Fha now requiring 640 fico's??

[eichlerfan]

This thread is only confirming what my husband and I are starting to realize. Renting can be more cost effective than owning. We were long time homeowners until we moved to Austin. Of course buying into the "American Dream" we just assumed that we would be buying another home once we had lived here for a year and knew where we wanted to buy. So imagine our shock when we realized that this renting business is pretty darn nice. Our rent in this fairly new (big) apartment is a lot less than our mortgage was. No, we won't have the mortgage detuction at the end of the year, but we also aren't paying the interest rate on our old home loan, no home maintance cost, and best of all no property taxes. Now this isn't to say down the road we won't end up buying another house, but it won't be for investment purposes. For investments we will stick to a much more sure return on our money, thank you very much. I think it was our parent's generation that lived the American Dream, but times have changed and so has our spending and moving habits.

[XLadylawX]

A'right, how bout this: Assume your home does not appreciate at all.

You pay a mortgage payment of $1500 per month:

$700 goes to Taxes, Interest and Insurance, most of which is deductible if your income does not exceed certain levels.

$800 goes into principal thus giving you an ownership interest in the property.

This technically means, you are only paying $700 per month for housing and putting $800 into a savings account.

How can this not be the better way to go.

[LittleCityATX]

Those numbers aren't realistic. In Austin, if your total monthly cost is $1500 including taxes and insurance, that implies a loan of roughly $175k of which $210/mo goes into principal at the start of the loan. The tax and interest deduction might save you a bit if you can get your total deductions above your standard deduction (which is somewhere around $11,000 for married couple). If you are a big earner with an expensive house, you'll probably save some in taxes. If you're a middle earner with an affordable house, you probably won't deduct any of the tax or interest.

You are saving $200/mo in principal, but how much does it cost to maintain the house? You have to expect to spend at least $2000/yr maintaining a house. If you're not saving or spending that maintenance money, you're just digging a hole that you will have to fill eventually. You are also less mobile and expose yourself to market risks.

But having said that, owning could be better if renting would cost you a lot more. The thing is, for central Austin, it's often cheaper to rent than to purchase but in the more affordable suburbs it might make sense to buy. I don't want to sound totally against buying, there are reasonable economic reasons to buy in some cases.

[JayBrown80]

Originally Posted by XLadylawX

A'right, how bout this: Assume your home does not appreciate at all.

You pay a mortgage payment of $1500 per month:

$700 goes to Taxes, Interest and Insurance, most of which is deductible if your income does not exceed certain levels.

$800 goes into principal thus giving you an ownership interest in the property.

This technically means, you are only paying $700 per month for housing and putting $800 into a savings account.

How can this not be the better way to go.

Well, if it worked out that way, I could see it being a good deal.

But in reality, if you have a mortgage payment of $1500 a month, then $1450 goes to tax, interest, and insurance, and $50 goes to principal for at least the first 7 years (this is not an exaggeration, although the numbers may not be exact). Plus your example assumes that a person sales their house for what they bought it for, as if no appreciation is the worst case scenario. As many people discovered, the actual worst case scenario is your house being worth MUCH less than what you bought it for.

Then even if you DO manage to sale your house for what you bought it for, you lose 6% in just realtor fees, not counting taxes and titles, plus the taxes you pay for any income you generate from selling your home.

So that's how it is not a better way to go. Someone is not putting the extra into a "savings account" as you say. They are gambling with it, hoping that they roll a hard 7 and not snake eyes. That is the exact opposite of a savings account, and a much poorer investment than stocks or bonds or funding an IRA.

Which is not to say that NO ONE should ever buy a home. If you make a good salary, are willing to live in the house for a good number of years, and have low debt and savings to get you thru any hard times (job loss, illness) then maybe a house is right for you. Or maybe, you just want to own a home because gosh darn it you can get a loan and you don't want to share a wall with anyone. Not everyone likes an apartment. If you want to buy a house just for that reason, then that is fine too. My main argument is other posters on this board implying that owning a home is ALWAYS a good investment. That is simply not true.

It's like a person who wants to buy a new car every 2 years. If that is what they want to do, then by all means go ahead. But don't say it's financially wise.

Also, please don't buy a house where foreclosure is an inevitability. Because that just screws the rest of us over.

[XLadylawX]

Don't forget, to place a value on your housing costs. No matter where you live, you will pay. I would much rather pay $1500 per month for housing and get a mere $50 per month back as equity than I would pay $1500 to a landlord for renting his/her house and get nothing back.

I do agree on the short term aspects though from a strictly investment point of view.

There are other things to consider though. Few landlords maintain their rentals as they do their own homes (at least not how I maintain my home). It absolutely drives me crazy that the blinds in our rental are so cheap, there is visible dry rot on the facia boards of the roof, the upstairs windows of the house have water spot stains on the exteriors from lack of regular cleaning, the grout in the kitchen has become dingy over the last 10 years because the landlord has not kept up with sealing the grout, and the paint is chipped on the address plate.

The little house we are going to buy will likely be a short term home for us but I am willing to pay through the nose to not have to deal with the above. That is the type A in me though. I am proud to say that my homes would easily pass a drill sergeant's inspection.

[achtungpv]

I did the math once on renting vs owning. From memory, I figured that you could rent for 75% of what your mortgage + taxes + insurance + maintenance (2% of home value annually) and invested the other 25% at a return of 7% (ave market return) while the house increased in value @ 2% per year (rent also increased 2% year). There were some other nuances to the math that I can't remember off hand but after 30 years, you would have over $100,000 more than what your paid off house was worth on paper.

[LittleCityATX]

I agree, having your own place is definitely nicer than renting in many ways.

[JayBrown80]

Originally Posted by XLadylawX

I am willing to pay through the nose to not have to deal with the above. .

Then you should definately buy a house. Life is short and money is there to help make you happy. I have no problem with that, I have a problem with realtors suggesting that everyone should buy a house and it's always a good investment. It's not. I pay $15 a month for an online videogame. It makes me happy, but it's definately not an investment. And no matter how I phrase it, I can't convince the DH that it is.

[XLadylawX]

Originally Posted by JayBrown80

Then you should definately buy a house. Life is short and money is there to help make you happy. I have no problem with that, I have a problem with realtors suggesting that everyone should buy a house and it's always a good investment. It's not. I pay $15 a month for an online videogame. It makes me happy, but it's definately not an investment. And no matter how I phrase it, I can't convince the DH that it is.

Agreed!!! Have fun with your online gaming. I myself was addicted to X-Box Live for more than a year. I finally broke the addiction by spending a week in Vegas where I probably lost more than $2 grand at the craps tables. . I love spending money to make me happy.

[eichlerfan]

Originally Posted by JayBrown80

Then you should definately buy a house. Life is short and money is there to help make you happy. I have no problem with that, I have a problem with realtors suggesting that everyone should buy a house and it's always a good investment. It's not. I pay $15 a month for an online videogame. It makes me happy, but it's definately not an investment. And no matter how I phrase it, I can't convince the DH that it is.

I agree. Whenever I hear an agent say it's always better to buy vs. renting is when I feel their motive isn't always pure. I do understand where they are coming from...they want to sell a house of course. However right now we are saving over 1400.00 a month by renting vs. owning. That's not even taking into consideration taxes and maintance cost. Of course if it were a more break even amount we would be looking harder at buying. In the meantime we are living in a very nice and well maintained apartment and investing our extra money in something that is giving us a more sure return on our investiment.