Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
3.5% is almost free money. Get as much as you can, it won't last much longer.
This is not justification to buy a more expensive home - since you are failing to factor in increased interest expense with no compensating increased return on outside investments, as well as higher property taxes, insurance, and maintenance cost. Not to mention that even if you rented the house out, 3.5% is above the risk-free rate, thus, you cannot juice your returns without taking on more risk. Also, the house would need to give you a near-guaranteed annual appreciation of 8% in order for the more expensive home to make FINANCIAL sense in the case of not renting out any of it. This 8% would be needed to compensate for mortgage interest, property taxes, insurance, and maintenance, which are holding costs.
Quote:
Originally Posted by Graywhiskers
Especially get an assumable loan, if for some reason they were forced to sell. This will help build financial independence.
If you can get an assumable loan, there is actually no reason to try to buy when rates are low to "lock in" the low rate, even barring all the other reasons the argument fails. This is because you could simply assume a low-interest loan later on, if you postpone buying.
Quote:
Originally Posted by Graywhiskers
This first home would make a nice rental down the line if the owner chooses to move; keep hitting that 3.5% for thirty years.
It is a form of forced savings.
Only relevant to those with poor discipline.
Quote:
Originally Posted by Graywhiskers
It is a superb inflation hedge as it is heavily leveraged.
And does very poorly if there is less inflation than you expect, or even no inflation.
. Buy the forever home when you are capable of making a good decision. Don't try to do it if you are not capable of that.
The last paragraph you said is true. Part of the reason I am reluctant to go for the dream home is because of future worry. I want the option to take career break when/if I have kids. But with the dream house mortgage I will be forced to keep 2 income family. I don't know how it will be when we have kids but I want to keep all my option open. Committing to 2 income family for next 20-30 yr is too much for my liking.
I looked at alternative option of buying dream house, renting it out while we live in the ghetto until we are ready to move to that dream house n take up the mortgage cost all by ourself. However I noticed the house I want to live in is usually a bad rental income property & the fear of rental ppl trashing the place kept me away from that option.
The last paragraph you said is true. Part of the reason I am reluctant to go for the dream home is because of future worry. I want the option to take career break when/if I have kids. But with the dream house mortgage I will be forced to keep 2 income family. I don't know how it will be when we have kids but I want to keep all my option open. Committing to 2 income family for next 20-30 yr is too much for my liking.
I looked at alternative option of buying dream house, renting it out while we live in the ghetto until we are ready to move to that dream house n take up the mortgage cost all by ourself. However I noticed the house I want to live in is usually a bad rental income property & the fear of rental ppl trashing the place kept me away from that option.
If you don't like commitment, don't commit. Letting other people force you to overextend is a bad idea. Life should be enjoyable.
This is not justification to buy a more expensive home - since you are failing to factor in increased interest expense with no compensating increased return on outside investments, as well as higher property taxes, insurance, and maintenance cost. Not to mention that even if you rented the house out, 3.5% is above the risk-free rate, thus, you cannot juice your returns without taking on more risk. Also, the house would need to give you a near-guaranteed annual appreciation of 8% in order for the more expensive home to make FINANCIAL sense in the case of not renting out any of it. This 8% would be needed to compensate for mortgage interest, property taxes, insurance, and maintenance, which are holding costs.
If you can get an assumable loan, there is actually no reason to try to buy when rates are low to "lock in" the low rate, even barring all the other reasons the argument fails. This is because you could simply assume a low-interest loan later on, if you postpone buying.
Only relevant to those with poor discipline.
And does very poorly if there is less inflation than you expect, or even no inflation.
Not a bad rate at the time.
Have home interest rates ever been lower in US history? No.
Is it an inflation HEDGE? yes it is.
Is the stock market at a peak? yes (I assume you want any savings going there). Increasing interest rates will tank both stocks and bonds.
Paying for a nicer house provides the enjoyment of living in a nicer house; better schools; and lower crime rate.
Buy a lower price house in a less desirable neighborhood is a good way to lose money.
Location, location, location.
I bought my cheap big house in the ghetto rather than a small house in a decent school system. We were not planning on kids. We lived there 10 years and did make a profit since we lived in a high COL high demand city, however we were basically forced to move since we ended up having kids and eventually needed schools. If we had stretched and bought a smaller more expensive house in the better school system it would have appreciated more than the big house and we would not have had to move, and leveraging the equity would have allowed us to expand it.
Don't discount the hassle and cost of moving, it (realtor fees, transfer fees, etc.) eats into any appreciation you might have and costs money to pack and transport your stuff. If I had this to do over I would have bought the smaller house in the better schools first. We spent $10k fixing our house to sell, the realtor charges 5% ($25k for us) and we spent $8k packing and moving our stuff long distance. Then you have to fix up the house you move into...
