Rent Vs. Buy housing
- Thread starter Porkchop
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Well the 20% down payment also means you get the avoid PMI. Which is a pretty decent amount of money saved. I forget the actual % down you need to avoid PMI. It may just be not going thru an FHA loan. I don't know all the rules.
I just don't understand all the people obsessed with having a pile of cash if you're not going to enjoy it. So you have a ton of cash on hand but you live in a shitty house, with shitty accommodations. Is that really going to make you happy? I'm not saying be house rich and cash poor but there is a happy middle ground.
I just don't understand all the people obsessed with having a pile of cash if you're not going to enjoy it. So you have a ton of cash on hand but you live in a shitty house, with shitty accommodations. Is that really going to make you happy? I'm not saying be house rich and cash poor but there is a happy middle ground.
Xarpolis
Life's a Dream
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That's not entirely true. My future (at the time) wife and I made settlement on our house, January '08. It's a town house, and we did this right before the bubble burst. We managed to get 100% financing with 3.8% APR. We still had to cover closing costs though. This gave us $196k to pay off. Our mortgage started off at the $1750 mark, but we would toss $2k in every month just to pay it down faster.
A year to year and a half in, we decided to refinance. They included the closing costs in the loan, which took us back up to the 196k range. Now we were only paying $1600 a month, but that includes PMI. Once we have 80% paid off, PMI drops which saves us an additional (roughly $200) a month. We still manage to pay $2k a month, just to keep ahead of the curve. We're close to 20% paid, after only 4 years on the newest mortgage, which isn't bad.
We've also done a tremendous amount of work to the house. The thing that changed is priorities. I no longer pissed away all of my money on bullshit that doesn't matter. I changed my fun time to working on the house. I've learned a lot and invested a lot of money into the place, and it's immaculate as a result.
Owning a house really changes your mentality. In my case, it took me from being a kid to being a young adult... even if I was already 27 when I finally purchased.
Then having a daughter took me into full adult mode. I'm 32 now, and things are going great.
Yes, it's a bit of a gamble, but if you're able to do work yourself. Without having to bring in countless contractors and shit, you can make a really nice place for yourself and save a lot in the process. Just be prepared to always walk though a project. The biggest part of owning a house is you have to FINISH things. Don't get them to just good enough and then live with it. Do the finishing touches on EVERYTHING or else you'll be ashamed to take people into your half finished house.
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PMI is determined by your loan amount, not the appraisal. If you have a clause written into the contract that says if the bank's appraisal comes in lower than the agreed upon price, you can renegotiate, then the appraisal is indirectly affecting PMI. I bought my place for 242k, it appraised for 250k.
Also, keep in mind that PMI is not the same number from 0 to 20% down. 0 to 5, 5 to 10, and 10 to 20 were all different numbers from my lender.
Lastly, you're required to pay the PMI on a FHA loan even if you manage to get 20% of the principle payed off before then.
Also, keep in mind that PMI is not the same number from 0 to 20% down. 0 to 5, 5 to 10, and 10 to 20 were all different numbers from my lender.
Lastly, you're required to pay the PMI on a FHA loan even if you manage to get 20% of the principle payed off before then.
Frenzied Wombat
Potato del Grande
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The math is reality friend. You're making an emotional appraisal that is entirely missing out on the mathematical reality. At face value the concept of a paid off house and no related debt sounds amazing, but debt itself is meaningless in comparison to net worth, and holds even less meaning when debt interest is earning less than your investment interest. Your entirely ignoring the concept of opportunity cost as it pertains on how you spend your theoretical $1000 surplus per month. It doesn't matter if something "goes wrong" over the course of 30 years-- whether it be job loss or some other cataclysm. If you took all the money you could have saved and used it to pay off your mortgage in 15 years, then lost your job in year 16, you are still fucked because you may own your house, but you zero savings to pay for day to day living, property taxes, etc. Now if you had taken all that money that you were going to use to pay off your mortgage, and invested it over the course of 15 years, when you lose your job in year 16, not only could you now pay off your mortgage entirely if you wanted to in one fell swoop (because you effectively saved all the money that paid it off in the previous scenario), BUT YOU'D ALSO HAVE THOUSANDS IN SURPLUS DUE TO INTEREST YOU WOULD NOT HAVE EARNED IF YOU USED ALL THAT MONEY TO PAY OFF YOUR MORTGAGE.
Cad
scientia potentia est
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This is only true if you invest and don't touch the invested money that you would have used to pay down debt.
Unfortunately most people see this money as "LETS TAKE VACATIONS WE ARE RICH WOOOO!" and thus you have 50 anecdotes about how its better to pay down debt first.
In an ideal world you are 100% correct but most people have no self control when it comes to money so giving them a nice fat piggy bank to raid when they get spendy is a bad idea.
A regional bank here (wesbanco) has a professionals loan that doesn't require pmi. And I'm not saying money isn't a priority but it's not the priority and when it comes to buying a house if you know you are going to do it then I think it's crazy to rent somewhere until you save up 20%.
Frenzied Wombat
Potato del Grande
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Yeah well obviously everything changes if you have zero self control and instead of investing your mortgage payment you blow it on cars and vacations. At that point you can no longer compare the two scenarios as they are totally different-- one your are paying down you mortgage and the other you decide to blow it on stupid shit.. There isn't even an opportunity cost that you can calculate anymore because the latter scenario has little to no value. It's like arguing that you aren't going to pay down your $10,000 20% interest credit card bill and instead are going to put it into your 401k, just because the 401K does auto withdrawal while if you had the cash on hand instead you wouldn't have the willpower to pay down your CC, instead showing no restraint and running out and buying a 4K gaming rig instead.
By all means, if you don't have any self control to take the money you would use to pay down your mortgage and put it in investments and not touch it, then yes make the poor financial choice simply because you cant be responsible.
Cad
scientia potentia est
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Believe me I agree with you; the reality is just that most people don't have that self control so if they sock their money away in their house where they can't spend it, they're ultimately better off. The best advice to give someone is to realize what kind of person you're dealing with and give advice accordingly.
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Picasso: But without PMI, how will the banks protect themselves from when you default on the loan? It's not like they have access to ridiculously low interest money from the Fed.
Seriously though, is the competition that cutthroat in WV that they're resorting to dropping PMI altogether to get new customers?
Seriously though, is the competition that cutthroat in WV that they're resorting to dropping PMI altogether to get new customers?
You end up paying a higher int rate for the loans which avoid PMI anyway so it's not that beneficial for the consumer.
Also for first time homebuyers, anyone purchasing a home in a target area, or purchasing REO homes. Get a mortgage credit certificate. It is a 20 to 30% credit on your mortgage paid for you federal income taxes. It's a much better tax treatment than just putting the interest on Schedule A and hoping you have enough other stuff to itemize.
I think just about every state has some sort of MCC that you can get.
I think just about every state has some sort of MCC that you can get.
I believe so. Nothing in the instructions mentions the standard deduction being disallowed. The credit is just limited to $2,000 per year and then based on your tax some can carry over. It's also non-refundable so most people who qualify for the credit would need to change their withholding to get the most out of it.