Ram Samudrala wrote:

- quote -

The housing market is really tight here. There are few new developments
and even fewer older townhouses for sale. Most of the people I talked to
around here, friends/co-workers are extremely excited about how fast
their own homes are going up in value.

- quote -

I'm considering an interest only loan which would make my mortgage
payments about the same as my rent payments (plus these do not go up for
a while, unlike rent). I can afford about another 300$ per month which
in total would be 3600$/year which would be towards taxes/insurance. I'm
hoping however that I would get atleast that much tax benefit out of
buying. I don't have numbers on the tax benefits but I'll work those out
when I do my taxes for this year.

- quote -

Yes that is what I'm thinking. I don't want to miss out on the low rates

- quote -

I'll look into it. Until now I never had deductions that would cross my
standard deductions.

- quote -

I'm certain about that. I'm considering the 5yr ARM. I checked my credit
score and will do again before prequalifying for the mortgage. I havent
found any site which will tell me what kind of loan I will qualify for
with my income/credit score/etc. details.

Thanks for the input

- quote -


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding.

- quote -


Well I have cash of approx 10% of the house. So I wan't to pay at most
5% so I have some left over.

- quote -

I am saving consistently. But now I want to pay for a house instead of
paying rent.

- quote -

If I rent I pay 50k (ignoring rent increases). I can afford the extra
300/month payments.

- quote -

I don't pay renters insurance. I dont know what property taxes and
insurance would come to. That is one of my problems. I don't know how
much more expense I'm getting into.

- quote -

Hmm I just take standard deductions now. I definitely will have tax
savings but I haven't computed what those will be.

- quote -

That doesnt seem to be a risk in my area. It is really hard finding
houses and supposedly more and more old folks are coming in driving
property prices up. Thats another reason I want to buy. I'm not sure I
can catch up with the property price increases, which after a lot of
hunting, I found to be approx 8%/yr.

- quote -

Thanks everyone for the input..

SD

I don't generally agree with a lot of what the other posters have
said, but since we don't know your specific details, it's hard to
say. Only you know how stable your income is, what the housing market
in your area is like, etc. I'd also not buy a house for a short time
unless I could be fairly confident housing prices will go up (which is
a function of the kind of house you have too). It's a judgement call
for you to make.

I'd first create a list of expenses/gains you currently have related
to the rental (rent, renter's insurance, etc.) and ones you'll have as
a result of owning your home (interest and principal payments,
insurance, maintainance, taxes, tax benefits if you can itemise). Then
see if owning a home increases your disposable income or not. If it
does, then it's worth purchasing one even for a short time (with the
caveat about the behaviour of housing prices).

I'd definitely do the 0% down loan (it's quite easily possible with
competitive rates I think). The interest rates are still historically
low and you can do the calculations, but it will end up being better
than the PMI (especially with the tax benefits). This is done by
taking a second loan (I'd do a fixed rate loan here).

Note that one of the benefits of owning a home is the reduction in
taxable income (interest, property taxes) when you itemize which has
ramifications if you have OTHER deductions you could normally take but
don't because you're taking the standard deduction. In WA, for example
which has no income tax, for two years (I believe) I can now deduct
all the sales tax I've paid along with the home interest and taxes. So
I'd take all these factors into account.

If you're absolutely sure you will only stay for 5 years, I'd do 5 or
7 year ARM for the first loan.

--Ram

SD <siddharthgdalal[at]coldmail.com> wrote:

- quote -

SD wrote:
- quote -

Well my point was that it sounds like you don't have a few-$10k to cover
a down payment plus another 5-10k accessible cash - which might be
needed to fix the roof or water heater if you were a home owner.

I am considering home owning
- quote -

Because it could work out to a wash - remember, you'll be pouring
property tax money and interest money and insurance money down the drain
instead. That's no different than rent really unless you're banking on
the home going up in value a lot.

Let's say you borrow $200k at 5.7% on a 30-year amortization loan. The
first 12 months you'll pay about $14k total: $11,500 in interest and
only $2,500 towards principal. Over five years it'd be a total of $56k
to interest and $14k towards principal. Or put another way, you will
have paid $70k to the bank and you'd still owe $186,000.

I don't know what property taxes are where you'd buy but those are in
effect down the drain as well - just the same as rent. Ditto insurance
which will be higher than renter's insurance.

The interest & taxes might net you some federal income tax deductions
but be careful not to overstate that...see how much your taxes are
lowered vs. your current rental situation. It might not be much. All an
income tax deduction does for you is lower the costs of borrowing and of
property taxes, it doesn't do away with those costs.

