Home ownership at any cost - Is it worth it?

[disneysteve]

I spoke to someone today who was excited to tell me that she had just bought a house. I congratulated her and then proceeded to provide the medical care that she had come for. When I handed her a prescription at the end of the visit, she said she wouldn't be able to fill it until Friday because she was "completely wiped out" from the house purchase but "at least I own a house now".

I kept my mouth shut but it really made me wonder how things got so screwed up that stuff like this can happen. If every penny she has went into this house, how the heck did she even qualify for the purchase. And how does anyone leave themselves so tapped out that they don't even have a few bucks left over to fill a prescription if necessary. I'm not talking hundreds of dollars here but rather maybe $20.

We talk about having a 6-month EF before buying. How about not even having a 1-week EF? Very sad.

[JoeP]

You should have wrote another prescription on your pad: "Apply knowledge at least twice daily by reading from sites dispensing sound financial advice. Continue saving until 20% down and 6 months of emergency fund has been saved. No restaurant food by mouth until all financial medication is consumed. Avoid mixing with emotion."

But it is too late for that now, the mock prescription would qualify more as a "warning after" rx.

[GREENBACK]

she said she wouldn't be able to fill it until Friday because she was "completely wiped out" from the house purchase but "at least I own a house now".

.

She only thinks she's completely "wiped out". I presume this is her first home purchase. She likely has no idea of the expenses that lie ahead. This might get ugly and hopefully she doesn't rely on credit to save the day.

[cypher1]

A friend of mine is looking to buy a town home on her own. I just found yesterday she's cashing a portion of her 401k to help with closing costs since she doesn't have too much cash saved. While I;ve already told her the recommendations from this site (6mo EF, 20% DP, no more than 3x annual income for price range) she's still going through with it. Didn't recommend the 401k withdrawal, but if it had to be done to do a 401k loan option instead of tax penalties. To each their own...

[Joan.of.the.Arch]

Very good, JoeP.

I imagine health and medical dangers associated with buying a house that one cannot afford could be demonstrated statistically.

[bjl584]

I spoke to someone today who was excited to tell me that she had just bought a house. I congratulated her and then proceeded to provide the medical care that she had come for. When I handed her a prescription at the end of the visit, she said she wouldn't be able to fill it until Friday because she was "completely wiped out" from the house purchase but "at least I own a house now".

I kept my mouth shut but it really made me wonder how things got so screwed up that stuff like this can happen. If every penny she has went into this house, how the heck did she even qualify for the purchase. And how does anyone leave themselves so tapped out that they don't even have a few bucks left over to fill a prescription if necessary. I'm not talking hundreds of dollars here but rather maybe $20.

We talk about having a 6-month EF before buying. How about not even having a 1-week EF? Very sad.

All that advice we give on here sadly doesn't permeate into the mainstream. It certainly doesn't permeate into laws or lending standards. Despite all that has happened with the economy over the past few years, this kind of thing is still all too common. No one has really learned much of a lesson at all.

[disneysteve]

Despite all that has happened with the economy over the past few years, this kind of thing is still all too common. No one has really learned much of a lesson at all.

That's what really gets me. So much of the housing mess was caused by lenders having no guidelines, rules or limits on who they would lend to or how much they'd lend. Today, after all that has happened, the situation doesn't seem to have changed a bit. We still have people posting here about taking out mortgages for 40 or 50% of their income. Why are they getting those loans?

On the flip side, our synagogue is trying to refinance the mortgage. We have a $1.5 million annual budget. We've never been late on any payments. We have a few hundred thousand dollars in investments. We are in great shape financially. Still, the lenders, including the one we do our primary banking with that knows our numbers in detail, keep dragging their feet on making the loan. If we are consistently paying now, why would be possibly be a risk for a refi that would lower our payments by $4,000/month? They should be rushing to make that deal. Instead, they're off lending to people with 2% down payments and sky high debt to income ratios.

[bjl584]

On the flip side, our synagogue is trying to refinance the mortgage. We have a $1.5 million annual budget. We've never been late on any payments. We have a few hundred thousand dollars in investments. We are in great shape financially. Still, the lenders, including the one we do our primary banking with that knows our numbers in detail, keep dragging their feet on making the loan. If we are consistently paying now, why would be possibly be a risk for a refi that would lower our payments by $4,000/month? They should be rushing to make that deal. Instead, they're off lending to people with 2% down payments and sky high debt to income ratios.

That's interesting. It may be the actual amount of the mortgage that is causing the delay. There is probably 0% chance that your synagogue would ever default, but a bank would probably rather write 20 medium to high risk mortgages and spread the risk around than it would to write one low risk one for $1.5 million.

[JoeP]

That's what really gets me. So much of the housing mess was caused by lenders having no guidelines, rules or limits on who they would lend to or how much they'd lend. Today, after all that has happened, the situation doesn't seem to have changed a bit. We still have people posting here about taking out mortgages for 40 or 50% of their income. Why are they getting those loans?

