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

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sensei's picture
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? 

jerrydon10's picture
jerrydon10
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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.

bluestone's picture
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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 

.   

yoshhash's picture
yoshhash
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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.

Gamayun's picture
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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

TimesAwasting's picture
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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.

Gamayun's picture
Gamayun
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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.

 

markf57's picture
markf57
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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.

TimesAwasting's picture
TimesAwasting
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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.

jerrydon10's picture
jerrydon10
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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.

suesullivan's picture
suesullivan
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Re: Taking on a new mortgage - Is this a bad idea?

If it were me, I might also be thinking about buying a house in the next year or so. My exact timing would depend in part on how far the local market I was in had already fallen. In our old stomping grounds of SoCal, prices are down more than 50 percent. Where we live now, houses have declined less than 10 percent and the economic pain is only starting to be felt in our part of the world.

The one thing I would not do, though, is buy a house that does not fit a radically different future. I, personally, wish we had waited and bought several acres of land. Sixteen months ago, I would never have considered living in something like an Earthship, now I could kick myself for buying the split level ranch on a quarter-acre just at the edge of the city. I think a small house with a very large, sunny yard in a vibrant, walkable town or small city could work; as could a homestead a few miles from a small town, with the right self-sufficiencies in place. I think the suburbia we left in Socal is one of the last places I'd ever want to be for the future that looms so large now.

If you know, after all the reading and research about the changes that are going to come, that the community you're looking to buy in has a reasonable chance of holding together in a long and painful descent, then I'd say buy, but be sure to hold back a year or two's mortgage payments, in case of job losses (or have your retirement money out of vehicles that could evaporate its value, in case you need to withdraw from it to keep taxes and mortgage paid). If not, I wouldn't do it. You'll be much more nimble and able to move to some place sustainable, should you lose your job in an unsustainable community in the coming years, as might well happen in a place like that. 

 And as far as not being able to be food sufficient in a rental, you would need an agreeable landlord, of course, but I was very impressed with what this renter did with his gardens in less than six months....

http://www.wordpress.peakmoment.tv/conversations/?p=109

 For that matter, Chris is in a rental and he's doing all sorts of food growing, from what I understand.

Montana Native's picture
Montana Native
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Re: Taking on a new mortgage - Is this a bad idea?

 

I feel your pain. My wife and I also sold in '07. We have been renting because of the decreasing values that continue to appear every month. I am glad to see you are getting better feedback than some other posts ive seen concerning this subject. I thought I might need to talk about my P99 or coin choices to drum up a response.

Well heres my take on the situation, there are 5 keys for me, the right house/land, proximity to town/work considering petroleum could explode on any flash point, Interest rate, price, and of course sustainability. The sooner you get in the sooner sustainability can be reached. Finding the right place with the right location takes time (or do you have a choice already), prices are going down, interest rates have very little room to decrease.

I'll tell you what I'm doing. We are preapproved for mortgages and dealing with realtors that dont solely represent us, you never know what might pop up. Our window for buying will be within the next year. I am looking at month to month or 3 month rental terms come next rental agreement (june). We have down payment money in fluid accounts that can be used on a moments notice. I will add that when we buy we are going to make a minimum down payment required and arent going to pay down any points. This seems so counter-intuitive to everything ive known but these are strange days indeed. I think assets in hand could be better used to balance the coming inflation storm ala Bernanke and company.

In closing, I think end of summer/fall could be the perfect storm for a purchase in our locale. I dont see too many serious sellers wanting to let their house value possibly decrease another 20%  over winter. I also see interest rates and the bear of compound interest being bigger problems than dereasing price if youre in it for the long run. Mortgages topped out around %18 in the 1980-1982 time frame. Run a simple mortgage calculator on that and youll see how scary it can really get. Do you think this time round will be better?

Good luck! I'm afraid we all need it.

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