilities, fun purchases, eating out, etc) on a credit card and pay it off each month. Average sum of balances is roughly $1,000 to $1,500 each month unless we buy something out of the ordinary (e.g furniture, vacation, etc).

This leaves us roughly 10k to save or invest in some form or another each year. Whatever my wife pulls in when she rejoins the work force in 2012 will be saved, invested, or used to pay down our house until it's paid off. We have no financial stress in our life and our future finances are looking very good IMO. Also, until May 2010, when we purchased our current house, our house payment was $850/month on a 30 year loan, so we were living well below our means until recently so my wife could stay home and raise our boys. IMO finances are not rocket science. You just need to set your financial priorities, and then have the discipline and resolve to live your life by the priorites you've set for yourself (yourselves).

 

[Golgatha]

yeah PMI sucks now, it doubled under my refi. Can't wait to get out from under it. but at 3.875 its the lowest interest I am going to see on anything


80-10-10 is another good option to avoid PMI. I thrashed my credit in my early 20's being a drunk tard so it wasnt a good option for me at ~690 credit score

Yes, I would do anything in my power to avoid PMI. It is completely worthless for you as an individual and only protects the lender.

 

[GotIssues]

no shit, that's what i said in my post...

What I quoted:

is it telling you what you can afford or what you could get on a loan?

Which part of that is making a statement? Sure as shit looks like you were asking a question, which is what was being responded to, so don't be a colossal assbag when you get the answer.

 

[Texashiker]

Yes, I would do anything in my power to avoid PMI. It is completely worthless for you as an individual and only protects the lender.

The lender should be paying the PMI, and not the customer.

Isn't the PMI in the loan contract? If so, shouldn't it be part of the loan negotiation? Just because a bank lays a piece of paper in front of you does not mean you have to sign it.

 

[rcpratt]

Just because a bank lays a piece of paper in front of you does not mean you have to sign it.

More hard-hitting TH analysis.

 

[Texashiker]

More hard-hitting TH analysis.

Am I right or wrong?

Just because someone lays a piece of paper in front of you, that does not mean you "have" to agree to those terms and sign the contract.

Read through the contract, find the part about the PMI, mark it out, initial and date the mark out, hand it back to the person, ask them if they agree to your terms, and go from there.

 

[slightlyhuman]

You need to decide if you're going to stay in the house 30 years or only a few years. If only a few years check into other options(balloon, 2/1 buydown, etc).

 

[Zargon]

Am I right or wrong?

Just because someone lays a piece of paper in front of you, that does not mean you "have" to agree to those terms and sign the contract.

Read through the contract, find the part about the PMI, mark it out, initial and date the mark out, hand it back to the person, ask them if they agree to your terms, and go from there.

correct, you dont have to agree to it, and they dont have to give you a mortgage


you have fun with trying that. but PMI is part of the deal when you want to buy without 20% down

 

[torpid]

correct, you dont have to agree to it, and they dont have to give you a mortgage


you have fun with trying that. but PMI is part of the deal when you want to buy without 20% down

I would never agree to put 20% down until the bank married me. Before that, you never know when the bank is going to break up with you.

 

[Zargon]

maybe after a few years then? when you are sure the bank isnt going to just take your money and run? 😛

 

[spidey07]

I would never agree to put 20% down until the bank married me. Before that, you never know when the bank is going to break up with you.

How do you figure that? The down payment is always your money and stays your money. And the bank can't just up and leave the loan, there's all kinds of laws that keep both parties bound to the agreements/contracts they signed. And if they did you're still keeping the down payment when you sell the house.

 

[torpid]

How do you figure that? The down payment is always your money and stays your money. And the bank can't just up and leave the loan, there's all kinds of laws that keep both parties bound to the agreements/contracts they signed. And if they did you're still keeping the down payment when you sell the house.

Sure, you can probably get the money back but you'll have to contact lawyers and such to get it back. Why do I have to risk that 20% just to prove to the bank that I am committed to it?

...

Hey, this parody is kind of working. Sort of. By working I mean almost making sense, but not really.

 

[PingSpike]

Yes this is correct.

Ask for the interest amortization table, and you can see the bigger portion up front is definitely for interest.
However this can be good for you since the mortgage interest is tax deductible.

I wouldn't really call that "good" myself. It's a bit like saying it can be good when you're legs are blown off by a landmine because you'll save a bundle on shoes. 😛 I'd much prefer that the principle disappear faster and lose out on any deduction advantage.

The value of the mortgage tax deduction is completely overblown when you consider current tax rates, interest rates and housing prices and the value of the standard deduction.

 

[torpid]

I wouldn't really call that "good" myself. It's a bit like saying it can be good when you're legs are blown off by a landmine because you'll save a bundle on shoes. 😛

Damn it! Where were you when my wife was in her peep toe pump phase??

 

[PingSpike]

I'd say 20% down or whatever their requirements are to avoid PMI + 5% (so they can't envoke PMI if your home value declines).

I have never heard of this happening. Invoke PMI after the fact? If you already had it that might be the case but AFAIK if you did not originally have PMI as part of your loan then no one is keeping track of your home value at all up until the point you decide to refinance or sell it.

Getting 25% (or more, depending on tax bracket) of the money that you paid in interest is overrated? I guess that extra $1800 in my pocket each year is overrated. Man, I sure wish I didn't get that.

As you mentioned, it depends on the tax bracket. For some people it certainly a huge savings. But everyone always talks about the tax deduction like its just a bunch of free money. But the truth is it isn't even 25% for most of the people that use it.

In order to deduct your mortgage interest you have to itemize and when you itemize you have to give up the standard deduction. So if you're a married couple its really "25% of your mortgage interest (and other itemizations) MINUS $11,600 (current standard deduction for married filing jointly couple)".

Say you just got a brand spanking new 200K mortgage in January this year and you put 20% down and have an interest rate of 4.25%. You pay ~$9100 in mortgage interest this year. It depends on your state income taxes and property taxes whether you'll even get over the standard deduction amount. Say you have $5500 property and incomes taxes. So that's (14600 - 11600) * 0.25 tax rate = $750. You get $750 for having that mortgage from the government. Whoopdee shit, time for a new flat screen. It isn't nothing but it isn't changing a family's lifestyle either.

Obviously, if you get ass reamed by state taxes (I do) or have a huge fucking loan its a bigger deal, but even then the amount of interest you pay goes down every year reducing the payout slowly over time....while the standard deduction amount grows every year. So chances are you'll end up taking the standard deduction again before the loan term is even up. Hell, if you bought a cheaper house and lived in a low tax area you might never even use itemize at all. So for your average middle income family it isn't doing shit anymore because interest rates are low as hell and property cost is extremely high, the opposite of the high inflation 70s and early 80s.

That's how it seems to work to me though. Am I missing something? I acknowledge the tax code isn't exactly easy to interpret.

 

[jhu]

I have never heard of this happening. Invoke PMI after the fact? If you already had it that might be the case but AFAIK if you did not originally have PMI as part of your loan then no one is keeping track of your home value at all up until the point you decide to refinance or sell it.



As you mentioned, it depends on the tax bracket. For some people it certainly a huge savings. But everyone always talks about the tax deduction like its just a bunch of free money. But the truth is it isn't even 25% for most of the people that use it.

In order to deduct your mortgage interest you have to itemize and when you itemize you have to give up the standard deduction. So if you're a married couple its really "25% of your mortgage interest (and other itemizations) MINUS $11,600 (current standard deduction for married filing jointly couple)".

Say you just got a brand spanking new 200K mortgage in January this year and you put 20% down and have an interest rate of 4.25%. You pay ~$9100 in mortgage interest this year. It depends on your state income taxes and property taxes whether you'll even get over the standard deduction amount. Say you have $5500 property and incomes taxes. So that's (14600 - 11600) * 0.25 tax rate = $750. You get $750 for having that mortgage from the government. Whoopdee shit, time for a new flat screen. It isn't nothing but it isn't changing a family's lifestyle either.

Obviously, if you get ass reamed by state taxes (I do) or have a huge fucking loan its a bigger deal, but even then the amount of interest you pay goes down every year reducing the payout slowly over time....while the standard deduction amount grows every year. So chances are you'll end up taking the standard deduction again before the loan term is even up. Hell, if you bought a cheaper house and lived in a low tax area you might never even use itemize at all. So for your average middle income family it isn't doing shit anymore because interest rates are low as hell and property cost is extremely high, the opposite of the high inflation 70s and early 80s.

That's how it seems to work to me though. Am I missing something? I acknowledge the tax code isn't exactly easy to interpret.

Sounds about right. Plus people who get hit with AMT can't take any of these deductions.

 

[Golgatha]

The lender should be paying the PMI, and not the customer.

Isn't the PMI in the loan contract? If so, shouldn't it be part of the loan negotiation? Just because a bank lays a piece of paper in front of you does not mean you have to sign it.

Sure it is, just like lender's title insurance is at closing, which also is useless to the buyer. In either case, if you don't sign you won't get the loan plain and simple. Now do I personally think PMI is a complete farce? Sure I do. If you come to the table with less than 20% equity in your house, you should just be charged more interest due to the higher risk factor on the loan, or the bank should just not make the loan in the first place. I suppose PMI works in the consumer's favor somewhat by not requiring them to refinance the loan when 20% equity is achieved though.

The extreme farce IMO though, is when PMI is contractually reinstated on the loan due to the home's value declining. I think the lender and borrower should share the wrath of our piss poor economy equally, and any property investment is a risk taking venture; so why should the bank get a no-risk ride once some magic equity to loan value amount is reached?

 

[Golgatha]

Sure, you can probably get the money back but you'll have to contact lawyers and such to get it back. Why do I have to risk that 20% just to prove to the bank that I am committed to it?

...

Hey, this parody is kind of working. Sort of. By working I mean almost making sense, but not really.

WTF?! Your down payment immediately goes towards the price of the home and is immediately part of the equity you have in your home from day 1. The way you get your money back is to sell the damn house.

(facepalm)

 

[Golgatha]

I have never heard of this happening. Invoke PMI after the fact? If you already had it that might be the case but AFAIK if you did not originally have PMI as part of your loan then no one is keeping track of your home value at all up until the point you decide to refinance or sell it.

I think you're right about PMI if you don't have it up front. I'm not sure whether or not they can reinstate it if you have it up front though. To get PMI cancelled, you have to have the house appraised typically. I would imagine an appraisal would be required to reinstate PMI. The kicker here is you would have to allow the Appraisal agent access to your private property to do their job. If you're getting rid of PMI, you'd of course oblige. If the bank is sending an agent out in hopes of reinstating PMI, I'd immediately call the police and report a trespass.

 

[alkemyst]

Guys, in these kinds of threads it's best to not post if you are fucking clueless.

just saying.