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Scarlett
ParticipantDoes anybody know what would possibly be the ‘catch’ or ‘fine print’ with those loan modification? I can think of a few… e.g. they can’t sell, or if they sell, all the profits go to the bank(s), plus they have to pay back some of the money that were ‘forgiven’… I can’t imagine it’s really and truly a freebie with no strings attached…
ParticipantDoes anybody know what would possibly be the ‘catch’ or ‘fine print’ with those loan modification? I can think of a few… e.g. they can’t sell, or if they sell, all the profits go to the bank(s), plus they have to pay back some of the money that were ‘forgiven’… I can’t imagine it’s really and truly a freebie with no strings attached…
ParticipantDoes anybody know what would possibly be the ‘catch’ or ‘fine print’ with those loan modification? I can think of a few… e.g. they can’t sell, or if they sell, all the profits go to the bank(s), plus they have to pay back some of the money that were ‘forgiven’… I can’t imagine it’s really and truly a freebie with no strings attached…
ParticipantDoes anybody know what would possibly be the ‘catch’ or ‘fine print’ with those loan modification? I can think of a few… e.g. they can’t sell, or if they sell, all the profits go to the bank(s), plus they have to pay back some of the money that were ‘forgiven’… I can’t imagine it’s really and truly a freebie with no strings attached…
ParticipantDoes anybody know what would possibly be the ‘catch’ or ‘fine print’ with those loan modification? I can think of a few… e.g. they can’t sell, or if they sell, all the profits go to the bank(s), plus they have to pay back some of the money that were ‘forgiven’… I can’t imagine it’s really and truly a freebie with no strings attached…
Participant[quote=esmith]Yes but in the “good old days” mortgage interest rates were 9% or higher. Average rates were above 9% continuously from 1978 to 1991. And saving money was easier. Banks paid 8-10% interest rates on savings and CDs. One dollar invested in Dow in 1980 was worth $3.50 in 1990.
Suppose that banks require max 30% housing to gross income. If the mortgage interest rate is 10%, that limits you to 3.1x income and you need to save 62% of your annual gross income for your 20% down payment.
If the mortgage interest rate is 5.5%, you need to save 90% of your annual gross income. You need to save 50 percent more money, even though savings interest rates are approaching zero, and stocks aren’t what they used to be, either. (One dollar invested into Dow in January of 2000 is now worth 91 cents)
[/quote]Yep, the rates should go up and the prices should go down in some correlation until we get to some more normal levels…
esmith, you make a very interesting point. It’s another consequence of the low rates, that the downpayment got to be so much of your income.
When one calculates the housing costs he should include the costs of HOA and MeloRoos and insurance and property taxes to be realistic.
The prices should be such that a family with an income of let’s say 150K should not need more than 3-4 years to be able to reasonably save for 20% downpayment for a decent 4 bdr home… (currently priced at ~600K in PQ,or RB, but should probably be at 400K…).Participant[quote=esmith]Yes but in the “good old days” mortgage interest rates were 9% or higher. Average rates were above 9% continuously from 1978 to 1991. And saving money was easier. Banks paid 8-10% interest rates on savings and CDs. One dollar invested in Dow in 1980 was worth $3.50 in 1990.
Suppose that banks require max 30% housing to gross income. If the mortgage interest rate is 10%, that limits you to 3.1x income and you need to save 62% of your annual gross income for your 20% down payment.
If the mortgage interest rate is 5.5%, you need to save 90% of your annual gross income. You need to save 50 percent more money, even though savings interest rates are approaching zero, and stocks aren’t what they used to be, either. (One dollar invested into Dow in January of 2000 is now worth 91 cents)
[/quote]Yep, the rates should go up and the prices should go down in some correlation until we get to some more normal levels…
esmith, you make a very interesting point. It’s another consequence of the low rates, that the downpayment got to be so much of your income.
When one calculates the housing costs he should include the costs of HOA and MeloRoos and insurance and property taxes to be realistic.
The prices should be such that a family with an income of let’s say 150K should not need more than 3-4 years to be able to reasonably save for 20% downpayment for a decent 4 bdr home… (currently priced at ~600K in PQ,or RB, but should probably be at 400K…).Participant[quote=esmith]Yes but in the “good old days” mortgage interest rates were 9% or higher. Average rates were above 9% continuously from 1978 to 1991. And saving money was easier. Banks paid 8-10% interest rates on savings and CDs. One dollar invested in Dow in 1980 was worth $3.50 in 1990.
Suppose that banks require max 30% housing to gross income. If the mortgage interest rate is 10%, that limits you to 3.1x income and you need to save 62% of your annual gross income for your 20% down payment.
If the mortgage interest rate is 5.5%, you need to save 90% of your annual gross income. You need to save 50 percent more money, even though savings interest rates are approaching zero, and stocks aren’t what they used to be, either. (One dollar invested into Dow in January of 2000 is now worth 91 cents)
[/quote]Yep, the rates should go up and the prices should go down in some correlation until we get to some more normal levels…
esmith, you make a very interesting point. It’s another consequence of the low rates, that the downpayment got to be so much of your income.
