It ain't rocket science: if I don't want to spend, say, $2000 a month right now, then I probably still won't want to three years from now. And if I didn't want to blow my whole wad on the 20% down payment required for the traditional mortgage, then maybe I shouldn't be a homeowner right this second. It's called delayed gratification. So simple and yet so far beyond the grasp of so many.I'm a renter, and I buy used vehicles for cash up front, and there's a reason for it.
Once upon a time, I wanted a certain new car very badly, a Chevy Sprint Turbo. In red. It was soooo cute. Only the fact that I was 18 at the time and had no credit whatsoever saved me from a huge mistake.
Only about a year later, I briefly worked in the automotive repossession industry and got to see the other end of what would have happened had I bought that car that I could in no way have afforded. I began to get a healthy respect for what taking out a note on a new car means. You are, in essence, promising someone that you will over the next however many years not lose your job for any reason. You won't get fired or laid off. The company won't go out of business. You won't have to quit to take care of a sick family member. You will, come hell or high water, be able to pay them X amount of money a month for the next four or five or six years, or they can take their wheels back. And make no mistake, that is their car until you make that last payment. In American suburbia if you lose your wheels, you've lost your job anyway.
When I was 18, there was no way I could look someone in the eye and honestly guarantee them my income for the next five years. Heck, I couldn't have guaranteed it for the next five weeks. If that's the way it is with a car, how much more so with a house? When you are signing a mortgage, you are promising an awfully high level of stability and security for the next fifteen to thirty years. There's only one other life event that is such a statement of future stability and responsibility. Of course, some folks seem to have kids with even less thought for the future than they put into signing mortgages...
A mortgage is a little different than a car loan. Assuming you are buying real estate the old fashioned way, and not with some trumped up, fancy ARM interest only piece 'o crap, it's really an asset, with a liability against it.
ReplyDeleteAnd sorry about the 'guy' reference.
I have been for the last few years buying used police cars & paying cash.
ReplyDeleteBut property, I did buy, biggest mistake was doing a refi.
It pushed the payment up past what rent would have been, but with a little luck I'll have it paid off by the end of this year.
A lot of people let the Credit cards pile up, then refi, & just push all the debt onto the house payment, then they run the cards back up.
mortgage = mort + gage
ReplyDeletewhich translates from the french
death + pledge
A charming thought.
Paid my mortgage off several years ago. Now if they would quit taxing the hell out of my place...
ReplyDeleteI have to live somewhere. I can either rent a place and pour that money into something I'll never own, not get any tax benefit, and be at the whim of the owner regarding rent increases (my last apt was going to go from 850 to 1250 a month). Or, I can take a risk and buy a home, putting that payment into something I could eventually own. I also get the tax benefits (which I used to adjust my witholding so I get the cash each month rather than at tax time), and a hefty profit since the market took off right after I bought it. At the time, my rent was the same as my mortgage, so I didn't even have to pay more. At one time, my house was worth 3 times what I paid. Now it's worth a mere 2.5x.
ReplyDeleteAnd if I get laid off? I have enough equity in the home to sell it below market value and still make enough profit to rent an apartment for a couple years.
Chris
...and if one in twenty is that savvy, I'll eat my hat.
ReplyDeleteThis post made me recall the Mike Judge film Idiocracy. (If you haven't seen it, rent it, watch the first 5 to 10 minutes, and then return it). Basically, in the beginning of the movie, they show 2 types of people: those who understand the risks of having children, and those who do not. Guess who procreates more?
ReplyDeleteI'm sure it sounds white trash bigger'n hell, but a trailer comes in real handy for times like this. The newer ones are pretty damn nice and allow you to squirrel away money for a "real" home even quicker than living in a moderately nice apartment, and no one said you (generic you) absolutely have to plant it in a trailer park and string up Christmas lights mid-July.
ReplyDeleteJust make sure to dig a tornado shelter...
I bought a house. The mortgage payment is actually about the same as what rent would be, I can do whatever the hell I want with it, and I'm already ahead in equity (i.e. if I were to bail out and sell, even in a depressed market, I'll profit).
ReplyDeleteDoesn't seem so bad to me, but then, I also chose a house I could actually afford ($87500 at time of purchase) instead of some ponderous McMansion at five times the cost with some economical black magic to drop the first five year's payments.
"...and if one in twenty is that savvy, I'll eat my hat."
ReplyDeleteIf I'm quick, I'll be comment 10, and between LabRat and I we'll up your total to 3 savvy folks, thus greater than 1 in 20. Thanks to some fortunate circumstances and old fashioned hard work and planning, we could have bought our home for about 80% cash on the nail. Doing so though would've raped the bejesus out of us on taxes, so we're in with a pair of mortgages, 1 regular 30 year, 1 7 year ARM, both of which will be paid off before term. Since the ARM will be paid off before the first time they can jack the rate up on us, we're damn near swindling them, and the mortgage officer was even kind enough to quietly agree. This leaves the original nest egg more or less intact via careful investment (so far we're using less for mortgage payments than it's earning), taxes more favorable due to the mortgage interest, and with a steady diet of home improvement (not just maintenance), the property value is already way higher than when we bought it last year.
