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Post by Arkadi Kuhlmann, CEO of Savings
If you want to own a home, save for it. It’s a simple concept, one your parents most likely subscribed to. Sadly, it’s a message that has been lost in translation over the past several years.
If there’s just one important lesson to be learned from the mortgage crisis, it’s that you should never – ever – trade your future for the instant gratification of owning a home you can’t afford long-term. This financial lesson is finally starting to catch on. Here’s why many Americans agree.
In a recent national survey conducted on our behalf, more than 67% believe that homeownership is still an “aspirational” symbol of the American Dream. But as lower housing prices prompt Americans to look for their dream home, the survey also reveals a lesson learned from the mortgage meltdown: save for a down payment. Of those surveyed, 42% say that larger down payments could have helped ease some of the stress placed on the economy by the mortgage crisis.
You shouldn’t spend money you don’t have, especially when it comes to potentially owning a home. The smaller the down payment, the larger the risk for the customer and the bank. If you save enough money to put 30, 40, or even 50% down, you will get a much better value in the long run. Larger down payments decrease the interest you will pay over the duration of your loan and help you get a lower interest rate.
For a Saver, there is nothing more rewarding than finally becoming mortgage-free. In fact, the survey also showed that homeowners would consider new options to pay off their mortgage quicker. They want home loans that eliminate years of payments and give them the freedom to own their homes sooner.
So if you’re thinking about buying a home, what’s the first thing you’ll think about? We say: if you don’t have enough of a down payment saved or are concerned about your financial situation, take a pass. Focus on things like paying down other debts. Or bolstering your savings so that you have enough money put aside to make a meaningful down payment on a home in the future. Where do you stand? Have you saved up enough money to buy a home?
Tags: American Dream, Arkadi Kulhmann, Down-Payment, Homeownership, Long-Term
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Where was all this common sense 10 years ago? It wasn’t coming from the banking industry or the SEC. Neither has addressed the credibility / responsibity gap as of yet.
Please tell me though how is it that one can save for a home when the price of homes has gone up 4x over 10 years but my pay raise is only about 2% a year?
With interest rates so low, what is the incentive to save? None.
I agree with Tom, those are good ideals in theory. But I live in the Bay Area and it’s not realistic to save $150k for homes here that average $500k… even in the economic crisis.
Besides if people can qualify for an FHA loan, which only requires 3.5% I don’t see the problem with that scenario! I find it kind of irritating when people make these sweeping generalizations about saving down payments when salaries have not risen and the average home prices is 5x’s the average salary in the area.
Pino….amen to you….I was one of the many who almost signed on for one of those “no money down” mortagage deal back in 2005 but after looking at the terms and my financial reality…I called it off. whew!!! but I happen to have a degree in accounting so I understand many of those terms and its implication I had to explain it to my husband several time so he can understand what were about to get into yet I remember my in laws in a recriminating fashion ask me why I didn’t buy the home.
So just like you I disagree with the author, I don’t know want kind of “expert” he is maybe they were a few who felt entitle but the MAYORITY sign on because they were betting on the FACT that every year the value of homes increased like it always had for the last 15 years…so the thinking was when the arm kick in they can always refinance…but the bet went terribly wrong…well we all know what happen next.
Stacy how old are you?!!…many people just cannot get up and move to a place where the housing maybe cheaper unless they can take their jobs, but lets just say they can… Lets say if the people who clean your streets, serve you at your favorite restaurant, protect your children, ring up your purchases, cash your check, install your cable or phone lines follow your advice and are able to take there jobs and move due to lack of affordable housing. You will end up not just paying more for services and products becuase those “whinners” who were willing to accept low paying jobs left….chance are your taxes will also go up, and what kind of community will you end up with? That is why politicians, corporations, big and small companies, social scientists and some of us “whinners” are asking for the construction of decent affordable housing and until then housing values will continue to deteriorate.
I was one of those that put down 3.0% in June 1995, a mortgage rate of 7.9%, for 30 years. Five years later, refinanced at 4.0%. It was through various investments earning high interest the mortgage had been paid off. Having
a government recognized disability enabled me to withdraw before the age of 59 & 1/2 without paying a penalty.
