patrick.net

bert says

But that money really wasn’t contributing to my happiness while it was sitting in the bank and so, in my happiness alegra, it’s a wash.

Happiness algebra is a little weird. Think about 100k sitting in the bank. You could spend it on things that make you happy i guess, but a responsible person would organize all the things they want on a happiness scale to make sure they get the things that make them the most happy first. There's a really weird relationship between happiness and $. My $189 kindle makes me really happy to the extent that 100k of happiness is too abstract. Stuff i use everyday makes me happy. I don't use money sitting in the bank for anything. We get so much use out of our house everyday that i'd gladly swap that 100k for some of that happiness. Helping other people makes me happy. Gosh, what have i been smokin' today;)

bert says

We did buy in 2006 (20% down) and have now saved 2k per month in rent payments for almost 5 years while enjoying our digs.

I'd imagine you just recently refinanced... Banks don't REFINANCE for free... What do they have to gain out of refinancing you at a lower rate? Other than keeping you from foreclosing.. a bank has little incentive to offer you refinancing. You don't save $2K a month by renting by the way... That's the lie all homeowners spout off.

You only save the difference between your rent payment and your principal payments + tax savings.

The first 5 years of owning a home people are hardly paying any principle. They are paying LOADS of interest though. For instance, a $500K home at a 5.25% interest rate.. the principle payments would be $31K after 5 years with 20% down.

So since you say you bought in 2006... It's safe to say the average 2006 buyer lost their entire 20% down payment in their homes drop in value. So, a $100K loss on a $500K home bought in 2006. Then after 5 years of regular payments they would have paid off about $31K in principle.

So do the math....

Buyer in 2006 aka BERT: Buys $500K with 20% down. Mortage payment + taxes approx. $2700 a month. Pays approximately $100K in interest over the past 5 years.. and $31K in principle. Their house is worth $400K now... They STILL owe $369K.

Renter in 2006: Pays $2K a month for 5 years. For $120K loss. But didn't pay any taxes or interest and still has that $100K in the bank that the Buyer used for a down payment.

So the 2006 Buyer is paid $162K out of pocket for 5 years.. and $100K up front.. and paid off a whopping $31K of a home now valued at $400K.

Meanwhile the renter paid $120K over the same time period.. still has that $100K in the bank.

Whose better off now and made the better decision... The renter by far!

I wouldn't say a refinance is free, but the fees are pretty much nominal. (around 1K-2K) If you get a rate reduction from 5% to 4. 3/8% the return on investment is maybe 5 months.

At 4.375%, principle amortize a lot faster than if interest rates are 5.25%.

The going zero points loan was 4.25, and the extra 1/8th paid all the closing costs.
Ducky,
I'm guessing your LTV was less than 50%, perhaps? I'm waiting for Chase to make me an offer I can't refuse... those SOBs impound for taxes (otherwise, 1/8th of a percent more). On the positive side, they'll rebate 1%of your scheduled payments (P&I) each year if you have a checking account with them for automatic payment.

What he said

Everytime I look.they want me in a bigger house.go figure

I think you’re doing the right thing by looking at houses that are more affordable and that will allow you to do more with your life rather than being house poor. I’ve looked at a bunch of homes over the past year and I’m finally ready to buy a house, I have an accepted offer in by the bank (it’s a foreclosure) and I’m closing next month assuming the appraisal and inspection go fine.

I’m hoping to get some advice as well; maybe some of you could help me out please?
Here’s my situation. I’m 24 years old, ready to graduate in the spring with a bachelor’s degree. I’ve held a job in my field (which I enjoy) since 2007; my salary is in the $50-$60k range. The house I’m about to buy is $92k; it’s in a great area here in Michigan where there’s a lot of waterfront and canal properties. The house (all brick, built 1967) is 1,600 square feet, 2 ½ car attached garage, basement, deck, 1 ½ bath, overall I like it a lot and it’s a home I can see having a family in. My total payment for the mortgage, insurance, pmi , and taxes is about $775. Using Patrick’s method if I could rent the home for $1k a month that’s $12k a year /$92k that’s 13%, so I would believe I’m getting a fairly good deal. God forbid I lost my job and had to rent the place quick at $800 a month that’s still about 10% using his formula.
I’ve looked at what I can rent for $800 around my area and the results are not great, for what I’m looking at I would have to go over $1k a month it seems.

