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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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We took the opportunity to save up, bought a foreclosure, fixed it up, and then ultimately got a great home for about 30% of my income. Then, our mortgage was transferred to Bank of America, and our experience has been HORRIBLE! — We figured, why not re-fi with ING. The only problem was that we do not have 24 months of previous credit experience ?!?! So, regardless of a great credit score, solid payment history for all of our lives, ING has a policy that we have to have debt (a.k.a, credit) in order to get more debt (or simply re-fi what we have). - There is a bit of a disconnect between what you suggest in this blog, and what your company expects via financially unsound policies on the mortgage side.
What got people into trouble were lax credit standards and adjustable rate mortgages (sometimes even with negative amortization)…..and that they started looking at their homes as piggy banks. If you know where you want to be, and if you can find the appropriate place that you won’t outgrow for at least 5 or 10 years, whether to buy or rent is purely a financial calculation. And, in the US, there are tax benefits to buying rather than renting, but it is not a sure thing that those won’t go away one day. However the main factor still comes down to whether you want to stay in the same town or the same size residence for the forseeable future, and what are the relative costs. And remember that rents tend to go up over time, while buying with a fixed rate mortgage will keep your costs from rising as quickly.
When I ran the numbers on whether to buy or rent an apartment, the after-tax cost worked out to be roughly the same, so I decided to buy. Rents did increase over time, and even though they’ve pulled back a bit, I’m still ahead of the game with my fixed rate mortgage.
Amen to that title!! And I like the idea of being mortgage-free, too. Hopefully within the next few years….
Thank You Thank You Thank You for your candid statements about how destructive the entitlement mentality is to people, business and the country.
This whole article is either 1) a half-baked advertorial slapped together by INGBank’s marketing weasels, or 2) a breathtakingly ignorant take on the needs of real Americans who work hard but are increasingly struggling to get by. I agree that people should not spend money they don’t have, but the subtext of this blog entry is that people blithely buy homes they can’t afford. Nothing is mentioned here of the very real problem of people being duped by unscrupulous mortgage providers, of which ING is no doubt among them. The subtext of this article is that if you can’t afford a house, you are less worthy as a human being. All human beings are worthy of decent housing. By the way, I am a homeowner, and I finance all of my long-term purchases through my credit union—not banks. I would add to BJ’s statement that entitlement is also rampant among large corporations, including GM, AIG, Bank of America, Chase, etc.
Totally agree with headliine of this blog. Five years ago, when my rent grew to a point where I thought that I might as well buy a house, I went to my bank to see what I could afford when looking for a home. My bank (not ING) approved me for $249,000 + my downpayment of $20,000. My salary at the time was $49,000. Luckily I had enough brains to realize that the payment for that loan would be my ENTIRE take-home pay. I find it hard to have sympathy for those folks who didn’t think it through when they were approved for zero-down, interest-only loans and now find themselves unable to pay.
If the banks are willing to take a risk of a 0% down loan, then people should take it (provided they can afford those payments). It is completely legitimate business sense to get as much money for what is most likely going to be the lowest interest rate people will have. There is not a profitable business out there that doesn’t use the same approach. It also removes the owners risk. If the property value falls, and you dont want to live there anymore, it is the bank fault for taking that risk. Now I do agree that if you have money down, you can get a lower rate, but lately, the amount down is not worth it. If you have 20,000$ you can put down on a 100,000$ loan, (making the loan 80,000$ vs lets say 95,000$ that an eighth or quarter of a percent can be made up by the even 2 or 3% returns you can get right now by continuing to save it.
As a result, the problem is not that people didn’t save, its that they bit off more than they could chew, and the banks allowed it. Also, what happen to all the PMI that people are paying to help prevent a bank from going under for taking risky loans??
I totally agree, and thanks for being so candid. Unfortunatley there are too many politicians that make people think they are entitled to everything that everyone else has and it is unfair if some people have more than others. Hopefully people are waking up to the fact that the government is not responsible for redistribution of wealth (or the hard work and success of others). If you want something, you have to work hard and earn it.
