3 ms·

Currently i rent a 1br place for $2400, looking to buy something. I am strictly guessing that most people in my situation arn't going to be getting a mortgage

Currently i rent a 1br place for $2400, looking to buy something. I am strictly guessing that most people in my situation arn't going to be getting a mortgage that is thousands more than their current rent, but rather end up in something a little less nice that has a similar mortgage to the previous rent. i will have to find a cheaper area to be able to buy a house(or condo more likely). > I'm not sure I understand what you're saying? Are we in agreement or are you disagreeing? Rent: pay $2400/mo for 30 years. Spent: $864k. Capital: $0 Buy: pay $2400/mo for 30 years. Spent: $864k. Capital: Whatever the house is worth. Hopefully around the 3-400k the loan was for, but half would still be better than the rent scenario Together that doesn't sum it up, sure in that cheaper neighborhood maybe a rental would be $600 a month cheaper, $216k over those 30 years and more with compound interest. But rent doesn't stay the same like a mortgage does (baring intervention). An apartment that went for $1800 a decade ago (locally) goes for well over $2400 now.

chaostheory 13y ago
> i will have to find a cheaper area to be able to buy a house(or condo more likely). Rent: pay $2400/mo for 30 years. Spent: $864k. Capital: $0 Buy: pay $2400/mo for 30 years. Spent: $864k. Capital: Whatever the house is worth. 1. As you've already mentioned, if you were to stay in the same area rent would be cheaper than a mortgage. Rent is always cheaper than a mortgage for equivalent real estate in the same area. So even if you moved, there would still be really strong reasons for renting since it would still be cheaper than buying a place. So your argument of $2400 rent vs $2400 mortgage is just wrong since moving to a different area will result in $1200 rent (or less). 2. Unlike a mortgage, you're not going to be spending anywhere close to $864k upfront. At most it's only going to be $7200 up front. If you were going to buy a place in the same neighborhood, it's probably going to be about $400,000 upfront, not including closing costs and other fees. Not including stuff like renovation or housing insurance either. Don't forget HOA for certain areas as well. So if you have 500k in cash, if you rented you've about $492,800 for investing or for starting something up. If you bought a place in the same area, you have nothing for investing or starting something. So this "$0k vs Whatever the house is worth" argument is really flawed, especially when you consider that your capital is "stuck" with a huge opportunity cost unless 1) it appreciates a lot and you're willing to BOTH sell and move into a cheaper place that isn't as nice in terms of location or features (if you're not you're just stuck living in a nice expensive place which isn't a bad thing but remember opportunity cost), or 2) you're a professional house flipper (your home really is an investment and not just a place to live), and you repeat this process every 1-4 years. If you haven't already guessed, I'm not a renter and I just figured that you want something more than normal people since you roam HN.
- deleted 13y ago
  [deleted]
  - chaostheory 13y ago
    Are you responding to the wrong post? What you wrote just further validates everything I've written so far.
    - flomo 13y ago
      My apologies, a complete misread.
- lacksconfidence 13y ago
  tbh i can't figure out if this is relevant to my situation or not, because i dont have 500k in cash, or even 50k in cash. FHA loans start at 2.5% down, and $2400/mo puts the total loan amount somewhere around $350k. So bare minimum would be 2.5% down and 2.5% closing for $18k to get in the door. I'm shooting for more like $30k-$35k, but $18k is the minimum. 18k minus 7k leaves 11k that could have instead been invested. To me the value of keeping a portion of my rent as capital(even tied up and with risks of loss) combined with certainty about what my monthly cost will be 10 or 20 years down the line is worth a lot more than that $11k in the bank today.
  - chaostheory 13y ago
    > FHA loans start at 2.5% down, and $2400/mo puts the total loan amount somewhere around $350k. 1. It's very hard to get approved on less than %10 down post 2008, unless you're taking out a jumbo loan which is above $450k, and this is assuming you can meet all the new strict standards with income (based on what's reported to the IRS AFTER deductions) and credit history. How do I know this stuff? I bought my house after 2008, and so did a lot of my friends. On the off chance it gets approved, you'll be paying something called PMI which adds about %15 to your monthly payment. So $2400 turns into about $2760. 2. As I've already mentioned, if your mortgage is $2400 I can almost guarantee that there's an apartment in the same area where the rent is approximately $1200. 3. Using your example, putting a $3600 deposit for a rental is very different from $35,000 down which doesn't include any closing costs or house insurance. If you're in the Bay Area you also have to account for monthly HOA which is about $300-$500 and it can increase at anytime. So your $2400 / mo now turns into approx $3200 / month with PMI. With housing insurance, that baloons to about $3350 4. The type of home $350k buys in the Bay Area is most likely not going to appreciate beyond inflation, unless you buy something that isn't gentrified yet which incurs other types of risk.

