- BYOB
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Re: The salary you must earn to buy a home in 27 metros
Gotcha. Loud and clear.
- Goose
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Re: The salary you must earn to buy a home in 27 metros
Sorry. It's been a very frustrating thread.
But, I get it. You don't think home ownership is a good investment, and you don't like mortgages.
I hear you.
But, you aren't throwing much out there in the way of reforms or alternatives.
You like the option of renting?
We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists.
- TraderJay
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Re: The salary you must earn to buy a home in 27 metros
Maybe BYOB's frustration lies in the amoritization schedule, which is pretty depressing when you actually look at the chart and see how payments are applied.
Example: $150,000 / 4% / 30 yrs.
First payment: $500 interest $216 principal $435 escrow
It's kind of depressing shelling out $1151.00 and seeing $216 is the only thing that moves the needle in your direction.
- Goose
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Re: The salary you must earn to buy a home in 27 metros
Believe me, I get the frustration 'cause I've been there.
Our disagreement is that he believes that it takes 30 years to pay off a loan because you are paying so much interest.
I believe that you are paying so much interest because you are taking 30 years to pay off the loan.
It might sound like a chicken and egg thing, but there are real factors in play.
Make some modest extra principle payments each month and you will 1. shorten the loan, and 2 decrease the amount of interest you pay.
Or, borrow less principle in the first place.
Or rent.
Maybe I'm just not an outside the box thinker, but I don't see many other options.
We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists.
- Goose
- Cogito ergo sum
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Re: The salary you must earn to buy a home in 27 metros
One thing has been rattling around my brain since yesterday. A couple of posters expressed outrage that, over the course of a thirty year loan, you may end up paying as much, or more in interest as you pay in principle. This was described as "greed", and "absurd", even worthy of damnation.
But, is it?
Let's turn things on their heads for a moment. Suppose you were the lender.
Suppose you lent $500 to the federal government in the form of a series EE savings bond in 1985.
Today it would be worth $2,306.
So after thirty years you would get your $500 back, plus $1806 in interest "on top of that".* In other words you would earn more in interest than the actual amount of principle that you loaned.
Somehow I don't see anybody complaining about that.
Looks like we might all be going to hell! 
*
We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists.
- tennyson
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Re: The salary you must earn to buy a home in 27 metros
Goose wrote:
One thing has been rattling around my brain since yesterday. A couple of posters expressed outrage that, over the course of a thirty year loan, you may end up paying as much, or more in interest as you pay in principle. This was described as "greed", and "absurd", even worthy of damnation.
But, is it?
Let's turn things on their heads for a moment. Suppose you were the lender.
Suppose you lent $500 to the federal government in the form of a series EE savings bond in 1985.
Today it would be worth $2,306.
So after thirty years you would get your $500 back, plus $1806 in interest "on top of that".* In other words you would earn more in interest than the actual amount of principle that you loaned.
Somehow I don't see anybody complaining about that.
Looks like we might all be going to hell!
*
Depends if we are receiving interest or paying interest ! 
All smiling aside, I think the general experience of people owning a home of 30 years is likely a positive one and one where their investment has done quite well. I do not think that is always the case, however. What galls me most about the recent downturn was the lax lending requirements, overeager sales agents, etc. which set up the current debacle to occur. There were people buying homes that never should have been able to by homes and lenders equally making loans that had a high risk of default. When the bubble broke, it was too late and we are now still on the mend from that fiasco.
"Do not confuse motion and progress, A rocking horse keeps moving but does not make any progress"
- Goose
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Re: The salary you must earn to buy a home in 27 metros
Some advice from Dave Ramsey.
The Truth About Mortgages
from daveramsey.com on 03 Aug 2009
Myth: "I'll get a 30-year mortgage, but I'll pay it like a 15-year mortgage, so if something goes wrong I'll still have wiggle room.
Truth: Something will go wrong. Avoid 30-year mortgages.
If you say, "Cross my fingers and hope to die, I promise, promise, promise I will pay extra on my mortgage because I am the one human on the planet who has that kind of discipline," you are kidding yourself.