Have to disagree with Matthew on one thing. The main advantage of more money down is not the lower rate, it is the less total interest over the life of the loan! In your example, you talk about an 80k loan versus a 95k loan and argue that the slightly lower interest rate (say an eighth or quarter percent) doesn’t make up for 2 or 3% returns you can get for the 15k difference if you saved it. But that is terrible financially — presumably the loan interest rate is more than 3%, so you are taking a loan of an extra 15k at 5 or 6% or whatever, just to save that same money at 3%?!
The reason people take the lower down payment is simple — they don’t have the money on hand, not because they are investing it at a better rate than their loan interest.
I do totally agree about the PMI — if that were priced accurately for risky loans (and people saw that large amount in their payments!) there would have been a lot less of these loans and the ones that went bad would not sting as much. But as it is it’s just like free money for the lenders and mortgage insurers.
People should learn to live within there means. People do not understand this simple concept: you make x amount of dollars, you save x amount and save the rest. So in the future you can buy a home. People bought home(s) with money they don’t have or bought a home beyond what they can afford. People do not even plan to have emergency funds, “just in case.” The government should not have bailed out the people and the banks that got rewarded for there risky business practices and personal financial decision. Buying a home is an investment and not a right. Its not a guarantee that the home will appreciate. We live a society now where people think they have that right or are self deserving. People bought homes with money they don’t have and then they then took out lines of equity on the homes they did not intend to pay back. They believe It is just their right because they are self deserving. It is a sad situation to see families displaced and people losing there homes but they should have planned for unfortunate situations. Buying a home is an opportunistic event in which you decide if you have the capital to get a loan to purchase a home only after 30 years or so. But this my 2 cents. But in the end people probably thinking what the govt is going to do for me now since they want or looking for a bailout..
Take no responsibility, blame others, I deserve it, take from others that have, bail me out, take care of me, spend everything you make, live for now, I am going to win the lottery, give up freedom for security Americans
I have purchased three home in my life, none of which I could not afford. I worked to pay for them, by saving. The Government did not have to bail me out. The only protest I have is taxes. over a 17 yr period the taxes increased to more than the original house payment. The only improvement by the county was better street lighting, as the taxes went higher & higher. Home ownership is an opportunity not a right. Don’t make me pay for some one else’ greed.
Lets also remember a home is only worth what someone is willing to pay. There is so much greed in the housing market today. A home use to be a place to live first and an investment second. Now it is an investment first! It is terrible that so many people get caught up in purchasing property for investments, which drove the prices out of reach for those just wanting to own shelter to live. House flippers are the worst and the TV shows that made them reality TV stars. I believe money should be earned by hard work and not by profiting from someone needing a place to live. What has happened to peoples morals. We all need to think first, do what is morally right, avoid greed and all of mankind will profit. And do not get me started on the greed in the stock market. The day traders are the same as the house flippers. As long as these fast money opportunities exist the greedy ones will take advantage of them.
I agree too. However don’t blame the borrower’s exclusively. The Banks made money writing the mortgages, bonds were sold around the world as AAA when they were under colateralized, municipalities raked in higher property taxes on over valued property and the politicians in Washington looked great promting home ownership at 125%, no down payment for home ownership through Freddy and Fanny Mae. Home ownership is a privelege and a responsibility by ALL the parties involved. So tell me Mr Kulhmann, what has changed? What have we done to protect ourselves from repeating history?
@Kevin We realize this can be frustrating. It sounds like you’re doing all the right things and beginning to develop a solid credit history. But credit history – although not perfect – is one of the ways we lend responsibly and determine if a consumer has managed their debt well. We want to make sure they can make on-time mortgage payments and keep up with other expenses at the same time. That’s another reason why we ask homebuyers to make a significant down payment. It reduces the overall cost of the mortgage. Here are some tips for boosting and protecting your credit: http://home.ingdirect.com/privacy/privacy.asp?s=TakeCharge and hopefully we can better assist you in the future when you have more credit history. Best of luck.
ING only offers variable rate mortgages. This is a riskier proposition than a fixed rate mortgage. Yet this blog entry is talking about buying a home and minimizing risk of not being able to pay. With a variable rate mortgage, there is no guarantee you’ll be able to pay. Risk on a variable is minimized for the lender, not borrower. Generally good advice, but the ING marketing department made a convenient omission here. I expect more from ING which is generally very straightforward in their dealings.