And you'll take on the risk of the home not going up in value (or not
going up "enough"). If the home doesn't go up by the time you'd move
then you'd net perhaps $190k from it after paying 5% commission on the
sale. Also, along the way you may have maintenance costs. Netting it all
out the risk might not make sense for such a short term purchase, with
zero or no equity (which acts as a buffer against a drop in home
prices). There's a lot to be said for pulling up the tent stakes on 30
days notice!

-Tad

"John A. Weeks III" <john[at]johnweeks.com> writes:
- quote -

That depends. A lot. Assuming you have 10% equity
in the house, there are very inexpensive (yes, floating
rate) home equity lines of credit which can be used to
make up the difference. Current rates on such lines
are in the 3-4% range.

- quote -

You may still come out way ahead with a 2nd instead of
PMI inasmuch as one can pay off a 2nd and be done with
it. Getting rid of PMI is theoretically easy - but
in practice, lots of folks have a hard time getting
it gone.

Nevertheless, for the OP, this is all just theory.
He said he's got to choose between 5% down and
having cash available for maintenance and move-in.
That says to me that he's really got 0% and there's
no way he's going to get a decent rate if he's got
no equity whatsoever.

I recommend that he find a way to live as cheaply
as possible - maybe a crappier apartment - for a
year or two and save up a bunch more cash.

--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
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- quote -

I have more than 10k accessible cash but I dont want to part with it. I
like to have 5k easily accessible, 10k accessible if really needed (=
part with some investments). So I do not want to part with more than 10k
preferably nothing. Also I have no credit card debt. Most of my credit
card balances are on 0APR cards and the money is in a separate account
earning interest at the credit card companies expense and this money is
not counted anywhere in my accounts. I am considering home owning
because I can afford to pay a few 100$ more than I pay for rent now and
still manage to save. Now if that can buy me something, then why pour
rent money down the drain.

In article <yob4qhttbtq.fsf[at]panix3.panix.com> ,
BreadWithSpam[at]fractious.net wrote:

- quote -

This is certainly one way to avoid paying PMI. But remember
that the interest rate on the 2nd will be much higher than
the fixed rate on a good first mortgage. That higher rate
will also be a variable rate, and the Fed has indicated that
there will be a number of rate hikes this year. If you do
the math, you find that the cost of the additional interest
on the 2nd just about matches the cost of Private Mortgage
Insurance. The net-net is that you end up paying either way,
you just have a choice in what you call the payment.

The strategy I like is to get the best possible 1st mortgage
you can, then work your butt off the first few years and get
it paid down under 80%. Do it like you life depends on it
and skip all the 2nd mortgage stuff.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

- quote -

Well it is more like between 10% down and having cash for setting up
house etc. I can manage 5% but I'd prefer not to. I'd rather pay off
faster than pay a bigger chunk now.

SD wrote:
- quote -

SD,
If your plan is to live there for 5 years or less, and you have less
than $10k in accessible cash, and some credit card debt, what's the
rationale for buying a home? Why not just rent and avoid the hassles and
risks of shorter-term home ownership?

-Tad

SD <siddharthgdalal[at]COLDmail.com> writes:
- quote -

By using more than one loan. It is possible to put down
less than 20% if you take out a primary mortgage for
less than 80% and make up the difference with a second
loan. Talk to a mortgage agent for details. You will
still almost certainly have to put *something* down,
even with aggressive second loans, you'll likely have
to come up with 5 or 10%.

- quote -

Home prices tend upwards. They *sometimes* go down and
they often stagnate, too. Transaction costs are fairly
high in homes, too. Don't count on prices continuing to
skyrocket. That's a very bad idea unless by "skyrocket"
you mean "beat inflation by percent or two a year,
assuming I stay in the house for at least a decade or two".
But I don't think that's what you meant.

- quote -

If you have to choose between 5% down and having cash
for setting up house and maintenance, I'm sorry to tell
you that you really probably ought to be saving money
for a while longer. Basic move-in costs are higher
than you think. They always are.


--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

Randy wrote:

- quote -

I heard that it is possible to avoid paying PMI. Can someone tell me how?

- quote -

Well house prices seem to be skyrocketing here. I dont have hard numbers
on how they go up but I am trying to find them. So I'm not too worried
about that. I just want to end up paying less than renting.

- quote -

Thanks! I'll keep this in mind. Also, are online loans any good? I mean
is Eloan/ditech etc. worthwhile or should I just look at local sources
such as our credit union?

- quote -

I dont really need the cash now, but I might need some of it for setting
up the house and maintainance.

- quote -

Thanks!

