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works great until your $500k home is now worth $400k and everything you rolled forward is gone.
In this case at least you still have some equity, because I am assuming that the owner put down at least 20% (the whole point behind my original argument was how one could come up with a larger down payment and thus borrow less). Imo if you can't afford to put down at least 20%, then you have no business purchasing that piece of real estate. When you rent you build zero equity. Furthermore, the fact that the $500k home is now worth $400k is a non-issue unless you intend to sell or take out a home equity loan. If you intend to sell and then buy something else, then it would be reasonable to assume that the new place would also be worth 20% less. So the main cost would be the psychological blow of selling the first place at a low price.
If a renter pays X dollars per month in rent and an owner pays X dollars per month in P.I.T.I, then the owner comes out ahead financially, period. The owner is building equity and getting tax breaks that are not available to the renter. The renter only has the advantage of flexibility.
Real estate is still one of the best investments available to most people, but it is a long-term investment. The mentality of half a dozen years ago where you could buy a place for no money down and flip it for a profit right away because prices would keep going up is what got a lot of folks into trouble. There is no way at all that renting is a better long-term financial strategy than owning.
Except of course that I never suggested that it was "not doable", in fact in my last post I agreed that there are likely to be some lenders that would do this loan depending on the details. I suggested, and it seems that TNEC is as well, that this would be a poor financial move....not that it is impossible.
Nope. Here's something you wrote that is not accurate:
• "The mortgage payment can't be more than 28% of income for a standard loan and the back-end ratio has to be below around 38% which includes property taxes and other debt."
Which you have now admit is not set in stone and has been shown to be off by at least 5% commonly ... and can be even higher.
And it's not what TNEC was saying either ... examples, he said:
• "The problem is that you tried to show how a $500,000 loan was so easily affordable by leaving out many of the costs and not understanding salary versus take home pay. That is how so many found themselves in over their head financially."
• "It is not easy to afford a $500,000 house making $120,000 per year. Well, unless you "ball park" it and squirm around some and then tell others they are being negative when they suggest otherwise. No wait, you still can't afford the house." • " Paying 45% of your income for a house is asking for trouble ."
• "Paying 45% of your take-home income for a house is not smart."
• "Again, do the math with real numbers and explain how you can reasonably afford a $500,000 house with a $120,000 job. ... Otherwise, you are noise."
• "I have run the numbers and they equate to 45% of take home income."
• "Again, as I have said, I have run the numers and 45% of take home income is not reasonable.
It is sad to see your attempt for significance ."
• "Again, 45% of take home income is not reasonable for home ownership costs."
• "Again, 45% of take home income is not reasonably affordable for the average person."
Do we see a pattern here? TNEC insists that a $500,000 mortgage, including T&I, will cost 45% or more of take home pay from a $120,000 annual salary. He says it's not smart, not prudent, and not affordable. Several things are wrong with his statements:
1. the ratios aren't based on take home pay -- they are based on gross
2. the loan costs, including T&I, don't come anywhere near even 45% of take home pay for $120,000
3. whether it's smart or prudent depends a great deal on the individual buyer and his/her intentions
4. it IS, in fact, affordable, depending on other debt and obligations ...
It may not be a great commitment to strap oneself with ... but, for some people, it might be just what they are looking to get into ... given that income generally increases -- and house payments do not ... get it? Of course you won't admit so.
Quote:
Originally Posted by user_id
Also, using real estate professionals and brokers as points of reference makes no sense here, these people have absolutely no interest in people's financial well being.....they make more the more you spend.
This is partially true: most have little to no interest in others' financial well-being. But there are some very successful exceptions ... successful because they are exceptions and tend to get excellent referrals and repeat business as a result. So, in fact, some real estate professionals and brokers DO make excellent points of reference. One needs to find them. I know some. I also know a bunch who suck and I wouldn't ask for directions to the men's room from them.
Quote:
Originally Posted by user_id
This is just one website of no particular distinction.....if you call a bank about standard loans you'll hear the same thing, namely a ratio around 28/38. But some banks may allow a higher front-end ratio, where as some may even be pickier. There is no "standard" algorithm, each lender does things a bit differently...
Of course it's of no distinction in your opinion: it doesn't support your argument ... heh. And yet you admit that what it says is correct ... which has a distinction of its own, no? heh again, you joker you.
Quote:
Originally Posted by user_id
Regardless, I already acknowledged that, though this case is borderline, one could probably get the loan assuming good credit and little or no non-mortgage debt.
Good. So, case closed. Deal is doable. Thanks for the agreement. It means so much to me from you.
Really a few generations ago people had the right idea. Buy your first house with the idea that you will retire in it and live out the rest of your life there. Somewhere along the way people got the idea that you have to keep getting bigger and bigger houses with bigger and bigger mortgages. I bought a modest home with a modest mortgage and plan on spending the rest of my life here.
There is nothing wrong with doing this, but my point was to show how someone of relatively modest means could eventually buy a more expensive home. Imo if you choose to stay put or trade-up, you should try to have your home paid off by the time you retire. I'm guessing that some of these folks who are arguing that renting is a better long term strategy than owning never plan to retire.
Well for people like you who feel that they need to live in a major city like los angeles or san francisco then you are agreeing to pay a premium to be able to live in the middle of the hustle and bustle of the big city. Alot of other people are more than happy to live in the suburbs and save 100's of thousands of dollars buying their homes vs the big city.
Often people move to the cities because that is were the good jobs are, otherwise...of course people are agreeing to pay a premium. But that is besides the point, my point here is that in the big cities in California one is going to be happier when they forget about home ownership.
People, unless they are independently wealthy, don't get to arbitrary pick where they live. Real estate is cheaper in say, Union city, because there are less high paying jobs in that area.