When one calculates the housing costs he should include the costs of HOA and MeloRoos and insurance and property taxes to be realistic.
The prices should be such that a family with an income of let’s say 150K should not need more than 3-4 years to be able to reasonably save for 20% downpayment for a decent 4 bdr home… (currently priced at ~600K in PQ,or RB, but should probably be at 400K…).Participant[quote=esmith]Yes but in the “good old days” mortgage interest rates were 9% or higher. Average rates were above 9% continuously from 1978 to 1991. And saving money was easier. Banks paid 8-10% interest rates on savings and CDs. One dollar invested in Dow in 1980 was worth $3.50 in 1990.
Suppose that banks require max 30% housing to gross income. If the mortgage interest rate is 10%, that limits you to 3.1x income and you need to save 62% of your annual gross income for your 20% down payment.
If the mortgage interest rate is 5.5%, you need to save 90% of your annual gross income. You need to save 50 percent more money, even though savings interest rates are approaching zero, and stocks aren’t what they used to be, either. (One dollar invested into Dow in January of 2000 is now worth 91 cents)
[/quote]Yep, the rates should go up and the prices should go down in some correlation until we get to some more normal levels…
esmith, you make a very interesting point. It’s another consequence of the low rates, that the downpayment got to be so much of your income.
When one calculates the housing costs he should include the costs of HOA and MeloRoos and insurance and property taxes to be realistic.
The prices should be such that a family with an income of let’s say 150K should not need more than 3-4 years to be able to reasonably save for 20% downpayment for a decent 4 bdr home… (currently priced at ~600K in PQ,or RB, but should probably be at 400K…).Participant[quote=esmith]Yes but in the “good old days” mortgage interest rates were 9% or higher. Average rates were above 9% continuously from 1978 to 1991. And saving money was easier. Banks paid 8-10% interest rates on savings and CDs. One dollar invested in Dow in 1980 was worth $3.50 in 1990.
Suppose that banks require max 30% housing to gross income. If the mortgage interest rate is 10%, that limits you to 3.1x income and you need to save 62% of your annual gross income for your 20% down payment.
If the mortgage interest rate is 5.5%, you need to save 90% of your annual gross income. You need to save 50 percent more money, even though savings interest rates are approaching zero, and stocks aren’t what they used to be, either. (One dollar invested into Dow in January of 2000 is now worth 91 cents)
[/quote]Yep, the rates should go up and the prices should go down in some correlation until we get to some more normal levels…
esmith, you make a very interesting point. It’s another consequence of the low rates, that the downpayment got to be so much of your income.
When one calculates the housing costs he should include the costs of HOA and MeloRoos and insurance and property taxes to be realistic.
The prices should be such that a family with an income of let’s say 150K should not need more than 3-4 years to be able to reasonably save for 20% downpayment for a decent 4 bdr home… (currently priced at ~600K in PQ,or RB, but should probably be at 400K…).Participant$130K is take-home pay under $7.5K/month after taxes and $10K in 401k, assuming generous employee match, married, 2 dependents w/ standard deduction, $0 for wifey’s IRA and employee covered insurance. Your marginal rate is 25%, but since you itemize you forfeit your standard deduction and assuming you cheat by claiming MR your “effective rent” is closer to $3.5K.
Your fixed monthly expenses are:
$3500 “effective rent”
$500 principal
$100 HOA
$300 cable, phone, misc utilities
$600 car payment (entry level sedan and minivan)
$500 food
$300 gas & car maintenance
————————
$5800
You are left with $1700/month to cover medical bills (two kids – what are the chances at least one will need braces?), landscaping, clothing, electronics, furniture for your new house, vacation, preschool/school supplies, birthday parties… you will be able to set asside few hundreds/month, if that, to recover your $130K downpayment.I am not saying it is impossible, but it sounds very risky and the engineering types with a spouse and two kids, that you count on, are usually risk-aware and rarely accept prayer as a convincing risk mitigation plan.
BGinRB,
You really underestimate the cost of food. I did too, until recently when my financial advisor required my monthly expenses and I was forced to add up transactions on my cards saying “Vons”, “Ralphs”, “Costco”, “Trader Joe”…. For a family of 4, the food is at least $1000, could be even $1500. unless they eat only mac&cheese.
But except for that, you make a very good case.Another issue that one may want to take into account when comparing rent vs. own: cars, gas, car maintenance and insurance. If one rents close to work/school and in walking distance from parks and grocery stores and if buying means moving further away, requiring 2 cars, driving anywhere and a significantly longer commute, that will drive up the costs of transportation a lot.
