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Old 04-11-2015, 10:22 PM
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This is all so interesting, as we are renting in Wheaton now and planning to buy again in one year and discussing the same things. Our income fluctuates from 12-14k monthly, and I am so nervous to spend 7-800k on a house. Our only other debt is a car payment and small student loan payment. Obviously we have other cost of living expenses, but nothing crazy. Anyhow- I've done so many calculators and I know lots of people with pretty pricey homes. I do think there are lots who overextend, and have payments 50% of monthly income. I personally wouldn't. We won't have the 20% down if we buy something more expensive next year. Just like previous posters said-- when we sold our last house (just to get out of the town) we walked away with only 25k. If we gave up all fun for the next year, we could save a good chunk. We are saving as much as we can, but we are also having fun and enjoying our life (trips, sporting events, etc). We have a credit score over 800, and I know we can afford a nice sized payment- but we won't have 150k to put down. however, my husband's career is booming, I have a great job, and we are established. Does that mean we should stay under a certain price range to make sure we have the 20% down, even if our income is higher and increasing? I don't think so, and I am grateful we can put down less than 20%!
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Old 04-12-2015, 07:26 AM
 
28,384 posts, read 67,998,510 times
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Default A very common situation!

Quote:
Originally Posted by Rae4732 View Post
This is all so interesting, as we are renting in Wheaton now and planning to buy again in one year and discussing the same things. Our income fluctuates from 12-14k monthly, and I am so nervous to spend 7-800k on a house. Our only other debt is a car payment and small student loan payment. Obviously we have other cost of living expenses, but nothing crazy. Anyhow- I've done so many calculators and I know lots of people with pretty pricey homes. I do think there are lots who overextend, and have payments 50% of monthly income. I personally wouldn't. We won't have the 20% down if we buy something more expensive next year. Just like previous posters said-- when we sold our last house (just to get out of the town) we walked away with only 25k. If we gave up all fun for the next year, we could save a good chunk. We are saving as much as we can, but we are also having fun and enjoying our life (trips, sporting events, etc). We have a credit score over 800, and I know we can afford a nice sized payment- but we won't have 150k to put down. however, my husband's career is booming, I have a great job, and we are established. Does that mean we should stay under a certain price range to make sure we have the 20% down, even if our income is higher and increasing? I don't think so, and I am grateful we can put down less than 20%!
Many people have "variable compensation" to their income! It is silly to skrimp and save and then dump every last cent into a downpayment that will be "locked up" in the house. Far wiser to build up a reserve / emergancy fund and keep that LIQUID should one's circumstances require tapping into savings!

If one buys a nice home in a desirable area history has shown that should prices falter the relatively stability of such values is FAR BETTER than a lower priced area. Given the data from fringe areas it would be foolish to try to "go cheap" by buying in a less desirable area! The worst possible situation is almost certainly the fool that puts big a downpayment into a house in an area where the neighbors have EVEN LESS skin the game -- pull up data from certain areas on the edge of development and you will quickly see that many underwater debtors have made the decision to walk away from their obligation. Meanwhile in those same areas there are a handful of folks that went along with "old fashioned" big downpayments and they have zero leverage to get a lender to acknowledge the loss of value / accept a recast..
It just is a far less risky move to stick with nicer areas, be surrounded by folks that have an established interested in stable values, and NOT tying up a penny more than you need to get an acceptable loan.
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Old 04-12-2015, 08:18 AM
 
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Originally Posted by chet everett View Post
Many people have "variable compensation" to their income! It is silly to skrimp and save and then dump every last cent into a downpayment that will be "locked up" in the house. Far wiser to build up a reserve / emergancy fund and keep that LIQUID should one's circumstances require tapping into savings!

If one buys a nice home in a desirable area history has shown that should prices falter the relatively stability of such values is FAR BETTER than a lower priced area. Given the data from fringe areas it would be foolish to try to "go cheap" by buying in a less desirable area! The worst possible situation is almost certainly the fool that puts big a downpayment into a house in an area where the neighbors have EVEN LESS skin the game -- pull up data from certain areas on the edge of development and you will quickly see that many underwater debtors have made the decision to walk away from their obligation. Meanwhile in those same areas there are a handful of folks that went along with "old fashioned" big downpayments and they have zero leverage to get a lender to acknowledge the loss of value / accept a recast..
It just is a far less risky move to stick with nicer areas, be surrounded by folks that have an established interested in stable values, and NOT tying up a penny more than you need to get an acceptable loan.
Poor poor advice. Since when did 20% down become "old fashioned big downpayments"? Nobody said to "dump every last cent into a downpayment"... The advice would be to make sure you have some cash stashed away in emergency savings. If you're eyeing an expensive house that doesn't allow you to do that, then adjust downward accordingly. Just because a bank gives you a loan on 5% down doesn't mean you should take it. Bankers do not owe their clients a fiduciary duty, so your best interests are not paramount.

