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Old 07-01-2020, 09:27 AM
 
1,824 posts, read 538,296 times
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Quote:
Originally Posted by Igor Blevin View Post
Great point about interest rates. My first home was at 9 1/2%. Big difference from 4%.

My last home was a 15-year loan, and it was wonderful, as 7 years in, you can just see the principal pouring into your home. By 10 years, the interest portion was so small, it was obscene.

After 15 years on a 30-year loan, you are still getting killed on interest. Move after 10 years of a 30 year loan, and you have barely payed down the principal at all. Sucks.

You are still right in that, if all you can swing is a 30-year mortgage payment, and you could not buy a house otherwise, then at 4% interest that is a no-brainer. And you can always re-finance into a 15-year mortgage later as your income goes up.
Our first house in 1977 had an interest rate of 11.5% in those scary inflation times and we were thrilled! We saved the down payment by living on one salary for over a year. Eight years later we sold that 60K house for 170K and put the entire proceeds on a 205K house and actually lowered our payment even with a 15 year mortgage. Since then our house(paid off in 2002) has kept about with inflation and worth about $500K- in suburban Boston. The key was to buy a modest house in both instances. The realtor really wanted us to buy a 300+K house that the bank approved us for. It was tough not to with our big profit but in the long run we did the right thing. Live below your means and you can retire in your late fifties.
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Old 07-01-2020, 09:44 AM
 
Location: West Coast U.S.A.
1,426 posts, read 439,016 times
Reputation: 1966
Quote:
Originally Posted by Coloradomom22 View Post
I did Dave Ramsey's "Peace University". His program is good, but I always disagreed with his super-conservative approach to buying a house. When I listened to him I thought yeah, you are in a cheap area of the US (at the time Tennessee) but good luck following your rules if you live anywhere else that is expensive.

The reality is most metro areas in the US the minimum price for a decent starter house runs on average $400k. To follow his rule of only buying on 15 years/20% down is impossible for most unless mom and dad help you with the down payment. I believe there is no shame to buy on 30 years especially with the low interest rates we have now. The alternative is paying high rent which gets you nothing in the long run. And you can always refi later, or throw extra money toward your principle to pay it down faster.
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Old 07-01-2020, 09:49 AM
 
Location: The Triad (NC)
31,168 posts, read 68,032,467 times
Reputation: 37003
Quote:
Originally Posted by Coloradomom22 View Post
The reality is most metro areas in the US the minimum price for a decent starter house...
...is out of proportion to the income of (who should be) their customers.
That still isn't an excuse for their buyers to over commit themselves.
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Old 07-01-2020, 10:37 AM
 
723 posts, read 568,939 times
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One thing that was mentioned earlier, but has not been discussed more in this thread -- family wealth. LOTS of people get help from their families, and, suddenly, the $400K house is really a $200K house. You can see how this distorts things for those that don't have help.
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Old 07-01-2020, 12:14 PM
 
6,211 posts, read 2,744,084 times
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Quote:
Originally Posted by RJA29 View Post
One thing that was mentioned earlier, but has not been discussed more in this thread -- family wealth. LOTS of people get help from their families, and, suddenly, the $400K house is really a $200K house. You can see how this distorts things for those that don't have help.
The OP is discussing Dave Ramsey’s rules. Many people get their first homes with FHA mortgages that only require a 3.5% down payment and have a 43% debt-to-income ratio with the overall PITI in the range of 31% or so. Now I agree that a $200,000 home is not going to be feasible on $40K without help from parents or significant savings, but a married couple might easily be able to afford that, as could a person who started with a condo, had some profits from a sale, and upgraded to a single family home.
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Old 07-01-2020, 06:32 PM
 
Location: Formerly Pleasanton Ca, now in Marietta Ga
7,567 posts, read 5,200,180 times
Reputation: 10418
Quote:
Originally Posted by Igor Blevin View Post
Do NOT be discouraged that houses are near a peak right now.