I like this article a lot and I agree that the larger a down payment you make the less risk you take and the bank takes of actually being able to afford the mortage. I know this is going to sound very out of the box, but we should do away with mortages and instead all homes should come with the option to buy like leasing a car. Especially for new home buyers, this may work out better, because they are a lot of cost associated with owning a home, that buyers are usally not prepared for. When you rent an apt. you don’t get a real feel as to how much your oil/ gas/ electric/ water/ appliances/ house repair / expenses are going to be like. My father always said, if you don’t have all the money or can’t pay the bill in full don’t do it.
I agree with Karen, Amen to that title!!
What happened to the rule that your house payment INCLUDING taxes and insurance (homeowners & assoc fees if applicable) should be NO MORE than 20% of your annual salary. That takes the price of the home and your down payment out of the equation.
NO MORE THAN 20% means LESS THAN 20% is better and maybe more realistic. I too had lenders telling me they could approve me for “X” dollars which was two or three times the 20% rule. This was in 2001 when home prices were just beginnig to skyrocket. I could do the math, I knew I couldn’t possibly afford what they wanted to lend me.
It is too bad too many lenders out there were given rules to work that were not realistic allowing them to qualify buyers who weren’t. But COME ON! the buyer must take some responsibilit, do your homework!
Dave Ramsey says it best, “Act your wage”! Live within your means…save up for things…have an emergency fund…if you need more money, add another job or train/educate yourself for a better paying job…The American Dream is alive and well!
There are so many people that believe they are entitled to owning a home that they cannot afford. While I was saving every dollar I could for a downpayment my friends were out buying $500 handbags. When I purchased my condo in the NYC area, all my friends were wondering how I was able to own a condo when they could barely make rent. Most of them made much more than me, but saved very little. It is not how much you make, it’s what you save and how much you live within your means. So many people are looking for a free ride and instant gratification. They are not willing to work and save for the years that it takes to afford a home.
My question is how the $8,000 tax credit works into all of this philosophy of “You shouldn’t spend money you don’t have, especially when it comes to potentially owning a home”. The government is giving people $8,000 to buy a home, so people will take that into consideration when they are looking at the down payment or fixing up the house. To me it seams to only encourage people to buy a house that may not be ready yet just so they can have an instant $8,000 in their pocket. This only will make taxes in the future even higher and more potential risky loans going into default.
@Kira - The $8000 thing you are talking about is a “tax credit”, not a rebate - you do not get $8000 in your pocket. It just means you can take a credit of $8000 against your total income after exemptions. It happens when you file your tax return. For example if you earned $30,000 in taxable income and had a $9000 tax liability, by qualifying for and taking the first time home buyers credit you could lower your taxable income (with the $8000 credit) to $22,000 and therefore lower your tax liability to $7000. In effect it’s more like $2000 ‘in your pocket’ (in this example) but it’s not like the government is passing out $8000 checks. Just so you know.
Hopefully people aren’t trying to qualify for a house because they think they will get an $8000 check.
@Trevor - You are mistaken a tax deduction for a tax credit. A credit IS a rbate , as opposed to a deduction, which is what you explained
For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).
I hope the financial crisis is teaching parents to help their kids learn about money. It is not fair to our children to let them fall into the same traps as aldults are right now. My kids all have savings accounts where half of all of their money goes. They are not teens yet, but my daughter, just by saving birthday money, Christmas money and the little bit of allowance she EARNS, could go out and buy a decent used car and pay for her own insurance. It is an injustice to constantly buy things for our children so they can look “cool.” They have got to learn to earn their own things by working and saving.
I thought the article was absolulely fantastic. For the past few months I have worked with people to attempt to get their finances in range wtih - reality. Living beyond your means seems to be the new normal. Our parents were taught to save but this generation is in lust with buy it now, no matter what the cost. We need to hear such articles regardless of how much it may hurt our feelings.
As a realtor here in Clarksville, TN I agree with Hieu and Barry. The homeowners as well the banks are responsible for the mess that we are in at this time. People should count the cost before they step out to buy their dream home. I try to encourage my clients to buy a house within there means (monthly payments no more than 25% of there take home pay).