You cite the example of an underwater debtor in a fringe area being able to "walk away from their obligation" because they were smart enough to put little money down. I'm a former foreclosure lawyer, and you really have no clue what you are talking about. Mortgage banks in Illinois routinely obtain personal deficiency judgments against the loan obligors--that is, a personal judgment will be entered for the difference between the proceeds of the foreclosure auction and the balance due on the mortgage. While it's true that you may get lucky and end up with a judge who won't grant deficiency judgments for residential mortgages, by that time, your credit and reputation are shot, and you can't hide it because it is in the public record. For the poor souls that do end up with a personal deficiency judgment against them, the bank will freeze their deposit accounts, seek wage garnishments, and ask for the keys to the jeep. This is all incredibly embarrassing and will break you to pieces, making it almost impossible to ever recover. Of course, the other option is to file for Chapter 7 bankruptcy, where you will come out the other end with nothing but your underwear. Therefore, any suggestion that default is not all that bad because you can renege on your promise to repay is flat out asinine.

Now, for the persons above with high monthly incomes and stable careers, it is odd that they haven't been saving for a downpayment, but their situation could warrant an exception from the general rule.
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Old 04-12-2015, 09:06 AM
 
28,384 posts, read 67,998,510 times
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There are many many excellent attorneys that have helped folks walk from one bad situation into a far better one. Beleive me, I'm the last person to encourage people to overspend but I have personally seen a wide range of settlements that do not involve bankruptcy that enable people to get out from under bad financial situations.

If one has sufficient reserve / emergancy funds and can afford the monthly costs asociated with a combination of low downpayment first mortgage and associated loans to avoid PMI that very often makes sense for buyers in nicer areas.
It is a better deal than either sticking to a less desirable area OR tying yourself to a loan that has PMI.

Lenders want to maximize their profits at the lowest risk, borrowers similarly should aim to keep their outflow as manageable as possible without giving up all leverage to the financial institutions!

Finally, just becuase someone is currently earning $100k/yr ++ that does not magically mean they have had an easy ability to amass a large downpayment. College is expensive, student loans are not cheap. Moving for employment can quickly burn through savings. Maintaining an appropriate car, wardrobe, professional networks, and connections to potential avenues of employment all consume one's income. When things come together and it is time to find an appropriate home for the phase of life that involves kids, schools, sports / social connections for their development it makes sense to use the various financial options that are offered!
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Old 04-12-2015, 06:26 PM
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In our situation, we now make close to 200k a year. This is all recent, as my husband changed careers and I am now working more (previously minimal when kids were babies). So, no... We haven't had the chance to save $150k! My apologies! However, when your take home is typically over 12k, we feel comfortable having a 4k payment (home purchase around 6/650k with 10% down and 15k taxes). We can MORE than afford that payment, save for college, etc... Again though, we sold our home last fall after seeing the market boom where we were living- not knowing if we'd have the chance to walk away with what we ended up making if we waited. We have 60k in savings and we are saving a lot now while renting. When our lease is up early next year we aren't going to have another 70k saved. Even if we did-- I personally would NOT feel comfortable dumping it all into a down payment. There's a reason more and more people are renting and it seems like purchasing a home is not as wonderful of an investment as it used to be. We actually met a developer in Lake Geneva last weekend who sold his condo in the city last year and is now renting in Wilmette. When we asked him why he's renting, he agreed. Bad time to buy! We are feeling like there are tons of people under water and another bubble is forming. Hopefully we sold high and will get to buy low. We aren't idiots, and we wouldn't get in over our heads with a payment... However, we will be buying early next year again and won't have the 20% for what we want. I don't think it's irresponsible in the least to put down 10% and keep a huge chunk liquid in savings

Last edited by guest; 04-12-2015 at 07:50 PM..
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