WatchI'm looking for some opinions from the brilliant minds here.....
As some of you might know from other discussions, I was a long time home owner, sold my house last year because prices in the area were collapsing and put the equity in my pocket. I'm renting now, saving money, and wasn't considering buying again for a while until the housing market truly leveled off and the economy stabilized.....
I'm not crazy about being a "tenant" and being at the mercy of a landlord after all the years as an home owner. Although, it's nice because my wife hasn't started any new projects that I had to complete :)
I have an opportunity to grab a foreclosure below market. It needs some work which I can do... (I must really be crazy to even consider this!!!!)
Question to all of you. Looking at the economy and the housing market, I'm trying to decide do I:
Put down a big down payment and only go 15 years on the loan, which will build equity faster, but then puts a lot of my cash resources into the house, where they are not easily accessed if need be...
OR
Do I leverage the hell out of the house, go FHA 3.5% down on a 30 year note, but then keep the bulk of my cash easy accessible and in my pocket instead of being tied up in "equity"....
Also, I won't be living here for 30 years (maybe 10 or 15) until it's paid off (I'll be dead by then)... I'm not concerned about that part, it will be my kids problem to sort out.... ha ha...
The goal, after buying and renovations, is to have a cushion of about 15% - 20% below current market value on what I spend in case home values drop further.
The other concern I'm thinking is if the housing market collapses further or the economy takes a big dump, I think it would be better sitting in something I own versus sitting as a tenant, all things equal...
Also, I'm not in CA or AZ but in New Jersey, where we still haven't gone through the wave of foreclosures.
So, Opinions??? Max out equity with big down payment and short loan or max out leverage with minimal cash input and longer loan??
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31 male
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The thing that's going to start to drag on the attractiveness of using FHA, is their rates. Both upfront and monthly have been jacked up because they self fund via those fees. I'm in the process of refinancing now, using whatever latest FHA streamline gov program with little to no docs and no appraisal. Because i purchased before 05/09, i'm eligible for .01% upfront PMI and i think 0.55% monthly. This is the only thing that makes refinancing like this make financial sense, otherwise with current PMI fees i'd pass,,,,,not to mention you have to wonder what will happen to all fha borrowers as time passes and they still haven't hit 20% equity, as i understand it, FHA could/will? force the borrower to continue to pay insurance until they hit that magic number, but i'm not certain
If i were you, i'd want to keep as much of my own cash out of the transaction as possible, without paying too much to do so. What about a conventional 30 year at these rates?
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errc says
That's sort of the way I'm leaning, hanging on to the cash..... we could do conventional 30 year with 5% down, I have a creative mortgage broker!! I did a past loan of a 80% first and 15% second to eliminate the PMI...
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I sold 18 mos. ago. I've made 6 offers on foreclosures that needed work. 2 were rejected & time for acceptance ran out on 4.
All these were low ball offers. I don't think having cash in this fickle market is a bad idea. If housing &/or the economy collapses (even more) one can always strategically default if necessary.
In the future how long could one stay in the home considering all of the problems today with foreclosures & defaults.
Ignore this. I not in the brilliant mind group.
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I have also considered the same scenario, but unlike you I am will be a first time buyer. Will like to see what you end up doing.
I live in CA and we are a non-recourse state. If you consider inflation to be 2-3% (this depends on what source you get it from), and receive a loan at say 4% (I hear you can get it lower), then the bank "may" be earning something like 1% off your loan. If you kept say $100 in your bank, then next year you would have lost $3 in spending power because gas/food/technology costs just a little more. Now the bank is lending you that $100 for 4% interest. If things don't work out and if I didn't refinance, I can walk away from that loan (at least in CA).
I'd let the bank carry the burden of that loan if I thought that money would be better spent/invested somewhere else.
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Santa Monica, CA
It depends on your investment alternatives. List all your investment options in order of yield (high to low). If you have something that yields more than your highest marginal cost of capital (presumably the debt on this transaction), then borrow more and invest in that vehicle.
Try to earn as much as you can from all funds. The crux of your dilemma is trying to figure out yields on different investments....and the list of opinions you will receive is longer than all interstate freeways combined.
So good luck with that...lol.
FYI - since NJ is a recourse state, the leverage issue is moot (this based on data from forecloseddreams.com).
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I don't get it? If we're only 40% through the housing correction, a 15-20% equity cushion won't be enough. You'd be underwater in no time.