Sick children, bad transmissions, prom dresses, high heat bills and pet vaccinations come up, and you won't make the extra payments. The FDIC says that 97.3% of people don't systematically pay extra on their mortgages.
The ideal way to buy a house is the 100% down plan—pay cash for the whole house. Sounds weird, doesn't it? But think how much fun that would be! No mortgage! No payments! If paying cash for a house seems too far out of reach, you can still buy a house if you make wise choices.
Save a down payment of at least 10% on a 15-year (or less) fixed-rate mortgage, and limit your monthly payment to 25% or less of your monthly take-home pay.
You can probably qualify for a much larger loan than what 25% of your take-home pay will give you. But it's not wise to spend more on a house because then you will be what Dave calls "house poor." Too much of your income will be going out in payments, and that will put strain on the rest of your budget. You won't be able to save and pay cash for furniture, cars and education.
The really interesting thing about 15-year mortgages is that they always pay off in 15 years. Thirty-year mortgages are for people who enjoy slavery so much they want to extend it for 15 more years and pay thousands of dollars more for the privilege. If you must take out a mortgage, pretend only 15-year mortgages exist.
Many people hang on to their mortgage instead of paying it off early because they're convinced they will get a tax advantage. If you're keeping your mortgage in order to get a tax cut, that's just dumb. Don't fall for that myth; the math just doesn't add up.
And, whatever you do, never buy a trailer, mobile home or timeshare. The value of these properties drops like a rock. You will never get back what you put into them.
When you're ready to buy or sell a home, it's best to work with a real estate agent you can trust. Talk with one of Dave's real estate Endorsed Local Providers today!
We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists.
- Goose
- Cogito ergo sum
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Re: The salary you must earn to buy a home in 27 metros
Does equity help you if you aren't going to sell your house? Isn't the only way to access the equity by basically re-borrowing the money or sell your house?
Sure, until you sell your house, or take out a home equity loan, that equity is an illiquid asset.
In times of housing market turmoil, your equity can be an asset that has more risk associated with it than does cash.
So, I wouldn't recomend that you consider your house (or anything else for that matter) to be a risk free investment, or to put money in it that you will absolutely need on a short time frame. But, historically, home ownership has been a good long term investment.
So, if you're not interested in selling your house because you bought it to live in, and you don't want to take out yet another loan re-borrowing what you already spent years paying in, home equity doesn't mean shit.
That's untrue.
Suppose that you and I own houses worth $100,000.
We aren't interested in selling, and not interested in taking out a home equity loan.
Suppose that I have acquired equity in my property of 8%, or $8,000.
That means I owe $92,000 on it. That $92,000 debt will, on a 4% mortgage, cost me $3,680 in interest payments this year.
You, on the other hand have amassed an 80% equity in your property, and only owe $20,000.
On that same 4% loan, your interest cost for a year would only be $800.
Also, I will have to make private mortgage insurance payments, while you will not.
Equity is gold.
We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists.
- TraderJay
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Re: The salary you must earn to buy a home in 27 metros
Save a down payment of at least 10% on a 15-year (or less) fixed-rate mortgage, and limit your monthly payment to 25% or less of your monthly take-home pay.
Ok so I used Dave's formula, here's what I come up with. 25% is one weeks pay. (You can't have 10% down until you know what you can buy, so 10% down is not a factor in my calculations)
Median weekly earnings White Male worker in U.S . Gross pay: $896 Net pay: $600
Median weekly earnings White Female worker in U.S. Gross pay: $734 Net pay: $490
A $60,000.00 home with a 15 yr. fixed @ 3% = payments of $418.00 + escrow of $200.00 = $618.00
A $110,000.00 home ...................................= payments of $759.00 + escrow of $300.00 = $1059.00
- Goose
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Re: The salary you must earn to buy a home in 27 metros
So, I guess you put your house in order to buy, or rent,,,,,
Looks like median take home pay each month is about $4K.
Of which about 25% of your pay each month is needed to pay that mortgage, exactly as Ramsey described,
What is the problem?
Last edited by Goose (3/25/2015 6:23 pm)
We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists.