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Buying a first home
Chris G:
--- Quote from: CCM on March 20, 2007, 05:27:07 pm ---the bank isn't going to give you a loan so you can default on it.
--- End quote ---
I disagree. Banks will loan just about anyone money, especially for a home. It's just a matter of how crappy the rate would be.
BobA:
It is all dependant on the market. The bank can always get its money back in a hot market but in a slow market they do not want to risk mortgages as freely. Where I live there has been 30 to 50 percent increases in selling prices over the last year. Those who held back lost out because the prices increased 50% in a single year for single family homes. The banks were very free because they could not loose and it was cheaper than rent. It is all due to oil boom and the fact that homes here were very low priced until the boom.
Now the prices will probably level out due to the fact that the total debt load is becoming too great. If I can recall the Miami market went thru the boom and there are now alot of developers and speculators who want to walk away from inflated investments. In that market it may not pay to buy if the buy in price is too high. Your choice should be made with a very good understanding of the current market. Books and advice should be weighed agains the current market conditions.
Wade:
--- Quote from: shmokes on March 20, 2007, 03:03:14 pm ---Not really relevant to whether I'll try to buy, but it seems kinda dumb that they wouldn't consider the future earning thing, if just for customer retention. ....
--- End quote ---
Now here's what that doesn't work. Who's to say that your future earning potential is more than any joe blow off the street? Joe Blow could open a company tomorrow, and be a millionaire 6 months from now. Because someone doesn't have a degree certainly doesn't mean he isn't capable of making money. You on the other hand, will have debt already, and there's even the chance you don't finish school or become employed. Factoring what you "might" earn one day would just be silly on the bank's part.
The short answer is you should forget about buying a house for now. I have no doubts that you could find someone to give you the loan, but you wouldn't make any money in 3 years. Buying a home is fundamentally better the longer you can stay in the house. Buy when you see yourself staying in the same house for 10+ years, and do your best to make that happen.
Banks used to only loan 2-3 times current income minus current liabilities or about 35% of take-home pay minus liabilities. Nowadays, banks will loan MANY times current income, they'll even do it on a balloon payment or a reversed mortgage (where each month, you pay only part of the interest, and the rest of the interested gets rolled into the principal - scary!) Basically, you're betting that your property value will increase faster than your black hole of debt! This is why there is a huge housing market bubble and why it's starting to pop, and lots of people are going bankrupt.
Wade
hypernova:
These sub-prime loans (loans for poor people/people with bad credit) ain't helping people out either...
shmokes:
I think I won't buy unless we fall in love with Miami and maybe six months or a year in decide that we should stay long-term, which I really don't see happening. For one thing, I want to live in Paris for at least 2 years, and I want this to happen when Maddy is in the preschool/very early elementary years because I want her to be able to get good at the language very quickly, but I don't want it to affect her ability to perform in school too much and I'd imagine that would become an issue the older she got. So, this further decreases the probability that we will decide to stay in Miami.
I still think it stands to reason that banks look at future earning potential. The way they know that my future earning potential is more than any joe blow off the street is simple: statistics. It's the same way they make all their decisions. When insurance companies set rates higher for teenage boys than teenage girls, it's not because they know that any given teenage boy is going to get in an accident, while his sister will not. What they know is that there's a higher probability of an accident with the boy. Same goes for me. I may end up deciding that lawyers are corrupt drains on society and, in spite of my degree, I want nothing to do with them. Maybe I'll get a job flipping burgers. But this is statistically unlikely to happen, just as it's statistically unlikely that joe blow will start a business and be a millionaire in six months. Statistically, law students would be a much safer investement than joe blow off the street, and banks know this. Hell, even if they end up dropping out of law school they still have at least a bachelor's degree which significantly increases their earning potential.
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