how can a young couple afford to buy a home these days....

[Dancing Fire]

Date: 1/26/2005 9:43:53 PM
Author: Kamuelamom

Date: 1/26/2005 9

6:48 PM
Author: cflutist

Date: 1/26/2005 9

3:11 PM
Author: Dancing Fire
don't be fool by the tax write off on the interest ,thats a bunch B.S. ,on the avg ,for every dollar you paid on interest you will get back 30 cents so you think thats a good deal ? if you have the cash i would advise you to pay off your mortgage instead of sitting in the bank paying you what 3 % ?

DF, websailor is telling me the same thing, which is why I am trying to pay my house off. Only problem is that there is less money left to spend on diamonds and cruise vacations

Waaaah the choices we must make! DF, I don't know which bank pays 3% in interest anymore. Maybe I just don't have enough cash for a bank to offer us 3% in the first place.

Seriously, our liquid cash savings earns earns nearly *nothing.* We wanted to keep some cash incase we found some proprty to invest in and build anothr house on, but there's nowhere productive to keep it until we do. I doubt will be anytime soon so in the meantime I'd like for it to earn something. OTOH, I wouldn't want to tie it up so much where we couldn't get to it in the event something miraculous does come our way. What to do, what to do?

K-MOM
i don't know what banks pay on interest i don't have a savings account, like you said is next to "nothing" on the other hand you're paying what 5.25% mortgage ?.take your liquid cash put it into your mortgage and set up a equity line of credit so if you need money for any reason, just write a check.

 

[hoorray]

Date: 1/26/2005 9

6:48 PM
Author: cflutist

Date: 1/26/2005 9

3:11 PM
Author: Dancing Fire
don''t be fool by the tax write off on the interest ,thats a bunch B.S. ,on the avg ,for every dollar you paid on interest you will get back 30 cents so you think thats a good deal ? if you have the cash i would advise you to pay off your mortgage instead of sitting in the bank paying you what 3 % ?

DF, websailor is telling me the same thing, which is why I am trying to pay my house off. Only problem is that there is less money left to spend on diamonds and cruise vacations

I agree. Tax write offs are good, and the leverage of the investment in the right market is even better, but the overall interest costs are huge. I used to be a big proponent of the leverage and tax benefits of a mortgage. Then we bought a small vacation home for cash a while back. I was amazed at what a great feeling it was to own that home outright, and not have big monthly expenses associated with it. Now we own our primary home outright. There is a great security and comfort in having that, and in knowing that we won''t be paying >$1m in interest expense over the life of the loan. Getting to the point of owning it outright takes work, but is definitely doable and in my book worth it.

 

[Momoftwo]

The tax write off allows you to itemize which most people cannot do without a mortgage. I have owned homes for over 20 years out of 24 married, and it''s been nothing but a good thing for our taxes and finances. The biggest mistake people make is buying the absolute most house they can qualify for. Notice I said qualify for, not afford. There is a difference. In the long run, home values trend upward. Most people do not buy their residence as an investment, they buy it as a home and use the equity they have when they need it. Having worked with a financial planner this year setting up some new investments and trusts, we were told, (we already knew this) that home ownership is good for your economically in the long run. You pay rent for 30years and you have nothing. Pay a mortgage and you have equity and value of the property at the end of 30. It''s like buying vs leasing a car. After 5 years of loans, you own a car. After 2-3 years of leasing, you own nothing and have to lease a new one or "buy" the one you''ve already made payments on for more in total with lease and purchase price. We were never afraid to buy, maybe that''s why we have over $250,000 in equity right now. Even in the one home we lost money on, we still were in better shape financially when we moved up (not to mention having a fabulous credit rating) than we would have been renting for all those years. I have friends whose parents never owned a home and when one died and they had to move,they had nothing to work with. We will buy smaller in 20 or so years when we retire and pay cash with what we will make on this house. We have over $24,000 in interest to write off this year and believe me, it does make a huge difference. Having a $2000 mortgage is no worse than paying $1500 or less in rent (which is what an apt cost here) after tax write offs. Ask any accountant. I love it when people say they can invest what they would be paying in a mortgage and make more, sure they can, but they hardly ever do because they''re so busy making rent payments and dont have anything to invest. When you pay rent, you are putting money towards your landlords future and retirement, not yours.

 

[JohnQuixote]

I skimmed the thread, so if this is old news just fly on by.

Some people are not doing conventional loans anymore. Instead, they take out a fixed rate interest-only loan (they pay only interest to the bank – nothing goes toward the principal). While this sounds crazy at first here’s how it makes sense.


Traditional

Conventional 30 year loan on a $300,000 house with $15,000 down...
Monthly payment (6.5%) around $1800.00
Majority up-front is interest. Eventually more goes to principal.
30 years = house paid off.


Interest-Only (lower rates available)

Interest-only 30 year loan on a $300,000 house (nothing down)...
Monthly payment (4.9%) around $1225.00

Now take the $15,000 downpayment plus the extra $575 per month and dump it into a guaranteed-return equity index type fund with compound interest (the ones I am familiar with are tied into a life-insurance policy).

Worst case, at 3% (the floor for a good guaranteed fund), it will be worth $370,000 after 30 years. Pay off the house and buy a Winnebago. If times are good and you average a 5% return over 30 years you’ll have $535,000 plus change. Pay off the house and buy a condo in Vale.

Bonus: Since the loan is interest-only 100% of your house payments come back to help at tax time.


Basically, it's just taking command of your own money.
The task is having the discipline to stick to the plan.

I am not a banker, nor do I play one on TV, so any high-financiers out there tell me if there's a bogey on the radar I'm missing.

 

[Dancing Fire]

Date: 1/27/2005 1:34:14 AM
Author: JohnQuixote
I skimmed the thread, so if this is old news just fly on by.

Some people are not doing conventional loans anymore. Instead, they take out a fixed rate interest-only loan (they pay only interest to the bank – nothing goes toward the principal). While this sounds crazy at first here’s how it makes sense.


Traditional

Conventional 30 year loan on a $300,000 house with $15,000 down...
Monthly payment (6.5%) around $1800.00
Majority up-front is interest. Eventually more goes to principal.
30 years = house paid off.


Interest-Only (lower rates available)

Interest-only 30 year loan on a $300,000 house (nothing down)...
Monthly payment (4.9%) around $1225.00

Now take the $15,000 downpayment plus the extra $575 per month and dump it into a guaranteed-return equity index type fund with compound interest (the ones I am familiar with are tied into a life-insurance policy).

Worst case, at 3% (the floor for a good guaranteed fund), it will be worth $370,000 after 30 years. Pay off the house and buy a Winnebago. If times are good and you average a 5% return over 30 years you’ll have $535,000 plus change. Pay off the house and buy a condo in Vale.

Bonus: Since the loan is interest-only 100% of your house payments come back to help at tax time.


Basically, it's just taking command of your own money.
The task is having the discipline to stick to the plan.

I am not a banker, nor do I play one on TV, so any high-financiers out there tell me if there's a bogey on the radar I'm missing.

John
somewhere ,somehow your scenario just don't add up, all i know is the interest-only loan its for suckers- only,with 0 down, if the property value drops 10% people would just defalute on the loan and the banks get stuck ,so there must be a catch somewhere.

 

[lostdog]

If you had a straight interest only for thirty years, it's a simple thing to see that you might want to do it. Control one asset (real estate) while still investing in other asset/assets of choice. You get the appreciation on both, assuming there is any.

I can find houses around there that are $500,000 now that were around $50,000 20 years ago.

So you might say that you made payments on the 50K house for thirty years, it went up to 500K, sell the house, and net $450,000 plus the amount of your investment, plus income tax savings.

There are scenarios that do pencil out.

Still, one big assumption is that other investments do well in the interim.

And another big one is that the difference saved between the traditonal mortagage and the interest only mortgage went into the investments.

And another big one is that you didn't instead take the same payment and use it to increase the loan amount greatly, in which case the whole thing becomes heavy RE speculation, where you are banking everything on controlling the asset and depending on its performance. Possibly good, but massively leveraged (infiinitly leveraged with no money down), which is also a huge vulnerability if prices do not appreciate at the rate you expect, or go down.

But the advantage seems like it should be that most of the early part of the loan is interest only, so what's the difference?

Well, the banks know this, too.

Most of the interest only loans are not interest only for a 20 or 30 year term. Often what's offerred is either a balloon (huge payment due in 5 or 7 years, effectively meaning refi before it hits) or interest only for the first 5 years of the term with principal payments kicking in with payment 61. In which case the principal is amortized over the 25 remaining years and payments are actually higher. In the long term they would like you to refinance (or sell, move, and in the process refinance). Interest rates in 5 years or 7 years have a lot more room to head up than down. The bank (generically as a stand in for the financial system) doesn't want to be loaning you at near historical lows for the next 30 years.

