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It's really that simple. OK, let's say you want a home that costs $2 mil and you are going to put down $1 mil because you are that loaded. Over 30 years it will cost you and extra million in interest, making the home really cost 3 mil (not to mention taxes and insurance, plus your upkeep). If you didn't put down 50%, you are really paying out the ass.
I've realized a lot about home ownership (just sold my first house) and I beg you just think about these points. Please don't make a mistake. These are my realizations after what I went through. (more on that later)
The 'American Dream of Home Ownership' as defined today is a sham. When this term was coined, houses cost like $7k for a normal home and most people saved and paid cash (this is documented fact, mortgages as defined today did not exist before the 50s). That IS truly a dream, a guaranteed place to live that you paid cash for. But like everything else coming from big business and the government, even this idea has been twisted into a completely baseless slogan that people accept blindly.
For you young people considering a house:
Consider: In any mortgage, interest is paid up front. Whoever allowed this should be shot dead. It is a completely unethical practice. What this means is that at first, your payment is nearly 100% interest. After 30 years, it is almost 100% principal. Look at an amortization table!! Over 7 years, our payment *averaged* 6% to principal, and 84% to interest. People don't usually stay to pay off the loan, the average time in a home is 7 years or so. People will say 'but you are building equity!' I say: bullshit. The people giving you the loan make all the money over an average time period, what you make is solely on appreciation. Think HARD about that, young folks.
Then consider this: If the value of the home doesn't go up substantially before you sell it, after hefty realtor fees and title/closing fees etc., you may end up having to pay (IE take a check to closing) to sell your home. Just remember that your fees for selling a home will be about 11% of the sales price. On $300,000, you are looking at around $33,000. So to break even, you need to have an appreciation of roughly 11% of the *selling* price.
In my opinion, if you can be happy renting, even an expensive place, do it. The benefits usually outweigh the negatives, imo, except in certain circumstances.
My argument:
Renting: You will never have your credit ruined due to foreclosure because you lost your job. You will never have to buy a new furnace or replace the roof. If you want to move next year, you give your landlord notice and off you go. Your property taxes will never increase. You will never have to sit at a table and watch a bunch of vultures take away the money you made for selling your home.
Home ownership: Maybe smart if you get a 15 year fixed loan and make a substantial down payment (like 50%) May be smart if you want to stay until the house is paid for completely May be smart if you are positive your value will increase substantially May be smart if you will pay it off by retirement and could provide an income stream in the case of a reverse mortgage
So why my pessimism? Did I get screwed? Not really. Here it is. please, its my story, and just food for thought.
My wife and I bought our first home together 7 years go. We had little money, and no one to help. We made a 5% down payment on a $150k house that was in great need of refurbishing.
We worked on the house for 7 years. New kitchen, $15k. New roof, $5k. Chimney rebuilt, $3k. New ceilings, plumbing, trees taken down, gutters, paint, you name it. We paid a lot for professional stuff, and did everything we could ourselves, paying just for materials which of course added up too. To how much? I dunno. A lot.
7 years later, we put the house up for sale. We sold for $230k in just 3 weeks. Wow! you think. We should be 'thrilled', especially in this market. But after everything we did, let's say we put in $50k. So there really we have $200k in. So that leaves $30k. Realtor fees negotiated to 6%: $15k. Title fees: $4k. What did we really end up with? Coming out about $10k ahead after everything. I should have rented and saved all we put in instead. We would have been $50k further ahead. But course we loved the house, and it was our labor of love. So was it worth it? Yes from the heart and no from the head.
I'm just saying this: If you are a young person or couple and you are dreaming of a house and you have the minimum to put down you are going to get screwed and that is a fact. Think hard before you jump into the great 'American Sham.' Buying a house is great fun and you are treated so nice. Sell one and feel the fear and dejection of being told everything wrong with your property and what you have to do to get someone to buy - and it can be expensive. Consider this market. Houses on for 6 months with no offers. People selling for losses because they have to.
Just think.
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