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Home >> Stock Forums >> I want to buy a home!

I want to buy a home!

kuytgfd4 said: "I am a single mother working as a teacher and want to purchase a home. But don't think I can afford a home. I am tired of paying rent. Is there a way I can become a homeowner and not pay an outrageous mortgage? Your advice will be greatly appreciated!"

Aligator said: "[QUOTE=kuytgfd4;65471]I am a single mother working as a teacher and want to purchase a home. But don't think I can afford a home. I am tired of paying rent. Is there a way I can become a homeowner and not pay an outrageous mortgage? Your advice will be greatly appreciated![/QUOTE] It's easy to convince yourself that you are throwing money away by paying rent, but that's not necessarily the case. There are plenty of people in the USA who wish they had been paying rent instead of owning a home that plunged in value. Tired of paying rent? You may be paying less by renting than you would be owning a home."

ratAphooey said: "One great thing about renting is that you dont have to pay property taxes. That alone saves a ton of money."

Heather said: "Good points from the other members here. Weigh the positives vs the negatives before making a decision. I'm not trying to discourage you, but there are some VERY real things to consider before signing a 30 year mortgage. You mention that you're a working single mother - do you have the time, money and energy to maintain the home and grounds? If you aren't used to mowing lawns or doing home repair, these are time and cash considerations. Same thing goes for property taxes. On the flipside, you might be able to find an affordable home with the downturn in the realty market. Is there any particular location that you're looking?"

iwboomer said: "[QUOTE=kuytgfd4;65471]Is there a way I can become a homeowner and not pay an outrageous mortgage?[/QUOTE] Certainly there is. Don't buy more house than you can afford. I qualified for much more loan than I have on my home. Just because a lender is willing to loan you 375,000 (hypathetical) doesn't mean you have to borrow the full amount. Whatever you now pay in rent, is probably close to what you can afford for a mortgage payment. But remember your mortgage payment includes the loan payment and escrow. Escrow mainly being hazard insurance and property taxes. If you get in for less than 20% down, you will also have to pay mortgage insurance. Since we have been in this house, we have never failed to pay at least 100 extra towards the principal. Many months much more (extra), on a 30 year note paying extra every month does wonders with the amortazation tables and you end up paying a whole lot less interest. Hence the loan gets paid off much faster than 30 years. Many people borrow more than they can afford to repay. New house, new car, new wide screen TV, stainless steel refrigerator, side loading washer... You get my drift. Home ownership is a wonderful thing, you get to make all the rules! With the current mortgage crisis, it is a buyers market. Dont be afraid to haggle. Make em fix stuff to suit you. And make em pay your [b]closing costs[/b]. Another thing that got folks in trouble is equity loans, don't do it! The idea is to [b]own[/b] the home! My wireless keyboard is messing up, think I got all the words missing letters... Good Luck! :th_dblthumb2: Also take into consideration the tax benefits... Yearly interest is deductable, and as of 2007 so is mortgage insurance."

AlfredSokol said: "Make sure you save for a down payment. Many lenders require substantial ones these days."

thezster said: "I could have sworn I answered this earlier... but it's not here?? In my opinion, ownership is the only way to go. You get tax deductions, home appreciation (equity), and the pride of ownership. The first step is to find out what you can afford. Contact a mortgage broker to see what he/she can offer. Keep in mind these folks tend to be a little more creative in their financing, which can help a first time homebuyer - and can hurt them as well (hence our current sub-prime debacle). Also contact a more conventional lender to see what they can do for you. Whichever you use, try to limit yourself to no more than 80% of what they say you qualify for (you always qualify for more than you can actually afford). Avoid ARM's, second mortgages, etc., if at all possible. Figure than the typical income increases you'll get over time should go towards home improvements rather than higher mortgage payments. Then start looking.... This is a great time to be a buyer - you'll have lots of options. You'll probably be a little depressed at first when you see what your price range will actually purchase - but with perserverence, you'll find something that appeals to you. Don't expect perfection - no house is.... look for a solid house, in a decent neighborhood, that is at the lower end of the neighborhood's price range. (never buy the spendiest house on the block). As I said before - you can spend your future increases in pay on making it what you want it to be. You'll need a reasonable down payment (10 - 20%) plus another 2 - 3% for closing costs (those will surprise you - but ask up front about them so you can be sure you can come up with them).... I know that's a daunting figure for most first time buyers - but with judicious budgeting - you'll figure out a way to save that cash. Don't rule out a lease to purchase that credits a portion of your rent towards the down payment - just make sure the terms are reasonable. Find a realtor - ask others for suggestions on a good one. They're pros at helping new buyers find what they want - and figuring out how to afford it without getting in over their heads. Their fees are paid by the seller typically (never sign a contract with a realtor that says you will be responsible for any comissions - NEVER - just mark out that clause in the contract before you sign it...) There are a myriad of other suggestions - but I don't want to write a full book..... Start the process... and see where it takes you. Good luck!"

