Taking on a new mortgage – Is this a bad idea?

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  • Mon, Apr 06, 2009 - 02:44am

    #1
    sensei

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    Taking on a new mortgage – Is this a bad idea?

Just wondering what opinions are out there concerning a new home mortgage right now?  Is that a crazy thing to do? 

When my wife and I sold our house in GA and moved to the West back in ’07 we could see that housing prices were unsustainable so we decided to rent for a few years but we are really wanting our own place again.  Right now we have a year’s worth of food stored under beds, in closets, etc… and we need more room and more permanence.  I would love to be able to just pay cash for a home but that isn’t in the budget.

I believe home prices still have more room to drop, but if I wait too much longer I run the risk of being faced with inflation and high interest rates. If I am right about the level of inflation that is coming the debt won’t matter.  But if I am wrong and my income takes a serious nosedive… ouch.  By the way we are not talking about a jumbo loan here; this would be a very conservative purchase.

Thoughts? 

  • Mon, Apr 06, 2009 - 02:58am

    #2
    Peak Prosperity Admin

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    Re: Taking on a new mortgage – Is this a bad idea?

If you are worried about inflation, a home is what you want because that home price will inflate with the economy. I also believe you are correct in that home prices will continue to fall. I would wait a year because of the present deflationary economy. That’s my 2 cents.

  • Mon, Apr 06, 2009 - 10:20am

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    Peak Prosperity Admin

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    Re: Taking on a new mortgage – Is this a bad idea?

Sensei

 

Maybe your can find a foreclosed property and get a fire sale price.  In my county in upstate NY, they list online the foreclosed properties.   

Otherwise, as long as your are conservative and well within your means (and factor in taxes, maintenance, insurance, etc), I think it is reasonable to purchase.  I think you hit the nail on the head.  Inflation or hyperinflation, you win if you buy.  Continued deflation, you lose (if you lose your revenue stream).  Of course, with deflation you also may have trouble making your rental payments.

Tough decision.  

 Blue 

.   

  • Mon, Apr 06, 2009 - 01:14pm

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    Peak Prosperity Admin

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    Re: Taking on a new mortgage – Is this a bad idea?

I just bought a foreclosure- if you can find a house which is closed to bottomed out, I believe that this is one of the positive outcomes of this depression (self-adjustment of a bubble), as long as you don’t buy a mcmansion.  As bluestone already said, even with continued deflation (your house value drops further), you would still have to pay rent anyways, so I think you still come out ahead.

  • Mon, Apr 06, 2009 - 01:41pm

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    Peak Prosperity Admin

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    Re: Taking on a new mortgage – Is this a bad idea?

I think it’s not a bad idea really, if you rent now (and have been for 3 years) and buy before December you get $8k in tax credit, and rates are at their lowest. I’m myself considering buying something this year (I’ve been renting for 5 years) and intend to move further away from 10 miles of Boston where i am now to at least 30 miles and get a property where I can grow my own food, install a generator, etc.

You can still get a 95% LTV loan if you have good credit, and if you have some savings you can use for that down payment it could make sense to buy – if hyperinflation kicks in property values may raise due to lower value of the $$ and your savings won’t grow at the same rate.

If someone can see an error in my logic – please do let me know Smile

  • Mon, Apr 06, 2009 - 02:13pm

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    Peak Prosperity Admin

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    Re: Taking on a new mortgage – Is this a bad idea?

I personally think it’s a bad idea… things are really not that bad… yet. Wait until things get really, really bad (food shortages, massive gov’t/ municipal layoffs and reduced services). That will be the time to jump-in and buy… hopefully in a community that is fairly self sufficient. Continuing to rent leaves you largely unencumbered and flexible to flow with events.

  • Mon, Apr 06, 2009 - 02:41pm

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    Peak Prosperity Admin

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    Re: Taking on a new mortgage – Is this a bad idea?

Pat, do you think it will be possible to get a mortgage at all if that happens? Waiting for too long can leave people in a situation when house prices dropped considerably but not enough to buy them for cash completely, and value of dollar can drop even faster (unless gold keeps/increases in value and you have enough of it to cover house price).

Plus renting for most people means they can’t be self-sufficient for a food source so they’ll have to still rely on official food supply chain to survive, which has a good chance to get damaged in the process.

 

  • Mon, Apr 06, 2009 - 03:09pm

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    Peak Prosperity Admin

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    Re: Taking on a new mortgage – Is this a bad idea?

I think it’s a great idea.
My concern is not so much with the house price, but with the mortgage rate you can get currently.

I do expect houses to drop more over the next few years, but how likely are mortgage rates to go down much more. As as someone else stated, how available will a mortgage be in the future. Bird in the hand theory here.

While you can make some nominal money when inflation kicks in on the house price, the real value is going to be the diminished cost of the mortgage in real dollars over the 30 year loan if inflation does kick in the way some are predicting.

I would also only do this if you have a cushion of cash to get you through a year or two of payments in a SHTF scenario.

  • Mon, Apr 06, 2009 - 03:14pm

    #9
    Peak Prosperity Admin

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    Re: Taking on a new mortgage – Is this a bad idea?

Alexl,

Good points…

My take would be that a bank that owns the (probably) foreclosed home will want to get rid of it and will be willing to make a deal (they lose money holding vacant properties) with some one who (at that point) is reasonably qualified. My guess is there will be plenty of homes to choose from and plenty of banks (that didn’t get caught up in the fraud of the past decade) still operating, just like there were in the GD, eager to divest their increasing REO (real estate owned).

Regarding self-sufficiency, you can rent a single home with enough land to grow a garden… and I suspect their will be many growing this year. Moving from a rented apartment to a rental home (with grow-able land) makes sense to me. There are just to many unknowns at this point to risk parting with cash/ savings and taking on a long term debt that ties you down. And I say that as a real estate investor who has a considerable amount of mortgage debt.

  • Mon, Apr 06, 2009 - 03:27pm

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    Peak Prosperity Admin

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    Re: Taking on a new mortgage – Is this a bad idea?

I also think that mortgages won’t be that big a whup. People have to move around in this economy and they will be desperate to sell. That results in all kinds of creative financing–owner totes the note, 2nd mortgages….etc.

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