Javelin wrote:
Simply put, there's no investment you can do that will have a return high enough to offset a mortgage debt. The best thing you can do in pure dollars-and-cents is pay all debts off. Our Grandparents had it right (Can't afford it? Don't buy it!).
I'm not so sure on that front. I'm going through this myself (hopefully closing March 22!!! :) ), and when I ran the numbers I got the following:
Case 1: Mortgage. Assuming $200,000 mortgage and 4% interest for 30 years, it works out to a monthly payment $955 (principcal and interest only to keep things even). At the end of 30 years, you will have repaid the original $200,000 + $143,739 of interest, which is huge (as you said).
However,
Case 2: Money. Assuming 7% return (historical low of the stock market on an average annual basis over rolling 30 year periods). Take that same $950/month and invest, and pretend you only get the benefits once yearly, for easy math. That's $11400 every year adding to your balance (starts year 1 at 0), which earns 7%. After 30 years, you'd have $995,750, or triple the $343,739 paid for the mortgage case. Of your nearly million dollars, $342,000 is money you put in, and $653,750 is investment/interest returns. The interest alone would have more than paid your principal AND interest on the mortgage.
I understand it would be tough to pay a $950 mortgage every month AND put $950/month into an investment account, but its an interesting study.
In reply to PeterAK:
All the way up to one of the VP's at our Credit Union, who are our current lenders. And then a mortgage refi pro for military loans at USAA.
In reply to Datsun1500:
He was fortunate to find a bank willing to do an FHA loan. I haven't been able to find one. I also live in a place where decent houses start in the mid 200s.
Also, if you think about it, putting only 3.5% down means you have much higher monthly payments and/or a longer term on the loan. It might also mean having to have PMI insurance or whatever that's called. It certainly means you're going to lose a lot more money in interest.
I'm also still not sold on the whole "buying a house is smarter than renting" thing. I know too many people who scrimped and saved, bought a house, and then had to dump $10-20K in it for surprise repairs within the first year or two.
In reply to Flynlow:
$200K loan plus the loan fees (one point = $2K, plus $500 misc, so $202500 total) at 4% plus 1.25% for Property tax rolled in and a 0.5% PMI required by law until paid off on a 30 year fixed equals out to $1,163.16 a month. That's $134,239.01 in interest total (67% of the purchase value of the house), but most of that is paid up front (first payment would be ~$950 in interest for example), so you really have to stay the full 30 years to get the "deal". You'd also pay $75K in property taxes, $9500 in PMI, and have to pay for all of the renovations on the home. You also have to factor in Homeowner's insurance, FEMA flood insurance, and household goods insurance, plus coverage for any additional structures on the property.
Sky_Render wrote:
I'm also still not sold on the whole "buying a house is smarter than renting" thing. I know too many people who scrimped and saved, bought a house, and then had to dump $10-20K in it for surprise repairs within the first year or two.
Despite passing the state mandated "inspection" (yet another scam), our house had recalled T-111 siding that had molded and rotted from behind, requiring a complete re-skin. We could have gone with cheap stuff, but we had a contractor install hardi-plank, and then did the priming and painting ourselves. It was $20K berking dollars. We'd been in the house 18 months. 
Lots of case studies turning into generalizations in this thread.
Javelin wrote:
In reply to Flynlow:
$200K loan plus the loan fees (one point = $2K, plus $500 misc, so $202500 total) at 4% plus 1.25% for Property tax rolled in and a 0.5% PMI required by law until paid off on a 30 year fixed equals out to $1,163.16 a month. That's $134,239.01 in interest total (67% of the purchase value of the house), but most of that is paid up front (first payment would be ~$950 in interest for example), so you really have to stay the full 30 years to get the "deal". You'd also pay $75K in property taxes, $9500 in PMI, and have to pay for all of the renovations on the home. You also have to factor in Homeowner's insurance, FEMA flood insurance, and household goods insurance, plus coverage for any additional structures on the property.
Property tax, Insurance, etc. are all paid regardless of whether you pay a mortgage or own your home outright, so I excluded them. PMI can be avoided by putting 20% down, and I paid no points to originate my loan. In fact, I got a discount at 3.625%, so the number are even better than above.