Participant$130K is take-home pay under $7.5K/month after taxes and $10K in 401k, assuming generous employee match, married, 2 dependents w/ standard deduction, $0 for wifey’s IRA and employee covered insurance. Your marginal rate is 25%, but since you itemize you forfeit your standard deduction and assuming you cheat by claiming MR your “effective rent” is closer to $3.5K.
Your fixed monthly expenses are:
$3500 “effective rent”
$500 principal
$100 HOA
$300 cable, phone, misc utilities
$600 car payment (entry level sedan and minivan)
$500 food
$300 gas & car maintenance
————————
$5800
You are left with $1700/month to cover medical bills (two kids – what are the chances at least one will need braces?), landscaping, clothing, electronics, furniture for your new house, vacation, preschool/school supplies, birthday parties… you will be able to set asside few hundreds/month, if that, to recover your $130K downpayment.I am not saying it is impossible, but it sounds very risky and the engineering types with a spouse and two kids, that you count on, are usually risk-aware and rarely accept prayer as a convincing risk mitigation plan.
BGinRB,
You really underestimate the cost of food. I did too, until recently when my financial advisor required my monthly expenses and I was forced to add up transactions on my cards saying “Vons”, “Ralphs”, “Costco”, “Trader Joe”…. For a family of 4, the food is at least $1000, could be even $1500. unless they eat only mac&cheese.
But except for that, you make a very good case.Another issue that one may want to take into account when comparing rent vs. own: cars, gas, car maintenance and insurance. If one rents close to work/school and in walking distance from parks and grocery stores and if buying means moving further away, requiring 2 cars, driving anywhere and a significantly longer commute, that will drive up the costs of transportation a lot.
Participant$130K is take-home pay under $7.5K/month after taxes and $10K in 401k, assuming generous employee match, married, 2 dependents w/ standard deduction, $0 for wifey’s IRA and employee covered insurance. Your marginal rate is 25%, but since you itemize you forfeit your standard deduction and assuming you cheat by claiming MR your “effective rent” is closer to $3.5K.
Your fixed monthly expenses are:
$3500 “effective rent”
$500 principal
$100 HOA
$300 cable, phone, misc utilities
$600 car payment (entry level sedan and minivan)
$500 food
$300 gas & car maintenance
————————
$5800
You are left with $1700/month to cover medical bills (two kids – what are the chances at least one will need braces?), landscaping, clothing, electronics, furniture for your new house, vacation, preschool/school supplies, birthday parties… you will be able to set asside few hundreds/month, if that, to recover your $130K downpayment.I am not saying it is impossible, but it sounds very risky and the engineering types with a spouse and two kids, that you count on, are usually risk-aware and rarely accept prayer as a convincing risk mitigation plan.
BGinRB,
You really underestimate the cost of food. I did too, until recently when my financial advisor required my monthly expenses and I was forced to add up transactions on my cards saying “Vons”, “Ralphs”, “Costco”, “Trader Joe”…. For a family of 4, the food is at least $1000, could be even $1500. unless they eat only mac&cheese.
But except for that, you make a very good case.Another issue that one may want to take into account when comparing rent vs. own: cars, gas, car maintenance and insurance. If one rents close to work/school and in walking distance from parks and grocery stores and if buying means moving further away, requiring 2 cars, driving anywhere and a significantly longer commute, that will drive up the costs of transportation a lot.
Participant$130K is take-home pay under $7.5K/month after taxes and $10K in 401k, assuming generous employee match, married, 2 dependents w/ standard deduction, $0 for wifey’s IRA and employee covered insurance. Your marginal rate is 25%, but since you itemize you forfeit your standard deduction and assuming you cheat by claiming MR your “effective rent” is closer to $3.5K.
Your fixed monthly expenses are:
$3500 “effective rent”
$500 principal
$100 HOA
$300 cable, phone, misc utilities
$600 car payment (entry level sedan and minivan)
$500 food
$300 gas & car maintenance
————————
$5800
You are left with $1700/month to cover medical bills (two kids – what are the chances at least one will need braces?), landscaping, clothing, electronics, furniture for your new house, vacation, preschool/school supplies, birthday parties… you will be able to set asside few hundreds/month, if that, to recover your $130K downpayment.I am not saying it is impossible, but it sounds very risky and the engineering types with a spouse and two kids, that you count on, are usually risk-aware and rarely accept prayer as a convincing risk mitigation plan.
BGinRB,
You really underestimate the cost of food. I did too, until recently when my financial advisor required my monthly expenses and I was forced to add up transactions on my cards saying “Vons”, “Ralphs”, “Costco”, “Trader Joe”…. For a family of 4, the food is at least $1000, could be even $1500. unless they eat only mac&cheese.
But except for that, you make a very good case.Another issue that one may want to take into account when comparing rent vs. own: cars, gas, car maintenance and insurance. If one rents close to work/school and in walking distance from parks and grocery stores and if buying means moving further away, requiring 2 cars, driving anywhere and a significantly longer commute, that will drive up the costs of transportation a lot.
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