Recession?

[Katiebug]

whatever were in I will be glad when its over thats for sure.
here is a question for an educated crowd...

Should you be able to buy a house with no money down? We have all seen the stories on foreclosures, but how many of them bought houses, some really expensive ones, and didnt put a dime down, or back loaded half the interest payments? What I am getting at is maybe a lot, ALOT of people bought houses before they were really financially ready to do so/

If you buy a house and dont put anything down your really still renting basically.

I dont advocate 20% or anything, but back in the day, banks wouldnt even talk to you if you didnt have something to put down

We bought in '06. We were looking in the $200K range and had roughly $14K in savings at that point (we spent our first year of marriage living in a horrid little one bedroom apartment, the upside was paying only $500/month in rent, allowing substantial savings). Our realtor (useless) convinced us that not only did we HAVE to offer full asking price, but we HAD to pay our part of closing costs. We wanted to ask for a seller concession - our house had been on the market for 6 months with a $30K price drop, it's not like it was in danger of being snapped up! She convinced us to just suck it up and pay closing costs...in retrospect her only concern was with locking in a sale, not with helping us get the house we wanted for the best price. We put down about 3.5% and paid another 3% in closing costs, then had the rest of our savings for moving expenses and other costs.

We did end up spending less than $200K...for a starter home in our neck of the woods, we didn't do too badly. 30 year fixed loan at 5.125%. We've never had any difficulty paying our bills. We specifically chose a house that we could comfortably afford on one (my) income only, because of my husband's career volatility to date. In retrospect that was a very smart move, since I'm still the bigger earner, and we're now hoping to start a family and daycare ain't cheap.

Almost everyone I know who bought in the last 5 years put something down. I think 20% is unrealistic in many housing markets, though. If you've had to save something, even a little, towards a home then you may be more inclined to continue paying the mortgage even when things get tight.

I don't want to steal the thunder from RG's question, but this makes me wonder: how do others here feel about paying your house off early? I have not made any extra payments because I feel I can make better use of my money by investing it rather than paying extra on a 5% mortgage. I'm sure I would feel differently if I had a $200k mortgage or a 7% rate, but I do have enough cash to pay the payment for several months if something cataclysmic happened.

Our interest rate is so low that investing (over time, of course) will be a better use of extra money. We don't make extra payments.

 

[Capt Worley PE]

Our interest rate is so low that investing (over time, of course) will be a better use of extra money. We don't make extra payments.

I used to pay an extra hundred a month until I figured that out...

 

[IlPadrino]

I have no personal experience, but every house I see for short sale is such a good deal. Whenever you read about short sales the "experts" always say don't do it because you ahve to take the place "as is." I don't really believe that, or understand it actually. Does that mean you can't have your own inspector check it out? I mean, to a certain extent you're always buying a place as is.

I'm told the bank will insist on as-is (i.e. no home inspection contingencies) because by law they are required to reveal the results of the home inspection in all future transactions. So to answer your question, I think you can certainly pay for your own home inspection (which you'd probably have to do anyways) but you can't include any repairs in the offer.

In the case I'm working now, I'm already renting the house, so I have a pretty good idea of what I'm getting. I just worry that the short sales in the area will have an affect on future growth potential. How, I don't know...

 

[IlPadrino]

I don't want to steal the thunder from RG's question, but this makes me wonder: how do others here feel about paying your house off early? I have not made any extra payments because I feel I can make better use of my money by investing it rather than paying extra on a 5% mortgage. I'm sure I would feel differently if I had a $200k mortgage or a 7% rate, but I do have enough cash to pay the payment for several months if something cataclysmic happened.

That's what scares the hell out of me on my California rental... with a mortgage payment of $2600/month I can't afford to go more than two or three months without collecting a rental check. I suppose I could take out a home equity line of credit for something longer than that but that's even more scary!

 

[csb]

In regards to the Hillary and McCain gas tax cut- I think it's absolutely idiotic. Our nation's infrastructure is crumbling, but they want to take away the funding mechanism?? Plus, I really don't think it would make gas cheaper...for instance, I live in a state with one of the LOWEST gas taxes in the nation, yet recently our gas costs the same as that of our neighboring states which have federal tax plus a 14-16 cent higher than ours gas tax. Anyone want to guess where that extra money is going? It sure isn't paving any roads, that's for sure. And, just to be a bit of an engineer for a moment, the delayed cost of doing maintenance from the lost revenue would be huge...more than we'd ever see in tax relief. I hope the American people can see that it's a gimmick and would cost them more in the long run.

