Posted on 02/08/2008 2:09:27 PM PST by bshomoic
I remember the nervousness of my first house (really a rural 500- sq ft cabin on a 35-degree slope and tiny lot), but the appreciation in two years helped me move up to a 1000 sq ft 18-year-old rambler on a flat half-acre closer in, and two years after that to a different state and a new(ly rebuilt) 3000 sq ft house on half-acre adjacent to greenbelt some 20 minutes to downtown Seattle.
10 years now in our fifth house, no plans to move.
A $50 fridge is so much better than a $500 one, you won't believe it. I have a 26 cu.ft. freezer that is 25 yrears old, cost me $50 when the new ones were going for $350. I replaced the rubber around the door last year. It still runs just fine.
If you have any neighbors who have to keep up with the Joneses, tell them you want first dibs on anything they want to sell.
Grab the local newspaper and start clipping the coupons. $10 off on $20 bag of lawn fertilizer of an unknown brand has the same chemical as if it came from the biggest and bestest of them all, Monsato.
Remember to put money in that home repair fund every month so when you need a new water heater you can pay cash and install it yourself.
Do you know how to shut the water off at the street, shut the gas off at the meter, turn the power off and on at the panel box? If not, learn before you need to do it.
Congratulations
bring back debtors prison for these deadbeats.
It is my understanding many of those sub-prime loans were made without a requirement for PMI. Too risky...
Don’t bet the farm on it.
I suppose it depends on the circumstances. Like whether/not you actually live in SF or general “Bay Area.”
Because, really, if you live in SF you can get twice the house with half the mortgage moving to Tracy or Antioch.
But depending where you choose to live in southern CA you may very well end up paying more – and in some cases substantially more.
We moved from San Leandro in Jan 2004. Our little 825 square foot, 2 bedroom, 1 bath home there fetched just over $500,000 (and that isn’t SF).
Got to Irvine and you couldn’t find anything in the form of a detached single-family home for that. You’d have to bump up into the 600’s or even 700’s. Even today you won’t find *anything* nearby under the high 800’s/low 900’s.
A friend in Newport Beach just sold his ~16 year home that he paid roughly $300,000 for. He sold it for $4.1 million.
Of course, you can get more for the buck going to Riverside or Palm Desert or somewhere out in the sticks. And, seriously, if you have a job where you start at 4:00am it really isn’t a problem. You just hit the freeway at 2:30am and the traffic is light. LOL.
[As a serious aside, consider this:
Irvine is somewhat unique in that almost all developable land is owned by a single entity – The Irvine Company.
When the Irvine Company sells land to developers they fetch $5 million/acre. If the developer plops down 6 homes per acre, my quick ‘n dirty math tells me you’re looking at 5/6 of a million dollars for the lot ONLY.
So basically look at any new home in a development and you're looking at $1.25 million and UP once it’s all said and done. Just so you’re prepared…]
Why SHOULD they get more? They get the house. The lender probably went along with the inflated value on the appraisal. And, if there's equity in the house they get the money over the original price.
Unfortunately, not so. Your helpful Congress to the rescue: Homeowners who went through foreclosure in 2007 have Congress to thank for a valuable new benefit. Before the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers often owed income tax on the value of their home loan after that loan was cancelled through a foreclosure proceeding, otherwise known as “cancellation of indebtedness income.”
Now, “if you had cancellation of indebtedness income on your principal residence, the first $2 million goes income-tax free,” said Dan Thomas, a certified public accountant with Thomas & Thomas Certified Public Accountants in Newport Beach, Calif.
This only applies to debt forgiven on a principal residence, not investment property,
Congratulations.
It might seem expensive, but you probably got a really good price on your house.
The value of your house is going to fluctuate over the time you live there. You can’t really control much of what drives the relative value of your house so don’t worry about it.
If you take care of it, and make your payments you’ll be fine.
I won’t be paying - whoever lent them the money will be paying.
So did I, ten years ago. If I sold it now, I couldn't afford to buy it back.
If Hillary and Obama have thier way, yes! we will be paying the bill. This is the change they have in store for us. income redistribution
My reco is not to do that, for a number of reasons. First, it will make you a "slave" to your mortgage in a sense. Second, you have to enjoy *some* of your earnings or some part of your brain will begin to associate *earning* with *lack of enjoyment*. Third, a mortgage is probably the very cheapest money you can borrow, and you can't extract your overpayments without refi'ing, which typically involves fees. Fourth, the money you spend overpaying your mort is kind of "gone".
One thing I recommend is to print out an amortization table of your mort, for a couple of reasons. (Google "mortgage calculator" and you'll find 20+ sites that let you do this.) One is to spend some time studying it for some of the benchmarks, for example, how many [normal] payments does it take so that a [normal] payment is 10% principal? 25%? 50%? 75%? Second, play with the numbers a little on some of the interactive mortgage sites, with the idea of figuring out an intelligent amount to overpay your mortgage. If you want to retire your mortgage early, I applaud that, but I myself found that there was a point at which I was hampering my "operating" capital by sinking it into the mortgage. You can make an amazing difference by adding an extra 5-8% a month, which is almost nothing. By the time you're adding 20%, though, it makes less and less difference than you might think, and it's hard to maintain over the (still) many years you have to go. Of course, you don't have to overpay by the same amount every month, but you don't need to create an accounting burden for yourself, either.