In this case at least you still have some equity, because I am assuming that the owner put down at least 20% (the whole point behind my original argument was how one could come up with a larger down payment and thus borrow less). Imo if you can't afford to put down at least 20%, then you have no business purchasing that piece of real estate. When you rent you build zero equity. Furthermore, the fact that the $500k home is now worth $400k is a non-issue unless you intend to sell or take out a home equity loan. If you intend to sell and then buy something else, then it would be reasonable to assume that the new place would also be worth 20% less. So the main cost would be the psychological blow of selling the first place at a low price.
OK 5thgenSF, I see your point... Why do you need to sell on a down swing? If one is selling and re-buying one can contend there is no loss.. (This applies to me... I will sell in this down market, but will also buy in this down market. I have no mortgage so it does not matter if I bought for $1000 and sell for $1 just as long as I can buy something that used to be $1000 and know is $1. It is just zero's on a fiat currency..)
However! Your situation is different, the banksters are just taking your equity... Poof gone.... Darn hard to buy another house with no equity.
I would suggest you do not sell!!! hold, heck rent it out if you have to move because of work... That brings me to jobs, know days their is no employer loyalty few unions few pensions.... No job security, the work force has to be mobile to stay employed. This makes it darn difficult to buy and hold a house..
Until recently home ownership has been a sound choice... In today's environment it appears very fair to question it!
This is a tangent from the OP's point but a good one.... 5thgneSF is a very good example of what is wrong here with the system...
Criminal banksters, and corporate greed...
I am sorry you are in this situation... One of my Niece's is in the same situation... Taking their check book to closing, tossing away 10's of thousands of dollars worth of their hard earned equity. They have held their home for 5 years, they did everything right, but must move for employment..
This is a prime example of how the concentration of wealth in our capitalistic system works! This is why so many of us "liberals" are so concerned about the concentration of wealth in fewer and fewer hands... This is the point of Occupy Wallstreet so on and so forth..
If "tough love" is the Rx for 5thgensf and the multitudes of others in this situation, then I say fasten your seat belts folks, we are in for a bumpy ride...
This is why through the levers of taxation we need to redistribute the wealth from the top back down... If not Hello Greatest Depression.......
---------------
I am enjoying that you return again and again to dig your hole deeper and deeper ... makes for a good outhouse.
When I exhorted you earlier in another thread to "not lie", this, above, is the kind of thing I was talking about. Let's briefly recap, shall we?
• You are arguing that a $500,000 house on a $120,000 salary is not doable, right?
• You have been shown several ways that it is -- but you continue to deny facts -- and refuse my challenge to use industry calculators.
• You proposed an unrealistic interest rate of 5%, that does not match anything close to market conditions.
• In spite of what user_id claims (3.6% ... which is, in any case, even less than the first scenario I used at 4% to prove you wrong), I have just found multiple loans available -- 30 year fixed, $500,000 for as low as 3% (with high points, 3.5), and numerous providers soliciting for loans at 3.2%, 3.375%, all at various low points. FHA loans as low as 3.15%.
• I proposed a scenario to you that works at 4%, no down payment, just to give you less to rant about.
• You came back with a list of expenses that are not part of the qualification process ... indeed, some of which don't even exist for the majority of home buyers: HOA dues ... and others which can be tightly controlled by the buyer such as utilities and maintenance -- which two are not part of any industry calculation for qualification for the reason I state.
• I responded that if you want to play the "move the goalposts game" I could demonstrate other realistic scenarios as well ... which I proceeded to do by posing a modest down payment (which would be required) and a true market rate, rather than my inflated rate.
I am not unable to argue from the original posts at all, as anyone can see.
I argued by appropriately correcting your false premises ... and backing it up with factual components.
This does not make me frustrated in the slightest. It provides me great amusement.
I am enjoying the hell out of your nonsense.
I have done 12 residential mortgage financings of my own ... had real estate agents and brokers and mortgage brokers -- multiples of each of those professions -- as clients when I was a communications consultant developing marketing materials ... and many dozens of mortgage financings for real estate clients in years past when I actually sold real estate myself for a time (which is why I had related business when I was in communications consulting and development).
I look forward to your continued protests.
Once again, you have adjusted from the original post in order to make your case.
Your noise is not distracting from that fact. You alwways seem to need personal claims to validate yourself. Please, if you can't make the case, don't make it worse by trying to build yourself up. I refrain from doing so, as I do not need to make claims about myself. My argument is strong on its own.
I layed out the numbers and you changed the undelying scenario. It is easy to win when you change the rules as you go along. I tell you what, you seem like a guy who needs an award, so I declare a participation award for you. Throw a party and call your mom to tell her you have participated and received an award.
Null, you always seem to be ready to tell others how smart you are, how experienced you are (to the point it is funny), how much research you have done, and then categorize the poster to be evil in order to feel superior. It gets old and is sad.
Once again, you have adjusted from the original post in order to make your case.
Your noise is not distracting from that fact. You alwways seem to need personal claims to validate yourself. Please, if you can't make the case, don't make it worse by trying to build yourself up. I refrain from doing so, as I do not need to make claims about myself. My argument is strong on its own.
I layed out the numbers and you changed the undelying scenario. It is easy to win when you change the rules as you go along. I tell you what, you seem like a guy who needs an award, so I declare a participation award for you. Throw a party and call your mom to tell her you have participated and received an award.
Null, you always seem to be ready to tell others how smart you are, how experienced you are (to the point it is funny), how much research you have done, and then categorize the poster to be evil in order to feel superior. It gets old and is sad.
Drop it please... You are obsessed with this... I happen to agree with Null's perspective on this... No big deal... Different perspectives are OK...
However, IMO this is a case of bickering about how the chairs should be organized on a sinking ship...
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Devils advocate
Darn hard to buy another house with no equity.
