patrick.net

Poured concrete is the way to go!

wish i was lucky says

When I sold my house I was prepared to do a full disclosure - but my realtor informed me that it’s up to the home inspector to discover the flaws.

Actually your realtor was incorrect. In the California Residential Purchase Agreement (CAR Form RPA-CA), Section 7B states verbatim (including capitalized words):

"SELLER shall, within the time specified in paragraph 14A, DISCLOSE KNOWN MATERIAL FACTS AND DEFECTS affecting the Property, including known insurance claims within the past five years, AND MAKE OTHER DISCLOSURES REQUIRED BY LAW (CAR FROM SSD)

It is always in the best interest of the buyer to request the seller's disclosure statement prior to entering into any agreement. Unless the buyer waives this, sellers are required by law to disclose all known problems.

Buy the builder's house. He's got the good stuff.

Houses today are much better built than houses even 10-20 years ago. What you don't get is the land, because unless you tear down and rebuild there's probably a good reason no one has put a house there in the past 200 years. Personally, I'd buy the MINIMUM square footage, because its going to get very expensive to heat/cool/light those giant areas of a home. Does everyone remember when you couldn't get rid of a giant Victorian 10br home, so they just festered on that busy Main St?

Of course it could go the other way, and larger houses could become the norm again, if kids can't get jobs to start their own lives.

ICF costs: I have looked and it is about 10% more than stick built homes. In California I would want only ICF. These homes have steel rebar all over the place. If you can get the home on bedrock, you will have it made. I think ICF would last longer in any earthquake than other homes.

I like the Monolithic Domes. Go to Italy, Texas and see the huge complex that they have. I really wanted to build an Atlas Dome. If my wife had let me do it, I would have gone for the dome home. She could accept the ICF because it is a box.

I live on the Coast of Lake Erie in Ohio. I do not worry about the oceans as much as a guy in Miami. I am worried more about the energy of the future. The ICF will allow me to heat the home with minimal energy input and stay cool in the summer with no energy input. I do not worry so much about the bullets. It is a nice thing to have that bullet proof wall, but I really worry more about wind driven missiles.

http://www.youtube.com/watch?v=ocEmJ_D-uP4

I guess is you plan on walking if the house goes down in price, and you can get away with a one of those 3.5% downpayment FHA loans. It might make some sense to buy.

But if you have to take a heavy loss if your house goes down in price, buying right now is down right terrible investment decision. The government is the only entity with any skin in this housing market game. The government cannot keep this game up that much longer. My guess is the government is going to cry uncle within a year. That will be the time to buy.

I put 20% down. There is no way I am walking. The way things are going now, I think I will just stay put and pay the home off within 10 years. I do not worry about my job because unless electricity goes out of fasion, I will have a job even if we have other serious problems.

thenuttyneutron says

I put 20% down.. .... pay the home off within 10 years

Too bad everyone does not think this way. It would be better for everyone except the banks. All that money not being paid as interest would be instead available for goods, travel, charity, etc, and thus benefit many sectors of the economy.

Most people today don't think when it comes to money, which is why this mess continues. Banks love stupidity; indeed, they profit from it, and there are millions of idiots out there.

Do your math. $650K cash down means loosing significant loss in earned interest on that money. In theory if we are into a Japan like bust your $650K are stuck with same value for 1 to 2 decade. Instead if you have it in hand your can easily make more out of it in many ways.

Wish I was lucky,

Great read - lots of good info.

$200k on a half acre in Placer or El Dorado County will put you next to meth users. And you won't have any work opportunities unless you want to commute to Sac or the Bay Area.

dadab says

Do your math. $650K cash down means loosing significant loss in earned interest on that money. In theory if we are into a Japan like bust your $650K are stuck with same value for 1 to 2 decade.

So your theory is that if the house does not appreciate, I would be better with the money in the bank?

That would only be true if a mortgage was truly free money (as many realtors and investment gurus seem to imply). Unfortunately, the money lenders want interest.

When you pay cash for a house, you get a better price. You also save on points, funding fees, and any other junk a lender will put out. That is in addition to the fact that savings accounts pay much less interest than what the mortgage will be. The so called "tax deduction" does not even come near to closing that gap, especially since the cash payer still keeps the standard deduction and can still deduct property taxes.

The lenders /realtors also use the "ROI" trick. That is, they will say that if my $650k house appreciates to $715k, the 65k appreciation is only a 10% return on an all cash buy. But if I only put 10% down ($65k), the $65k appreciation is now a 100% return. Again, that would only be true if mortagage money were free.

I prefer the approach that results in more total money for me, regardless of any accounting tricks. For example, if I pay cash for the $650k house and then put what would have been the monthly payment (P&I at 6%) into the bank, I will have my $650k back within 14 years even if the savings bank paid zero interest.

So, assuming the house is still worth $650k, in 14 years after paying cash I would have my $650k back plus a paid for house ($1.3 million net). Going the mortgage route I would have $835k in the bank ($650k plus interest at 2%) but still owe $480k on the house ($355k net).

It works that way because the mortgage interest paid is higher than savings interest earned, plus mortgage interest is front loaded.