We also thought that our kid would be fine in kindergarten in the ghetto school, then we toured and realized that the school was overcrowded, they only got 15 minutes of recess (at age 5) and that particular school housed the entire city's population of kids deemed "behavioral problems" and they were bussed there and integrated into all those classrooms at that school, rather than being mainstreamed into the various schools their locations would have sent them to they concentrated them into one school to "serve them better." We also realized that our 5yo would be exposed to things we did not want him exposed to that young.
Isn't there a middle ground where you can buy a fixer in the good schools and fix it up while you are both earning income and then it is all glorious but your mortgage is a one-earner mortgage?
Have home interest rates ever been lower in US history? No.
Irrelevant what rates were in the past. Either you buy home A at today's rates, or you buy home B at today's rates. History enters the equation precisely nowhere.
Quote:
Originally Posted by Graywhiskers
Is it an inflation HEDGE? yes it is.
It's a good inflation hedge if you pay cash for the whole thing. If you get a mortgage you are actually over-compensating or over-hedging - which is to say, you purchasing power actually would suffer in a case of low inflation. A good hedge should make you roughly indifferent to high or low inflation. If your situation is such that you are better off with high inflation than low inflation, you are not indifferent, rather, you are over-hedged.
Quote:
Originally Posted by Graywhiskers
Is the stock market at a peak? yes (I assume you want any savings going there). Increasing interest rates will tank both stocks and bonds.
Then explain why P/E ratios in the stock market were similar to today in the early to mid 1980s despite rates being much higher. According to your theory, this should not happen.
Quote:
Originally Posted by Graywhiskers
Paying for a nicer house provides the enjoyment of living in a nicer house; better schools; and lower crime rate.
This is irrelevant to the question of what is the better financial decision. The lifestyle question is a different question. It also depends on how much the individual cares about those considerations in the first place.
Quote:
Originally Posted by Graywhiskers
Buy a lower price house in a less desirable neighborhood is a good way to lose money.
Location, location, location.
You are pre-supposing an increasing gap between low and high-priced areas (in percentage terms, not dollar terms). Again, this trend cannot continue forever. Eventually it must reverse.
We bought an older home that we love in a part of the city that is desirable. Then again we did it in 2010 when prices were a lot lower than now. In our area I think they bottomed out in early 2011 before slowly heading up. Our neighborhood went from a low $300,000 area to a mid $400,000 area in just 4 years and it seems like it is still creeping up. My wife and I are interested in buying another home within the next year. we will rent that one out though. This area is still far from the top of the last boom. Our street was in the mid $600,000 range to low $700,000 range back in 2007.
It seems if you look at it that homes seem to increase past their old former high. We are hoping that they will move past the $600,000 range in the next 10 years. If tradition falls into place I am thinking that home prices will move even further than that. If that happens we sell the rental. If it does not happen we just keep renting it out. Either way is a possitive. Yes they could decline and we could lose something, but only if they decline and we happen to sell.
OP,
I think that you should simply decide where you want to live and then consider buying in that community. Buying in Hamtramck, simply because you view it as cheap, it not necessarily the best investment decision--especially if you intend to move in three years or so. It would be much better, IMO, to buy a more modest house in a better community. I think that such a house would hold its value--or appreciate in value--much more than a house in Hamtramck.
You don't need to start off buying your "dream house" and you shouldn't stretch yourself on what you can afford. Besides, buying a $50k house in Hamtramck is probably at the higher range of housing prices in that community, as difficult as that may be for many here to fathom. Your resale opportunities will be limited as most people with any means, similar to yourself, will more likely be looking to buy in better areas. (For those not familiar with this area, Hamtramck is a city within the City of Detroit. Need I say more?)
So...unless you're more moved by your social responsibilities in trying to improve a particular neighborhood, I think you'd be better off by looking elsewhere. Take your time to shop around and see what is available. I see that from your other posts you're still considering a number of different communities. Narrow that down first and then begin your home search in earnest. And if you don't find something that you like, you can always continue to rent.
We bought an older home that we love in a part of the city that is desirable. Then again we did it in 2010 when prices were a lot lower than now. In our area I think they bottomed out in early 2011 before slowly heading up. Our neighborhood went from a low $300,000 area to a mid $400,000 area in just 4 years and it seems like it is still creeping up. My wife and I are interested in buying another home within the next year. we will rent that one out though. This area is still far from the top of the last boom. Our street was in the mid $600,000 range to low $700,000 range back in 2007.
It seems if you look at it that homes seem to increase past their old former high. We are hoping that they will move past the $600,000 range in the next 10 years. If tradition falls into place I am thinking that home prices will move even further than that. If that happens we sell the rental. If it does not happen we just keep renting it out. Either way is a possitive. Yes they could decline and we could lose something, but only if they decline and we happen to sell.
Technically, even an unrealized loss is still a loss. The issue is you don't want to become too dependent on real estate to fund your retirement. You should be able to survive a severe downtown (including a decline in rents) in the local area and come out OK.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