- quote -

Well I do not want to pay down every penny I have for a downpayment.
Plus there is a serious housing shortage where I live. House prices are
about 60% of those here if you drive an hour and to find anything
affordable, it is probably atleast 10 miles out of town.

- quote -

This is the main reason I dont want to make a downpayment. So I have
money to cover all these expenses. I will try as far as possible to find
a house in excellent condition but then noone can see the future. Also
I'm hoping that some of these costs will be less as I'm looking at
townhomes/condos.

- quote -

It will take me atleast another year, maybe two to save for the
downpayment. My credit score is 686 and I hope to make it cross 700 by
paying off all my 0 apr cards in this month.

- quote -

Thanks
- quote -

On Fri, 7 Jan 2005 04:07:02 CST, "John A. Weeks III"
<john[at]johnweeks.com> wrote:


- quote -

Although we come at it from different places, I tend to agree with
John about the lack of a down payment.

Being able to afford a house goes way beyond paying loan and escrow
costs. It's the roofers, electricians, plumbers, yard maintenance
supplies (or service), carpenters, painters, appliances (purchase and
repair) etc. that are the real costs. By and large with rent, you
don't pay those costs now - they will be new, and over and above the
PITI.

For someone who hasn't had the cash flow to save the down payment, I
would be extremely cautious about jumping in. Remember, you probably
will qualify for the loan (c'mon, lenders sell debt), but that means
little.

Good luck.

-HW "Skip" Weldon
Columbia, SC

In article <crkb0s$6s4$1[at]murdoch.acc.Virginia.EDU> ,
SD <siddharthgdalal[at]COLDmail.com> wrote:

- quote -

loan at the longest. It is rare, however, that folks buy a house
because it makes good financial sense. Most people just want a
house and don't care how bad a deal they are getting into.

- quote -

It doesn't make any sense to buy a house for only 5 years.
You will not pay down the principal enough to cover your
closing costs, so you will have to pay big money to sell it.
And if the housing bubble bursts, you may not be able to sell
it at all if you end up in a negative equity situation.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

There are basically two implications of having no down payment
(assuming that you have good credit history):

1. You will almost certainly have to pay private mortgage insurance.
This is a fee paid monthly as part of your mortgage payment that goes
to the lender. It is not tax deductible and is paid so that in the
event you default on the loan, the lender will be able to recover from
an insurance company. Generally, you have to pay PMI until you are
willing to put down at least 20% of the mortgage.

2. You will have very little in equity when you go to sell in the next
five years. But of course, paying down a higher amount doesn't really
create equity, it just shifts you from owning cash to owning equity in
your home. You don't really gain anything from a higher downpayment
(gains only occur if the value of your house goes up).

There is possibly (maybe probably) a third implication, depending on
your lender. You might wind up paying a higher interest rate on the
loan because the lender might perceive higher risk in lending to you,
knowing that you have no "skin in the game", so to speak. In this
scenario, it would be easier for you to just walk away from the loan
since you have no cash to lose, really, other than your credit rating.
I'd ask you lender if the interest rate would be different if you put
down the 5%. Then do the math and see what the zero down loan is
really costing you

Personally, unless I really needed the cash, I'd put down the 5% if it
would get me a lower interest rate. When you sell, the downpayment
comes back to you, so you don't really lose anything. The only cost to
you is what is called opportunity cost, meaning that you lose the
opportunity to invest this 5% somewhere else. But over a 5 year or
less period, I doubt if you could find a risk-appropriate investment
that would earn more than the interest on the 5% that you are paying on
the loan. This means that you are paying more on the loan than you
would be earning on the investment, so you would likely lose.

Don't know about VA property taxes, but I would bet that you could call
the county tax commissioner and find out exactly what has been paid on
this house. If it has been a long time since this house was previously
sold, it will likely be reassessed based the new sale price, which
could make the taxes go up. Ask the commissioner's office (or your
realtor) for a rough estimate. Call a couple of major insurance
companies for a an insurance quote.

My wife & me planning on buying a house sometime this year. Our rent is
quite high and after seeing some online calculators I have come to the
conclusion that for slightly higher monthly payments we can afford to
buy a house. However we don't have enough money for 20% down or for that
matter even 10% down. I can manage 5% down but would prefer not too. I
want to know if it is wise to take a zero down mortagage. What are the
disadvantages of that? What options do I have in zero down mortgages?

Also I live in VA, I'm not certain what to enter in property taxes and
insurance rates in online calculators. I'm assuming the house will cost
around 200000. I plan to live in the house for a maximum of 5 years.

TIA for any help
SD