electronicsseller said: "as you mentioned above ,you don't have enough money to buy a home .then why are you tired of paying rent ,it's convince .as far as i know ,the price of the real estate is increasing so fast ,not every person can afford the price .on the other hand ,you have to feed your son or daughter ,you still need to pay a lot of money ,so why not rent a home for the time being .if you really don't want to pay rent ,you have to pay an outrageous mortgage,i think this is the onlly way"

pranith said: "i think instead of owning a house and paying tax to that along with emi's is a huge task . It's better to pay rent."

sr106 said: "yes, take a home loan, pay by emi's, its better to another sources..."

tomtat1 said: "[QUOTE=iwboomer;65670] Since we have been in this house, we have never failed to pay at least 100 extra towards the principal. Many months much more (extra), on a 30 year note paying extra every month does wonders with the amortazation tables and you end up paying a whole lot less interest. Hence the loan gets paid off much faster than 30 years. [/QUOTE] I see a lot of people talking about paying there mortgage off early as the smart thing to do. I respectfully disagree. If you have a rate of 6.5% or lower why on earth would you want to build extra equity? What does it buy you? You already own the house so why exchange the most liquid form of capital (cash) for one of the most illiquid forms (Home Equity) in the name of safety. Once this money is paid into your house the only way to get it back out if a need arises is to sell the house or refinance through a new mortgage or a home equity line. The better place to put your money is in a diversified mix of investments that you feel comfortable with. Let’s use this situation as an example. We have two people A & B. A overpays their mortgage in order to pay it off in 10 years instead of 30. B Takes the extra money and invests it in a conservative mix of stocks and bonds that earns 6.5%. Five years in both A & B loose their jobs and have no current income. Who would you rather be? "A" has spent all there money paying down there mortgage, but does the bank let them slide on any payments? No, as soon as the payments are missed "A" will be treated just like any other late payer. What are A’s options here? Slim and none. Even though “A” has a large amount of equity, "A" has no current income. Good luck getting a loan! "A" may be forced to sell under pressure in a market that may or may not be favorable! Now let’s look at B! 5 years in B has a large stash of liquid securities that he or she can sell to continue making payments and living on until he or she finds another job! B is still in complete control of his or her own destiny. What did it cost B for this insurance against disaster? Nothing! The money earned on the investments offset the interest paid on the loan. And 6.5% growth is a very conservative # here. You can achieve this without taking much risk at all. And once your liquid fund equals the amount owed on the mortgage you can pay it off if you like. Although at this point I doubt that you will because: •the psychological burden of the mortgage magically evaporates when you realize that you can pay it off at any time •the money is still better placed in liquid assets •And by this time you have figured out that you can safely get 7.5 to 8% off those investments. A lot of people say that paying a mortgage off early is the safe thing to do. It is safe; for the company holding your mortgage, not for you! Every extra dime you pay in lowers the risk that they will loose money if they foreclose on your house and sell it latter."

Aligator said: "[QUOTE=tomtat1;68733]I see a lot of people talking about paying there mortgage off early as the smart thing to do. I respectfully disagree. If you have a rate of 6.5% or lower why on earth would you want to build extra equity? What does it buy you? You already own the house so why exchange the most liquid form of capital (cash) for one of the most illiquid forms (Home Equity) in the name of safety. Once this money is paid into your house the only way to get it back out if a need arises is to sell the house or refinance through a new mortgage or a home equity line. The better place to put your money is in a diversified mix of investments that you feel comfortable with. Let’s use this situation as an example. We have two people A & B. A overpays their mortgage in order to pay it off in 10 years instead of 30. B Takes the extra money and invests it in a conservative mix of stocks and bonds that earns 6.5%. Five years in both A & B loose their jobs and have no current income. Who would you rather be? "A" has spent all there money paying down there mortgage, but does the bank let them slide on any payments? No, as soon as the payments are missed "A" will be treated just like any other late payer. What are A’s options here? Slim and none. Even though “A” has a large amount of equity, "A" has no current income. Good luck getting a loan! "A" may be forced to sell under pressure in a market that may or may not be favorable! Now let’s look at B! 5 years in B has a large stash of liquid securities that he or she can sell to continue making payments and living on until he or she finds another job! B is still in complete control of his or her own destiny. What did it cost B for this insurance against disaster? Nothing! The money earned on the investments offset the interest paid on the loan. And 6.5% growth is a very conservative # here. You can achieve this without taking much risk at all. And once your liquid fund equals the amount owed on the mortgage you can pay it off if you like. Although at this point I doubt that you will because: •the psychological burden of the mortgage magically evaporates when you realize that you can pay it off at any time •the money is still better placed in liquid assets •And by this time you have figured out that you can safely get 7.5 to 8% off those investments. A lot of people say that paying a mortgage off early is the safe thing to do. It is safe; for the company holding your mortgage, not for you! Every extra dime you pay in lowers the risk that they will loose money if they foreclose on your house and sell it latter.[/QUOTE] If your "A" and "B" above had been well versed in the art of money management they would have had a three tiered "wedding cake" model for their finances and both would have survived the job loss. The wedding cake model would have led them to save/ accumulate money in a mutual fund (foundation tier) with the intention of using that money to pay off the house (also foundation tier). In the meantime they would keep several months income in a safer money market (second tier). If the job loss came before they had enough to pay off the house the all-important foundation tier would be protected by the second tier. If they succeed in paying the house off before the job loss they are in fine shape indeed! I speak from experience: We keep our money in the wedding cake style and it has worked through bad times and has performed well through good times. Top Tier: One month's income in a checking account. Second tier: Six month's income in a money market account. Foundation: Long term assets - real estate, mutual funds, 401(k), IRA...must eventually add up to at least ten years income."