I have to say I resent the tone of the title and first two paragraphs of this piece, which strikes me as smug and patronizing. The article shakes a shaming finger at people who took heedless risks in the mortgage boom that so recently went bust - but it’s patently unfair to generaliz
e from this particular group to every individual who took on more debt than they could ultimately support. Many thousands who applied for a mortgage at the height of the so-called “boom” were persuaded by the lenders themselves to take on more debt than they could have supported. The debtors’ willingness to stretch farther than they may have felt commfortable doing was fueled both by the “better buy soon or the market will keep growing out of your reach” sentiment, as well as by the substantial stigma - not acknowledged in this piece - of failing to becoming a homeowner and being excluded from the American Dream.
The “baby boomers” were the last generation to do better than their parents in terms of socioeconomic achievement. Since then the costs of milestones such as education and homeoownership have outpaced earnings for all but the wealthiest few, while he pressure to achieve those milestones continues to mount.
The principle of personal responsibiliity - along with personal liberty - runs deep in the American culture. So does an aspiration to fairness, which means looking objectively at conditions and refraining from blaming people for mistakes that, in retrospect, seem quite iinevitable.
A 30-50% DP? Wow. Must be nice. I am a first time homeowner (almost a year now) and I am trying to get rid of PMI but my mortgage co. has made it difficult for me to do so. Either get an appraiser to come in or pony up more money to have about 23% total equity in my condo and get rid of PMI outright w/out an appraisal. I got a lousy rate (30 yr fixed, 6.76%) due to lousy timing. I got my mortgage just before the news hit that the government would bail out the major banks. I did qualify for the 7,500 deduction but it will have to be paid back, although it will be interest free. My closing costs were ridiculous. I wish I had been more knowledgable about the whole process to avoid all the hassles I had with my mortgage company (it was not ING; maybe that was my mistake). I won’t make the same mistakes when/if I buy again.
I wish there were more like you Srderra Davis-Wilson.
I admire your ethical treatment to the gullible homebuyer.
When my wife and I were looking to buy our first home,
everyone from the realtor to the lenders were trying to
pressure us into buying a larger more expensive home.
We knew exactly what we could afford. We had a budget
that accounted for numerous possible scenarios,
some that actually occured. Thankfully we stuck with our realistic decision.
It helped very much to be prepared.
Keep up the good work. Thank you.
Explain then to me - why am I being forced to pay higher taxes to bail out all those incompetent borrowers? Let the real estate find its own bottom without artificially propping it up, and hopefully all those in bankruptcy will learn a lesson. And by the way, the record of defrauding lenders, also known as bankruptcy or short sale should never be erased from the credit history; most certainly not after 7 years.
Kevin, lots of people work hard, very hard, and still cannot afford to buy a house because they chose a lower paying profession than others. People who choose to go into very high income careers, either for love or just to make the big bucks, ruin it for others who choose to teach, become nurses, firefighters, etc. Because in a capitalist society, which I am not necessarily against, there are these drawbacks. Some work hard and make many times the amount of money they can spend in a lifetime, while others work equally hard and can’t afford to buy a house in a nice community. Those with money cause the price of houses to rise because they can pay what the market will bear and what the market will bear is, in large part, due to their hefty salaries. So, it is not as simple as saying those who do not own homes don’t because they don’t work hard and save. I would not exchange my career as a teacher for another but it seems unfair that lower paid professionals, and other service providers, can’t afford to live in the communities in which some of them work. I accept this, but want to point out that its wacky.
Bill, you make some good points.
The responsibility is shared. I agree that it was crazy of those folks with adjustable rate mortgage to take on that risk. But, no way am I letting the banks, and real estate professionals, flippers, etc off the hook. The balance of power and money is very skewed in this country and it is not all linked to who works hard for a living and who does not..not by a longshot.
This is ridiculous advice. The average price of a home in my state is 300k. Much more in the city where I live. So while it would be nice if I were able to save 100k-150k for the downpayment, doing so is going to take a minimum of 10-15 years of diligent effort. And the $1200+ dollars per month I spend to rent my ancient one-bedroom apartment? That’s 144k-216k of potential equity, wasted.
Wouldn’t better advice be to not take a mortgage that includes the words “adjustable rate” or “balloon” anywhere in the contract? And the hope and pray that you are never laid off?
Not all of us are the CEO of Savings, Mr. Kuhlman. How about some more practical advice?
