House question...

[ScrimpAndSave]

Jim...thiis true...then why do people consider equity in ahome tobe an amazing gain in investment?

[banditfist]

Originally Posted by ScrimpAndSave

Jim...thiis true...then why do people consider equity in ahome tobe an amazing gain in investment?

The size of the numbers. If you tell someone that you bought a house for $200k and sold it for $400k...they will think that is an awesome investment. Even if it took 24 years. Hard to do the math in your head to get the interest rate.
For example, the Dutch bought Manhatten from the Indians for $26 in 1604. It is now worth something like $76 billion. The interest rate on $26 compounded from 1604 till today is like 4.3% (no taxation).

This is why housing just barely keeps up with inflation and when it exceeds it, there will be a reversion to the mean.


For the OP, the 2.5x is a guideline. It is an estimate for you. It is irrelevant to your lender when they determine what they will lend you. Your debt-to-income is a much better estimate. If you have tons of revolving credit and maxed out credit cards, they won't give you anything close to 2.5x. There is a direct correlation.

[disneysteve]

Originally Posted by jIM_Ohio

houses might keep up with inflation, but have little real return when you factor in mortgage interest.

Originally Posted by ScrimpAndSave

Jim...thiis true...then why do people consider equity in ahome tobe an amazing gain in investment?

Because most people are bad at math.

[jIM_Ohio]

Most people look at what they bought it for and sold it for.

They do not know how much interest they are paying.

There are other aspects to the transaction I did not mention- my house keeps me in a low tax bracket (for example).