Most people don't stay in their homes for more than about 7 years. That used to be the average, I think it's down to 4 recently. So if you were going to move anyway, and you do invest the savings instead of overextending on purchase, it's not the biggest risk ever taken, but does depend on market conditions and gives you little control on the timing of your exit.

I haven't look at any of this recently to see what is being offered in detail. I am not a high flying financier, either. But these are the usual set-ups.

Interest only loans are a sign of extremely loose credit being released into an environment inviting people to overextend themselveves. The biggest downside is that if enough of them are offered in the market, some people will by nature extend themselves to the maximum borrowing amount and those people are now chasing the same houses with monopoly money, prices spike, houses that might have been $600K are now selling at $1M. Then as soon as something spooks the market, you have people locked into $1M loans for $600K market value houses, which mean the $200K downpayment is gone and you are $200K underwater, and even if the bank forgave you the $200K, that counts as income. You can't sell without getting whacked and you can't get a traditional loan that will cover your balance. Try this with no money down and it's not much better.

Interest only is often used as a development incentive for affordable housing or redevelopment, offered by government agencies or non-profits to developers who will take on the task. Actually, the best situations forgive the principal if payments are made for a certain period of time.

 

[Lord Summerisle]

Ooo Crap, I would start worrying now with and endowment mortgage like the one John is describing… I certainly hope you guys fair better than folks over here…

The Interest Only mortgages where popular over here around the late 70’s to early 90’s but now we’re coming up on those mortgages coming to an end, and for at least the last 5-7 years many banks and building societies have warned or folk have found that their endowments have matured the way it was predicted, and while they have been paying off the interest ok, and putting what they needed into the endowment… somewhere something has gone wrong, (for us it was a combination of recession in the early 90’s and some banks poor performance and government tax plundering).

While this doesn’t affect some folk (thankfully my parents included) there are still a couple of million home owners who are about to come to the end of their mortgage term, and are finding there is a short fall of 1000s if not more (10Ks).

The argument put forward by john about the lower payments and the extra left over when the fund matures is what made them popular, plus brokers where on big commissions to push certain products – and they haven’t performed as expected.

Today here, while interest only are still available, they aren’t recommended – repayments on a fixed rate for x years or all the other combinations like a discount rate for a term, or a variable rate… normally maxed at 5 years, and after that you remortgage with the best deal for yourself

I feel much happier knowing that what I am paying, (ATM 99% interest 1% repayment) is going towards putting equity in my home, so while ATM I have a 3-4% holding in my home, in 25years that’ll be 100% and I don’t have to worry about weither the money iv saved elsewhere will pay for the home.

 

[Momoftwo]

All the interest only loans I''ve seen are for just the first few years (usually around 5 yrs), then you revert to the current interest rate of the day plus principal for the rest of the 30 yrs or you have to refinance a new loan. So you do not have 30 years of interest only. I think they''re a terrible idea as you are really getting nothing except a house you really can''t afford when the payments do go up. Our financial planner says they are not a good idea. They''re not an investment at all and people who tend to get them do not put away any more money than anyone else (mainly because they dont'' have any extra) so there will be nothing to pay off the loan with. So, buying real estate this way really is not an investment of any kind. You''re betting on the fact that the house will increase in value during that time. The problem comes in if you buy a lot more house than you could otherwise afford, then after 5 years you start paying principal as well as interest (at the current rate on the date your interest only time frame is up) you won''t know if you can afford the home then. Rates in 5 years at the time you''re required to start paying P%I could be 5% more than today ( not really all that likely, but 2-3% is). At least with a standard fixed rate mortgage you know what your payments will be with a little adjustment due to taxes and HO fees.

 

[aljdewey]

Date: 1/26/2005 9

3:11 PM
Author: Dancing Fire
don''t be FOOL by the tax write off on the interest ,thats a bunch of B.S. ,on the avg ,for every dollar you paid on interest you will get back 30 cents so you think thats a good deal ? if you have the cash i would advise you to pay off your mortgage instead of sitting in the bank paying you what 3 % ?

Really?

We just bought our first home, so I can''t profess to know much about homeownership and taxes....but I will tell you this: I couldn''t deduct a DIME of the $21K per year we paid in rent......and we got none of that back.

 

[fire&ice]

Date: 1/26/2005 7:52:14 PM
Author: Superidealist
Thanks for the advice, Fire and Ice. I''d actually prefer a change of seasons; I just want to avoid the harsh midwestern winters I grew up with. We need to find some place with a moderate climate near a major medical center or teaching hospital, preferably with something of an asian community. Raleigh-Durham fits the bill but I''ll look into the Greensboro area.

In general, the Southeast doesn''t have a large Asian community. I don''t know why though. And, I''m confused by some of the comments of the West coasters as not being waited on because they are Asian (in the customer service rant thread). People here don''t give it a second thought.

That said, yes Raleigh-Durham - Duke & Chapel Hill - don''t get too much better than that. Winston-Salem has Bowman Gray - Med school/teaching hospital for Wake Forest U. (WS is part of the Piedmont Triad as is Greensboro). Also, Medical College of Virginia (part of VCU) in Richmond - great cancer research - and considered cutting edge in some of the stuff they do. They were one of the first hospitals to utilize Therapy Dogs. And, of course, there is University of VA in Charlottesville.

Moderate could be used to describe the climate in any of these areas. Though, we do see some harsh temp swings. Suppose to be 17 degrees tonight & we''ve reach 100 before.

Funny, how many people are considering the "backward" Southeast. I thought it was a well kept secret.

One thing that could be similar to the west coast is that you aren''t far from the mountains to the shoreline. Our coast is completely different than the west - especially as you go North. You are almost like the end of a continent w/ the drops - our coast is very level.

To add - real estate prices are more moderate in the Piedmont. Raleigh/Durham prices have really creeped up; but, nothing to the levels of the CA prices discussed here.

 

[fire&ice]

Date: 1/26/2005 9

3:11 PM
Author: Dancing Fire
don''t be FOOL by the tax write off on the interest ,thats a bunch of B.S. ,on the avg ,for every dollar you paid on interest you will get back 30 cents so you think thats a good deal ? if you have the cash i would advise you to pay off your mortgage instead of sitting in the bank paying you what 3 % ?

In our situation, I can assure you it''s not advisable to pay off your mortgage. It''s not a bunch of BS. We ran the numbers. We could easily pay off both mortgages. I shudder at the missed opportunity costs of that payoff.

 

[ame]

We just went to see a financial person before we got too involved in a search. Having her crunch numbers (after my folks did it to be sure we got an honest professional opinion since my folks are both accountants) she and my folks both said that we could afford up to 200K (pretty damn big nice house in St. Louis) and still have money for food.

We ended up in a 1200 sq ft all brick older house for 140.

 

[JohnQuixote]

Date: 1/27/2005 2:27:36 AM
Author: Dancing Fire

John

somewhere ,somehow your scenario just don't add up, all i know is the interest-only loan its for suckers- only,with 0 down, if the property value drops 10% people would just defalute on the loan and the banks get stuck ,so there must be a catch somewhere.

DF - I checked on this today and you're right about the 0-down. The fixed rate I-O is generally with 20% down. This makes sense, as the people I know who are doing it are re-fis. The other info I gave was solid, though I confess I have not yet done this. The loans I spoke of of are fixed-rate, no arm... And the possibility that the equity fund would not mature the way it was predicted is the reason for getting into one with the guaranteed return.

 

[Nachoman]

The whole interest only vs 30yr fixed is always a hotly debated subject. Interest only loans work well ''if'' you don''t buy the max you can afford. To use the example JohnQuixote used:

Traditional
Conventional 30 year loan on a $300,000 house with $15,000 down...
Monthly payment (6.5%) around $1800.00
Majority up-front is interest. Eventually more goes to principal.
30 years = house paid off.

Interest-Only (lower rates available)
Interest-only 30 year loan on a $300,000 house (nothing down)...
Monthly payment (4.9%) around $1225.00

What people always forget with interest only loans, is that you CAN pay off the principle if you want, but in terms of it being a monthly obligation, you don''t have to. To use the above example, there is around a 600 dollar difference between the two loans. This is where the whole ''don''t max yourself out with an interest only loan'' comes into play. Assuming you have the assets to pay for either mortgage, there is a lot more flexibility with the interest only.

For instance, with the interest only I can:
1) take the 600 bucks I save a month, and put that towards my principle. I can also put the 15k I have saved up towards the principle. Now I have the same amount of equity, but I am putting more towards the principle due to the lower interest rate (4.9% vs 6.5%). With the 30yr fixed I am basically throwing money away on the interest.

2) If times are tough, I can just pay the interest, and not put the extra 600 towards the principle. The interest only allows me that flexibility, whereas if I am always on the hook for a interest+principle payment using the 30yr fixed.

3) do a mixture of the two. Out the of the 600 dollar difference, say put 300 towards principle and use the other 300 for a car payment or something.

Another thing with interest only loans, while rates will go up, it will take a while before the rates catch up with a 30yr fixed. Using the same example: the interest only is at ~5%, the 30yr fixed is at 6.5%. If the fed raises rates by a 1/4 pt every quarter, it will take 1.5yrs until you catch up with the 30yr fixed and are paying the same amount of interest. But over that 1.5 yr period, you are saving money by paying a lower interest. Now imagine rates continue to rise at the same rate, in 1.5 yrs your interest only will be at 8%

At this point you are even with the 30yr fixed. Your 1.5yrs of paying a lower rate compared to the 30yr fixed has now been negated by 1.5yrs of paying more than the 30yr fixed. Now if rates rise slower or stay constant, then this process is spread out during a longer time frame.

Ultimately an interest only is a short term loan, you will want to refinance eventually. Fixed rate loans will probably be higher in the future than they are now and that is something you will have to take into consideration. But to say that they are foolhardy, you aren''t really analyzing them to their full potential. Granted, if you buy so much house that you can barely afford the interest only payment, then yes, you shouldn''t have gotten an interest only loan in the first place. Heck, you should have bought a cheaper home.

 

[cute330xigrl]

We got a libor index interest only loan. Our rate now is 3%. We have 3 types of payments we can make each month. Interst only, Amortization Payment and 15yr Amortization. payment. We pay the 15yr pymt which equates to what we would have payed for a 30yr fixed rate payment at 6%. It definitely works out great so long as you buy the same amount (if not less) of house you would afford w/ a fixed 30yr loan. We''ve made some extra principle payments as well and are already down to 10yrs. Should the libor index increase to the point that we need to refinance, we''re still looking at refinancing a 10yr payment vs. 30yr. This was done all with 1 yr of payments. I definitely think it''s a win win so long as you can:

1. afford to refinance (in case of that increase in apr i mentioned above).
2. afford to make the 15yr payments.

We''ve been throwing as much money as possible while the interest rate is still low. In my mind this all makes sense, but its great to hear everyone''s thoughts. It just might bring a new perspective on something we didnt think about.

 

[MelissaSue]

its not soooo bad here yet.. one good thing about living in a "dead" city.

My sister just bought a GORGEOUS BIG fairly new house for 250k.. in a fantastic area as well. I think she got a bargain. Not that I will be able to afford $250k for a long long time to come.. but she is 13 years older than me and on her 3rd house. Their first was a teeny little box house that her husband bought before he was married. So you work your way up.

 

[icekid]

MS- that is one of the few good things about buffalo- the real estate is SOOO inexpensive. bf and i would really like to buy a house or a condo soon. unfortunately, we live in downtown super trendy philadelphia (where my school is and the hospitals are). our rent is a lot as it is... more than most people''s mortgages probably. it just seems like we''re throwing away so much money!

there was a really nice loft condo that i saw in my neighborhood recently- 1BR, that went for 300 g. we just cannot afford that with me being in medical school and bf just starting a new job. it seems like it''s so much harder for younger people to buy houses these days!

 

[Momoftwo]

Just curious, how many of you who think a home isn''t an invetment, think that a diamond is? I hate to tell you, but the return on real estate has historically been a lot more than the return on diamonds. Nationwide homes have gone up in value this year alone on avg in the double digits. How much has your diamond increased in value? 5% maybe. Not to mention, you can''t deduct anything when you buy jewelry.

Everyone I know with money, purchased a home as soon as they could. Those who became wealthy only rented as long as they had to. There are so many more advantages to buying than there are for renting. Rent goes up just about every year. Your mortgage may go up based on taxes (which are deductible) or HO fees, which tend to be minimal, but your rent will go up at the discretion of your landlord who is making money on your rent. We never would have $250,000 (current equity due to prices going up and what we''ve put toward equity in our payments) saved during the time we''ve owned, if we''d rented instead. You''re providing for your landlords retirements by renting, not yours.

Also, no professional (trained) financial planner will tell you to pay off your mortgage early because the ability to itemize on your taxes saves you hundreds or thousands a year in taxes. If you give to charity, pay real estate taxes, etc, you get to deduct it all. That'' s why even if you have your home is paid for, take an equity loan for car purchases, or home repairs because it gives you an interest deduction. Plus homes cost what they do based on what the income in an area can support. So if you live in a "dead" area, house prices are lower, but so are incomes. Higher income areas have higher cost homes. Simple economics.

 

[fire&ice]

Date: 1/31/2005 4:58:16 PM
Author: Momoftwo
Also, no professional (trained) financial planner will tell you to pay off your mortgage early because the ability to itemize on your taxes saves you hundreds or thousands a year in taxes. If you give to charity, pay real estate taxes, etc, you get to deduct it all. That'' s why even if you have your home is paid for, take an equity loan for car purchases, or home repairs because it gives you an interest deduction. Plus homes cost what they do based on what the income in an area can support. So if you live in a ''dead'' area, house prices are lower, but so are incomes. Higher income areas have higher cost homes. Simple economics.

Agreed when you are talking about your earning bubble. Our long term plan does have the house paid off by the time we are wanting to slow down. We want to be in a position to retire early & hubby wants to teach. At that point, your income tax bracket may be such that the standard deduction could be fine and also not have the burden of worrying about meeting mortgage on a more fixed budget. And, investments aren''t personal deductions.

Yes, high income areas will have higher cost homes. But - that''s too *simple* economics. The ratio of what one makes to the cost of homes isn''t always that simple, especially in areas that are pretty much maxed out development wise.

I feel for these young couples and the staggering house costs. Though financing has become very creative, their options for finding a home within their income bracket is so much tougher. Much less regentrification available & since land costs are so high, developers aren''t going to build "starter homes". It''s a different world in many many cities.

The only maverick thing to suggest is to find another area where you may not make as much money - but the cost of living is more affordable when you examine the big picture. Not always easy to do - but we benefited from moving away from the family. We moved to a larger town; but, didn''t take the offer in N.Va even though it was more money. This isn''t always easy to do as industries tend to bundle in certain areas. But, the medical field, construction field & many other fields are fairly wide open.

Good luck Kids! And, save that money! It''s easy to feel good about buying that "it" thing. But, it''s not going to get you to your long term financial goals. From an old fogey, start your 7 year ecomonic, professional & personal goals now. And, figure out how you are going to get there. Your purchasing choices become very clear.

But, on a lighter note, they are just goals - not something written in stone.

 

[hoorray]

Date: 1/31/2005 5:23:32 PM
Author: fire&ice

Good luck Kids! And, save that money! It''s easy to feel good about buying that ''it'' thing. But, it''s not going to get you to your long term financial goals. From an old fogey, start your 7 year ecomonic, professional & personal goals now. And, figure out how you are going to get there. Your purchasing choices become very clear.

But, on a lighter note, they are just goals - not something written in stone.

Agreed

. From a similarly old fogey who used to wear my paycheck on my back, finaicial security can''t be beat. It takes some work early on, but gets easier as you get going. (Money tends to make money, which helps!) And it opens up so many opportunities down the road.

 

[fire&ice]

Date: 1/31/2005 5:39

9 PM
Author: lop

Date: 1/31/2005 5:23:32 PM
Author: fire&ice

Good luck Kids! And, save that money! It''s easy to feel good about buying that ''it'' thing. But, it''s not going to get you to your long term financial goals. From an old fogey, start your 7 year ecomonic, professional & personal goals now. And, figure out how you are going to get there. Your purchasing choices become very clear.

But, on a lighter note, they are just goals - not something written in stone.

Agreed

. From a similarly old fogey who used to wear my paycheck on my back, finaicial security can''t be beat. It takes some work early on, but gets easier as you get going. (Money tends to make money, which helps!) And it opens up so many opportunities down the road.

Yes, it does get easier as you go along. And, I think that is important to note to the young folk

Because, I think it can be overwhelming when you are starting out.

I kinda think that your main earning bubble years kick in around mid 30''s - I think this is a turning point on not acquiring wealth (which one may be doing in their salary) but ACCUMULATING wealth.

When is that bubble? And, I don''t think it can be limited. I have a friend who retired, switched careers & is now very accomplished in this new career.

 

[Momoftwo]

It''s a lot easier to buy a home now than it was when we started 20+ years ago and when my parents finally bought after years of savings. There were no, no money down loans, first time buyers programs etc. The bigger issue today is I see a lot of couples thinking they have to have "the house" and not a starter condo, or townhouse to move up from.

Also, even if your income tax bracket is lower because of retirement, the best time to have your home paid off is after age 65 when you get an extra deduction on your taxes. We have lived in No. VA for the last 10 years and in MD for 10 years before that. The other 3 years we owned were in the Tidewater, VA area. It takes the same percentage of your income to live in most places. Some locations that have higher than avg ratios of income to home prices tend to be areas in downtown upscale neighborhoods due to location to public transportation and workplaces. What we paid for our 5800 sq ft home on over 1/2 acre in Loudoun County, VA wouldn''t buy a 1200 sq ft apt in NYC. Also, even as close as just outside and inside the DC beltway, this home would be almost twice as much. Fortunately for us, we work in Fairfax County, so it''s a 10 mile commute that takes 25 minutes.

BTW, I was an economics major in college, but I was talking in "simple" economics because that is the easiest way to explain the housing market. The same thing works in reverse. I know people who bought in a lower priced housing area and they found out the hard way why that''s never a good idea. The resale is terrible, if not almost impossible and prices don''t increase enough to make it profitable to move even after 4-5 years.

My suggestion is buy what you can afford not qualify for and move up. Don''t expect it all at once. The wealthiest people in this country today are over age 65. They had their homes and invested what they had, plus have their retirements. We are much more financially well off now in our 40''s than we''ve ever been and we''re sending two kids to college at the same time. It''s a lot easier to save before you have children and after they''re grown and on their own. Our worst financial years were while our children were growing up and I was home with them. I wouldnt'' trade it for the world and lived in a townhouse in order to do it, but it was the tighest financial time in our lives.

 

[aljdewey]

Date: 1/31/2005 5:23:32 PM
Author: fire&ice

I feel for these young couples and the staggering house costs. Though financing has become very creative, their options for finding a home within their income bracket is so much tougher. Much less regentrification available & since land costs are so high, developers aren''t going to build ''starter homes''

This is SO true. Rich and I lucked out BIG time in being able to get into a new house. We didn''t want an enormous house since it will only be the two of us, but these days, all they are building is 2400-2500 sq MINIMUM.

It happened that our piece of land backs to conservation, and by the time the minimum setback requirements were met on the side and in the back, the plot was only big enough to accommodate about 1800 s.f.....which was perfect for us. Had it not been for that, this house would have been bigger....and more expensive, and we wouldn''t be here.

I cannot imagine how tough it would be if we were looking to go even smaller.....we''d have had to go condo, most likely.

 

[hoorray]

Date: 1/31/2005 10:19:33 PM
Author: aljdewey

This is SO true. Rich and I lucked out BIG time in being able to get into a new house. We didn''t want an enormous house since it will only be the two of us, but these days, all they are building is 2400-2500 sq MINIMUM.

It happened that our piece of land backs to conservation, and by the time the minimum setback requirements were met on the side and in the back, the plot was only big enough to accommodate about 1800 s.f.....which was perfect for us. Had it not been for that, this house would have been bigger....and more expensive, and we wouldn''t be here.

I cannot imagine how tough it would be if we were looking to go even smaller.....we''d have had to go condo, most likely.

Al, my guess is that you guys will spread out to enjoy all 1800 sq feet of your beautiful new house.

It just works that way. You say "We don''t need a lot" "we''re just 2 people", and then you start with the ok -- a guest room would be nice, and then an office, and then room for hobbies, and then more stuff and more guests, and maybe some excersize room etc..... Stuff expands to match the space -- however much there is.

 

[hoorray]

I was also an econ major (and then MBA), and believe that the most important part of owning a house with a mortgage is the leverage. You put 20% down and the whole value appreciates. People talk about a xx% growth (whatever the number is) in the housing market, but that is really much greater. The xx% is on the price of the house, not the smaller amount you have invested in it. it is much greater for the actual amount you invest.

The tax benefit is good, but at the end of the day, you are paying 100% of the interest to get a smaller percent off of your taxes. It will never equal the total of the interest. Thus, it is much cheaper to not pay the interest, just much harder -- to the point of not even reasonable to consider until a certain point in your financial life.

IMO, homeownership is an important part of financial security and growth. It starts out very difficult, but gets much easier over time, depending on how much you decide to move up that ladder

.

 

[Kamuelamom]

Yes, there is definitely a difference between what one qualifies for and what one can afford. The banks will try and convince you that you *can* pay for what you qualify for. Two different things. Having excellent credit (and keeping it that way) has always been our best friend. We don't have bills except our mortgage and the regular monthly stuff. We don't rack up credit card bills which can't be paid off right way. We live simply because we choose to and that's helped us when we really needed it.

The only exception where we ran up our bills was during the construction when we were charging a good part of the materials (hey, I had a mileage card) , then paying it off from the construction loan. It was only then that I was able to write huge checks to pay them off and actually had fun doing it since I have never made payments that huge in my life, ever. But I knew that was temporary and everything was accounted for in the budget and the construction loan which is where the funds to pay them came from. We spent wisely hence were able to stay in our budget. I see folks taking out huge loans for construction then taking a luxury vacation or buying a luxury car and cannot finish their house and subs are looking for them.

Sad but I've seen this happen.

Simple rule we keep, we live within our means. Sometimes even beneath it. And then when we treat ourselves it feels like we really earned it.

 

[Dancing Fire]

Date: 1/31/2005 4:58:16 PM
Author: Momoftwo
Just curious, how many of you who think a home isn't an invetment, think that a diamond is? I hate to tell you, but the return on real estate has historically been a lot more than the return on diamonds. Nationwide homes have gone up in value this year alone on avg in the double digits. How much has your diamond increased in value? 5% maybe. Not to mention, you can't deduct anything when you buy jewelry.

Everyone I know with money, purchased a home as soon as they could. Those who became wealthy only rented as long as they had to. There are so many more advantages to buying than there are for renting. Rent goes up just about every year. Your mortgage may go up based on taxes (which are deductible) or HO fees, which tend to be minimal, but your rent will go up at the discretion of your landlord who is making money on your rent. We never would have $250,000 (current equity due to prices going up and what we've put toward equity in our payments) saved during the time we've owned, if we'd rented instead. You're providing for your landlords retirements by renting, not yours.

Also, no professional (trained) financial planner will tell you to pay off your mortgage early because the ability to itemize on your taxes saves you hundreds or thousands a year in taxes. If you give to charity, pay real estate taxes, etc, you get to deduct it all. That' s why even if you have your home is paid for, take an equity loan for car purchases, or home repairs because it gives you an interest deduction. Plus homes cost what they do based on what the income in an area can support. So if you live in a 'dead' area, house prices are lower, but so are incomes. Higher income areas have higher cost homes. Simple economics.

buying a house (don't rent) is the best way to save money like a savings account you will get a better than avg return.if you can afford to pay off your mortgage early "DO IT" i don't care what the financial planner tells me because for every dollar you pay on interest you will only get back 30 cents on the avg, so you think thats a good deal ? keep taking out equity to make other purchases ,just because of write off on your tax ? i don't want to be paying a mortgage even after i die.tell your financial planner he's full of B.S...people always thinking about tax write off,tax write off but NEVER think about how much they would be saving on interest even after you paid uncle sam more dollars.if you're in the high income bracket just don't work so many hrs,that will save you some taxes.....i don't care what people say about tax write off its bunch of B.S. you will never come out ahead in the long run so stop fooling yourself.

 

[MrsFrk]

KamuelaMom- I just got back from the Big Island, Kamuela is STUNNING. I wanna live there, like yesterday.

My husband and I bought a house in Northern CA, in 1998, when things were still going nuts from the Internet boom. We gained NOTHING from the boom, we were not in high tech, the boom just made things more expensive for us. We had a fair amount of $$ saved from our low paying jobs, but not a ton, definitely not 20%, but we had immaculate credit, with no debt. We made the decision that we wanted to own a home, the rent we were paying was so insane that it felt like flushing cash down the toilet every month. For the first year, we never turned on the heat, ate Top Ramen and Mac and cheese, no movies, no eating out, no vacations, nothing. It was tough, but so worth it. Our modest home is worth TWICE what it was when we bought it, and prices in our neighborhood keep going up.

My husband and I have both been on our own since we were 14, zero financial support from any quarter. We would not be able to be where we are at age 29 if we hadn''t taken that leap of faith and purchased our home. I am surrounded by people who make good money, who whine "I can''t afford to buy anything here", yet they can afford new luxury cars, super luxe vacations, eating out 12 times a week.

 

[Dancing Fire]

the biggest mistake i see young couple making is as soon as they built up some equity in their home they used the equity to buy big luxury items (car,etc) now they have to carry an extra payment on their back every month.soon or later they will bury themself in so much debt that they will never get out for the rest of their life.sure,i can go out and buy myself a new 100k mercedes tomorrow ( pay with my equity) if i want to ,i''ll be looking good in front of my friends but there''s no point of getting myself into a 100k debt.right now i have 0 tax write off on interest paid and it feel SO good and i don''t give a damn about no tax write off !!!

 

[Kamuelamom]

Date: 2/1/2005 2:57:18 AM
Author: MrsFrk
KamuelaMom- I just got back from the Big Island, Kamuela is STUNNING. I wanna live there, like yesterday.

Ooooh MrsFrk, glad you liked it!

Where did you go? You can PM me if you prefer.