Mortgage drama

6 replies [Last post]
Mark Vergeer
Mark Vergeer's picture
Offline
Joined: 01/16/2006

I hope all is well with home-owners visiting this website over at the other side of the pond!

n/a
Bill Loguidice
Bill Loguidice's picture
Offline
Joined: 12/31/1969
Mortgages and houses

Yeah, unless you can guarantee you'll be able to stay at the house for two years, then it's not a good idea to get a mortgage since there are almost always penalties. You would obviously need to discuss it with your mortgage broker, but I do believe the cut-off is two years. Also, you can sell your house for more and buy a CHEAPER house once in your life prior to retirement without getting taxed (pocketing the extra dough), but you can always sell your house and buy a more expensive home as many times as you want without taking a tax hit. Each time we moved, we upgraded, so it wasn't an issue. In one case we pocketed some of the extra money, but usually we put it all into the new home to lower the mortgage rate (i.e., increase the down payment).

By the way, when you do finally determine if you'll be somewhere for at least the next two years, you should look into one of the many programs (FHA) for first time homeowners that require little or no down payment and give you other aid. Also, even today with the house boom of the past ~10 years pretty much over, it's very rare to sell your house at a loss. Worst case would almost certainly be break even.

======================================
Bill Loguidice, Managing Director
Armchair Arcade, Inc.
======================================

n/a
yakumo9275
yakumo9275's picture
Offline
Joined: 12/26/2006
tax

I think its two years, you have to own a house to avoid the tax hit (less than two years is considered an investment so you pay more tax).

It would have to be serious circumstances to sell a house at a ridiculous loss. just dont sell in the winter. :)

-- Stu --

n/a
Matt Barton
Matt Barton's picture
Offline
Joined: 01/16/2006
What if you need to move?
Bill Loguidice wrote:

Let us know more, Mark, as So yeah, I'm a big believer in the idea of mortgages, not to mention that unlike paying rent, the mortgage interest is tax deductible, so you get some of it back at the end of the year. I NEVER had big tax returns until we got a house.

Thanks for all the great info, Bill. That's very persuasive. The only thing is, how long do you need to plan to stay somewhere before springing for a mortgage? What if a guy doesn't know if he may need to relocate to a different state in a year or so? Or, what if he buys a house one year, then sees a much better offer a few months down the road? Is it easy to get "stuck" and have to pay through the arse to get out of it?

I'm thinking, worst case scenario: Get a house, have to move, sell house at ridiculously low price, have to pay the difference.

n/a
Bill Loguidice
Bill Loguidice's picture
Offline
Joined: 12/31/1969
Mortgages
Matt Barton wrote:

I have to admit, I know zero about mortgages. I've always just lived in rented apartments. Too poor to even think about owning a home. However, some of my friends have said, "Why waste money on rent when you could be buying up equity?" I have no clue what they mean.

Let us know more, Mark, as I'm not sure what you mean about the "Mortgage drama" and I'd certainly like to know. As for that statement Matt, if you have a mortgage, your financial possibilities open up tremendously. Most home prices consistently go up (or they have been for several years until relatively recently), meaning you can buy a home at $200,000 and the next year see the value go up to $250,000. You've just "made" $50,000 in one year without doing anything. The other option is to get a home equity loan for the $50,000 and use it pay off all you're debt. You then just have to pay off the home equity loan, on which the interest is often tax deductible. There are countless other scenarios and examples, but in short, being a home"owner" (you don't own the full property until the loan is paid off in 20 - 30 years) has many, many financial advantages. Getting your first home loan then makes it relatively simple to get additional loans and additional homes. Getting the first one can be tough, particularly if you have some debt.

Before Christina and I were married or even engaged, we bought a condo. At the time, I was carrying about $20,000 in debt. Between various gifts and other maneuvering, we were able to get a mortgage for like $90,000, which was roughly the cost of two bedroom condos in the area we were looking in at the time. After about 2.5 years, the value of the property went up to $160,000 or so. In that time, we had already refinanced once to get rid of the debt I had brought with me. We then got our next house, a four bedroom older home, for around $238,000. In about three years we were able to sell it for around $360,000 (I think). During that period we also refinanced and changed mortgages several time. We're now in the house you visited a while back, a house I never thought we'd be able to have or afford, but, through home values constantly rising and decent fiscal practices, have been handling reasonably well. Without that first place though, the condo, we would have never gotten to where we were. Ironically we got a lot of advice at the time that we shouldn't have bothered with the condo, as those don't rise in value, etc., and we should have just waited to get a small single family home. If we waited, I have no idea what situation we would have been in. Frankly, you need to take some risks and chances in order for this to all pay off. With all that said, we never even had much of an out of pocket down payment, if any, after the condo. The difference between the sale price and the mortgage value was what we used for the down payment, just like if you trade in a car you own (say valued at $3,000) for a new car (you'd get $3,000 towards the purchase of a new car). So yeah, I'm a big believer in the idea of mortgages, not to mention that unlike paying rent, the mortgage interest is tax deductible, so you get some of it back at the end of the year. I NEVER had big tax returns until we got a house.

======================================
Bill Loguidice, Managing Director
Armchair Arcade, Inc.
======================================

n/a
Matt Barton
Matt Barton's picture
Offline
Joined: 01/16/2006
mortgage

I have to admit, I know zero about mortgages. I've always just lived in rented apartments. Too poor to even think about owning a home. However, some of my friends have said, "Why waste money on rent when you could be buying up equity?" I have no clue what they mean.

n/a
yakumo9275
yakumo9275's picture
Offline
Joined: 12/26/2006
doh

I dont see anything on the news. Im on a fixed rate. do I need be worried ;)

subprime lenders are their own worst enemy basically so I've little to no sympathy, but on the other hand know how difficult it is to get a mortgage. I see 'American Home' is now bankrupt, and is the 10th largetst lender but they specialise in subprime so...

-- Stu --

n/a

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.