I too majored in Accounting in college and it paid off.
People have to learn money is a business - period. Before the crunch, banks played on the innocence and ignorance of most people and cashed in on it. Well knowing they would fold. Banks don’t lose money they make money. That is why they are in business.
Saving money in an ordinary account is an example of recycling. If you put money in you will not run out of it. If you let it sit there and grow by what the banking system of today calls interest and do nothing else, you will lose it. If you take money, out you will lose it.
Saving money for a substantial down payment is and always been a good idea. In 1995 houses were on the rise and knowing something of how to use money told me it was a 50 - 50 chance it will get paid off. I took the chance and today I am debt free. Where I live the cost/s of homes is stable, construction is less than it was, but, is still moving. Our taxes are going up as the town says it needs more money. There is no state tax, nor is there a sales tax. So they tax the property owner by simply raising the value of property and land. In June 1995 it was $78,000 and now its $134,500. In June of 1995 my taxes were ~ $2,500 and now just under $5,000.
I did not read all the comments… but enough to sense that a lot of people may be missing one of the author’s major points. Owning a home (or a car or having the best health care) is not something people are automatically entitled to, it’s something to aspire for. There was a time when people actually solved their own problems, they didn’t find somebody to blame for them.
Personally, I resent the government taking money away from me so somebody else can buy a house. I don’t mind being charitable, certainly. But the harsh reality is we live in a country where not everybody can and should own a house. We can make the current foreclosure crisis as complicated as we want, but there’s one fundamental reality. People own houses they can’t afford.
I work in the real estate industry. I actually had a call from somebody the other day looking for a house to buy with owner financing because he has several thousand dollars cash. When I suggested he approach a bank about a mortgage he said he couldn’t do that because he was being foreclosed on the house he now owned. (So why not use the cash he’s got to make his payments???)
It is no secret that this country has some serious economic issues… and many of the comments here scratch at some of the symptoms and demonstrate the results. I for one am amazed that we haven’t learned one basic truth: when you find yourself in a hole the first thing you should do is stop digging.
The housing problem boils down to people not living with in there means. It took us years and 5 houses later to have a home paid for, a lot of hard work that finally paid off. We are debt free . Had a home in Fla, decided to sell in April on 2006 hit the market just right, sold in 6 days ourselves for more money than we asked. Moved back to Wisc. (home) and bought new home with money left over. Always had basics needs-but lived within our means.
I certainly agree with the author’s main point — home ownership is an opportunity, not a right. Folks DO have the right to save for a home, but no way should they expect taxpayers to help pay for it.
I do take issue with the author’s suggestion of saving enough to make a 30, 40, or 50% down payment (impossible amounts for most of us), but 20% is certainly an attainable target. Families just have to decide what’s more important to them — designer clothes, new cars, vacations, or saving for a home. After getting married, both of my kids lived in apartments until they had accumulated 20% down + money for curtains, new flooring, painting, etc. Yes, home prices went up while they were saving, but interest rates came down. Fortunately they both bought prior to 2003, so didn’t get hurt by the recent downturn.
Another comment, you don’t need to be an accountant to know whether or not you can afford a monthly mortgage payment. When my daughter and her husband were looking for a home 7 years ago, a lender told them they could afford to buy a $250K house. “No way can we afford that,” she told me, and they settled on a $160K house. I have to wonder how many people would have bought the $300K house knowing up front they couldn’t afford the payment. What were they thinking? Stupid is as stupid does. Unfortunately, Congress now wants you and me to spend our hard-earned money to bail out these stupid people!
i am going to be divorce after the sell of my two family home. I want to take some of the money if possible and purcahse a condo, or a co-op. I do not want a mortagae because I am 55yrs old, and would like to retire at 62yrs or 65yrs. Can anyone tell me which one will be best to buy, since i will be living on one fixed income ? Also, how do I find out about the block of affordable apts most new luxuy condo/co-op have? I live in Brooklyn, NY and they are going to build a stadium within 5 miles from my home. I also live within walking distance to a major park, musuem.,and major public transportation. The outstanding balance is 325,000.. I do not know if i could maintain the u keep of this home on one income? It alson needs about 10,000. in repairs. Your comment/advisor would be appreciate. My true name would be recoginized .