Everything cycles. What goes up, must come down. Home prices are very high today. History tells us that the will drop in the next cycle before going up again. I wouldn't not buy today.

But don't be fooled into thinking, because prices are high today, they will never be lower.

I bought my first home in Sacramento in 1984.

By 1987, home prices peaked. People said, "homes will never be affordable again. We missed out".

By 1992, falling house prices were near the bottom. People said, "homes will never be a good investment again.

By 2005, house prices were soaring and people said, "I have to buy NOW before I can never afford a house again!"

By 2011, house prices bottomed out after 5 years without new home starts, and people said, "Houses will never be a good investment ever again".

Do you see the trend here. Do you see how home prices ALWAYS cycle. They always have peaks and valleys.

In 2011, people I know were saying "Millenials won't buy homes. Homes will never go up again because demographics like Boomers dying will flood the market with empty homes."

Right.

Now it is 2020 and home prices are sky high.

Wait for a while, and you will catch the next bottom.
I remember getting advice saying to wait, prices will come down. Well each year I waited they went up
I could have bought at 300k but people said wait, it will come back down. I finally bought at 600k. I bought two houses and waiting cost me 600k.

I am sure they will come down, but how much? What will interest rates be when they come down and will it be worth it then?

Ultimately those houses I bought at 600k dropped down to 550k but quickly cAme back up and are now worth about a million each.

Sometimes waiting for the bottom is like trying to catch a falling knife. Which end are you going to catch?

If you wait will you truly be ahead versus rents rising and no write off?

Just some other things to consider.
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Old 07-01-2020, 11:18 PM
DKM
 
Location: Thousand Oaks, CA
4,725 posts, read 1,673,678 times
Reputation: 4539
If it was easy to buy a home, there wouldn't be millions living in apartments would there?
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Old 07-02-2020, 12:01 AM
 
2,889 posts, read 2,227,967 times
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Shut off HGTV. You should be thinking "starter home." Not mansion. You're 31. We were all 31 once. At 31 I lived in a tiny house with bare bones - nothing you would ever see on HGTV. At 36, I found (after extensive searching) a bigger house but nothing you'd see on HGTV. In retrospect, I could have lived there forever if I didn't move to another city 5 yrs later. By 45 I owned a fairly big house all paid off, but I was making twice the money.

I'll repeat myself - shut off HGTV. It's ruining your taste buds. And with income at 40K a year, your choices are quite limited. And remember - that starter home better be very carefully selected! Those are the homes that are most likely to lose equity. Be very careful there and take your time.

Price? The old rule was 3 - 4X your annual gross income, but I think that meant post-starter home.
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Old 07-02-2020, 01:01 AM
 
83 posts, read 18,248 times
Reputation: 287
When I first bought my house I was paying about 55% of my take-home pay into the mortgage, most of which was interest. Now five years later I pay about 1/3rd of my pay. I also took on a room mate a year ago and that was a huge lifestyle change which I thought I would hate, but it's worked out surprisingly well, so I effectively pay about 1/6th of my income toward housing.



Of course I also pay about 30% of my pay into maxing out my ROTH 401k. If we still have a country in 30-35 years and if laws still matter at that time that's going to be a nice nest-egg to draw from since I've paid taxes on it up front. I have always lived very, very frugally. My only regret is not getting a slightly bigger house and another room for yet another room mate. Too late now, I'll be having a fiancee move in with me once her lease expires early next year.
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Old 07-02-2020, 02:41 AM
 
Location: Honolulu
1,530 posts, read 1,788,336 times
Reputation: 3851
Manageable mortgage debt is certainly better than renting forever. I have no idea what your definition of "high" debt is. Dave Ramsey's views aren't some hard and fast rules to live by. My current mortgage is about 45% of my take home and I'm doing fine. You keep saying you don't want to do this, you don't want to do that, but it's obviously you need to make some compromises to be able to own a home. Usually, if you're going to be there for a while, owning is almost always better than renting.
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