And, to throw my hat in the house discussion, we bought with very little down but we locked into a fixed rate. We bought just enough home to last us for quite awhile and have money to upgrade the house which is in a nice neighborhood. We did so in 2004 when housing prices were still okay and the rates were so freaking low. In Denver there are entire neighborhoods emptying out because people paid WAY too much for new homes in housing developments where everything looks the same and they did so with ARM. Now they are moving out all over the place and crying unfair. While I agree the banks went after these people aggressively, I also wonder why these people didn't do some research. When I took out my student loan in college I had to watch a little film about loans...why wouldn't we do the same to people borrowing much more in a much more dangerous fashion?

 

[udpolo15]

In regards to the Hillary and McCain gas tax cut- I think it's absolutely idiotic. Our nation's infrastructure is crumbling, but they want to take away the funding mechanism?? Plus, I really don't think it would make gas cheaper...for instance, I live in a state with one of the LOWEST gas taxes in the nation, yet recently our gas costs the same as that of our neighboring states which have federal tax plus a 14-16 cent higher than ours gas tax. Anyone want to guess where that extra money is going? It sure isn't paving any roads, that's for sure. And, just to be a bit of an engineer for a moment, the delayed cost of doing maintenance from the lost revenue would be huge...more than we'd ever see in tax relief. I hope the American people can see that it's a gimmick and would cost them more in the long run.

I agree with you on the gas tax. Gas isn't getting any cheaper and Americans have to learn to live with that. If we try and delay the pain, people will just slow down any lifestyle changes that high energy prices might cause. I read an article that suspending the gas tax will cause an increase in demand and therefore supply will become more limited and the prices will go even higher.

I am not sure how most people are able to put 20% down, especially first time buyers in expensive markets. I was very fortunate because my wife had enough savings to put 20% down. I know most of my friends though only have been putting down ~5%.

 

[Capt Worley PE]

I am not sure how most people are able to put 20% down, especially first time buyers in expensive markets.

It really isn't that hard. Just don't spend like crazy.

We live like we're on one salary. That has the dual benefit of saving money for a rainy day and prevents extravagant, unneeded purchases. Sure, I'd like a new Mustang GT, but my six year old Sentra is paid for, gets goos mileage, and is still reliable. Same thing with TVs. Why get a new plasma when that 25" RCA from 1992 is still working fine?

Except for the house and miniscule credit card charges (probably less than $75 this month) we're debt free.

 

[udpolo15]

It really isn't that hard. Just don't spend like crazy.

It isn't hard over time, but if you want to buy before your 35, I think it is hard.

Look at Chicago. To get something big enough for a couple in a decent neighborhood (I am talking condos here, housing is even more out of reach, unless you want to move way outside of the city), close to transportation you are going to be spending $250K easily. 20% is 50K. Coming out of college, I was making less than 40K. If I went into super saver mode and put away 10K a year, it would take 5 years to have enough for the down payment. The reality is that saving 10K on a 40K salary is going to be next to impossible.

 

[Capt Worley PE]

^ I hear you. Luckily, we bought in 1998, and housing in our neck of the woods is reasonable, or it was then.

Having no car payments for the 5 years before we bought helped out a lot. I think I was saving 1K a month

 

[C-Dog]

I think you need to put something down. Is 20%, 30% or 10% the right amount, I don't know? We were lucky enough to have saved for 2 years before we bought our house. We were able to get the 20% down, just barely. Now I am watching houses in the hood not sell and others sell rather quickly at still somewhat elevated prices from years prior. The houses that are selling are the nicer, well maintained houses. The houses that are sitting are the ones that have not been maintained that well. The difference between now and a year or two ago, is that today only the maintained houses are selling while the ones that need TLC sit, where they would have sold in an up market. At least that is how it looks in my hood.

 

[kevo_55]

Gas tax "holiday???" What a way to fill the pockets of the gas industry and mess all the while not solving the problem with a supply and demand commodity.

And I thought that the stimulus check was a bad idea!!!!

 

[Capt Worley PE]

Is 20%, 30% or 10% the right amount, I don't know?

If you put down 20%, you don't have to pay for motgage insurance. That's why I went 20%

 

[Guest]

I think you need to put something down. Is 20%, 30% or 10% the right amount, I don't know?

I don't know is exactly the problem.

