I've learned a good amount from watching you guys go back and forth.

Any good comments on what to look for in a mortgage?

These discussions of renting vs. owning have also made me think about vehicle leases. I'm starting to see some situations where leasing becomes a fairly good financial option.

 

what to look for in a mortgage?
-Interest rate (duh)
-FIXED RATE
-15 or 30 year term (any more and you are just going to pay thousands more over the term but not reduce the payments much)
-NO prepayment penalty
-Option to apply overpayments to principal and NOT to future payments

As to renting vs buying, WildandCrazy is right. Owning is better provided you are not in a market where it makes more sense to rent (like mine). I'm past the binge drinking age and have a very stable job history. I've done the cash flow analysis and renting is BY FAR the best choice for me. In most markets though, buying makes sense.

As to vehicle leases, if you KNOW you will only have the car a few years it can make sense. The chief advantage is that it removes resale risk. If the car depreciates faster than planned, it's someone else's problem. If the car is worth more than your residual, you can buy and flip. DO NOT PUT A DOWN PAYMENT ON A LEASE. If you wreck the car the next day that money is GONE as it is not your car!

 

Unfortunately due to the issues in the Sub Prime market (read that as people who shouldn't have gotten a loan in the first place) ALL of the markets are going thru some changes right now.

Virtually all of the 100% loans and loans to people with bad or marginal credit have disappeared or have gotten so many strings attached to them that they might as well have disappeared. Also many of the Prime mortgages have tightened up considerably.

Good credit is a must to get a good loan. As Steven975 said, fixed rate makes the most sense for most people. There is a time and a place for an adjustable loan but usually they make the most sense for the super jumbo loans and not for the everyday rank and file. If you think you won't be there long and are therefore are considering an Adjustable loan you may want to rethink the whole concept of buying.

What if you can't sell quickly when it's time to move? That's the big downside to owning. If you are in a situation that requires a quick sale and your market or you your home style isn't selling quickly then you could be in a world of hurt.

Rates are dropping right now. It is easy to get a 30 year fixed at under 6% right now. Who knows how far they will drop or how long they will stay down but typically this is just a "winter thing". Rates tend to be their lowest about the last week in January to about the middle of February. They rise in the summer when demand is at it's peak.

No prepayment penalty is a must, but is standard on the "standard" loans. If your loan has a prepayment option then you are getting a non-standard loan and that means there may be other gotchas to worry about.

 

yes rates are pretty good right now. Generally they are tied to the federal funds rate with some seasonal variance based on demand. Lenders also have differing tolerance of risk, and this component of mortgage rates has definitely gone up. If you can't put over 10% (or even 20%) down, you may not be able to find a loan at all...and that assumes a good credit score (over 650-700 depending on a few factors). Right now the federal funds rate is just off the highest it's been in years (even though it is still historically very low).

With the devaluation of the US dollar, things don't bode well for significantly lower rates any time soon. The devaluation means the dollar buys fewer foreign goods and services which means basically any finished product with foreign components (almost everything) will have upward pressure on the costs and thus price...in a nutshell inflation. The Federal Reserve raises rates to combat inflation which increases the demand for dollars...and thus its value. Unfortunately raising rates makes the cost of borrowing higher which can bring economic growth to a halt.

 

There are still a LOT of programs available at good rates and terms with only 3-5% down @ 620 credit scores but 10% down and 700 scores does give you more options.

And you are right that who knows what the "new guy" will do about interest rates. Just keep in mind that anything the Feds do doesn't directly impact mortgage rates. Now, what the markets do based upon what the Feds do does affect mortgage rates. So basically mortgage rates are one step removed from the Feds rate cuts/increases.

A quickie thing to watch is the bond markets. The rates (point structure behind the rate) tends to go exactly the opposite of the bonds. If bonds are up then rates are down & vice versa. Of course this is only good for short term planning. Long term planning still requires a crystal ball or time machine.

 

[QUOTE]
S2020 it is real simple you don't buy a house to rent it if you know you will be losing money.

 

Not at all.

The only seemingly contradictory part is the Renting Sux vs. there are times you really can't afford to buy a house. As with all things, there are exceptions to every rule.

Also we are talking private homeownership vs. investment ownership. 2 very different beasts.

One is (or should be) totally cash flow driven and one has the additional the benefits of home ownership vs. renting someone else's house.

 

I don't know whether you really don't know math or just pretend not to so that you can sell your products.
I already gave you a real life example and you still stick to your belief.

I can either buy a house for $815K or rent the same house for $2K/month. Show me in hard number why it is "always better" (your words, not mine) to buy than to rent.
prove to me that I am losing money by renting.
If you can, I will buy the house and as a bonus, send you a check for $1000 from the money I saved. Deal?
I'm not talking about investment.

when the difference is $4-5K/month, Eff ownership satisfaction. I can get plenty of satisfaction pocketing that money, thank you very much.

 

Exactly, that example of an $815K house renting for $2000 isn't as rare as you'd think. In Miami it's actually worse in some places. I also doubt a $815K house in CA rents for even close to the mortgage, either.

Still, the benefits of home ownership are there and quantifiable although this differs from person to person. Price appreciation not so much because the price gain on your house in almost all certainty won't be more than the interest you paid.

When the difference is $4-5K a month, you should rent and pocket it. After investing that money you'll have ONE MILLION DOLLARS in just over 12 years at 8% return! The sucker who decided to mortgage the same house will have less than $450K in equity (including 1/3 or $270K in price appreciation) on a 30 year 6% mortgage! That's an apples to apples (as you both lived in the house) comparison of renting and buying with the renter being $550K richer.

Over the course of the mortgage (in this case tripling the home value which is overly optimistic) the renter is almost $3.7M richer.

This assumes that the buyer mortgages the home. Buying outright significantly shrinks the difference (as you don't pay almost a million in interest!) but the number of people who can buy a $815K house outright is small.

 

steven i am wondering if you factored in tax savings on salary for a 50% bracket person. if you did not, for argument sake, what would the the tax savings for somebody at the very bottom end of the spectrum.

also, wouldnt the difference be 2-3k a month...

and according to a table i got from bankrate @ todays avg rate @ month 144 (12 years), ther person would have 524k in equity not including appreciation.