Any mortgage experts on here?

[tfinch2]

Originally posted by: vi_edit

Originally posted by: dullard

Originally posted by: tfinch2
What's the point of putting down 5%? Wouldn't you still have to pay PMI? It seems that if you're hard up to put 5% down on a house, you shouldn't even really be purchasing one.

There is a wise thought in your post. A wise thought that many people have forgotten in the recent housing frenzy. If you can barely afford to get 5% or even 10% of the house value, what makes you think you can afford to pay the remaining 95%?

The old 20% rule of thumb had a lot of wisdom behind it.

But, for someone who is set on getting a house and who is right on the approval/disapproval border, any amount even 5% will be an assest.

I understand the point, but I think there are a lot of exceptions. My wife and I for example. She went from a negative income (school) to a very large one by simply getting a degree. Between the two of us our mortgage payment is less than 14% of our gross income(Zero down, BTW). Not sweating us by any means what so ever.

But it would take us almost 3 years of saving every extra penny of expendible income we have to come up with the 20% downpayment on the home. There's a lot of other stuff we could have paid down with those three years of saving (including putting it back into the principal of the home)

Not having 20% down is not even close to strapping us financially.

You have a very good counter-example, but I'm willing to bet you're not in the majority. :thumbsup:

 

[mugs]

Originally posted by: dullard

Originally posted by: lokiju
We'd still have plenty of monthly income to pay other items, save, etc... but it'd take so long to save up 20% that it'd be a good 3 years before it'd happen and all the while I'll be throwing money into renting which could be going into equity and a home to start a family.

The throwing money into renting idea is a really bad way to look at it. People make decisions that sound right but are mathmatically incorrect when using that logic. Instead, use the math itself:

If you got a $180k house now and if it has no problems at all (nothing to repair), you'd spend right around $54,000 on that house in the next three years. You'd also get roughly $5000 in tax breaks and have almost $6000 in equity at the end of that time. Thus, you'd spend $54,000 to get $5000 + $6000 = $11,000. You'd have "thrown money into buying", $43,000 to be more precise.

What about renting? If you rented for 3 years, money will be wasted by renting. Lets divide $43,000 by 36. You get nearly $1200. If your rent is more than $1200/month, you are better off buying. If it is less than $1200/month you are better off renting. Lets say your rent is $1000/month. You'd throw away $36,000.

That's right, you'd "throw away" $7000 less by renting. And that ignores the fact that houses break, that houses need more energy to run, etc. If you include investment income over the 3 years, that $7000 grows even that much bigger.

Of course, houses have intangible benefits that aren't measured by this math.

There are a whole lot of other factors that I'm sure you're aware of but you left out to simplify the math, such as:
- Realtor fees (6% when you sell the house)
- Utilities (houses are typically bigger than apartments, thus you spend more on utilities)
- House maintenance (even if there is "nothing to repair", there is always stuff you'll spend money on that you wouldn't have spent money on in an apartment, like a lawnmower or lawnmowing service, landscaping, etc)
- House appreciation

I have a spreadsheet somewhere that is pretty thorough. In general though, the break-even point is 3-5 years. Shorter than that and you should rent, longer than that and you're probably better off buying a house.

 

[dullard]

Originally posted by: mugs
There are a whole lot of other factors that I'm sure you're aware of but you left out to simplify the math, such as:
- Realtor fees (6% when you sell the house)
- Utilities (houses are typically bigger than apartments, thus you spend more on utilities)
- House maintenance (even if there is "nothing to repair", there is always stuff you'll spend money on that you wouldn't have spent money on in an apartment, like a lawnmower or lawnmowing service, landscaping, etc)
- House appreciation

I have a spreadsheet somewhere that is pretty thorough. In general though, the break-even point is 3-5 years. Shorter than that and you should rent, longer than that and you're probably better off buying a house.

Yes, I did simplify a lot. In both cases, buy now or buy later there are realtor fees - so that isn't critical to this topic. I mentioned higher utilities, but to be rigorous, you should include them, same with maintenance. House appreciation I touched on earlier - his area is stagnant. Another big point is rising rent prices that I glossed over (you'd have to estimate them).

3-5 years is a good rule-of-thumb. There is a fantastic online site discussed here about 6 months ago which includes everything (right down to the interest that you could have gotten if you invested the closing costs). It gives nice graphs on the break even point. Some people have it almost always better buying, some have it always better renting. But for many people 3-5 years is fairly accurate.

But that length of time was never specified in this thread. Who knows if he'll be in the house 1 year or 100 years.

 

[lokiju]

Originally posted by: dullard

Originally posted by: mugs
There are a whole lot of other factors that I'm sure you're aware of but you left out to simplify the math, such as:
- Realtor fees (6% when you sell the house)
- Utilities (houses are typically bigger than apartments, thus you spend more on utilities)
- House maintenance (even if there is "nothing to repair", there is always stuff you'll spend money on that you wouldn't have spent money on in an apartment, like a lawnmower or lawnmowing service, landscaping, etc)
- House appreciation

I have a spreadsheet somewhere that is pretty thorough. In general though, the break-even point is 3-5 years. Shorter than that and you should rent, longer than that and you're probably better off buying a house.

Yes, I did simplify a lot. In both cases, buy now or buy later there are realtor fees - so that isn't critical to this topic. I mentioned higher utilities, but to be rigorous, you should include them, same with maintenance. House appreciation I touched on earlier - his area is stagnant. Another big point is rising rent prices that I glossed over (you'd have to estimate them).

3-5 years is a good rule-of-thumb. There is a fantastic online site discussed here about 6 months ago which includes everything (right down to the interest that you could have gotten if you invested the closing costs). It gives nice graphs on the break even point. Some people have it almost always better buying, some have it always better renting. But for many people 3-5 years is fairly accurate.

But that length of time was never specified in this thread. Who knows if he'll be in the house 1 year or 100 years.

I'd be looking to stay in the home for 5 to 10 years at least, if not more. But theres no way to know for sure what will happen in regards to this.