I was just preapproved for 229,900, and I make just 45,000 a yr. I realized with out at least 20% down, I could not afford 1,600$ monthly mortgage payments on top of other living expenses. I live in Massachusetts, and houses in that price range are junk! I will be responsible and wait till my salary rises and I am able to save more. I only hope people have learned from past mistakes and the majority of families are more responsible with their money.
Why do you all lump people into the SAME category & characterzation!?! I just turned 65, retired, and I want a nice home to live in the rest of my life, but I have only been able to realistically save 6% in “cash” to put down because
I’ve only been able to start saving more money the past 2 years with being in the “sandwich generation”. I cost me
probably $60,000+ to help out my Dad (died in 1999) and my Mom (died in 2008). I had lots of credit card debt because
of helping them out so much, that I could NOT save much at all! I also did not know 5 yrs ago, that my old home which
I’ve rented out for several years because my JOB is 200 miles away, suddenly it has no equity in it, that I had hoped to
help me buy a home I would really like in a community I prefer. (I’ve had to rent here the last 19 yrs, homes here are way beyond my income & I have to move back to my previous city to afford a place & be closer to family again.)
At 65, I do NOT have 5 or 10 more years, especially in this economy & rates of returns, to SAVE enough money
for the “downpayment” part, but I have carefully calculated my retirement incomes & KNOW exactly what I can
afford in monthly payments for a home I would live in the rest of my life and I have excellent credit & very high score of 801. I am NOT getting in over my head & I know better. But there are no loan places I’ve found that will look at my
individual situation or at me as a human being. They want to charge me a way higher interest rate which drives up the monthly payments for me to live in a nice, stable, senior community. To me, that’s greedy & not “personalized” like it should be!
I am saving to pay for a home in cash. I do not like credit, so I have debit cards and I pay cash for everything. I cannot get credit, if I wanted it, because I pay cash and I am NOT IN DEBT! Interest payments are so poor, that I may have to just put the money in equally poor CDs. I cannot afford to invest, for this is all I have, so I am trusting FDIC.
My suggestion is that banks pay highter interest, and you will get more savers. It is better tokeep your money at home, for what the banks are paying. On the other hand banks are getting rich off of credit card holders and people who overdraw their accounts. Shae that money with your savers.
Yup, there’s no better feeling than being mortgage-free. I bought my last home cash. Just think of the thousands of dollars I saved on interest. I never carry over credit card balances either. I’ve always been a saver and was raised on the concept: “If you can’t pay for it, you don’t buy it.” I live within my means and am debt-free. Yes, it can be done and it feels great.
Pino, AMEN!!!!
What this article purposely does not mention is how we all got duped by the large mortgage companies that not only sold mortgages to people that couldn’t afford them, but also how they bundles thousands of those mortgages into package deals that were sold off as investments. AKA, the companies that sold the debt were not held responsible when people did not pay back the debt–it never even affected their bottom lines.
How’s that for a sense of entitlement? Let’s just sell it off to the American government…we’ll never have to repay it…oh and if worse comes to worse, we’ll just file for Chapter 11. And let’s pay our exec’s some HUGE bonuses for brilliantly getting rid of these giant debts at a profit!!!
And let’s not forget…this SCAM is all legal, thanks to the bribes these giant companies pay to our government in the form of campaign donations…oh and don’t forget the VIP mortgages too!!!
Oh and don’t even get me started on the credit card companies. They are probably WORSE!
There were people who purchased homes for nothing down, and are given 20% of the house’s value for furnishings and closing costs. They lied about income and employment, and it was not checked. These people have left these homes and gone, who knows where, while the taxpayers pick up the bill for the greed and dishonesty. I have owned a home that burned down, and I owned a nightmare condo, but most of my life has been renting and saving. Once I paid my rent, that was it, and I could budget much better than owning. I looked at the interest, that was more than the price of my home and condo, so now I am content in my 1K per month rental, and socking away, as much as I can to pay cash for a little home in the country, near Normal, Illinois. Here are so many extra expenses you have as an owner, that you do not have as a renter. I am enjoying my lovely apartment, as I watch others mowed the grass and shovel the snow, and remove the garbage. I love picking up the telephone, so my landlord can fix things. I know I am not building up equity, and I do not have the tax write-off, but when I negotiate for my new little home with cash, I bet I get a great deal, and then I will put mortgage payments in my own bank account to support my little home, charity, and me. I do give charity, for I am happy I do not need it. God bless everyone, and cash is king/queen.