That was just my 3 minute GRM calculation. 
Javelin wrote:
In reply to Flynlow:
$200K loan plus the loan fees (one point = $2K, plus $500 misc, so $202500 total) at 4% plus 1.25% for Property tax rolled in and a 0.5% PMI required by law until paid off on a 30 year fixed equals out to $1,163.16 a month. That's $134,239.01 in interest total (67% of the purchase value of the house), but most of that is paid up front (first payment would be ~$950 in interest for example), so you really have to stay the full 30 years to get the "deal". You'd also pay $75K in property taxes, $9500 in PMI, and have to pay for all of the renovations on the home. You also have to factor in Homeowner's insurance, FEMA flood insurance, and household goods insurance, plus coverage for any additional structures on the property.
I'm confused by your math as well. I'm going to pay property tax whether I have a mortgage or not. And my LTV allows me to avoid PMI.
As for "Homeowner's Insurance, flood insurance, household goods insurance, plus coverage for any additional structures on the property" - how is this dependent on whether or not I have a mortgage?
In reply to Flynlow:
Good points on the property taxes and insurance, but those are items a renter wouldn't directly pay (plus renter's insurance is a lot cheaper, etc). As for the PMI, you would need $40K for the house and the $2500 for the point and fees (assuming the seller is paying all of the other closing costs, these are just mortgage costs), just to avoid the PMI (which is the only part you can write off on taxes). Anybody that has that kind of cash flow/savings can easily make it a few more years until turning it into $200K for the house outright. In your case study, it would make more sense to run option 2 (investing) and build up some cash reserves to buy the house, and then start investing again. Once you are in the pickle though, as you said, it's kind of hard to do anything else.
On another point, most lenders want your mortgage to income ratio at 30% or less. So in my example, you would have to make $3877.20 a month or over $46K a year just to get into the house.
In reply to dyintorace:
Compared to renting, sorry. Also, most people have to pay PMI. It's a requirement for an FHA loan, etc, due to not having enough of a down in the first place.
Datsun1500 wrote:
In reply to carguy123:
I never said no qualifying assumable. I said you can assume it and keep the low rate. You will have to qualify as far as credit and income, of course.
The rate is locked at 3.25%. If rates go up, someone that meets the qualifications for an FHA loan can take over the remainder of this loan at 3.25%
Show me where they can/will adjust it to the higher rate because that is not what the contract says.
Read his deed of trust. FHA's can be assumed, but the buyer has to go through a qualification process that's much worse than just getting a new loan and the buyer will get current market rate. Oh wait! The assumption's definition of market rate is higher than the rate a buyer could get on the street for a new loan.
So FHAs really aren't assumable. It's that little gotcha of in-theory vs. in-practice.
Javelin wrote:
In reply to PeterAK:
All the way up to one of the VP's at our Credit Union, who are our current lenders. And then a mortgage refi pro for military loans at USAA.
Go to a Mortgage Broker, you'll be amazed at the knowledge level difference and the extra options available.
Javelin wrote:
In reply to Flynlow:
just to avoid the PMI (which is the only part you can write off on taxes).
Are the laws different there?
You can write of the interest on the morgage itself, the PMI, and at least in my state, you can write off your property tax as well.
In reply to carguy123:
This is good stuff, thanks. Wife and I just put a contract on a neighbor's house 2 down from the one we own now.
What are your thoughts on selling a house?
I was thinking about trying to keep both houses and rent/lease our current one until the market improves? Maybe we could get $20-$50k more?. Should we just just try to sell it now in a buyers market? or better to sell in a couple of years? etc.
Selling depends upon the area, but around here there are bidding wars because there aren't enough homes on the market. According to national figures that's seems to be the case just about all over.
Lack of inventory is hurting sales.
I've had rental property, it wasn't any fun. Some people just love it. You need to look towards your mindset and see if phone calls in the middle of the night with the hot water heater or furnace being out would be your cup of tea.
Also cleaning other people's filth out of your house that you worked so hard to get into great shape can be hard on some people.
BUT according to all the experts the coming market is for rental properties.
z31maniac wrote:
Javelin wrote:
In reply to Flynlow:
just to avoid the PMI (which is the only part you can write off on taxes).
Are the laws different there?