When I purchased a house, I INTENTIONALLY picked a starter home located in BFE rather than a house on the cul-de-sac in upscale Tally town. I didn't put any money down but at the same time I knew I was going to end up with a payment that I could reasonably afford and eventually make double-payments to pay down over, say a 15-yr period rather than a 30-yr period. I was more interested in getting squared away with my credit issues and getting Mrs. JR back to work.

Now I will be selling my home in a bad market but fortunately there is enough equity in the home to make a few $$ and completely pay of the note. I am just glad I didn't let Mrs. JR talk me into extending those lines of home equity credit ....

But, I digress. The real point comes back to how responsible individuals are going to be with credit and spending. It is difficult to gauge - I don't even think you can really gauge credit 'responsibility' from historical patterns since our self-actualization of wealth/worth is a random variable with respect to time, income, and employment/employability.

If anything, I blame the BANKING INDUSTRY for not having better controls or actuarial models for accounting for the volatility. It is called a risk because .... you can potentially lose your investment! Blaming individuals for taking a risk in thier personal finance to own a home when banks (investors) take a risk in making sure the individuals don't follow-thru is ... well .. you get the picture.

It does go back to the answer which is ... I don't know - that should be up to the banks to decide based on how much risk they are willing to accept.

:2cents:

JR

 

[snickerd3]

I am just glad I didn't let Mrs. JR talk me into extending those lines of home equity credit ....

One of best friend's Dad did that very thing. The house was owned free and clear...he took out the max home equity loan he could and then left the wife for another woman, taking the $ with him. Very bitter divorce she is still paying off the loans HE took out on the house. However sad and unfortunate, Karma does come back to bite you...my friends Dad is in the hospital with pneumonia and strep so bad they had to put him in a medically induced coma because his body wasn't responding to medications.

 

[Capt Worley PE]

One of best friend's Dad did that very thing. The house was owned free and clear...he took out the max home equity loan he could and then left the wife for another woman, taking the $ with him.

What a *******.

 

[Guest]

What a *******.

+1

JR

 

[IlPadrino]

It isn't hard over time, but if you want to buy before your 35, I think it is hard.
Look at Chicago. To get something big enough for a couple in a decent neighborhood (I am talking condos here, housing is even more out of reach, unless you want to move way outside of the city), close to transportation you are going to be spending $250K easily. 20% is 50K. Coming out of college, I was making less than 40K. If I went into super saver mode and put away 10K a year, it would take 5 years to have enough for the down payment. The reality is that saving 10K on a 40K salary is going to be next to impossible.

Or imagine LA or DC where you're going to spend $500k. Who's got $100k to buy a first-time house?

It's also a dilemma to weigh retirement investment against a house down payment. I put over $1100/month in IRAs and my TSP. I could have pulled that out to make a down payment but that's a risk I wasn't willing to take.

I think it's the American Dream to own a house and some people made a bad assumption (that housing prices were going to rise) that turned out to have a catastrophic consequence. But except for those that just wanted to live above their means (car lease anyone?!?), I have lots of empathy.

 

[IlPadrino]

If you put down 20%, you don't have to pay for motgage insurance. That's why I went 20%

We got a first and second mortgage to avoid the PMI - which turned out to be a bad choice when the second variable rate started climbing. And I still don't know how I avoided PMI when I refinanced into just one loan with a 90% LTV.

 

[wilheldp_PE]

We got a first and second mortgage to avoid the PMI - which turned out to be a bad choice when the second variable rate started climbing. And I still don't know how I avoided PMI when I refinanced into just one loan with a 90% LTV.

I got an 80/20 loan as well, but I forced them to lock the rate on the 20% loan. They REALLY didn't want to do it...kept telling me that it was a better rate if I went with the ARM. I basically told them that if they didn't fix the rate, I would find another funding source...so they did.

 

[Guest]

Or imagine LA or DC where you're going to spend $500k. Who's got $100k to buy a first-time house?

That's exactly my thought about this conundrum - who has THAT kind of money to put down or even to finance when you look at a gross cross section of american wage earners. The problem in my mind is how can house prices continue to rise if median wages are relatively stagnant? I would be thrilled to hear any insights from an informed source.

I think it's the American Dream to own a house and some people made a bad assumption (that housing prices were going to rise) that turned out to have a catastrophic consequence. But except for those that just wanted to live above their means (car lease anyone?!?), I have lots of empathy.

It's a mixed bag as to what has happened. I have seen poor examples of fiscal responsibilty and restraint around me so that tends to color my outlook but I am certainly open to the thought that things didn't work out right. I have less sympathy when I see those same people buying the latest fads in clothing or electronics.

:2cents:

JR