I’m with Ross!! Why does ING only offer variable rate mortgages? They are too risky and you can’t predict what you will end up paying over the years. I love the idea that they keep closing costs to a minimum but they really need to offer us non risk takers a fixed rate mortgage. A 15 year mortgage would also be a great choice to help people that can afford a higher payment pay off their home earlier.
I am a great fan of Dave Ramsey, and the world would be in a better financial situation, if they would heed all that he teaches, and he learned from his own mistakes, like we all do. President Obama should sit down with Dave at the White House. Davis is the Czar of Common Sense for the World. We are blessed to have him.
Singapore has about 98% home ownership, because the government takes out of every income and saves it for a down payment. Singapore makes sure people have a job, and that mortgages are insured against sickness and layoffs. You later pay back, when you are on your feet, so as not to cheat the insurance.
We could do the same here, but we (USA Government) prefer to throw us out of our homes and bring in foreign workers, or build businesses in foreign countries. Go outside any business and see, who the employees are. You are unemployed, so go see who has your jobs. Read foreign news online, and see all the American companies building there. I will not name countries, but if you have half a brain, you know. One day the American people will wake up, and it will not be pretty. We know our tax money is being stolen.
Also, please keep your clinker (car), and avoid car payments. This program ran out of money after four days, yet war can be financed for decades. Wake up folks. We are being played big time by everyone.
Artsy,
What knucklehead approved you for a loan where the payment would be your entire take-home pay? Did they not even look at your documents? Please share the name of that bank, which I hope you’ve gotten your money out of there. They’re obviously too stupid to stay in business.
ING, why don’t you offer 30 year or 15 year fixed interest loans? All you have is ARM’s which seems to contridict your message above about long term affordability… how do you know if something will be affordable for your full loan term if the interest rate is only guaranteed for 5 years? It’s the ARM’s (amongst many other things) that got us all in trouble in the first place.
I totally agree. And I think the same goes for anything people go into debt for. If only the government encouraged this type of financial responsibility. For example, cars for cash - great idea to get people buying cars, but also terrible idea for giving people one more excuse to go out and buy a car they can’t afford.
Save 30, 40, or even 50% to put down on a home?!? That’s just never going to happen. Especially with the prices for homes where I live. I’ve already reached the highest my salary will ever go at $75k and I struggled and made much, much less than that for many years before I found my current job. With student loans to pay back, constantly rising rent, and some old credit card debt that I’m still paying off, I’m only able to realistically save about $500 a month. And everytime I start to get something significant in my savings account I have to dip into again to pay for some emergency car repair or something. At this rate I’ll be retired before I actually have enough saved up to put that much down on a home. I’m 35 and of all of my friends that I graduated college with, the only ones who have been able to purchase a home by now are those who had help from their parents, had no student loans or graduated with a finance or engineering degree and started making big bucks at age 21right out of school. The rest of us are still struggling to pay rent and send payments to the student loan companies for degrees that we got 15 years ago that really don’t matter much today. So I guess I’m just supposed to rent for the rest of my life and leave the home buying for the elite who can save tons of money and do it right. This is frustrating. I’m making a decent salary and I still can’t afford the “American dream” unless I want to fatten the banker’s pockets more than I should have to because I can’t come up with half of the money up front.
I like Bill’s philosophy. It speaks to what is really valuable in people’s lives.
http://TheHousingTimeBomb.blogspot.com
Not to name names of responders, but there’s a whole bunch of whiny babies out there. To the low-paid professionals, i.e. teachers: Enjoy your summers off, numerous days of holidays/school improvement days and your pension. That’s something many “high earners” don’t get to enjoy.
To those who whine about not having a chance at getting a 30% downpayment b/c of the expensive locale in which they CHOOSE to live. Boo-hoo-hoo. Pick a different city in which to live! To them and the lower-paid professionals take this advice: you can buy a home w/a pal to build some equity and get out from renting. Or just buy it on your own, find a roommate and pay extra principal when you can to eliminate the PMI. There are also programs specifically aimed at making home ownership more affordable for teachers, police/fire fighters, etc. I know Chicago offers them and I’m sure other cities do as well.