I'd suggest a nice bechamel sauce over a gently poached Glock hat. ;)
"If I'm quick, I'll be comment 10, and between LabRat and I we'll up your total to 3 savvy folks, thus greater than 1 in 20."
ReplyDeleteI'd smugly say that folks likely to comment here are self-selecting for likely membership in the one rather than the other nineteen. ;)
Debt is a tool, just as is a savings account or a gun. You can use it wisely, or you can be stoopid.
ReplyDeleteIf I were young and single, now? I'd find some over-priced five acres for $15K or $20K (more or less, depending on the state you're in) and move a travel trailer onto it. A 24' trailer is about $12,000. I'd get a freight container moved in for secure storage of "stuff". A tin roof over the whole shebang for a carport and shade (reduces the A/C bill). Paint as appropriate, and plant appropriate growies.
But then I've never walked out to a curb, looked at my house, and said, "Wow! Man, I live in a really neat house!"
But a ten-year loan at around $300 a month or $350? I can live with that.
Aw, well. I have a little old 14-year-old house of some 1,400 sq-ft that I built myownself. Been free and clear from the git-go.
Art
Tam, do the people who make edible underwear make hats too?
ReplyDeleteOur first mortgage was more than we had been paying for rent only because we had gotten such an outstanding deal on our previous apartment. When we sold 19 years later, the 30 year mortgage was already payed off and we got six times the purchase price. Used half that money to buy our next place, and some of what was left to by a place for our son which where we are living now. Sold the second place after 9 years for not much more than we payed, but that was because the foundation had cracked and there were other problems.
As for cars, I will admit to once, many years ago, having financed a used car. It lasted past the time I payed it off before it got to where I abandoned it. I've never payed more than $2500 for a car, and have gotten good use out of cars I payed as little as $75 for.
Leave us not get too cocky about what "smart investors" we are to grab up mortgage deductions and low interest rates. Both are gifts from grateful politicans, and have about buttkiss to do with unalienable rights. You are never more than one highway plan away from eviction. I never realized how much property costs until after mine was paid for. For what I pay in insurance and real estate taxes (kick in a smidge for state-guaranteed "reasonable" utilities) I could rent this place and buy a rifle. This so-called middle class is just the best-kept peasantry in history.
ReplyDeleteRents must be mighty low where you are or you're paying a massive tax/insurance bill. My tax/insurance bill broken down by month wouldn't even touch rent on a studio apartment.
ReplyDeleteLike I said earlier, I have to live somewhere. While property ownership is a myth, the fact that my mortgage payment (which includes taxes and insurance) on a 2k sq ft home is the same as the rent on a 1k sq ft apartment is not a myth. Nor is it a myth that my "take home pay" increased by several hundred dollars after adjusting my withholding to account for the mortgage interest tax deduction. I went from paying fed taxes each tax season to breaking even on my taxes while having a larger paycheck each month, all while spending the same amount for my "shelter".
There's no doubt in my mind that I'm financially better off for buying a home.
The only downside is having to mow the grass and being responsible for things that break.
Chris
comatus,
ReplyDeleteI recommend Florence King's column on "The High-Strung Class".
There was one line in there (and I'm paraphrasing) that "only in America would a crushing thirty year debt be seen as a safety valve against civil insurrection..."
'Nonymous, I'm not arguing the point that you're "better off" buying through mortgage and writing the interest off your taxes. Absent the congress-delivered tax break and the congress-delivered interest subsidy, line up your ducks and count the chickens again. Something ain't natural in this "market."
ReplyDeleteRoger that comatus.
ReplyDeleteThat's why I'm trying to make sure I'm on the OUTSIDE of the Credit Bubble when it bursts.
That means having a paid-off mortgage, and no credit card balance.
And a stash of cruffletoys and cruffletoy feed.
The problem though is the tax code. I promotes house ownership via the mortgage deduction. I bought a much bigger house then I wanted to maximize my deduction. Now that it is almost paid off, I will have to go buy another or else I will end up paying a lot of taxes.
ReplyDeleteNext year for me, the standard deduction will be greater then my itemized one so I will just write a check to get rid of the mortgage and go on and find another property to buy.
Now if no mortgage deduction, then home ownership would drop and a lot of folks would learn to live in a much smaller house. Basically fix the tax code to fix the mortgage problem.
"Now if no mortgage deduction, then home ownership would drop and a lot of folks would learn to live in a much smaller house. Basically fix the tax code to fix the mortgage problem."
ReplyDeleteThese pro-hovel arrangements already exist. They're called New York City apartments.