chaostheory 13y ago

> i will have to find a cheaper area to be able to buy a house(or condo more likely). Rent: pay $2400/mo for 30 years. Spent: $864k. Capital: $0 Buy: pay $2400/mo for 30 years. Spent: $864k. Capital: Whatever the house is worth. 1. As you've already mentioned, if you were to stay in the same area rent would be cheaper than a mortgage. Rent is always cheaper than a mortgage for equivalent real estate in the same area. So even if you moved, there would still be really strong reasons for renting since it would still be cheaper than buying a place. So your argument of $2400 rent vs $2400 mortgage is just wrong since moving to a different area will result in $1200 rent (or less). 2. Unlike a mortgage, you're not going to be spending anywhere close to $864k upfront. At most it's only going to be $7200 up front. If you were going to buy a place in the same neighborhood, it's probably going to be about $400,000 upfront, not including closing costs and other fees. Not including stuff like renovation or housing insurance either. Don't forget HOA for certain areas as well. So if you have 500k in cash, if you rented you've about $492,800 for investing or for starting something up. If you bought a place in the same area, you have nothing for investing or starting something. So this "$0k vs Whatever the house is worth" argument is really flawed, especially when you consider that your capital is "stuck" with a huge opportunity cost unless 1) it appreciates a lot and you're willing to BOTH sell and move into a cheaper place that isn't as nice in terms of location or features (if you're not you're just stuck living in a nice expensive place which isn't a bad thing but remember opportunity cost), or 2) you're a professional house flipper (your home really is an investment and not just a place to live), and you repeat this process every 1-4 years. If you haven't already guessed, I'm not a renter and I just figured that you want something more than normal people since you roam HN.

deleted 13y ago
[deleted]
- chaostheory 13y ago
  Are you responding to the wrong post? What you wrote just further validates everything I've written so far.
  - flomo 13y ago
    My apologies, a complete misread.
lacksconfidence 13y ago
tbh i can't figure out if this is relevant to my situation or not, because i dont have 500k in cash, or even 50k in cash. FHA loans start at 2.5% down, and $2400/mo puts the total loan amount somewhere around $350k. So bare minimum would be 2.5% down and 2.5% closing for $18k to get in the door. I'm shooting for more like $30k-$35k, but $18k is the minimum. 18k minus 7k leaves 11k that could have instead been invested. To me the value of keeping a portion of my rent as capital(even tied up and with risks of loss) combined with certainty about what my monthly cost will be 10 or 20 years down the line is worth a lot more than that $11k in the bank today.
- chaostheory 13y ago
  > FHA loans start at 2.5% down, and $2400/mo puts the total loan amount somewhere around $350k. 1. It's very hard to get approved on less than %10 down post 2008, unless you're taking out a jumbo loan which is above $450k, and this is assuming you can meet all the new strict standards with income (based on what's reported to the IRS AFTER deductions) and credit history. How do I know this stuff? I bought my house after 2008, and so did a lot of my friends. On the off chance it gets approved, you'll be paying something called PMI which adds about %15 to your monthly payment. So $2400 turns into about $2760. 2. As I've already mentioned, if your mortgage is $2400 I can almost guarantee that there's an apartment in the same area where the rent is approximately $1200. 3. Using your example, putting a $3600 deposit for a rental is very different from $35,000 down which doesn't include any closing costs or house insurance. If you're in the Bay Area you also have to account for monthly HOA which is about $300-$500 and it can increase at anytime. So your $2400 / mo now turns into approx $3200 / month with PMI. With housing insurance, that baloons to about $3350 4. The type of home $350k buys in the Bay Area is most likely not going to appreciate beyond inflation, unless you buy something that isn't gentrified yet which incurs other types of risk.