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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.
You win by living in a home free and clear. In my dreams. The price I paid for being a gypsy. I always wanted to put down roots, pay off a home, and live in peace -- but I chased fun work moving around instead.
You don't win by buying a new home every 7 years, always putting 20% down and squandering the rest. That is not much better than renting if you keep doing that. Some people never learn that lesson. If you sell a home, you want to roll ALL of your equity into your next home, aiming for that day you are free and clear, and only on the hook for maintenance and property taxes. Mortgage free. That is how you win.
Today people are so mobile, and so many people now get laid off in their 40s or 50s and have to downsize to retrain or return to college to start a new career, it is hard to stay in one place until the 30 year mortgage is paid in full.
Life is tough and it is getting tougher. What can you do? You play the hand you are dealt. I am eternally grateful I was able to spend my entire 35-year engineering career with one employer.
Everyone is pushed to take on high mortgage debt, because despite the low interest rates, the prices are getting so high and continue to climb. The monthly payment might be lower, yes, but I don't want to be on the hook for $100k when I only make about $40k a year.
Make more money. Improve your personal human capital so that you can take a job where you earn $120K or more.
Quote:
Originally Posted by whatsgoingon4
Most people I know my age (I'm 31) already have houses around the $200,000 range. It's none of my business, no, but I don't understand how they're able to do that. Either I'm making a lot less than they are or they are scraping by month to month...I only make about $40k a year.
At age 31, you should be making far more than $40K/year. My guess those people to whom you refer make a lot more than you do.
Quote:
Originally Posted by whatsgoingon4
So, do I keep saving until I can get $150-200k in savings, and prices reach even higher or what?
Make more money. Improve your personal human capital so that you can take a job where you earn $120K or more.
Last edited by RationalExpectations; 07-02-2020 at 09:12 AM..
I have around $120k in assets, but I don't want to put all of that into a down payment. It takes around $170-180k now to buy the kind of house I want (3/2/2, relatively new, in good neighborhood). But I'd have to put $100k down minimum plus closing costs to make the numbers remotely work based on the 1/4 rule. And even then it would still be over it on a 15 year mortgage. But I don't want to sink $100k into a house that I can't get back if I need it.
Forget Dave Ramsey, Suze Orman, and all those pundits who are so far removed from the working man's reality that they don't know s--t from Shinola.
You have $120k in assets at the age of 31. Congratulations. I know 31 year olds that can barely scrape up enough for rent and a car payment.
Frankly, I don't see a problem. You want a $200,000 home? Put 10% down and borrow $180,000 for 30 years. At 3.5% (and you can probably do better) your monthly P&I would be $808. Add taxes and insurance and PMI and maybe you're at $1100 to $1200.
You make $40,000 a year. Take home maybe $30,000. That's $2500 per month. After mortgage payments leaves you $1300 to $1400 to live on. Live frugally and drive an inexpensive used car and avoid credit card debt and you'll be fine.
If you want to avoid PMI, put 20% down (you can afford it) and borrow $160,000. P&I $718. Now you're probably under $1000 for a mortgage payment.
Now you have $80,000 in savings. That's still better than most people are doing at your age.
If that's scenario seems too much to handle you can probably buy a decent condo for $150,000 or less and lower your payments even further.
Here's my story. I was 31 in 1977. I was renting a 2 bedroom apartment for $200 a month. Renewal was coming up and the LL raised the rent to $210. No thank you. I called a realtor acquaintance and said "Find me a house." I bought a small, 2 bedroom house on a small lot in an old neighborhood of Phoenix. The price was $27,500. My payments were $237 per month. I was making 10,000 per year at my job. I had a thousand or two in savings. Monthly take home about $650. Was it tight? Yeah, it was tight. I paid a few hundred cash for an old car that I could maintain and repair myself.
I sold that house in 1998. The equity and my savings allowed me to by my next house for $146,000 cash. I lived there for 22 years. Last year I decided to downsize. 22 years with no mortgage payments and my savings allowed me to buy my next house for $238,000 cash. Took me a while to move out of my old house and then I sold it for $375,000.
Like you, I started modestly when I was young. Now I'm retired and sitting pretty in a house that's paid for and have substantial savings.
That's how it's supposed to work.
You don't wait to buy real estate, you buy real estate and wait.
Now, go buy a house and stop thinking about what other people have.
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Quote:
Originally Posted by adjusterjack
Forget Dave Ramsey, Suze Orman, and all those pundits who are so far removed from the working man's reality that they don't know s--t from Shinola.
You have $120k in assets at the age of 31. Congratulations. I know 31 year olds that can barely scrape up enough for rent and a car payment.
Frankly, I don't see a problem. You want a $200,000 home? Put 10% down and borrow $180,000 for 30 years. At 3.5% (and you can probably do better) your monthly P&I would be $808. Add taxes and insurance and PMI and maybe you're at $1100 to $1200.
You make $40,000 a year. Take home maybe $30,000. That's $2500 per month. After mortgage payments leaves you $1300 to $1400 to live on. Live frugally and drive an inexpensive used car and avoid credit card debt and you'll be fine.