tomtat1 said: "[QUOTE=Aligator;68824] The wedding cake model would have led them to save/ accumulate money in a mutual fund (foundation tier) with the intention of using that money to pay off the house (also foundation tier). [/QUOTE] I agree with you on the principle of a foundation (mine is a pyramid but similar principal). My question is this. Why pay off the house once you have accumulated the money to do so? If you have the money to pay it off any time you like, but that money could be put to a more productive use elsewhere in your foundation tier, why tie it up in the real-estate that you already own? That real-estate is going to appreciate at the same rate regardless of how much money you have in it so your return on invested capital goes down the more you have in it. Some people may say depreciate here instead of appreciate but this current market is just giving back some of the excess gains in the last couple of years, and will stabilize and begin to go up again when Real-estate gets back into the affordability range for any given area. So the question becomes what is the mortgage costing you? And can you reasonably expect to earn more elsewhere? The answer to both of these questions will be different for everyone reading this. The cost of the mortgage varies depending on current rates, and your tax bracket. I am in the 35% federal tax bracket and the tax on realized investment gains right now is 15% so my true cost of the mortgage is 80% of my current rate of 5.75%. That means my mortgage is costing me 4.6%. I have averaged right at 12% on my investments since 1994 so I use that as my expected gain. So for me it’s a no brainier. I stand to gain 7.4% per year by not paying off my mortgage early and putting that capital to work somewhere else. Granted I am taking more risk, but I am getting paid well for it. To me that is the key to successful investing. Understanding your risks and making sure you are compensated for them."

ratAphooey said: "Being in a position to pay off my house in cash is something I would just love."

Aligator said: "[QUOTE=tomtat1;68850]I agree with you on the principle of a foundation (mine is a pyramid but similar principal). My question is this. Why pay off the house once you have accumulated the money to do so? If you have the money to pay it off any time you like, but that money could be put to a more productive use elsewhere in your foundation tier, why tie it up in the real-estate that you already own? That real-estate is going to appreciate at the same rate regardless of how much money you have in it so your return on invested capital goes down the more you have in it. Some people may say depreciate here instead of appreciate but this current market is just giving back some of the excess gains in the last couple of years, and will stabilize and begin to go up again when Real-estate gets back into the affordability range for any given area. So the question becomes what is the mortgage costing you? And can you reasonably expect to earn more elsewhere? The answer to both of these questions will be different for everyone reading this. The cost of the mortgage varies depending on current rates, and your tax bracket. I am in the 35% federal tax bracket and the tax on realized investment gains right now is 15% so my true cost of the mortgage is 80% of my current rate of 5.75%. That means my mortgage is costing me 4.6%. I have averaged right at 12% on my investments since 1994 so I use that as my expected gain. So for me it’s a no brainier. I stand to gain 7.4% per year by not paying off my mortgage early and putting that capital to work somewhere else. Granted I am taking more risk, but I am getting paid well for it. To me that is the key to successful investing. Understanding your risks and making sure you are compensated for them.[/QUOTE] It's a defensive play. The market which has served you so well has risen from 3600 (1994) to 14,000. Just working the figures in my head that looks like about 10%/year. It probably will not always do that well. And if my paycheck evaporates at about the same time the market tanks I could find myself in a jam. Well, in fact my paycheck certainly will evaporate because I'm going to quit working in a couple of years. But I understand your argument. Actually, we would have made more money doing things your way. But that's this year! If the market tanks and we have a long drawn out recession, making money may be a little more difficult. I have heard unfortunate friends say, "Damn! Why the hell didn't we pay it off while we had the money!" I won't be one of those guys."

