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Buying a first home
jbox:
I don't talk this way about software or computers or other information I know is only picked up by actual extended studies, only about things like gambling and share markets and bank loans because for some reason people decide that the maths is less important then 'their gut'. Why people go out of their way to make home loans so complicated when most people have had car loans and credit cards for years now is apparently well and truly completely beyond me. :dizzy:
Seriously, I don't see any point trying to discuss this if people are incapable or unwilling to stop, take a breath, understand that I am actually pro-home ownership but am also anti-debt, and then keeping clear in their minds at all times an understanding of the difference between principal, interest and savings. If you don't that's fine (it's not my home loan) but please just skip my posts because that formula will be worse than useless for you. As an example, you can't "pay off your interest" any more than you can't pay off your rent. Ever. Now everybody goes "Well, obviously I meant the principal" because moving the goal posts is always a good way to try and weasel out of being wrong. Rent and interest are both wasted money, but they should never, ever, be equal. If they are even close it means either (a) you're being taken advantage of; or (b) you are living on the moon.
AtomSmasher apparently thinks that the rental market in the USA overall is ---Cleveland steamer---, and since I don't live there I don't care if that's true or not. I do know however that if it is true the formula he is bagging actually *agrees* with him that any time rental rates approach (or crest) the expected interest repayments on the equivalent loan then it's time to settle down with Mary-Sue and git to raising the litter of ankle-biters. But even though people can say all kinds of nasty things about someone who chooses to rent while building their share portfolio which they can "take" overseas with them, apparently saying some people get a home loan a few years before they are ready for it makes me "sickening"? :laugh2:
jbox:
--- Quote from: DrewKaree on March 21, 2007, 03:37:03 pm ---jbox lives in Oz and they may not have the same setup
--- End quote ---
Heh heh, yep, in Oz you can always use a spiffy hat to make a "free" withdrawal from your bank account. :)
DrewKaree:
--- Quote from: jbox on March 21, 2007, 09:50:51 pm ---
--- Quote from: DrewKaree on March 21, 2007, 03:37:03 pm ---jbox lives in Oz and they may not have the same setup
--- End quote ---
Heh heh, yep, in Oz you can always use a spiffy hat to make a "free" withdrawal from your bank account. :)
--- End quote ---
See? There's your problem. Over here we have holes we can breathe out of in our "hats". You ain't gittin' enuff oxygen over there on Fantasy Island ;) ;D
shardian:
Had a post typed out, but decided to let jbox lower public opinion of himself a few more notches before chiming in. ;)
Wade:
--- Quote from: shmokes on March 21, 2007, 08:35:39 pm ---...The formula also appears to ignore changes in market value. I'm under the impression that the real estate market tends to perpetually rise in the long-term, with spikes and valleys in the short term, but when the value of your house increases solely because of supply/demand isn't that large amounts of free money that a renter would never see?
--- End quote ---
Not really. The equity built in your house is not really money you can use. You have to live somewhere. If in 5-10 years (or more) you sell your house at a handsome profit, it usually doesn't do much good because you still have to buy another house which also has increased in price. All you've succeeded in doing is getting another loan and put yourself futher from owning your home. In extremely rare cases, people build enough equity to own a home entirely.
It's arguable that your equity can be used to get more loans, and this is true, and a LOT of people do this. However, I'd suggest that this accomplishes nothing positive. All it allows you to do is build more debt. There's no free money in your home equity, unless you decide to become homeless.
Although jbox is abrasive, I agree with his assertion that it's often better to rent+save than buy a house.
My wife and I saved more than she earned for a couple of years and stayed in a cheap, but safe, apartment. (a sacrifice that very few people we know would "tolerate") We put a lot down, and in 5 years have about $150k in equity in our house, which is big (12 room, 4 bath, 2 car garage) and in a very nice neighborhood with slow but reliable growth. Fifteen more years and we'll own it outright (4.75% fixed loan). Eventually we'll probably trade it for a smaller and less expensive place, or split it into more than one home. The reason this will work (aside from illness/death etc.) is we are *determined* to stay in this house and have decided to make the best career possible in this area, versus move a lot to try to further my career. We'll be close to paying our home off when most of our friends are taking new loans to buy their 3rd and 4th homes.
We took advantage of every possible angle (cheapest house in an expensive neighborhood, great interest rate, high down payment, etc.), bought a house with our future family in mind (rather than a "starter home"), and bought at the limit of what I felt I could afford at the time (of course the bank would have gone a LOT further). Fortunately, everything has worked out, my career has gone well and our payment is a small portion of my income (about 15%).
It should be mentioned that it's *entirely* possible to get into a situation where you owe more on your house than you can sell it for. I personally know people in this situation, and they just have to suck it up and keep paying their overpriced house payments. Or, get a big loan / take a huge loss, just to get out from under the house.
Buying a home isn't something ANYONE should take lightly. It is the single biggest expense for most people, and messing it up can seriously screw yourself financially.
Wade
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