How the heck did mortgages become so OK??

[Beppington]

So what's your alternative?

Literally: Don't buy until you can pay cash. You figure out the details, but do not buy until you can pay cash & not borrow. What would be wrong with saving up say $30K, while all along reading books at the library to learn what steps are involved in building a house, & then be your own darn Contractor? Save 20% right off the top by not paying a bldg contractor! All he does is organize all the subs anyway. You might even learn that hammering 2-by-4's into the place isn't very hard, & stapling wall insulation into place is darn right easy, & lay your own tiles, so you could possibly save lots of dough on some of your "normal" sub-contractors.

Pay rent for 20 years until you can save enough to pay for a house outright? How does that make you better off?

How does paying $100K or more in interest make you better off? It makes you a slave to your job so you can continue to make your slavery-mortgage payment. And, sure by the end you'll think you did well because 20-30 years later you'll own your home outright. But it could've happened way faster!

A mortgage is good debt.

That's the very mentality I'm referring to.

Regardless of what is in the media right now, buying a home is still a good investment in your future. It's an investment in lifestyle and is good for society.

No argument here, just whether you borrow for it or not.

You just need to buy what you can truly afford - not what the realtors/bankers say you can afford. Rates will probably never be this low again in our lifetimes. Once the economy recovers, prices will start going up again - especially after all the foreclosures are cleared.

Rates-Schmates. If you don't borrow money, who cares what the rates are? Not me. Again, the "mortgage is OK" mentality is saying to you that there's a way you can calculate what you can afford to borrow. I just think you're better off borrowing zero.

If I were a renter with a stable job right now, and found a great bargain, I wouldn't think twice about getting a mortgage.

Imagine for a moment: Nobody else on the planet had ever, ever had a mortgage before; Nobody ever even knew what one was, until you; You were gonna be the very first money borrower! Would you still feel this way? I don't think so. You're only doing it because everyone else is. You only feel that way because pretty much everyone else does.

Look, I know people are gonna do what they want. I just think people these days are way too ready to enslave themselves into borrowing money.

[GREENBACK]

Beppington:

I sense that you are totally averse to borrowing for any reason. That is fine if it works out for you personally. But consider that borrowing money is a cornerstone for most small buisnesses and, in the case of most families, a prerequsite to owning a home.

Borrowing money is not a bad thing. Borrowing without a solid financial base and a plan for the debt you're incurring is likely bad.

I personally borrowed for my home and could pay it off tommorow but I have other plans for the money that will likely put more in my pocket in the end than giving my money to a bank will. It's all about understanding the circumstances of the debt/loan you're involving yourself in.

[safari]

If it wasn't for the mortgage, I wouldn't be able to buy my first house at the age of 26. I'd have to wait until late 40s - early 50s to save enough cash to buy a house in my area without borrowing any money. I'd be paying more in rent now for a 2 bedroom apartment than my mortgage payment for a 3 bedroom townhouse. I could pay off half of the balance now, but I choose to invest the money instead. I might even consider pulling more equity out of the house and investing it. It does not bother me to owe money to the bank for the rest of my life because I look at the whole picture, that being my net worth and not just my debts.

[irmanator]

I bought cheap, my monthly mortgage is cheaper than my rent was. Plus I don't have to listen to the neighbors um procreating every night. Your not gonna win me on this one.

I do agree that a lot of people get a loan for more than they can afford. Not here.

I kinda consider it renting from the bank, either way someone owns it and I gotta pay **something** everymonth to live **somewhere** so what is the difference if I pay 510/ month to live in a tiny apt with no yard or 460/ month to live in a house 2x the size with room to garden to help with groceries.

[disneysteve]

Borrowing money is not a bad thing. Borrowing without a solid financial base and a plan for the debt you're incurring is likely bad.

I personally borrowed for my home and could pay it off tommorow but I have other plans for the money that will likely put more in my pocket in the end than giving my money to a bank will.

I agree and I think this is what you aren't getting, Beppington. We have enough in savings to pay back our mortgage balance four times over but the money is doing us more good where it is.

What would be wrong with saving up say $30K, while all along reading books at the library to learn what steps are involved in building a house, & then be your own darn Contractor?

Nothing would be wrong with saving up 30K. In fact, that's exactly what we did. Our 20% down payment was $28,400. Add in closing costs and 30K is right around what we spent. But rather than an empty lot that we then had to build on, we got a nice home. Yes, we got a mortgage, but if not for the mortgage, we wouldn't have had a home for years after that.

Keep in mind, that to follow your path, we would have had to keep renting for all the years that it took to save up enough to buy a home in cash. Instead of our monthly "rent" payments going to repay the loan, they would have gone to the landlord and we would have had to save in addition to paying rent, making the savings grow much slower.

[snshijuptr]

Beppington: Some of us live in areas where $30,000 cannot buy you even a tiny condo. I'm hoping to have $30,000 for a downpayment. The other thing that you do not consider is that rent can be more than the interest and other expensises paid on a loan. In my mind, Rent is truly money down the drain. Why don't I buy a home right now? Its not worth the expenses, to me. If I lived across the street in non-subsidezed housing, my rent would be high enough to justify paying interest on a loan.

