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-some people plan on moving often, so they do not want to buy
-some people just moved to an area, and want to rent first then buy
-some people do not have the credit and/or upfront funds to buy
-some people just do not want to own anything of significance like a home
-maybe your friend got a great value on the house, such a home of value does not exist in the neighborhood that would have such low payments
Rent has to cover the mortgage and other costs. If the rent is covering the mortgage and other costs, then the tenant who can pay the rent, can pay a mortgage.
That's a rather sweeping assumption. In some markets, rent is substantially less than the "mortgage and other costs", but it's still a reasonable proposition for the landlord. Why? Because the house is paid off, and appreciating fairly well. It makes sense to keep it, rather than selling and plunking the proceeds elsewhere. So long as the rent still covers the taxes, maintenance and insurance, it's an OK deal for the landlord. Meanwhile, the tenant is paying potentially far less, than what it would have cost him, to buy.
This is especially true, in multi-unit dwellings. My current (new) locale is dotted with apartment buildings of maybe 3-10 units. Often the landlord lives on-site. The rent is far less than the monthly cost of buying anything comparable, but at the same time, the landlord makes a tidy income. Both landlord and tenant benefit. Neither is getting bamboozled. Neither is misinformed. Instead they both benefit, from economy of scale.
The chief problem with owner-occupied dwellings is the same problem as growing one's own vegetables or doing one's own car-repair. Yes, it is viscerally satisfying and so forth. But one finds oneself on the opposing-side of economies of scale. A mega-farm can grow cucumbers or carrots much more efficiently than I could. For me, cucumber or carrots might be a hobby, but it's a lousy business proposition. It is better to "rent" them, by buying them at the grocery store.
As a soon-to-be-former homeowner, I discovered the hard way, how prickly and onerous is the task of doing everything myself. Sure, I could hire plumbers and carpenters and foundation-contractors and so forth, but that is very costly. So is trying to do the work myself. But a landlord managing a block of apartment-buildings has economy of scale. The plumber and carpenter and so forth might even be employees of the management-company.
Simply put, home-ownership is costly! The mortgage is only a part of the costs. Even if a completely paid-off house fell from the heavens, with a title in my name, there would be substantial costs of just keeping the place viable. Those can be higher than the cost of renting.
With 3% down loans widely available, the downpayment on a $40k house is one month's rent, so that's a moot point.
So, is the main reason for renters choosing to pay 50% more per month because no one will lend to them?
Do you have actual examples of cheap fixer upper properties which need lots of repairs that people with not so good credit can buy with 3% down and get 4% interest? I have bought and flipped lower end properties for years and I really don't see many examples that you are describing.
Properties that you are describing are often cash only deals or owner finance where the terms are 25% down and much higher interest rates. The cost of foreclosing on such a property would be thousands of dollars. I don't see how any lender would sell to a person with bad credit with just a months rent as the down payment.
On top of that there have been endless news stories about the fact that half of all Americans barely have a few bucks to their name. So $15k in repairs on even a very cheap home purchase is way too much money for half or more of America.
If he self insured, I would imagine that he did buy it himself. Banks are not likely to allow people to self insure.
This thread just doesn’t make sense to me. Do you mean actually live in the place himself?
No, the owner paid cash $40k and cash $15k to rehab.
Owner rents it out for $1100, but does not carry insurance, which is why the number artificially work for him.
Non-cash buyer can not do this.
This thread was "solved" in by post #16.
I am satisfied with several of the excellent replies from this thread.
Location: Stuck on the East Coast, hoping to head West
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Quote:
Originally Posted by ohio_peasant
That's a rather sweeping assumption. In some markets, rent is substantially less than the "mortgage and other costs", but it's still a reasonable proposition for the landlord. Why? Because the house is paid off, and appreciating fairly well. It makes sense to keep it, rather than selling and plunking the proceeds elsewhere. So long as the rent still covers the taxes, maintenance and insurance, it's an OK deal for the landlord. Meanwhile, the tenant is paying potentially far less, than what it would have cost him, to buy.