tomtat1 said: "I do not count on stock exclusively to make my returns. I have a diversified portfolio that normally has 50% stocks, 30% bonds, 10% commodities, and 10% cash. When I get nervous about a particular asset class I decrease the percentage and usually raise cash unless one of the other asset classes is particularly attractive. A year ago I sold 10% of my stocks and added to bonds and cash. I have been buying stocks back ever since the fed lowered the rates by 1.25% over a two week period. Selling my government bonds and commodities which I feel are over bought here. When a financial adviser looks at my investment mix they always think I should get more aggressive with my portfolio as my beta is usually in the .5 to .9 range. Unlike most investors, I pay more attention to risk than reward. I’m not sure how you think having a large amount of your capital tied up in one asset class (real-estate) is defensive. Yes you don’t have to write a check every month to a bank, but it still costing you about the same (as I attempted to illustrate in my last post). Also; Real-estate is one of the most illiquid assets around, as we are seeing right now. Finally; by paying your house or any property off early you are neutralizing one of the advantages that real-estate has as an investment class. That is the ability to use leverage to increase the returns (Banks love dirt as my banker says, because unlike other asset classes they always know where it is). One more thing that is never talked about; Paying a traditional mortgage is forced savings (this in my opinion is the main reason home ownership is a great way of building wealth). The amount that you pay to principal every month is like putting money in the bank (the interest you get is whatever interest you are paying on the mortgage 4.6% for me and the balance is your equity balance in the home). If the mortgage is totally paid off you lose that forced savings plan and have to have the discipline to save it yourself."

Aligator said: "*Paying off the home is a defensive play because now that it is paid off nothing - nothing at all - can happen in the market or with my job that would put ownership of our home in jeopardy. Paying off rental property is defensive in that our income can only drop to zero minus property taxes. *I feel a little like Warren Buffet in 1998, though. Everyone was making a 40% ROI except him. He plodded along doing what he felt was best and right, and now all those hotshots are gone. *We don't need a "forced savings plan". We save. (period) *And lastly, I want to say that our home is not an "investment class". It is where we live. It is paid for and we are glad."

ratAphooey said: "I think that is the key point about a home as an investment. Its the only investment you can actually live in. If you pay it off your expenses are much lower than your peers."

tomtat1 said: "[QUOTE=Aligator;68953]*Paying off the home is a defensive play because now that it is paid off nothing - nothing at all - can happen in the market or with my job that would put ownership of our home in jeopardy. Paying off rental property is defensive in that our income can only drop to zero minus property taxes. *I feel a little like Warren Buffet in 1998, though. Everyone was making a 40% ROI except him. He plodded along doing what he felt was best and right, and now all those hotshots are gone. *We don't need a "forced savings plan". We save. (period) *And lastly, I want to say that our home is not an "investment class". It is where we live. It is paid for and we are glad.[/QUOTE] I guess you and I play defense differently. Your defense is like prevent defense in football. You guard against the low probability high impact event (The long bomb for a touchdown), and are willing to accept a smaller rate of return to get this protection. I play a defense that has more exposure to that low probability event, but I get a steadily higher rate of return. I believe this higher rate of return during normal times compensates me for taking that risk. I, like you and Mr. Buffet, missed out on a lot of those oversized gains in 1999 as I was selling tech and small cap growth which were on fire, and was buying gold mining stocks and government bonds which weren’t doing particularly well at the time. I was not suggesting that you needed a forced savings plan. This observation was more for others that may be reading the post. I can tell from your posts that you are a dedicated saver as is anyone who pays a mortgage off early a little bit at a time. I was thinking more of someone who comes into a lot of money all at once through inheritance or a lottery win. They may very well need forced savings. On your last point I have to politely disagree. Your house is an investment (unless you have so much money that the amount sunk in your house is irrelevant). The decision to buy it, and the method in which you pay it off have material effects on your overall wealth, and living in it does not change that fact. Any calculations on investment returns you do that do not include the return on your home equity just are not accurate. By ignoring it in your overall investment strategy you get a skewed picture of the returns you are getting from your asset mix. You make the statement that nothing can happen in the market that would put my homeownership in jeopardy. Which market are you refereeing to?."

whiteblue1942 said: "you can look for a long term mortgage. most mortgages can be set so they are far less then the cost of rent. in the long run mortgages will pay off, first payments are cheaper than rent, and second, you are putting your money towards a house you can own in the end instead of a landlords pocket!"

ratAphooey said: "One good thing about renting is you dont have a lot of maintenance expenses."