Interest is not all bad as long as it is replacing higher rental (or other) costs. And then once it is present, that money is "invested" in the safe, but non-liquid return of paying down the principal.

[Beppington]

I agree and I think this is what you aren't getting, Beppington. We have enough in savings to pay back our mortgage balance four times over but the money is doing us more good where it is.

OK, I agree that's a different scenario, that I have no problem with. You are not enslaved in that situation the same way someone is who has a mortgage balance higher than their savings. You won't be freaking out & panicking if you lose your job.

Nothing would be wrong with saving up 30K. In fact, that's exactly what we did. Our 20% down payment was $28,400. Add in closing costs and 30K is right around what we spent. But rather than an empty lot that we then had to build on, we got a nice home. Yes, we got a mortgage, but if not for the mortgage, we wouldn't have had a home for years after that.

I think the borrower mentality also involves folks thinking they "need" or "deserve" to live a certain lifestyle, including having a certain level of house, even when they can't really afford it. There are $30K homes out there. True, most/ all of them ain't gonna be great. But if all you have is $30K, then to me that's all you can afford. We've seen lately that the people across the country, across the world actually, who readily borrow to buy something they can't really afford, then freak out & panic, understandably of course, when they lose their job(s) and can't make their payments. Not borrowing would solve all that. To me it's like walking a tight rope: Everything's good as long as everything's good, but the first wind that comes along, watch out.

Keep in mind, that to follow your path, we would have had to keep renting for all the years that it took to save up enough to buy a home in cash. Instead of our monthly "rent" payments going to repay the loan, they would have gone to the landlord and we would have had to save in addition to paying rent, making the savings grow much slower.

Again with Dave Ramsey: With cars, he advises folks to buy a used beater car to start out, with the cash they have, & then move up to better cars maybe every 2 or 3 years as their savings & financial situation improve. He also advises people that nobody should buy a brand new car unless they're worth a million bucks. Due to the incredible depreciation of new cars. What's wrong with using that same type mentality in housing? Simply only buy what you can pay cash for.

Look, I know I'm going almost completely against the grain on this, but I'm just trying to get people to think things through, not be so quick to take on a huge 15- or 30-year enslaving mortgage just because everybody else does it, & because you think you or your family "deserves" this certain level of house, else your kids will be ridiculed at school, or whatever. I'm a debt-free person, including no mortgage, & it's a very free, satisfying feeling that I think everyone should get to enjoy. It ain't easy, especially when you just do what everyone else does, but it can be done if instead you plan well & are willing to maybe lower you standards, at least in the beginning.

[Beppington]

Beppington: Some of us live in areas where $30,000 cannot buy you even a tiny condo.

Move!

I'm hoping to have $30,000 for a downpayment. The other thing that you do not consider is that rent can be more than the interest and other expensises paid on a loan. In my mind, Rent is truly money down the drain. Why don't I buy a home right now? Its not worth the expenses, to me. If I lived across the street in non-subsidezed housing, my rent would be high enough to justify paying interest on a loan.

Nearly every one of us has to pay at least something toward housing. Even I, with no debt & no mortgage, have to pay annual property taxes. Since you don't pay property taxes in a rented place, I don't consider rent to be entirely money down the drain.

[jIM_Ohio]

Move!



Nearly every one of us has to pay at least something toward housing. Even I, with no debt & no mortgage, have to pay annual property taxes. Since you don't pay property taxes in a rented place, I don't consider rent to be entirely money down the drain.

Suggesting someone "always buy" or "avoid renting" is too simplistic.

People in California and people in Ohio have much different real estate experience with houses... my house in CA would probably sell for 1-2M in some areas and 4-5 M in other areas. It was $350k in Ohio.

Real estate is always local, and when you move, its tough to take it with you.

[disneysteve]

Rent is truly money down the drain.

Not at all. This is a very pervasive mindset that just isn't true.

Rent is a payment made in return for a service. There are lots of times when renting is the most sensible option and buying a property wouldn't be a good idea at all. I rented for about 8 years after college. If I had to do it all over again, I'd do it the exact same way. My situation at the time didn't warrant buying a home. It would have been an incredibly stupid move at the time. So I don't think renting was a waste at all.

[PaydayLoner]

Just wondering when mortgages became so darn common that not only do most people seem to consider them perfectly fine to enter into, but people even readily say things like, "I have no debt whatsoever!!! Just a mortgage."?

Were mortgages common in say 1800? 1900? They obviously are now.

There's a great passage from Thoreau's Walden, written around 1840, where he complains about how all his neighbors have mortgages on their farms:

"When I consider my neighbors, the farmers of Concord [Massachusetts]... I find that for the most part they have been toiling twenty, thirty, or forty years, that they may become the real owners of their farms...but commonly they have not paid for them yet... On applying to the assessors, I am surprised to learn that they cannot at once name a dozen in the town who own their farms free and clear. If you would know the history of these homesteads, inquire at the bank where they are mortgaged. The man who has actually paid for his farm with labor on it is so rare that every neighbor can point to him. I doubt if there are three such men in Concord."