You can write of the interest on the morgage itself, the PMI, and at least in my state, you can write off your property tax as well.
^^^ This.
Unless I missed it, I don’t think the previous comparisons between owning and renting have factored in the AGI (Adjusted Gross Income) reduction you get for mortgage interest and property tax when you own.
Depending on your effective tax rate which is probably around 25% for most people here, for every dollar you spend on mortgage interest and property tax, you would have spent 25 cents of it anyway on income tax if you were a renter.
So…if your mortgage is $1,000 per month (which in the beginning is nearly all interest) and your property tax is $2,000 per year, $3,500 of the $14,000 per year would have been lost to income tax so you really only spent $10,500.
Enyar
Reader
3/5/13 6:52 p.m.
If the cost to borrow and own go way up, I would imagine this is going to lower demand for houses and prices will drop. Sounds like money is just going from the homeowner to mortgage brokers?
you're still shelling out a half-mil in interest.
Uh. Yeah. No. Not even close. And I have a 3br/2ba house with a 1500 sq. ft. basement full of cars, a little over an acre, and a bitchin creek. Thanks for playing though!
In reply to RX Reven':
The property tax write-off is not $1-for-$1.
carguy123 wrote:
Javelin wrote:
In reply to PeterAK:
All the way up to one of the VP's at our Credit Union, who are our current lenders. And then a mortgage refi pro for military loans at USAA.
Go to a Mortgage Broker, you'll be amazed at the knowledge level difference and the extra options available.
Huh, I figured those guys would be the snake oil salesmen. Thanks for the tip, I'll look into it.
z31maniac wrote:
Javelin wrote:
In reply to Flynlow:
just to avoid the PMI (which is the only part you can write off on taxes).
Are the laws different there?
You can write of the interest on the morgage itself, the PMI, and at least in my state, you can write off your property tax as well.
Just did my 2013 Federal Income Tax Return. I could itemize deduction the PMI and property tax only, and it did not give me back $1 for $1. There was nowhere to write off the regular interest.
Washington State does not have a state tax.
The few people I have known personally who were able to buy a house at a very young age lived rent-free with mommy and daddy until they were in their late 20s (or even later)
Kicked out at 17. Paid my own rent, car insurance, food, etc. Not a berkeleying NICKEL from "Mommy and Daddy." We built our house in 2000 when I was 22. Then again, I drove a piece of E36 M3 20 year old car (still do,) didn't have internet, a computer, or cable. Saved every last berkeleying penny for our down payment.
If you think those $200k homes are going to get any cheaper, or rates are going to drop any further, think again. I believe that's the OP's point.
Oh, and I guess this explains the whole "I have an 800 credit score, applied for a loan, and was denied" thing, eh? 
Nothing wrong with renting either. But if you think you're not going to absorb your landlord's cost of living increases, I've got a bridge I'd like to rent you.
Javelin wrote:
z31maniac wrote:
Javelin wrote:
In reply to Flynlow:
just to avoid the PMI (which is the only part you can write off on taxes).
Are the laws different there?
You can write of the interest on the morgage itself, the PMI, and at least in my state, you can write off your property tax as well.
Just did my 2013 Federal Income Tax Return. I could itemize deduction the PMI and property tax only, and it did not give me back $1 for $1. There was nowhere to write off the regular interest.
Washington State does not have a state tax.
It's not a refund. That's why it doesn't give you $1 for $1.........it lowers your taxable income.
In other words, if all those things come out to $10,000 (PMI, Taxes and mortgage interest). You don't get a $10,000 credit on your taxes. It takes your say, $55,000 taxable income, and lowers it $45,000. So you pay the ~25% on 45k, not $55k. OR $11,250 in tax liability vs $13,750.
If you're saying there wasn't a spot to enter your mortgage interest, you're doing something wrong with the Tax software you are using.
You may want to get some paperwork together and file amended returns.
Hm, unhappy news that all this will be harder and more expensive soon, but good that I'm in the right place at the right time for once. After putting in WAY too many hours and driving complete crapcans for almost a decade(and losing 100% of the savings in '08 and'09), the wife and I have a reasonable sum for a downpayment. We're planning to buy our first home once ValueDaughter is out of school for the summer.
Huzzah!
