patrick.net

Yup. I think buying now isn't that big a risk. If things go squiggly from here you walking away will be a statistical blip and you'll probably need the "free rent" aspect anyway.

The decision matrix has 4 cases:

1) Wages up, interest rates up (late 1970s scenario): buying now GOOD since you've locked in the low rate
2) Wages down, interest rates up (crack boom bang scenario): buying now BAD, squat and wait for eviction
3) Wages down, interest rates down (Japan scenario): refi 30 year into 15 year at same payment, buying now GOOD (or neutral)
4) Wages up, interest rates down: buying now AWESOME, but not gonna happen

Walkable is good, very good. Being close to work is a great thing. Gets you in early and in a more productive state.

Your thinking is correct, you do want to put as little down as possible to get the best rate possible, that's how anyone would approach it. Since rate is not the issue, it appears to be PMI. That depends on how much your PMI costs, at 3.5% loan to value ratio, a condo, and in a (risky zip code?, credit score), it may be quite high. PMI in the end is still a business and it is run on financial models to compensate for risk, if payout rate is high, the insurance rates will rocket in response as well. You may find that the PMI rates for your situation are too expensive. In states like FL, NV, and certain CA counties, I don't think they insure condos, low credit score, etc.

PMI is not all or nothing as PMI rate may be lower if it is 3,5% vs. 10% vs 15% and it may be affected by zip code, condo/SFH. Get all the facts together and see where the best value is.

I generally agree on above two opinions.

If we suppose the price will not change at all for long time, it typically takes about 105 months of total 30 years to reach 20% of equity from 3.5%. When price goes up in few years, there will be a good chance for you to sell it at profit. When home price goes down, still there's not much to lose in 2~3 years unless the price got slashed down during that time period.

The bottom line is this. Does the difference in monthly payments b/w two loan options considering PMI makes you feel financially restricted? If yes, don't do that. If no, you may get better off paying PMI for at least first few years.

I'm going through the same thing. My mortgage payment will be with in a hundred of what I've been paying for rent for ten years in the same place. So I'm biting and I'll tell you why.

I think the interest rates, with the addition of only requiring 3.5%, it makes it 6 in one and a half dozen in the other.

With such little down, and the small interest rates, works out to the same figures, as buying a 170K unit at 4.5% interest, as 140K unit at 7% interest,(and before this down turn is over, people will be required to put 20% down).

At 3.5% down there is hardly any skin in the game, but still if the 170K purchase goes down another 30K-40K, you wont actually have 30 or 40K in the house by that time. In two years you will have only paid 20-30K back in mortgage payments.

I believe that as long as you are buying in a historically hot RE market, then at this point with in ten years, you might be back even for what you paid now.

But by then the money you would have saved in interest payments, will be more than enough to cover any savings you'll get by following the market down the hole.

Unless we decide to go Japans route and the interest rates eventually makes it 1% or less.
That wont surprise me. Though we're not Japanese, if that happens here, I think people will justify paying 400K for 500 sqft condos again.

But make no mistake before this is over and a real market forces take over. We will be paying 7-8% interests rates, and 20% down will be the minimum requirement.

Lose 40K on RE after you've already put it down in cash, that's a big hit. On top of paying 400 a month more in interests. Buying now saves you about 4800 on your mortgage payments.

so if you buy now and ride the RE depression out for a decade, you will have lost 40K off the value of your 170K purchase buy you would have paid 48000 less than if you were paying interest rates of a healthy market, say 7-8%.

The interest rate will jump with out notice, and the higher down payment requirements will happen from debate in Congress to the president signing it into law. Much like much of the financial reform that has made all these Okeydoke provisions making it easy to buy now.

Oh and for here Broward anyway, if I close before 12-21-10 I get a 2K a month Income tax credit from the IRS each year I'm in my home paying on interest, and it is my primary residence.

That adds 2K to the 4800 making it 6800 a year I'm saving.

I'm keeping the extra money I was planning on putting down in the bank, and grow it some more. For one of two sanarios.

One: The value of the house does go up, and I start showing equity. Say two three years the economy rebounds, and people are relocating to South Florida and the market booms again.
I'll sink that 30-50K extra I have laying around to pay down the principal.

Two: RE market continues to tank, I'll use that money to buy a BETTER house than the one I actually bought, with an almost 50% down payment. If I can buy in Hollywood lakes for 130-170K by then this house will be worth only 90K-110K(worse case scenario).
That will be O.K. because of the interest rate I'll be locked into, I can afford to rent the house out for 1200-1600 a month. with either figure covers my mortgage on this house.
Then take that 40-60K ++ (depending on my saving motivation) I'll only have to borrow 60-70K for a better house. I'll actually owe more on this house than I will on the other house.
But one thing for sure 1200 a month for a 3br rental is a sure thing in this market.

But even If I have to swing both mortgages in a month or two down turn. My mortgage on both units would be less than most peoples mortgage that bought 5 years ago on one house.

good luck.

I should mention, here's my rationale for buying despite the real possibility of financial Armageddon. First, rather than wade through all the macroeconomic stats and models out there -- I just think about a 100% loss to my condo, then:

* if Armageddon comes before my break even point, then I lose more than if I chose to rent
* if it's afterwards, then I lose less

If I factor in the following:
* closer to work, less time driving, more time building career goals = long term payout
* efficiencies from walking to food, coffee, restaurants and shorter commute

.. then I figure I'll be happy if I break even and last past it all.

That said, I think there are a lot of powerful people with a lot of money who have a big interest in not letting everything to hell ... so in the end, I choose to bet against Doomsday.

Do I make sense? Am I delusional? :)

bschroder says

Do I make sense? Am I delusional?

With very few exceptions, almost everyone on this site needs to ask themselves these same questions, which should give you reason to pause regarding the comments and advice you are receiving.