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sholling
Premium
join:2002-02-13
Hemet, CA
| reply to dogma
Re: Homeowners: Mortgage Interest, Property Tax & Uncle Sam
I'm going to partly agree with Dogma, but only partly. If you're looking for a short-term (less than 5 years) investment then you need to run the numbers see how the possibility of a 5% drop in value (I don't think it will be that bad), plus the 6% it will cost you to sell compares to the straight out loss of a year of a year or two of rent. I doubt they results will be pretty even after you factor in the tax advantage of owning.
But at the same time you should be looking hard for bargains. Distress sales, panic sales etc, while avoiding any temtation to explore creative financing.
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"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--
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Lovehound
join:2005-08-18
Northridge, CA
| said by sholling  :I'm going to partly agree with Dogma, but only partly. If you're looking for a short-term (less than 5 years) investment then you need to run the numbers see how the possibility of a 5% drop in value (I don't think it will be that bad), plus the 6% it will cost you to sell compares to the straight out loss of a year of a year or two of rent. I doubt they results will be pretty even after you factor in the tax advantage of owning. But at the same time you should be looking hard for bargains. Distress sales, panic sales etc, while avoiding any temtation to explore creative financing. This is really good advice. However, I'd qualify that less than 5 years probably won't make financial sense. Considering a possible price decline, renting makes more sense in that time frame. Beyond 5 years, buying a home is probably still a good investment.
Regarding the down payment, the old (and sage) advice is to go 20 percent down. This will also give you full control of your insurance payments and property taxes, although perhaps in recent times they may have loosened those requirements. Of course you'll have to mind your business about paying the insurance and taxes, but at least you're in the catbird seat.
So look hard for bargains, plan on living there 5 years (minimum), and put 20 percent down payment. It may sound like hard advice but it's good advice. | |
sholling
Premium
join:2002-02-13
Hemet, CA
| said by Lovehound : I'd qualify that less than 5 years probably won't make financial sense. Considering a possible price decline, renting makes more sense in that time frame. Beyond 5 years, buying a home is probably still a good investment. That was my point about less than 5 year timeframes, but I think you put it more clearly. The exception is when one finds a distress or panic sale. This is where spreadsheets come in handy. Run the numbers.
Regarding the down payment, the old (and sage) advice is to go 20 percent down. This will also give you full control of your insurance payments and property taxes, although perhaps in recent times they may have loosened those requirements. Of course you'll have to mind your business about paying the insurance and taxes, but at least you're in the catbird seat. You're dating yourself my friend.  In the good old days of our youth 20% was around $20k give or take. Today 20% is $80-120k. Almost impossible for first time home buyers to save while laying out $1000/mo in rent. The only penalty for a 5% FHA or GI loan is that you pay for morgage insurance (PMI) every month, and it's not all that expensive. They also protect you from stupidly creative financing and from signing contracts with prepayment penelties.
So look hard for bargains, plan on living there 5 years (minimum), Great advice. The best part about buying a home isn't the hoped for increase in value. That just gets eaten up when one upgrades. The best part is 30 years from now when you've got it paid off - is that it's paid off.
--
"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--
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