I have two choices right now. First would be to make $1000 a month and pay off my S2000 by next summer so I free up $386 a month for a house. The other is to buy a house now and just pay my minimum payment or a little more per month. Everyone I talk to says to buy a house now cause prices are going up fast in my town, but I

 

Depends upon what prices are doing in your area, what you are comfortable doing, how much you will be putting down, loan type, how long you intend to live there, how fast you will have to get out of it, etc.

Whatever you do don't do one of those low, low interest rate in the intial years or %only loans. I own a mortgage company and I can tell you there are MAJOR downsides to them.

Like the Post Office says, if it sounds too good to be true, it probably is.

There ain't no free lunch. You either pay now or you pay later, but you always pay. Later is usually more expensive.

 

You own a mortgage company and you refer to them as "low, low interest rate in the inital years or %only loans"? What is that? Percent only? Initial years? I would think someone who owns a mortgage company would be a little more versed in the correct terminology, and offer better advice than "major downsides".

I work in the mortgage industry and couldn't disagree with Wildncrazy more. For a first time homebuyer, put as little down as possible. If property is appreciating considerably in your area, why put your own money down? Why not let the appreciation of your home do it for you? It is called leverage. Also, if you are young, and I assume you are, get a 3 or 5-year ARM. DO NOT GET A 30-YEAR FIXED. Don't pay a higher rate for money you won't need for 30-years. If you are young you will most likely move in the next few years, so lock in your rate for 3-5 years and call it a day. I don' think anyone in the last 50 years has ever gotten a 30-year fixed rate mortgage and actually paid on it for 30 full years. Short-term money is always cheaper than long term money.

And for the rebuttal of 1)"well what happens in 3-5 years when rates adjust?" Who the hell cares if you aren't in the house then? Or if you are still in the house, get another 3-5 year ARM at a lower rate. 2)"But then you have to pay for another refinance" So what, you saved thousands of dollars in interest payments, so you can easily afford a refinance, and if you property has appreciated significantly, you should refinance and try to get rid of PMI if you have it.

After all that, I say don't buy yet. Pay the car off first. It is always better to have fewer bills. You don't want to get in a position where you are stretched too thin financially and have to either sell the home or the car down the road if things get tight. Best of luck.

Detroit

 

Owned! He "owns" a mortgage company.

Back on topic, I personally and rationally think you should buy a house first then make minimum payments on your S. I don't think you owe that much money on your S anyway, and your house will appreciate; most houses do.

 

I don't know about WA, but in FL prices are stagnant, with high downward pressure as supply is way high and there are few speculators in the game anymore.

 

I owe $17,500 on my S still. So i've got about 3-4 more years of payments ahead of me.

 

Detroit, I totally I agree with you in an appreciating market, put less in and use the rest for other investments, etc. but honestly I don't think there is much of that in store for us in the near future.

If I do into a low apr or interest only loan I am solely depending on appreciation in order to get any equity. Now the market starts to slide, I now have negative equity. I refinance again with interest only, now interest rates have risen another point or two so I can't even get the deal I got last time, still not making any progress on the principal. Still in the hole on the house and will lose my shirt if I sell.

I see your point in an appreciating market, but a traditional loan is much better when interest rates in the future look to be pushing up and home demand and prices are decreasing. At least after 10 years on a traditional you will have enough equity to get out even up should the market dump a bit.

Take a look at the home market in Japan, not to say it will occur here to its fullest extent, but prices went from aboout 200k to 350k on average and came back to the mid 250's a few years later. All those paying interest only are going to be in big trouble if that happens (actually we all will be, but interest only in particular).

The economy does not look to have a bullish future here in the states, neither does the housing market. I would certainly go with a fixed now, knowing that the future does not look to benefit me in any way on an adjustable.

As Steven said, the prices in Florida are already stagnating (Vegas is another example, I am already hearing of prices decreasing there). Yes, Florida was one of the markets that shot up like wildfire, but eventually this will trickle across the board.

My advice would be to stay the conservative route, plan to be in the house for 5-10 years because you may not be able to walk away that easily. Maybe you don't have to live there, you could always rent it out, but be prepared to hang onto it. You don't need a huge downpayment if you plan to stay a while so that could allow you to buy now if you wanted. Just prepare wisely and don't overdo it on buying something out of your comfortable range.