This is especially true, in multi-unit dwellings. My current (new) locale is dotted with apartment buildings of maybe 3-10 units. Often the landlord lives on-site. The rent is far less than the monthly cost of buying anything comparable, but at the same time, the landlord makes a tidy income. Both landlord and tenant benefit. Neither is getting bamboozled. Neither is misinformed. Instead they both benefit, from economy of scale.
The chief problem with owner-occupied dwellings is the same problem as growing one's own vegetables or doing one's own car-repair. Yes, it is viscerally satisfying and so forth. But one finds oneself on the opposing-side of economies of scale. A mega-farm can grow cucumbers or carrots much more efficiently than I could. For me, cucumber or carrots might be a hobby, but it's a lousy business proposition. It is better to "rent" them, by buying them at the grocery store.
As a soon-to-be-former homeowner, I discovered the hard way, how prickly and onerous is the task of doing everything myself. Sure, I could hire plumbers and carpenters and foundation-contractors and so forth, but that is very costly. So is trying to do the work myself. But a landlord managing a block of apartment-buildings has economy of scale. The plumber and carpenter and so forth might even be employees of the management-company.
Simply put, home-ownership is costly! The mortgage is only a part of the costs. Even if a completely paid-off house fell from the heavens, with a title in my name, there would be substantial costs of just keeping the place viable. Those can be higher than the cost of renting.
All of this is exactly why I sold and rent now. Even ignoring the mortgage, when I ran the numbers it just didn't make sense to stay: property taxes, rising insurance, HOA fees (and the HOA maintenance lists that I had to pay for), and looming expensive maintenance costs and updates would have cost more than market rent in my area.
I also amortized the down payment + buying and selling costs + maintenance costs (I didn't even include upgrades) over the years I owned my house and I barely broke even with what I would have paid over the years in rent. Also, that's ignoring opportunity costs: lost gains on my downpayment had I simply invested it in an index fund, jobs I couldn't take (I had an awesome offer across the country) because I couldn't afford to sell. It also ignores the headaches of dealing with a horrible neighbor, etc.
Flexibility is priceless. Knowing I can move on a whim (for a better place or a cheaper one or to be near family or to experience beach living...or desert...or....you get the idea) is soooo freeing.
Properties that you are describing are often cash only deals or owner finance where the terms are 25% down and much higher interest rates. The cost of foreclosing on such a property would be thousands of dollars. I don't see how any lender would sell to a person with bad credit with just a months rent as the down payment.
.
Says here you can get a mortgage loan for as low as $25k, if you have 3% down.
In your experience, what is the bottom end range of what mortgage amount banks will write?
That's a rather sweeping assumption. In some markets, rent is substantially less than the "mortgage and other costs", but it's still a reasonable proposition for the landlord. Why? Because the house is paid off, and appreciating fairly well. It makes sense to keep it, rather than selling and plunking the proceeds elsewhere. So long as the rent still covers the taxes, maintenance and insurance, it's an OK deal for the landlord. Meanwhile, the tenant is paying potentially far less, than what it would have cost him, to buy.
This is especially true, in multi-unit dwellings. My current (new) locale is dotted with apartment buildings of maybe 3-10 units. Often the landlord lives on-site. The rent is far less than the monthly cost of buying anything comparable, but at the same time, the landlord makes a tidy income. Both landlord and tenant benefit. Neither is getting bamboozled. Neither is misinformed. Instead they both benefit, from economy of scale.
The chief problem with owner-occupied dwellings is the same problem as growing one's own vegetables or doing one's own car-repair. Yes, it is viscerally satisfying and so forth. But one finds oneself on the opposing-side of economies of scale. A mega-farm can grow cucumbers or carrots much more efficiently than I could. For me, cucumber or carrots might be a hobby, but it's a lousy business proposition. It is better to "rent" them, by buying them at the grocery store.