I am so pleased to hear somone fianlly say that homeownship is an opportunity under the right circumstances and not a right. Some years ago, allowed my self to be coerced into purchasing a home that I could nolt afford. Yes, I was able to pay the mortgage and insurance. I did not realize that affordability also meant utlllities,regular building and ground upkeep and the ocassionall big ticket repairs that I had no savings to for. When I announced to my family and firends that I was going to sell my home and move back into an affordable apartment, they looked at me as though I failed. Ten yeas later, I am proud to say that I auto- save $500.00 per month, increased my 401-k and fund my Roth-IRA monthly. Unfortunately some of those same people are stuck in home they can’t afford or sell with no real savings to help them out.
My husband & I just bought our 1st home. Neither of us have ever owned a home, we have always been renters. We did an FHA home and only had to put down 3.5%. We had saved for over a year and had the 3.5% for the down, but when the apraisal on our house came in $25,000 under the asking price, which meant FHA wouldn’t finance the extra, we suddenly had to cover our closing costs. Luckly, we were able to do so. If we had waited until we had 20-50% as a down… we’d still be living in my 700 sq ft apartment and we would have missed this opportunity. We did however, find a house that with insurance, taxes, and mortgage, made our monthly payments just over $100/month over what we were paying for rent. I have always told myself and my family that I would buy a home when I knew I could afford the monthy payments. I kept saying I was going to wait until I thought the prices of homes were more “reasonable”. A friend of mine sold their house at the beginning of the boom for over $250,000 and made a killing, to which they paid off all of their debt, bought 40 acres in Arizona, and put a reposessed moble home on their land. They dug a well, installed solar power, and for the most part, are living a comfortable life with minimal debt. Another friend bought their house in the height of the boom paying over $400,000 for their house, only to lose it a few years later. That same house, was listing at $150,000 when my husband & I were looking.
I do understand that our new (well… new to us) house will cost more in other areas, but my husband & I have a plan. Becasue we are lucky enough to qualify for the $8,000 tax refund, we are using that to pay off my car and clear a credit card or two. Then we will take the car payment and us it to clear out the remaining plastic debt. We have already chosen which credit cards we will keep and which ones we will feed to our shredder. Once this is done, we will save our car payment & credit card payments for “emergencies” that we know will occur. We have agreed to not make any “big ticket” purchases without talking with the other first, and we shop around alot. Owning my home is a dream I’ve had for many years, and now… it’s a reality. A reality I earned.
I agree with the idea of saving for a down payment. We have had an era where in some areas that was very hard or close to impossible, as home prices rose at rates that outstripped ones ability to save. Now the federal reserve has effectively told savers that they are going to pay for the banks (and borrowers) imprudence. Savings returns are close to zero so the banks can return to profitability and write down the bad assets. Some areas have seen home prices drop as fast as they went up, but in other areas (e.g. SF peninsula) prices are not dropping yet, as employment is still relatively strong. The policy of the government and federal reserve is to stop house prices dropping any more. and the people who are going to pay for this are the savers. Since the inception of the federal reserve in 1912/13 its policy has been to debase the dollar and undermine the efforts of savers. In nearly 100 years of the federal reserve the dollar has lost 98% of its buying power, in the previous 100 years it lost no buying power. This current period is just a continuation of the prudent being forced to bailout the reckless.
i got a break or a deal on a house about 10 years ago when my friends mother sold me her home that appaised for about $125,000 for $75,000 because she was mortagage free and did’nt want to hassle with real estate people and had a house she wanted to jump on. i gave her $30,000 profit i just made from selling my last home and financed $45,000.my mortage with taxes and escrow and insurance came to $475.00 a month.every month for the last 10 years i have paid the $475 plus $100 towards principle.this was a 30 year 8%fixed loan.ssince i paid $1200 a year $12,000 towards principle to date that 30 year mortgage has turned into 15 year mortgage as of now and will be a 12 year mortage when its paid off.at the peak of the housing boom the house appraise with all the upgrades i’ve done because i bought well within my means appraised at $270,000.I owe $20,000 and change right now and in 3 years i’ll be mortage free.if the mortgage market comes back this year or never I gotta paid for very nice and getting nicer roof over my head. I was 25 when I bought the house and wil be 37 when it’s paid off.I have a used 2007 hyundai elantra I bought at auction with 20,000 miles for $9,000 cash.$300,000 in a mutual market fund, and about 200,000 in stocks. when bush was elected in 2000 and haliburton was at $8 and change and went to $63 in 8 years i felt like a thief and war profiteer but that opportunity was too obvious to pass up. i came up with enough money to get 1200 shares of that stock.