It takes two to tango. I've said before that just because an institution says you are "approved" or that you "qualify" for something doesn't make it a good idea. Some people trust these institutions without reservation, maybe because they're caught up in the emotion of being able to finally buy a house...whatever...they lack the internal financial circuit breaker that comes from understanding and applying basic financial concepts.

[disneysteve]

It takes two to tango. I've said before that just because an institution says you are "approved" or that you "qualify" for something doesn't make it a good idea. Some people trust these institutions without reservation, maybe because they're caught up in the emotion of being able to finally buy a house...whatever...they lack the internal financial circuit breaker that comes from understanding and applying basic financial concepts.

That's true. That's why the ones who should know better - the lenders - need to do the right thing. Telling a couple that they can "afford" a mortgage with a monthly payment of 45% of their income should be illegal. Letting people buy homes with 0% down or purchase prices of 5 times annual income shouldn't be possible. The average person doesn't know better. They depend on the professionals to give educated guidance. When those professionals are operating purely out of greed with no regard to the numbers, the system falls apart, as it has in recent years.

[bjl584]

That's true. That's why the ones who should know better - the lenders - need to do the right thing. Telling a couple that they can "afford" a mortgage with a monthly payment of 45% of their income should be illegal. Letting people buy homes with 0% down or purchase prices of 5 times annual income shouldn't be possible. The average person doesn't know better. They depend on the professionals to give educated guidance. When those professionals are operating purely out of greed with no regard to the numbers, the system falls apart, as it has in recent years.

I have a feeling that even if some sort of rules or standards would try to be enacted it still wouldn't fix things. Who would write the laws and standards? Politicians? They certainly aren't experts. Banks? Doubtful. Some outside party? That may be the best bet, but where do they come up with standards? Ideally, people should have to open up their books to a lender and show how much of a percentage of income that this mortgage will represent. They would have to show their other debts, payments, and terms. They would have to show their assets and cash on hand. There would have to be some formula that says that you must have so much cash, you must make a certain downpayment, you must not have more than some amount of debt in relation to your income and to the amount of the mortgage, and that your mortgage can not exceed some number in relation to all of those factors. That would clean up a lot of this mess. But, housing and the so called right to a house has become a political issue. A politician wouldn't touch what I just laid out with a 10 foot pole.

[JoeP]

That's true. That's why the ones who should know better - the lenders - need to do the right thing. Telling a couple that they can "afford" a mortgage with a monthly payment of 45% of their income should be illegal. Letting people buy homes with 0% down or purchase prices of 5 times annual income shouldn't be possible. The average person doesn't know better. They depend on the professionals to give educated guidance. When those professionals are operating purely out of greed with no regard to the numbers, the system falls apart, as it has in recent years.

I agree to a point. Until such laws go into effect, if they ever do, let's do our part to address the part I bolded above through formal and informal education.

I would hope potential would-be borrowers would reflect on the very public financial ruin of those who trusted these "professionals" who assured people similar to them that everything would be ok, and for goodness sake take a few minutes to actually look at their financial situation before signing away their lives.

[terces]

Homeownership is expensive and it goes beyond the mortgage payments. Too many people compare the mortgage to the cost of rent...its comparing apples to oranges.

Thankfully I've listened to these boards and in the last few years have sustained a pretty decent emergency fund. Earlier this month we found out we need to replaster our pool. And to top it off sustained some roof damage from a storm last week. While I dread having to pay out the money... at least I have it and won't have to rely on credit.

[elessar78]

I have to confess that while we are not in the same situation as DS's patient, we'll be closing on our first home next month. My parents were extremely generous and gifted us 20% down plus closing costs to make this happen. We didn't ask for it and actually they had been offering it to us for the past 2 years or so. Sure, we accepted the gift so some may see it as one in the same.

We can afford all the monthly payments, keep saving for retirement, and have enough extra each month for savings and homeownership costs (maintenance).

Our savings have been pretty wiped out by events in the recent years and in a perfect world I would've saved more before we purchased so it's a calculated risk. The plan is to make extra money (we have means to do this via overtime and side income) to save up the EF retroactively.

I have anxiety about not having that 6 MO safety net but we're also not forced to skip prescriptions and other necessities. We'll be pushing to live more frugally in the next few years.

[28andlearning]

It's interesting on your view. Because that is exactly what it is... Sounds like you didn't ask more questions etc.

Maybe they save frugally and have hundreds of thousands in retirement?
Maybe they put more than 20% down to lower their monthly payments and make a decent salary... You do realize you get a month prior to a home payment right? If they made 4-6k a month they wouldn't have any problem saving prior to their first payment.

There are too many things to consider without knowing the whole situation.

I think investing in a home is always a good idea in the long run.

I am playing devils advocate here... But just because someone doesn't meet your standards doesnt mean its wrong.