What happened to debt is slavery? What happened to pay all cash or fuck you? Why be a debt slave when you're free to roam? Renting is for winners. Owning is for losers.
Debt is slavery.
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E-man says
I agree, I don't think we're done with the correction, but if goes another 60%, the country is finished...
Actually made a low ball offer on the foreclosure, seller signed the contract and now it's on to the bank to accept it...
After cranking the numbers, if the bank takes the deal, I should have close to 30% equity after doing all the repairs and upgrades the wife wants.....
Plus, the total mortgage payment will be $250 less a month than my rent for a newer, bigger house on a lot larger piece of land (and the old lady gets the inground pool she wants and I get my shop).
If housing drops more than 30% more in this area, I'd rather battle with the bank then with a landlord.... at that point, the zombies will be out in full force, that will be a bigger problem...
Hell, the banks let you squat in New Jersey now for almost three years before you get kicked out... see, there's an upside to my craziness!!
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New Jersey, eh? OUCH
you could get the same spread in PA with with what you will pay in annual tax bill!
over 1k per month in RE taxes, LMFAO
you up near the princeton area?
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You have an opportunity to buy a foreclosure below market in this environment and you are asking for opinions?
Just buy it and get a 15 year loan. 10 years from now you can send me a thank you card. 15 years from now you will owe me a fancy lunch.
Raw
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errc says
Tell me about it.... wife "needs" to be near her family.... usual crap...
errc says
Not quite, but close.... $675.
errc says
South east of there, Ocean County.... can't afford the "high rent district" of the Princeton area (and wouldn't live there if I could)..
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Raw says
It's more about having a crystal ball to determine the direction of the economy.... if the economy takes the dump, is it better to have my cash in my pocket and have a little higher monthly payment or invested it in the house with a lower payment and have less available cash in case of emergencies?
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Call it Crazy says
Ok, that argument makes sense.
If the economy takes a hit it will only be for a temporary period. If you have faith in this country buy the home and take the 15 year loan. If not, keep renting. If you want to play it safe go 30 year.
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Crazy,
Enough kidding around. If it's cheaper to buy than rent, it's a no brainer to buy. If it's an REO and your offer is accepted, I'm not sure what you mean about waiting for the bank to approve. Unless you're talking about a short sale, it's a little different.
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G'Day, all I can say about land is from a banker in Midland, Texas in 1986 who berated me for paying so much for the Midland house that I couldn't unload for what I paid for ($50,000):
In 1986 raw land in Midland was $1,500/acre. Improved Land (Paved Road / Sewer / Power) was double ($3,000/acre). My house was worth $25,000 and I couldn't sell it. Someone took over the payments and they went bankrupt. At least I unloaded it and lost my GI bill loan.
Now, extrapolating that into today at 5% interest (double value every 10
years) and stopping at 2006 (maximum house prices in US), I come up with
$5,000 / acre for unimproved or $10,000 acre for improved. Now, I'd make a GREAT offer of $100,000 for a 3br shit box. That's what It's REALLY worth. What are you going to pay?
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"BACK TO THE FUTURE" What goes around will boomerang just like Japan
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E-man says
I guess it's technically a pre-foreclosure/short sale. Owner walked away in 2010 and the Notice of foreclosures have been filed in the county back then. I don't think the bank had their day in court yet (judicial state) to officially take back the house.
Listing agent has been tough to get information from, so a lot is "gray"........
If I can steal this house, it will definitely be cheaper to own then rent in this area. What I was looking for here was the pros and cons of the finance game from the brain trust on this site to see if I'm missing anything.
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Call it Crazy says
You JUST answered your own questions. Better a tenant with good credit and available funds then some underwater loser crying how to get out. Be careful.
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E-man says
NOT in a continually declining market it isn't. You go ahead. I am not about to dive into a cheaper than rent that is going to be worth half what I paid because when I do THOSE numbers I would be grossly on the losing end. You sound like a real estate commercial to me.
Is that the NEW tag line "If it's cheaper to buy than rent BUY." Oh yes, and add on "Your children will get better grades as a result" LOL
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Reader says
If it's cheaper to buy than rent, why would prices continue to decline?
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tatupu70 says
Well, two-fold one prices are still grossly inflated and secondly rent is way lower the the TOTAL cost of ownership which includes tax, repairs, and then continuing depreciation.
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Instead of people worrying about buying these bloated houses in my view they better wake up to the INFLATION SWINDLE! The BRACKET CREEP and TAX CREEP being thrown upon them.