And contrary to the current “conventional” wisdom that ARMS are evil, we are a case in which the cards have fallen nicely in our favor. 6+ years ago we refinanced w/ING at 3.99% (30-year amort schedule.) The goal was to pay off our home in 6-9 years. However, we pursued a larger home and are now renting the 1st one b/c we were unable to sell it in this real estate market. So altho’ our mortgage adjusted to 4.75% last year after the 5-year fixed period, it has now reset again to 3% for the coming year. That’s a great rate to have while being a landlord! Hopefully at some point we can sell the house before rates climb again, but for now the undesirable position of owning 2 homes has been made more bearable.
I am a loyal ING customer…but can’t wait for the savings/cd rates to increase!!
PS I highly recommend The Millionaire Mind by T. Harv Eker to help people get their thoughts in the right place to become wealthy/wealthier. It’s a fantastic resource book to get you to think about your relationship w/money, success, etc. I bet more than a few whiners could be cured!
We bought at an auction, put 10,000 down and paid off the house in 9 years with double payments.
My Dad spoke to me about money when i was little “if you want something, work and save for it.
simple wisdom for complicated times. also if you don’t work you don’t eat!
I think my story hits all bases!! but first , let me address several items spoken as dogma from above.
The dept of education is the worst that has ever happened to Education,, Teachers unions are a joke!!
typical school budget 94% for pay and benefits and 6% for books and pencils. and a pension plan (of course it’s unfunded) almost on par with the congressman of your state. the reason they whine is because they KNOW how much better the bennie’s are compared to industry norms. so they have to keep the game manship going.
buyers were duped? probably just like they were duped buying a car, tv anything, there will always be stupid and
uninformed people. The same things continue to happen to the same people. some get rich some stay poor, both work at it in a conciese manner. aka if you continue to do the same things, you will get the same results.
truth is a simple one…if you split all the money in the world equally for all the people, within 5 to 7 years the ones who had the dough would again have it back. (they work at it)
Ok my story, which I am sure reflects many in my position. I will try to make it short.
I have been in sales for 31 years straight commission (I guess it worked)
I purchased my last home in 04 for 361,000.00 put 20% down rate 6% income 278,000.00
I refi out of the 5/1 arm to a fixed rate of 5.75 in 06 income 163,000.00
i refi again in 12/08 fixed rate 4.75 income 122,000.00
When a purchased the home after I put 20% down I still had 110,000.00 in Ing
so far I thought I did everything correctly and responsibly.
when I saw the financial world going to pot,
i had my home reappraised in 2/09 it appraised for 450,00.00, keep in mind that I dumped 60,000.00 into it.
got a heloc for 87,000.00 which I never used just as a safety net.
in the past 4 months, this is what has happened to me, keep in mind I started out with a credit score of 745 in 09
all three of my platimun cards were reduced in total from 95,000.00 to a total of 15,000.00 for no reason.
my bank pulled the 87,000.00 heloc, remember it had a zero balance.
the total owed on all three cards was about 7500, that made my loan to value about 50% which reduced my credit score down to 675
my current income year to date is 19,000.00.
so………what did i do….scream how unfair all of this is, wheres my bailout, etc etc …NO….I immediatly sold off my toys and rented out two bedrooms at 600 per month each, cut out cable, cut out dining, cut out all non essentials.
I am still under water…………but ……….I will be back, because thousands like myself will remember that net worth is not self worth, and we will prevail and never loseour self respect looking for a gov handout.
pull up your bootstraps, and if you have no boots pull up your socks.
Regards
vietnam vet
high school grad
born in the projects.
no sympathy for the winers……………sorry.
I disagree with this. Has anyone been to CA and seen that is it a SELLER’s markert in the Bay Area. No matter how much we save we will never be able to buy a house here. It is riduculous. I am sick of these articles saying that it is a great time to buy…yah it is….if you have at least 50% down! And to think having stable jobs with good pay would get us far! HA! We might as well rent. I mean who can beat $840 in the Bay Area. Can we get a mortgage for that?! Unless we have the $$ to put down. So much for having excellent credit..