anyway my father bought $10,000 of chrysler stock when the government bailed them out in the 70’s at $3 a share and sold at $33 a share a few years later.of course that scenario does’nt apply anymore but he taught me the value of saving trading and compounding and always buy your home never rent even if it is’nt your dream home right away .be patient and you’ll get where you want to be or at least close to it.
Hi, Interesting reading.
However, I would to talk with you about my personal disappointment with Sharbuilders and they way I was treated. Its not how ING has worked for me in the past. I wanted to make a small purchase of stock and was told to go to Sharebuildrs and do it for $4.98. Long story short, it cost me about $86. WHen I protested and asked for explinations, I was told that’s how the system work on large purchases. 9,000 shares of a penny stock is not a large purchase in any system. THe Customer Service replies to me sort of told me to stop asking quesitons. This is not how ING has deal with me and my account in the past. Don’t let this group tarnish your fine reputation.
If America loved us, they would copy the way Singapore supplies housing, etc., to its citizens. Everyone works and a percentage is taken out, for a down payment on a home. Insurance is built in, for if you lose your job, and they do not throw you out, so people can come in and strip or squat in your home. You stay in your home and you report to the job, that Singapore has for you. The same for health care. You have to pay thousands of dollars to get a permit to buy a new car. Old cars are not allowed on their streets, and even taxis must be clean and good-looking. They have EXCELLENT Public transportation and they take care of the homeless, by giving them clean dormitory rooms in exchange for working. They have very harsh criminal laws and you are caned, if you are a male from ages 16-55, and you are hung for drugs and murder. Low crime folks, for people understand. You do not live illegally in their country! PERIOD!
They had what would have been a 9-11-01, but they discovered it, and was not worrying about a stain on a blue dress. They “took care” of the terrorist, and they did not keep them in prison for years, for they are deceased.
With skyrocketing FHA volume with $8000 tax incentive, I just wonder how this will end and where it goes. Most of them who are jumping off the fence are 1st time buyers. I also wonder what default rate of VA, something under radar. I wish that tax credit come with mandatory “homeowner finance 101″ with condition to “keep” the house with recapture. Otherwise, default of future FHA may be higher than any estimate. I own a condo, after saved for 20% down & closing costs. It took good years of patience and commitment for the opportunity - certainly I earned, and I am continue to do the right thing for me regardless what else I can put blame on others.
Ok, so I saved $23,000 towards the down payment of our house - I thought my house was a safe place to put my cash investment. My house cost $153,000. That was in 2006.
Now I find out my house is only worth $136,000 and that the equity I thought was there isn’t there anymore.
Save for a down payment? What’s my incentive? I did that and it didn’t do me any good. How did I find out about my home value? Because I called my lender to see if I could refinance to take advantage of the lower interest rates. I have a near perfect credit report, I was told I couldn’t refinance without coming to the table with at least $7,000.
I can pay my mortgage payment, but I really don’t know why I should bother - seems like people can walk away from their homes, declare bankruptcy and start over. Why bother building up your credit.
Homes are for raising kids and cashing-out if you plan to be a gypsy during the golden years. My Mom took a reasonable line-of-credit against the equity of the house to get upgrades on the heating and insulation. Beyond those two purposes, using the house as a piggy-bank.
If you don’t have the down-payment, dont sweat it or do something dumb and get yourself into the modern-day equivalent of red-lining (the sub-prime mortgage). Live and RENT near a good park. It’s good for your child’s socialization, as well as your wallet, rather than give the kids the self-centered obasession of their insulated world, and your wallet the Damocles sword of unforseen financial dislocations.