If you want to avoid PMI, put 20% down (you can afford it) and borrow $160,000. P&I $718. Now you're probably under $1000 for a mortgage payment.
Now you have $80,000 in savings. That's still better than most people are doing at your age.
If that's scenario seems too much to handle you can probably buy a decent condo for $150,000 or less and lower your payments even further.
Here's my story. I was 31 in 1977. I was renting a 2 bedroom apartment for $200 a month. Renewal was coming up and the LL raised the rent to $210. No thank you. I called a realtor acquaintance and said "Find me a house." I bought a small, 2 bedroom house on a small lot in an old neighborhood of Phoenix. The price was $27,500. My payments were $237 per month. I was making 10,000 per year at my job. I had a thousand or two in savings. Monthly take home about $650. Was it tight? Yeah, it was tight. I paid a few hundred cash for an old car that I could maintain and repair myself.
I sold that house in 1998. The equity and my savings allowed me to by my next house for $146,000 cash. I lived there for 22 years. Last year I decided to downsize. 22 years with no mortgage payments and my savings allowed me to buy my next house for $238,000 cash. Took me a while to move out of my old house and then I sold it for $375,000.
Like you, I started modestly when I was young. Now I'm retired and sitting pretty in a house that's paid for and have substantial savings.
That's how it's supposed to work.
You don't wait to buy real estate, you buy real estate and wait.
Now, go buy a house and stop thinking about what other people have.
Not to mention maybe get roommates to help cover the costs.
One of the problems with Ramsey's house-buying advice is that things have changed. I remember when interest rates were 8 or 9%, now they have gotten as low as under 4%. Having high debt is normal for a lot of Americans which means a conservative home-buyer has to compete. Prices are higher because the cost of getting into that house on 30 years is a lot lower interest-rate/payment wise. Look how you can even buy cars now on 7 year loans.Cheap money has made following Ramsey's conservative never-have-debt rules much harder.
Yeah and it is wrong and very unfair to those who are actually responsible and save their money. But the government keeps interest rates stupidly too low making home prices outrageously high in most areas.
I mean who exactly does that benefit except home builders or the greedy investors hoarding real estate that bought at low prices back and hope to sell 2nd and 3rd etc.. properties for huge profit later. Or the ones who borrow against equity in their own homes for improvements or addons or buying a car or college education.
News flash. A home is a place to live while striving to be rent and mortgage free ASAP so you have peace of mind. Its not a flippin ATM machine.
Interest rates should be high the last 10 years and home prices would be more manageable. For those that only care about the flippin monthly payment. It would be similar or the same anyways with lower home prices and much higher interest rates. Then both sides win. The ones who want a lower balance and nopt be a slave to such high debt or who live frugally and want to save to pay cash by living with their parents or in a tent or cracker box sized 1 bedroom apartment with a roommate.
But oh no. The ponzi scheme continues trying to make people feel rich just because their home is with more and more. News flash. If you actually liver in the home, its not making you any wealthier as if you sell and buy a differnet home, that next home will cost a lot more to unless you find a much cheaper area where prices did not increase (Not likely unless you lived in exosphere expensive even in 200-2012 standards let alone today LA, Bay area, Seattle, DC< Boston, or NYC Metro areas for the past 20 years or more).
Or the greedy ones who hoard real estate hoping to sell it at a huge profit later on. Or the ones who borrow against equity in their home with HELOC loans which I have no sympathy for those people.
It only unfiarly punishes those who want to be responsible and save to pay cash or at the very minimum have a small mortgage with a lower balance they can pay off much sooner. Both sides win that way except for the ones above which I have no sympathy for and really is how we got in this mess in the first place.
Its no wonder people cannot make it today. They only focus on the flippin monthly payment and do not care about the cost of the asset they are buying.
They need to jack up interest rates and let home prices fall to reasonable levels so prices are reasonable. There is much more to affordability than the flipin monthly payment.
Thank god I got my home paid for in cash in 2013 when I was 29 years old by living with my parents to save to do so. Now I do not have to worry about it. But I pity those who think like me in today;s environment propped up by the greedy bankers and FED encouraging cheap and dirt cheap financing while being a debt slave forever!!
You win by living in a home free and clear. In my dreams. The price I paid for being a gypsy. I always wanted to put down roots, pay off a home, and live in peace -- but I chased fun work moving around instead.
You don't win by buying a new home every 7 years, always putting 20% down and squandering the rest. That is not much better than renting if you keep doing that. Some people never learn that lesson. If you sell a home, you want to roll ALL of your equity into your next home, aiming for that day you are free and clear, and only on the hook for maintenance and property taxes. Mortgage free. That is how you win.
The thing about buying a home every few years is the closing costs, so you don't want to be buying and then selling your home every few years in most circumstances. I do not agree with your assertion that you should roll ALL of your equity after you sell your home into your new home. Where's the logic in that? If your money can be put to better use than paying off the mortgage then you should invest for a higher rate of return than just rolling the money into your new house. Being mortgage free is a nice feeling, as I've done it myself, but it's not some kind of end all to be successful. Currently I have a mortgage that I doubt I'll be paying off early unless I sell my place and I see nothing wrong with that.