I prefer the approach that results in more total money for me, regardless of any accounting tricks. For example, if I pay cash for the $650k house and then put what would have been the monthly payment (P&I at 6%) into the bank, I will have my $650k back within 14 years even if the savings bank paid zero interest.

It works that way because the mortgage interest paid is higher than savings interest earned, plus mortgage interest is front loaded.

What if you put that amount in stocks+bonds (60:40)ratio for 30 years ? assuming it gives 6% annual return versus your mortgate rate of 4.5%

camping says

According to payscale.com, senior sw engineers make $108k. I’m not sure of the definition of “senior”, but I would think by 8-10 yrs, one would be a senior engineer, putting them in their early late 20s or early 30s. I don’t know if those numbers include stock options either.

Im at 70K after 5 years. the ones who are senior are making 110-120K, they are usually 15-20 years in the game.
VPs are at $150K
Most engineering departments I seen or heard about don't have any women.

"Now that the housing bubble has popped"

more like still IS popping, and prices continue to decline and will continue to decline for some time.

homeowner_for ever_san jose says

What if you put that amount in stocks+bonds (60:40)ratio for 30 years ? assuming it gives 6% annual return versus your mortgate rate of 4.5%

Because the current mortagage rate is about 5.25% for those with excellent credit, and for a Jumbo loan (which $650k would be in all but a few select areas) it is over 6%

Do you really think you can make 6% in stocks+bonds (60:40) ratio? Especially after fees, loads, and related charges are taken out? I used the 2% figure in my calculation since 2% is actually available risk free in long term credit union CDs.

The average Joe (and so many professional investors) do so poorly with stock/bond investments that is seems silly for anyone to assume that average Joe can beat Wall Street and make 6%. I think Joe is better off using his cash to pay off and avoid credit card debt, car payment debt, and house debt.

I think Joe is better off using his cash to pay off and avoid credit card debt, car payment debt, and house debt.
I certainly can't argue with you there. I'm go into shock when I remember a Frontline special on credit cards; a couple thought they were doing the right thing by building up a rainy day fund -- meanwhile they were carrying credit card debt at an exorbitant interest rate. Add to that the fact that most people don't itemize anyway so there is no "tax advantage" on the interest payments. For your case, though, I would argue against buying a home outright. Asset diversification is one reason, as well as reducing your marginal tax rate - YMMV. NIA.

EBGuy says

Asset diversification is one reason

You have tied up your assets in the house when you bought it, whether through lump sum amount or obligated stream of payments. Unless, of course, you include walking away from a non-recourse loan.

as well as reducing your marginal tax rate

It does not really reduce the marginal tax rate, it just deducts the interest from the taxible income. No real advantage to a married couple until the standard deduction of approx $11,400 is reached. I guess you could say that in some cases the marginal rate is reduced, but only for those who were near a bracket cutoff.

Consider for a $650k house:

Married Couple 25% bracket pays cash - pays no interest but gets $11,400*.25 or $2,850 off taxes

Married Couple 25% bracket $650k mortgage at 6% - pays $38,792 interest to get $9,698 off taxes

This calculus gets worse for the mortgager as the years go buy, as the tax deduction goes down while the standard deduction tends (so far) to go up.

EBGuy,

Most of the people in the country are likely looking at a $200k mortgage rather than $650k. At 6%, a mortgage of $200k or less has no tax advantage at all, as the standard deduction (married) will match the itemized deduction. At 5.5% (more likely at the non-jumbo principle amount), the cutoff is about a $240k mortgage.

Headset, In case my post was not clear, I AGREED with all of your "average joe" advice (for the reasons you elucidated in the subsequent post).
However, I still take issue with paying cash for a half million dollar+ home.
It does not really reduce the marginal tax rate, it just deducts the interest from the taxible income.
It does if it puts you in a lower tax bracket. And let's not forget to add in property taxes and another, I believe, 5.75% to the Commonwealth of Virginia. This will definitely put you "over the top" for the standard deduction. At that point, you can also add in any charitable giving to itemized deductions. Admittedly, from what I can gather, an "implied put" in Virginia is not as valuable as in California as the banks can still get a deficiency judgment on non-judicial foreclosures. What I find slightly humorous about your position, is that you are advocating putting all your assets in real estate. As an end game (see FABs parents) this is not necessarily a bad idea (inflationary hedge). Not so sure about middle age, though...

EBGuy says

Headset, In case my post was not clear, I AGREED with all of your “average joe” advice

Actually, I was the one who wasn't clear. I should have mentioned I was adding to your statement most people don’t itemize anyway so there is no “tax advantage” on the interest payments.

What I find slightly humorous about your position, is that you are advocating putting all your assets in real estate.

I will sell my current residence ($300k) before buying the up to $650k home. That way I will still have at least $300k cash, plus IRAs, plus military retirement, and if I don't get caught blogging too much, my job.

You are correct about being "over the top" for the standard deduction, especially when Virginia (interesting that you know VA is a Commonwealth as opposed to State) tax thrown in. But since I only invest in CDs, and never again in Wall Street Churn and Commission, I do not see the tax deductions as being worth paying the mortgage interest. That is, even with the tax benefits considered, the adjusted mortgage rate is still higher than the insured savings rate. Also, lets not forget the typical "Origination Fee" of 1%, or a cool $6,500, and another $6,500 per any point that gets thrown in.