Savings are important, but for financial flexibility; NOT for the pursuit of a vain, flattery.
Merli
Omaha, NE
Refreshing to hear a bank giving real financial education rather than a sales pitch. I’ve come to really appreciate this aspect of ING Direct. You guys rock! Keep it up.
Dave Jackson, CPA, CFP
Wow.. Great marketing letter. NOTICE… ING is very well known for its Savings Accounts and does not offer FHA mortgages. So here is an article stating that you should SAVE your money (which you can do with ING) for 3-5 years so that you can put down 20% down for a mortgage (as there are no other products available). NOW, once you get your 5yr ARM with ING you will have to come back in 6 years to refi again and pay another 3-5% in closing costs. But HEY! Keep on saving your money with INGDirect and Sharebilder and then get yourself an exotic mortgage that will get you in trouble a few years down the road. Good luck! As a mortgage consultant I have a bit of a different opinion…
Johana, stop the nonsense. This society does not need more whiners like yourself. It is the clueless social engineers like yourself who are totally wrong on this.
Pay more in taxes? It is the “whiners” like yourself that consume all the social services! It is people like Stacey (and me, BTW), that pay for everything that you and people like you consume in society. I have no kids, and my wife and I are both professionals. I commit no crimes, don’t drive a car, and don’t get a pension from my company or the government. All I do is pay taxes into the system to support your Social Security, Medicare, welfare, foodstamps, Section 8 housing, and the rest of the “social safety net” for people like you who chose to study art in college and now whine to me that they can’t afford to life in San Francisco. Try Sacremento, or Tustin! My society would lose little without whiners in it. Kudos to ING for celebrating those who actually save for our own better futures!
BTW, “affordable housing” is a lie, as well. Check out NYC: impossible to find “rent controlled” apartments, and everyone else ends up paying *much* more to subsidize them. Learn some freaking economics: all such laws do is benefit the early entrants (people who have been living in NYC for 50 years, still paying $400/month for those rent-controlled studio apartments, and those myriad illegal subletters).
It would seem that there are a lot of complaints from people about saving for a down payment. I am in agreement with the author. If you want a house, you must save for it. My grandparents did it, my parents did it, and I plan on doing it. Unlike some of my friends, I choose to live in an apartment until I can get the house I WANT and can AFFORD. I don’t buy designer jeans, or designer anything. My car is paid for and I am close to paying off my student loan. I may have taken some Art Appreciation classes, but I also learned how to manage and spend my money. I am an avid listener to. I also choose to be debt free. Imagine, if you were debt free in this economy, there probably wouldn’t be as many complaints. So keep whining…
I think people should live more within their means. I wish I took my own advice years ago. Interest rates are low, so go ahead and buy, but buy a house you can afford on a 15yr mortgage. You have the advantage of getting into the house now without saving, and not paying so much over time. When we really think about it, did my wife and I really a 2600 sq foot house for us an a baby? Not hardly.
As a mortgage officer. I would like to suggest a couple of additional considerations. Saving is important and can really lower your monthy payments if you can avoid PMI (20% down), but equally important considerations are having a 6 to 12 month cushion in savings AFTER the purchase, looking at the stability of your job and maximizing your credit score so you get the best deals out there.
If you are a policeman, teacher or government worker the odds are that even in a bad economy you will still have a job. You can aford more risk than someone in the construction trades or manufactuing… who might loose their jobs in an economy like this.
Couples should strive to live on one salary, rather than ratchet up their spending & debt to consume both incomes. Many things that we feel today are ‘necessities’, really aren’t. We can do with out them and so can our kids! … just like our parents did. I can afford a new car, and would love to buy one; but my 13 yr old Subie keeps working great, despite the fact that the sunroof and radio no longer work. In the mean time I save the $300 a month I would have spent on a new car. When it dies, I’ll buy a new one & pay cash.
If you can afford to buy (money for down & closing costs), have reserves and a stable job, go for it… with the irresponsible spenting in government these days, rates are bound to go up and getting locked in at todays low rates will be a god send!
Good luck!
I had a home that was sold at a considerable reward. I am now afraid to purchase anything with the economy and my very close years to retirement.
Thomas, if you’d read the Product info on ING’s ARM’s you would know that a 5-year ARM has a 30-year amortization period. So, no, you don’t HAVE to refinance after the initial 5 -year period and incur new closing costs. Like I said in my original post, we “lucked out” w/our ING ARM. In our case 7 years ago, we pursued and received the 3.99% initial 5-year rate, followed by 1-year at 4.75%, and now 1-year at 3.0%. Rate can possibly go up a MAX of 2% each year of adjustment, but can’t exceed 6% over the initial rate over the loan’s life. So even if worse would come to worst, we’d be at 5% at next year’s adjustment, but can’t exceed 9.99% at the worst…which would occur 4 years from now at the earliest.
Acajudi, we value personal freedom(s) and personal responsibility more than a “right” to housing and the need for handholding to make it happen. (At least we have so far…)
Perhaps Singapore would welcome your moving there if it’s so terrible being here in the good ol’ USA. That being said, I would appreciate the “swift” punishment aspect of Singaporean society as it certainly would free up some tax dollars we spend providing 3 square meals to habitual criminals.
Patti, you sound like a gal who either needs a pep talk or a course on financial planning. So, if the first, allow me to say: Hip Hip Hooray for Patti! You had the discipline to save for a house, put more than 10% down and are still able to make the payments.
Now, if you need some financial tips, I’ll supply that, too, w/a bit of ethics coaching thrown in. Here’s why you don’t want to stop paying your mortgage:
1. Do you want to look in the mirror daily, knowing you didn’t honor the obligations you promised when you signed on the dotted line?
2. Do you WANT to DECIMATE your great credit score, for it will happen. The blemish could last 7-10 years, depending on the course you take, foreclosure, bankruptcy, etc.. So what?…you might say, for you will now be a happy little renter. Well that’s great, except any future employers, if doing a thorough background check on you, will see your lousy credit and think…that Patti sure interviewed well, and we’d love to hire her, but if she doesn’t honor her financial commitments, perhaps she won’t work in OUR best interests if we hire her. Then you don’t get the job…and you now can’t pay your rent, either.
3. Housing prices ebb and flow…you could be back to your “original” housing value in 3-years. Would that make you feel better? Or another way to think about it…perhaps you OVERPAID when you originally purchased your home. Perhaps you should have done more homework/negotiating when you purchased it. The good news is that you’ll be MUCH wiser the next time you buy a home.
4. Good-bye tax write-off it you revert to being a renter. However, to anyone reading this who is now a renter considering buying…just because you buy a home doesn’t mean you’re going to have more write-off and thus save more income taxes. Right now anyone can take a standard deduction. For the house to matter “tax-wise” your “itemized deductions” would have to exceed your regular standard deduction amount. So…if the sum of your state withholding, property taxes, mortgage interest, charitable donations, etc. do not exceed this, the house won’t matter. If it’s borderline or a toss-up, as you “move down” your amortization schedule and pay less interest and more principal w/each successive payment, your home-buying decision may likely not impact your taxes favorably. Each passing year you’d have less to itemize (unless your property taxes are increasing…which is probably likely.) So it goes to show, there might not always be a clear and easy answer to whether a home is worth it tax-wise. But you at least have to go thru the exercise so you have some confidence buying a home is going to accomplish what you want it to accomplish. And in the end, it’s going to help you build your net-worth. Renting will do nothing to accomplish that, unless rent is so much lower than your house payment and you end up investing the difference and increasing your assets in that manner.
5. If you’re still with me, good for you! Back to the refinancing you tried to do. Do you always give up at the 1st “no?” Try another banker/broker. Be persistent! If that fails…read #6.
6. If you have some room in your budget, and your mortgagor allows prepayments without penalty, then by all means start paying extra on your mortgage…it can be as little as $50/mo to make a difference over time. This extra should be marked “principal payment” on your payment advice so the bank applies it to your account correctly. Have someone run the numbers for you (your CPA or a college buddy who’s a finance major…) or you can probably go to the “mortgage calculator” website of your current mortgage holder and you’ll see the years of payments you’ll eliminate by making these extra principal payments. It’s not uncommon to lop off 7 years’ of payments if you add 1 regular month’s worth of mortgage payments via extra principal payments during the life of the loan (we’re talking a 30-year mortgage here.) For example, your mortgage is $1200/mo; you start paying an extra $100/mo. If you can’t afford the extra monthly payment, but always get an income tax refund, then start putting that toward your mortgage as well as any other financial windfalls (part-time job $, birthday $, rebates, etc.)
7. Good luck, Patti!
Great piece of advice! Once potential home owners (with an adequate down payment) are ready to buy they should keep the following tips in mind when looking for a house:
http://www.scordo.com/2008/11/buying-the-house-that-is-right.html
Best,
Vince from Scordo.com
Thanks for your engaging questions and comments about homeownership. Keep them coming.
Americans – on average – get a new mortgage every 5-7 years. That means they are either continually shopping for a better deal or packing up the family and moving. So if that’s the case, why pay thousands of dollars more in the form of a higher interest rate to keep your rate fixed for 30-years if you’re only going to keep the mortgage for one-sixth of that time? It’s kind of like buying a lot of food at the grocery store knowing you’re not going to eat it all. Don’t overspend on something you might not need.
Do you plan on living in your home for 5-7 years or refinancing in the next 5-7 years? If yes, then a shorter fixed rate term (5-7 years) might be best for you. If no, then a longer fixed rate mortgage may best suit your life and financial game plan. No matter what mortgage might be right, we should all strive to start off on the right foot with equity in our homes and to own as much of it as we can. There’s no harm in that, right?
Hey, the reality is that some folks can never own their own homes. Some folks don’t want to. “Amazingly enough” it is possible to have a happy, vital, and productive life without owning one. Whatever floats your boat…
Pino, I understand what you mean about how not all people who did not pay their mortgage are bad people not worthy of housing. I really think that in high schools instead of having a class where you have to take home a fake baby and feed it and change it when it makes a noise to earn a grade there should be a class on real life. A class where people are taught to try and catch a sneaky mortgage before they ever enter into it. Before this whole housing crisis I though to myself: who in the world would ever take our an ARM? Its like playing the lottery with your mortgage. I know that there are sneaky mortgage companies and loan officers out there but the bottom like is that people need to be more educated in this area and mortgages like ARMs should not even be legal because the only people who will enter into one are either too rich to care or do not know enough about them to say no.
This article completely misses the point.
.
Property tax makes home ownership impossible.
That the state retains ownership of everybody’s property is an undeniable fact. That, homesteaders are not homeowners and that they are just paying rent to the state is an undeniable fact. The owner is the one with the right to acquire possession of property when the renter fails to make payment. That the state has this right because of property tax is obvious.
If you had no idea it was the government demanding payment and not a landlord the only difference you would be able to discern from conventional rent would be the terms of your rental agreement. All the material facts that determine who the owner is and what a renter is remain the same. All arguments which try to prove that property tax is not the logical equivalent of rent are based on the justification of the tax and are irrational from the prospective of what is ownership and what is a renter.
If we are to believe that the state is not the owner charging homesteaders rent we would have to conclude that an owner is some one who has to make payment to someone else or lose possession of their property. This is absurd; a complete contradiction of what is ownership.
Our government needs to quit lying to the people and just come out and admit they are unwilling to let the people own their homes.
The only choice the people have is to rent from a landlord or rent from the state. That anyone can believe that this is a free society is pure insanity.
I’ve been looking at buying a place for the first time this year. The comments have been really instructive to read, and in fact have helped push me toward NOT buying. I pay $500 in rent to share a 3-bed in Boston, one of the country’s most expensive markets (which is incredibly cheap rent for around here, btw). The only way I’d have a mortgage that low is if I moved to the boonies (as in, Maine). So for now, despite the market being the best it’s been in many years and the tax credit, I think I’m going to wait. It’s just not worth it to buy, for me. Maybe if I decide to spend more on rent, at some point–but right now there’s no mortgage that’s going to be cheaper than this!
