But common sense tells you that it's around 3-5 years. That's good info to know/
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- Thread starter SoapyCy
- Start date
But common sense tells you that it's around 3-5 years. That's good info to know/
Here's my rule of thumb for debt:
Less is better than more. Given the two options the OP listed, I would go with the option of putting down $50k. I also wouldnt be buying a $200k house for my first home either because I believe in living below your means, but that is besides the point.
Less is better than more. Given the two options the OP listed, I would go with the option of putting down $50k. I also wouldnt be buying a $200k house for my first home either because I believe in living below your means, but that is besides the point.
The mortgage interest is only deductible if you itemize deductions. You have to have a pretty large loan or other deductions otherwise it gives you absolutely ZIP savings.
In addition, I think that the more important question in whether you are taking out 30 yr versus 15 year mortgages. You pay SOOOOO much more interest on the 30 year that should rule them out. if you have the pile of cash (very rare these days) I'd still say that most should use the cash for the house down payment as you'll have the lower payment and more room for error. Plus, as Dave Ramsey says. Going with the 3% down loan just invites your friends Broke, Dumb, and Stupid to move in with you.
In addition, I think that the more important question in whether you are taking out 30 yr versus 15 year mortgages. You pay SOOOOO much more interest on the 30 year that should rule them out. if you have the pile of cash (very rare these days) I'd still say that most should use the cash for the house down payment as you'll have the lower payment and more room for error. Plus, as Dave Ramsey says. Going with the 3% down loan just invites your friends Broke, Dumb, and Stupid to move in with you.
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Did you take the same amount of time to acquire the down payment?
Is the the person who put down 3% 23 years old and the person putting down the 50k is 28 years old. This would matter because the person with 50k probably spent 5 or 6 years renting an apartment.
(ages are just example numbers)
If you want to be debt free, then this is the way to go.
If you want to grow your wealth, then keeping the money and investing is the way to go. If the mortgage is 4%, the long term return on the market is 7-8%, you will be increasing your wealth by 3-4% on money used and borrowed (in this case, the debt from the mortgage, and the 50k left to invest).
In general, more money now, is better then later. Keeping the 50k now is better then trying to get it during the length of the mortgage.
Most mortgage brokers have told me that the average is right around 7 years for all homeowners. Guess where you just start to make significant principal payments on a 30 year mortgage, yep right about 7 years.
Your still ignoring risk. By taking a long term, 100 year average, and just expecting an 8% return you are doing the math wrong. By taking a lump sum, say this 50k down payment, and investing it all at once the return next year could very well be -3-5%. Its hard to recover from an initial loss like that and skews the math lower for expected returns.
Being debt free and growing wealth aren't mutually exclusive. I would actually say its easier to grow wealth by being debt free since you arent starting from in the hole.
You have to make a decent amount of money in order for it to make sense. These are old from 2005 but couldn't find newer data.
[TABLE="width: 0"]
[TR]
[TD]State
[/TD]
[TD="width: 99"]
Overall Itemization Rate (Percentage of Returns that Itemize)
[/TD][TD="width: 69"]
Rank
[/TD][TD="width: 384, colspan: 5"]
Itemization Rate by Income Group (AGI)
[/TD][TD="width: 84"]
Per Capita Income (2006)
[/TD][/TR]
[TR]
[TD="width: 72"]
Under $50,000
[/TD][TD="width: 72"]
$50,000- $74,999
[/TD][TD="width: 72"]
$75,000- $99,999
[/TD][TD="width: 84"]
$100,000- $199,999
[/TD][TD="width: 84"]
$200,000 and above
[/TD][/TR]
[TR]
[TD="width: 103"]United States
[/TD]
[TD="width: 99"]
35.61%
[/TD][TD="width: 69"]
[/TD]
[TD="width: 72"]
17.92%
[/TD][TD="width: 72"]
58.31%
[/TD][TD="width: 72"]
76.27%
[/TD][TD="width: 84"]
89.51%
[/TD][TD="width: 84"]
93.34%
[/TD][/TR]
[/TABLE]
it's a fine financial decision if he thinks he can earn more with they money than the interest rate the bank is charging.
And leveraged investing using low interest, tax deductible funds has a place too.
It's about risk appetite. Not a one size fits all. Personally I would take my chances and invest. If I can't beat a tax deductible 4% in the market over a long term then I'll take my lumps.
what we do is invest a portion and pay extra principal each month. so either way we are coming out ahead each month.
Guess some people are just more generous than others. Like I said if your donations and house deductions don't eat up the standard (if you have a loan), it's not hard
I agree with you on your first point. However, a $200,000 house may be well within the means of a first time home buyer. A young couple with good degrees could easily make $150,000+ in the right job market, which would most definitely justify a $150,000 mortgage. Even a $100,000 income would justify a $150,000 mortgage.
It all comes down to location. We built a house for around that amount 12 years ago. Whereas, that amount would be a ****shack in new york or DC.
according to chase mortgage we can "afford" a 500k house. not happening ever because i like to eat.
the people i know getting the IFA loan are not married so one income qualifies under the income limits but together they make about 100k i'm guessing.
I hear you. I have that 15 yr term which is a bit of a bastard on California real estate, but the equity position in 5 years will be better than the previous 10!
Wife then wants to cash in and buy a big Texas home. Then I'll be in the same boat. 80% down and invest a good chunk or throw everything at the down-payment and have a very minimal home payment.
Any way you slice it if folks are even considering their options then they are doing well!
Yeah I know what you are saying.
I just think making a blanket statement of "first time home buyers can't afford a $200,000 house" is stupid. Maybe they can afford that house more easily than a 2nd or 3rd time home buyer.
True that the two are not mutually exclusive, I just believe that the ultimate financial goal should be to grow wealth.
Your second point is not true. If you pay off debt first so you are not in the hole, it takes years to get to that point. As opposed to having debt and growing money that you currently have. The difference between your return and your debt is the value you would have gained. So long it is above 0, it is the better financial option.