The whole passage is here. Needless to say, he's all about the frugal living thing himself.

[Beppington]

There's a great passage from Thoreau's Walden, written around 1840, where he complains about how all his neighbors have mortgages on their farms:

"When I consider my neighbors, the farmers of Concord [Massachusetts]... I find that for the most part they have been toiling twenty, thirty, or forty years, that they may become the real owners of their farms...but commonly they have not paid for them yet... On applying to the assessors, I am surprised to learn that they cannot at once name a dozen in the town who own their farms free and clear. If you would know the history of these homesteads, inquire at the bank where they are mortgaged. The man who has actually paid for his farm with labor on it is so rare that every neighbor can point to him. I doubt if there are three such men in Concord."

The whole passage is here. Needless to say, he's all about the frugal living thing himself.

Very interesting! The language there sounds sort of sad about the fact that nearly nobody actually owns their place outright. That's the way I feel.

Edit: I read a little further on in your Walden passage to: "The farmer is endeavoring to solve the problem of a livelihood by a formula more complicated than the problem itself." That's also the exact way I feel about homebuyers taking on a mortgage; Especially with the current super-complicated state of mortgages, our govt's zillions of rules governing them, interest rates, types of mortgages, points, trying to make sure you don't get ripped off, the impact on our economy by so many people being over-leveraged, etc. etc. etc., when all you really had to do was only buy something you actually had the money for.

[disneysteve]

Beppington, I think you've made some very good points but have carried them to an unreasonable conclusion.

I think the borrower mentality also involves folks thinking they "need" or "deserve" to live a certain lifestyle, including having a certain level of house, even when they can't really afford it.

Very true. Many people buy way too much house and borrow way too much money to do so. They could and should buy a smaller, older home, taking on much less debt in the process. We bought a modest home for thousands less than the bank said we could afford to borrow and we've stayed here for 16 years now with no plans to move or upgrade.

Again with Dave Ramsey: With cars, he advises folks to buy a used beater car to start out, with the cash they have, & then move up to better cars maybe every 2 or 3 years as their savings & financial situation improve... What's wrong with using that same type mentality in housing? Simply only buy what you can pay cash for.

I don't think you can use the same system for houses for a number of reasons. You are comparing items with a huge price difference. I could go out today and buy a car for a few hundred dollars if I wanted to. I bet I have enough cash in my wallet right now to buy a functioning car. Houses are expensive. I work in a city that has been repeatedly rated among the poorest in the country. I doubt that you could find an inhabitable property here for under 50K. And if you did, it would be in a drug and crime-infested neighborhood with failing schools and every manner of social problem you can imagine. You'd be moving into a war zone basically. This city has also consistently topped the list for most dangerous city. Most of the people who live here will never have 50K in savings as long as they live. In fact, a high percentage of residents are renters. The homes are largely owned by outside investors.

The other problem with using the car analogy is that cars are Depreciating assets and, in general, houses are Appreciating assets. Other than the past few years, home prices typically go up over time. Borrowing money to buy a car that will be worth a fraction of the purchase price when you sell it doesn't make good financial sense. Buying a house that will be worth tens of thousands more when you sell it isn't so bad.

I'm just trying to get people to think things through, not be so quick to take on a huge 15- or 30-year enslaving mortgage just because everybody else does it, & because you think you or your family "deserves" this certain level of house, else your kids will be ridiculed at school, or whatever

I agree 100% with this.

[MonkeyMama]

Yeah, I live in the real world. $30k wouldn't buy enough land to pitch a tent on in this state.

We actually saved $50k (25%) for a down payment on a modest condo. We then moved somewhere considerably cheaper for a nicer home, and our mortgage payment cost less than rent on some crappy studio apartment where I am from. I will take my mortgage any day, thanks. (Paying rents while saving up to pay cash for a house would take MANY decades. Plus, I know too many people paying just absurd rents. To me, it just doesn't make any financial sense. The condo we owned would have cost twice as much, monthly, to RENT. The home we own now, land and all, is cheaper than the condo).

I don't have enough assets in the bank to pay off my house yet, but certainly will before I am 40.

We actually are pretty conservative, do not borrow for anything but for our home, and plan to be mortgage free in our mid to late 40s.

I don't think we do anything because "everyone else does it." A mortgage just makes a lot of financial sense for a lot of people. I don't think most of the people on this forum have treated their mortgages the way the masses have in the last decade or so. For one, I don't think anyone intends to keep their mortgage forever. I always love the judgements that just because I *have* a mortgage, that I Want to keep it forever.

As an aside, we never borrow for anything else. We are pretty anti-debt. But a 4.875% fixed mortgage rate doesn't keep me up at night - that is for sure. If we bought a more modest home we could maybe save $100/month, at most. Big whoop. (On the contrary, we decided it was worth moving, to save thousands a month and be able to afford something we actually liked, yes. This just meant a $300k house we liked as opposed to a $700k piece of crap).

[MonkeyMama]

I agree 100% with this.

& I think most of us would agree!

Kind of preaching to the choir.