I'm just suggesting you play with the mort calc to work out a fairly painless extra principal payment you can make comfortably and regularly. For example, if a one-time amount of money equal to say 5 or 8 mortgage payments suddenly dropped into your lap, I would definitely NOT toss it all into the mort. Balance.
I’ve done extensive research on this part of the homeowning experience. I figured that I’m paying $60 a month for PMI, which is a PITA, so I’ll look to how much I spend to get down the 20% on the principal I need to remove PMI. That saves me some money each month. That could be done in relatively short order, and by then, I’ll also have paid off my car and my student loans. I’d essentially be riding an income surplus of $1000.
For an investment of a few years of misery and slaving to the grindstone, I could become debt free and start heavily investing in my future/retirement/house/etc. That would be a much more desired outcome than the bank slave.
They should try living in my adopted country of Japan, where homes are built not to last, and depreciate like cars. When you buy a condo, you make money because the magnitude of the depreciation is less than what you would be spending if you rented.
Everywhere you'll see lots advertised for half a million dollars (or whatever) with a 35-year-old house included for free.
I'm anxiously looking forward to entering the real estate market here -- it's like the 1950s must have been, for both good and bad (sub-2.0% mortgages, 50%-down not unusual, but ludicrously-strict lending standards, banks refusing you if you have the wrong skin color, all that fun stuff). If you have a ton of cash to put down and value old buildings and are willing to spend the money to keep them looking good, you can get a real bargain on fully-depreciated houses. I'll take this over California's craziness any time.
I think you are giving people in Washington too much credit.
I’m in the real estate business and I don’t see any signs that these guys had any idea what was going on. The private sector is far, far more powerful than the Feds when it all lines up for or against something.
The real estate boom was a trifecta of timing: 1. interest rates were low after 9/11, 2. stock market wasn’t going up so investors needed other places to make money, 3. the 1995 Gingrich tax reform made real estate saleable by removing the onerous requirement that all capital gains had to be reinvested within 2 years.
The entire world had fairly easy credit at the time so the US wasn’t the only one having a real estate boom. The ‘ownership society’ was a good idea but it wasn’t what caused the UK, France and Spain to drop interest rates to 3% and start seeing double digit real estate appreciation.
Wall Street got addicted to the mortgage bonds because they gave better returns than other investments on Wall Street in the years after 9/11 because a terrorist attack couldn’t stop mortgages. And Wall Street firms used some Arthur Anderson type schemes to create more investment vehicles by collateralizing each mortgage 4 to 7 times EACH.
The typical bank will lend each $1 they receive in deposits in a checking or savings account about seven times. They lend $7 for each $1 they have on hand. This has been determined to be the acceptable level of risk by the FDIC to insure the deposits. Nobody had ever tried doing this with mortgages before though.
Mortgages are a liability AND an asset to a bank/lender. They make money but they are also potentially a loss at the same time. So creating 7 different loans based on the collateral of a mortgage which is also a potential liability is not exactly a manageable risk unless the housing market never went down and defaults never rose.
A big part of the deflation in real estate right now is that fact that borrowers cannot refinance or renegotiate their adjustable loans. This was something which has historically been available since lending standards have not typically changed dramatically within a single year. But for the lender to change the terms of a mortgage, they also would have to change the terms of up to 7 CDOs where were all daisy chained on top of that mortgage. And this created a lack of flexibility which forced borrowers to be more likely to simply default. And that brought down all of the CDOs which were involved as well. And like a giant house of cards it all came down.
Derivatives were the previous version of this same problem but they didn’t involve mortgages or housing. It was a way to create incredible risk with the appearance of very little risk. If you are in the financial market, this is called fraud.
If you are in the gaming business, this is called genius. Take MegaBucks for instance. People sit at a machine and see that they can make $14,000,000 if they get all three symbols. So they mentally calculate the odds of getting those three symbols. And you see about 5 to 10 other machines in the same casino you are in playing for the same jackpot. The odds seem about as good or better than the average lottery. But in reality, you are playing against thousands of people at the same time because they are all at different locations. The likelihood that it will be YOU who wins just got decreased by the number of people who are currently playing at any exact moment. The spread between apparent gain and actual probability of gain was an MIT thesis paper which made the mathematician who came up with the idea tens of millions of dollars in royalties in the 1990s alone.
Trust me. The thought process of people who were buying and ‘investing’ in real estate in the last 7 years was not influenced by anything either political party was doing. Greenspan was the only one they listened to because he controlled the Fed rate. And greed was the factor which caused people to buy handfuls of properties just like it was greed which caused Merrill Lynch to invent billions of dollars in ‘assets’ which were really just bets on a continued real estate boom.
It is never a good idea to lend money to people with bad credit, and the pigeons are coming home to roost in that regard for the like of Merrill Lynch, et al. It is not just homes where this has happened though. I bought a certified used car last month and the dealer was amazed that I put 20% down. He told me most people put very little, if anything down these days. I told him I would have put more down but at 3.9% interest over 5 years, it made no sense. Not only that, these luxury car dealers are offering 5 and 7 year loans with little down. He told me they have some kind of ‘loan’ insurance they tack on in cerain of these cases. Once again, the car dealer is looking for ways of selling more car than many can afford, and shuffle the loan along so they have no risk if the person can’t afford the car down the road. It is no wonder there are so many Mercedes, BMW, and Lexus’s on the road. Only problem is, a lot of the people are leasing or owe more than the car is worth.
What Moms and Dads paid for the total cost of their homes in the late 50s and early 60s, today’s working class pays that, every single month, for 30 years... just for the monthly mortgage alone.
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