One comment re: all the people who are calling others whiners–I love how the inclination is to accuse individuals of not being responsible enough, not taking responsibility for their actions, and yet you won’t hear a word from these folks about the banks who’ve just been totally protected from the consequences of THEIR own irresponsible, unethical actions. You could at least be consistent, guys.
Also, teachers are doing a great public service for very little pay, and work more hours than many of us, with afterschool programs, weekend field trips, coaching sports and debate teams, etc. I’d say they certainly deserve a decent salary and to be able to own a home … along with our appreciation and respect for helping to raise the next generation.
Dear Potential First-Time Buyer,
Good for you for realizing homeownership may not always be the best decision. $500 rent/mo is pretty cheap living, esp. in Boston!
I also wanted to counter some of your points. First, we’re all big girls and boys who (hopefully) are literate enough to actually READ the contract we sign. Buying a house is one of the largest financial commitments most people ever make. So I differ from your view that banks were unethical. They provided a product that may or may not have been a good fit for people’s needs. As far as I’ve read/heard, no bankers forced risk of bodily harm to a mortgagee if they didn’t sign on the dotted line. ..so people freely entered into these contracts. So it all comes down to Personal Responsibility. Yes, I know Personal Responsibility has fallen out of favor in our country as of late. It’s so much easier to blame someone else for our “bad luck” or poor decisions. If you can’t read the contract to understand to what you’re committing, then you have no business buying a house. Period. End of story. Plain and simple. Stop blaming banks for people’s ignorance/stupidity/greed.
Finally, of course I value teachers’ work in shaping the next generation. But we all know it’s FAMILY who raises children. Tho’ many might make less than $50,000, I know plenty making considerable salaries and earning a fantastic pension. In our area, it is not uncommon for teachers to earn $80K +…and for school district superintendants to make 200K+. Apparently, some education majors have been able to own houses without complaining about their low pay.
If the greed of the banking system and real estate industry didn’t allow it, the rules would have not been broken. To chastise or look down on someone for taking an opportunity waved in front of them, is pompous and unethical. (To be expected on a banking website.)
Saving for a downpayment is definitely the way to go. HOWEVER, our parents’ generation was able to buy a decent sized home (3 beds/1 bath) for 3-4x annual salary. If you live in a major city, not only are house prices way out of whack with salary - something like 10x - but saving 20% (100K+) isn’t really realistic. Even if you’re very lucky and focused, you probably wouldn’t want to put every cent down anyway. Keep something aside for the unforseen things and because you shouldn’t spend all your money in one place.
I would NEVER put 30%, 40% or 50% down. A mortgage is probably the cheapest money around interest-wise. Another thing: Prepaying a mortgage is not always wise. Here’s an example. Joe USA bought a house in 2005, put 30% down and made an extra payment every year (to leseen the total amount of interest). Joe loses his job and needs to sell his house in this depressed market. Even if Joe can recoup some equity, I’ll bet without giving specific numbers that he wouldn’t get back his initial downpayment not to mention the extra payments. Had he put down less money upfront and saved it, he’d still have that money regardless of what his house sold for.
Today, paying off your mortgage early and saving every penny to the exclusion of living life is a mistake. Our parents’ generation was able to live one salary, retire after 20 years with a pension and travel. I live on one salary too but I go on vacation regularly and have debt besides my mortgage. My point is, if there is one answer for everyone, it’s find the balance between living for today and preparing for tomorrow. Don’t let anyone tell you what that balance is.
Sisa, in your “Joe” example you’re ignoring the fact that if he had put less money down, he would owe MORE on the mortgage at the sale, thus netting less at the closing. Thus all things are even.
The point you should have made is if he lost his job and had put less money down, he would have access to liquidity to get him thru the rough period until he was able to find work again.
I have been accepted twice after making an offer on a house and withdraw each time, I am a good in saving money and don’t like to spend much all seemed very good and it will have been a bite thigh but there was something that was pusing to withdraw and trust me I ma now very happy by the decision I made as I am asingle mom and since my dayghter started kindergarden I had some unexpected expenses for the afterschool program that will have put us completely out of track with our mortgage payment. Buying a house is a big step and saving to put down a bigger down payment is for the only solution , it will take me perhaps 5 to 10 years, I don’t know but sometimes waiting is the best solution.