The thing about buying a home every few years is the closing costs, so you don't want to be buying and then selling your home every few years in most circumstances. I do not agree with your assertion that you should roll ALL of your equity after you sell your home into your new home. Where's the logic in that? If your money can be put to better use than paying off the mortgage then you should invest for a higher rate of return than just rolling the money into your new house. Being mortgage free is a nice feeling, as I've done it myself, but it's not some kind of end all to be successful. Currently I have a mortgage that I doubt I'll be paying off early unless I sell my place and I see nothing wrong with that.
I agree with you 100%. I want the biggest mortgage I can get right now at the lowest historic rates.
I can then invest the money into the stock market or other investments that will yield higher rates than the fixed historic low mortgage rate, which is also tax deductible.
One can fool themselves into thinking they own their homes free and clear. Try not paying property taxes or HOA dues for a few years and see what happens. Or do zero maintenance on the house and see what happens over time.
It's an illusion that having no mortgage on the house is superior.
When rates are this low, I want the biggest fixed rate mortgage. That way, should the worst happen, the economy comes crashing down, I can walk away from the house in a short sale, foreclosure, IF FORCED TO, due to job loss / move / some other unavoidable factor, and the bank will share the loss with me.
If you own the house free and clear, and you are FORCED to move (family illness, job loss, etc), you have no choice but to sell your house for pennies on the dollar.
In many ways, it's far far safer to have a mortgage and excess liquidity / investments, than a house with no mortgage and very little liquidity / investments.
Back in the last housing recession, I refinanced my house, and took the extra cash out and put it into the stock market.
Not only did my house double in value since then, but the money I borrowed at a ridiculous 3% rate doubled in value in the stock market. Win-Win.
It's foolish and old school to think not having a mortgage is superior.
OP when evaluating your first home purchase financially do not make the mistake I did. I bought my first home ni 1973. Wife and I both had good paying jobs in Houston Texas when Houston was unknown and low cost. We bought a home where the payment would be similar to the rent we were paying. So we bought a nice older but close in small first home. The realtor wanted to show us homes costing 25% more but I insisted on the lower price so we bought a small first home.
I did my own taxes at that point and the first year of taxes after buying opened my eyes to the value of the interest and property tax deductions. Turns out I could have bought the home the realtor pushed us to consider if I had taken tax savings in account on that first home purchase. Those were times when home prices were soaring in Houston so we left a lot of equity on the table but buying that $28k home not $35k home a larger home in a nicer area. Be sure you know how interest and proeprty taxes impact your federal income taxes and state if you live in a state income tax location
Why are you set on a 15 year mortgage? If you plan to live there a long time, just get a 30 year mortgage. That lowers your monthly cost significantly.
This is my question, too. Why a 15? Sure, a 15 year offers a slightly better interest rate and yes, you're done in 15 years. BUT, most mortgages don't have a prepayment penalty (and don't get a mortgage with one), so you *can* pay off a 30 year mortgage in 15 years if you want to. The benefit is that the minimum due each month is less, so that gives you some leeway. Some people intentionally pay just a little more each month -- or they set it up so they pay every two weeks, so they make 26 payments, rather than 24 payments (or pay the monthly equivalent).
I haven't heard the 1/4 rule -- I'd always heard it as 1/3, although many people, especially in high real estate cost areas, pay more than that. The real relevant measure is what you'd have to otherwise pay in rent. If your monthly mortgage payment is equal to or less, or even just slightly more than you'd pay in rent, that's one factor in favor of getting a mortgage. The principal amount isn't really all that meaningful -- the monthly payment is the primary factor in your ongoing financial obligations. The key variable is interest rates, and there is a huge difference between paying on a 9% mortgage versus a 2% mortgage.
Lastly, it's not like you never have access to that equity you're building. You can access that equity if you must, through home equity loans/HELOCs, or by selling. Real estate is an asset. So, yes, the value of the asset can fluctuate, but the overall curve in real estate is upward -- they're not making any more land, and the population continues to expand. People will always need places to live. So, sure, look out for bubbles and artificially inflated prices due to speculation. But real estate is one of the more solid investments you can make. Plus, you have to live somewhere. There is a cost -- either you're renting, or your paying the mortgage. Or you're living with Mom or mooching off someone, and there is a separate cost to that.
OP: It sounds like you are 'chasing the market' and hoping to catch-up ... with no change in your financial situation. In a normal market, which we've had for most of the last 50-years (except for 2007-9), that's pretty difficult, since "a rising tide, raises all 'boats'".
If you ever plan to be a homeowner, the better option is to get-into what you can afford now, then allow normal market appreciation to help you 'keep-up' That's how most young people (without an inheritance) manage to move-up in home value. Options to retain some sense of liquidity in your savings might include a line-of-credit or a lease-purchase option. A third might be a 'fixer-upper' if you are at all handy with tools and renovations.
In any case, you are pricing yourself out of the market by simply hoping to save enough to get into a rising market ... 'sometime in the future' (without a significant change in your income).
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