 

Detroit I have learned that it is better to broach a subject gently than to go into all the details up front. You never know what someone's knowledge base is until you listen to them for a while or ask questions. Everyone understands the concepts behind "one of those low, low interest rate in the intial years or % only loans." wheras they might not have know the "industry" specific terms. If that description elicited a question I would have been happy to answer it in any amount of detail that was necessary.

Us Southern boys move at a different pace than do you slick Detroit boys.

As far as letting your equity work for you I began my post with " Depends upon what prices are doing in your area, what you are comfortable doing, how much you will be putting down, loan type, how long you intend to live there, how fast you will have to get out of it, etc." Unless your plans are to pay the home off I would always counsel to put the minimum amount of money down that accomplishes your goals. For some that might be 0% -3%, but for others that might mean 50%. It takes a lot more data to have a clue.

As far as should you get a 3-5 year ARM initially and if you are still there in 3-5 years "get another at a lower rate". Who's to say what rates will be in 3-5 years, but I would guess definitely not lower but even if they were you'd still have to refinance and eat the closing costs. In a refinance you are the seller and the buyer so you have both sets of closing costs ($3k-$5k). As I mentioned before there ain't no free lunch. You can hide those costs in the new loan amount of in a higher interest rate but they don't go away so there goes a lot/all of your cost saving. And who is to say you can even refinance in 3-5 years. Maybe your job situation has changed or property values have dropped and you can't refi.

Detroit also forgot to mention that the 3-5 year ARMS aren't at a much lower rate than the Fixed loans so you won't be saving thousands of dollars even without a refi. The average American buyer moves every 5-7 years so how long do you think you will live in the house if you buy it? One thing is for sure, unless you are living in a depressed area you do want/need to buy a house IF IT FITS YOUR LIFESTYLE. Right now your landlord is getting all the appreciation and tax breaks.

Detroit at this point neither you or I know the area or his plans. You can't give advice until you know the situation. In any case it isn't about you or I it's about him and his situation. The 3-5 year ARM may work better for you, but it doesn't for most people. Fortunately it appears that saner heads have been chiming in so I am sure he will be getting some balanced advice. Not that yours is wrong, but it only works if your area is having great appreciation, you definitely will be moving quicly and you have ample time to sell when the time comes to move.

My credentials aren't important to this conversation other than the fact that I can add some inside information that a layman might not have access to. But let me say that I have been involved in the industry in multiple capacities for over 30 years (creds available upon request) and have had time to see financing fads come and go. I have also gotten to see the downsides of many of these "trick" financing types. They work in certain instances but only in certain instances.

What's the downside to the % only loans? They allow you to pay % only payments for a fixed period of time like 3-5 years. The longer that period the higher the interest rate. You will be making payments that are almost as high as a fully amortizing loan (hows that for correct terminology?) BUT you are not paying your loan off so you'd better have lots of appreciation. At the end of the % only period your loans usually converts to a 1 month fully amortizing ARM, which means your payments change every month. Also your payments go WAY up because now you've only got 25 years or so to pay off the loan.

As far as a 30 year fixed goes, it is by far the most common loan type for a reason - it works for most people.

We don't know enough about your situation to say for sure which way would be best for you and since it requires a crystal ball to be absolutely certain, I can add that since the car payment is normally your highest loan payment then, for qualifying purposes, it might be better to pay the car off. Now the downside, getting rid of that loan can lower your credit scores PLUS what will house prices in your area be doing while you are paying it off? Will you lose more value by waiting? Rates are rising, which is a good thing, but that means you could also stand to lose more money by having a higher rate on the house (much larger than a car) loan than you would by doing it now.

Why are rising rates a good thing? Well it's a sign of a more healthy economy which means you probably are more confident that a raise is in your future. More houses are bought when rates are rising than when rates are falling. When rates are falling people tend to be worring about little things like "will I have a job tomorrow" or will I have to take a pay cut. Also property values tend to be their softest when rates are falling - it's back to that pesky weaker economy.

 

2 quick things, because I don't intend on turning this into a pissing contest. The first is that if you read my post, I suggested that he not buy a home. The second is that he states that homes in his area are appreciating, so I can only take it for what he said. If that is true, he will be gaining equity through appreciation. Based on this small bit of information provided, I gave my answer.

 

whats the rate on the car loan?

im guessing its probably lower than the house rate would be.....

get in the house....renting sucks.