As a soon-to-be-former homeowner, I discovered the hard way, how prickly and onerous is the task of doing everything myself. Sure, I could hire plumbers and carpenters and foundation-contractors and so forth, but that is very costly. So is trying to do the work myself. But a landlord managing a block of apartment-buildings has economy of scale. The plumber and carpenter and so forth might even be employees of the management-company.
Simply put, home-ownership is costly! The mortgage is only a part of the costs. Even if a completely paid-off house fell from the heavens, with a title in my name, there would be substantial costs of just keeping the place viable. Those can be higher than the cost of renting.
Quote:
Originally Posted by bande1102
All of this is exactly why I sold and rent now. Even ignoring the mortgage, when I ran the numbers it just didn't make sense to stay: property taxes, rising insurance, HOA fees (and the HOA maintenance lists that I had to pay for), and looming expensive maintenance costs and updates would have cost more than market rent in my area.
I also amortized the down payment + buying and selling costs + maintenance costs (I didn't even include upgrades) over the years I owned my house and I barely broke even with what I would have paid over the years in rent. Also, that's ignoring opportunity costs: lost gains on my downpayment had I simply invested it in an index fund, jobs I couldn't take (I had an awesome offer across the country) because I couldn't afford to sell. It also ignores the headaches of dealing with a horrible neighbor, etc.
Flexibility is priceless. Knowing I can move on a whim (for a better place or a cheaper one or to be near family or to experience beach living...or desert...or....you get the idea) is soooo freeing.
I too am a current homeowner giving serious thought to the same. My housing costs keep going up and up. The loan part of the mortgage payment stays pretty much the same but rising home values are taxing me to the Nth degree and my HOA fees go up every year. I am paying $400 more a month than I was when I bought the place 11 years ago. And my salary has not kept pace. And that's not including repairs and maintenance costs. This year was partially brutal as I had a leaking window that had to be replaced and damage fixed. And then the fridge broke and had to be replaced. And then the furnace needed repairs.
I am a single mom, but my daughter will be off to college next year. I can afford two of the three: housing costs, saving for retirement, helping my daughter pay for college. On top of that, my mother was diagnosed with Parkinson's a few years ago and she is getting worse. She really needs someone to live with her and keep an eye on her.
I plan to sell my house soon after my daughter graduates and move in with my mom as a room mate and split the bills with her (she owns the house, so no mortgage, just taxes, upkeep, and utilities and she only wants me to split utilities and groceries with her). This allows me to free up quite a bit of money to help my daughter with college. It's win/win for everyone. Mom gets help around the house and someone helping her pay bills and my daughter gets help so she's not buried in student debt. And I get to feel good about it all. All the while I will still be maxing out my 401k and IRA.
I should get about $210K-$250K from the sale of my home after taxes, fees, closing costs, and all that stuff from selling. I'll probably set aside 20% in something safe like a money market account and the other 80% in either a total stock market fund or index fund and let it grow.
I don't know what I will do when the day comes when mom passes away. I think my brother hopes I buy her house and live there, but I don't know if I want to do that, buy a completely different house, or maybe even just rent. I figure I have a few years to figure that out.
Says here you can get a mortgage loan for as low as $25k, if you have 3% down.
In your experience, what is the bottom end range of what mortgage amount banks will write?
Actually your link shows Navy credit union doing $10,000 loans. I can't imagine there are many $10,000 homes out there that are not total rehab projects. Even in the very cheapest markets.
I have heard stories from people trying to get small loans and you often get turned down for the lower end loans. Lenders really do not want to deal with it. I would like to actually hear from someone who got a $25k loan with 3% down and a low interest rate.
From your link:
“Lenders and loan officers get paid (and) how they’re paid is via interest payments,” Becker said. “So if you have a smaller loan amount, there’s going to be less interest. It takes as much work to close a $100,000 loan as it does a $400,000 loan, and to service it.”
I pay cash. You get better deals and close faster. Lots of cash buyers out there especially on the lower end properties. I have ways of finding off market properties. Almost never use a real estate agent. As long as you use a title company and get title insurance its easy and safe.
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