Overall do you guys think I’m making a decent purchase?

My sense is that you've made a good decision. If you're happy that's the first good sign. Even if you end up paying a little more than you would to rent a place, I would look at the difference as what you're paying to afford yourself a certain standard of living. It's only natural to have a twinge of misgiving at the outset of any big commitment, but looking at your numbers, I really wouldn't sweat it.

Riley said: "But I’d imagine the maintenance on a 75 year old house can’t be cheap. I don’t want the headache"

Of course I don't know the particulars of the place you're in, but I wouldn't be so quick to dismiss older homes because you think the maintenance costs could astronomical and don't want the headaches. I realize the one your in takes a beating in the winter and summer since they are exposed to the extreme elements which creates it own problems. I had homes in the mountains, so I am familiar with frozen pipes, heavy snow slowly melting on the roof, etc.

Two of my low maintenance rental holdings here in Southern California, (Pasadena and Glendale) are older homes; one is a 1927 Spanish house with hardwood floors and loads of storage space and the other is a 1939 ranch home with hardwood, etc., and older homes generally come with larger lots, don't look like cookie cutter subdivision homes, and have lots of character and charm. I rarely have any issues with maintenance and I think it's because these particular homes were built better back then. I have more issues with my properties that were built in the 80s than I do the ones that are 83 years old, so they are super performers. Of course with any property you own there is a little preventative maintenance, but that's part of home ownership. I have never allowed deferred maintenance on any home I have ever owned because ultimately it will cost more to repair if left unattended or the job is done in a poor manner.

In fact, this may be a good topic for those landlords that have older homes to see what their experience has been.

Galatica, I think you made good decision. Don't know a thing about Michigan, but what you said sounds alright to me as long as you keep the job. Your cost of living in there would be about 1/3 of your after tax income, so it sounds fairly easily doable without headache.

Bryan, I think your decision is sound too. And, please don't presume anything because the home is old. Take a look and see if the home has good bone, and is maticulary maintained or not.

Even a couple where each of you work at McDonald's and makes minimum wage now qualifies (DTI ratios) for a home in Reno that costs $150k. So, that's the reason why homes in that price range are in sketchy areas. You're living next to people who earn minimum wage, and welfare queens who get the equivalent of minimum wage from the government.

Learn a trade or go back to school and make more money is my advice. Any fully employed plumber, carpenter, or painter, or policeman who marries a nurse's assistant can afford a $300k home at 4.x% 30 year fixed rates. All those professions require is a GED plus a couple of months training, and it separates you from the minimum wage earners.

In the L.A. area a $300k home would land you in the desert communities like Lancaster, or in the ghetto like South Central L.A., but in Reno it'll buy you a nice house that isn't a fixer-upper in a relatively nice neighborhood. FHA loans only require 3.5% down, so a measly $10k downpayment will qualify you.

you are a smart person

Los Angeles Renter says

Whose better off now and made the better decision… The renter by far!

Well, i can't argue with your maths. But like i said before, i'll use whatever maths it takes to make me happy. In my maths, the 100k in the bank makes me sad. Let me run your scenario thru my happiness algebra.
ownership premium (i.e. Price of Happiness) = current mortgage + taxes - 2k (equiv rent) - principal - tax deduction benefit
Price of Happiness (on 500k home with 20% down 6.25%) = 2460 (monthly mortgage in 2006) + 500 (taxes+ins) - 2k (equiv rent) - principal (380) - tax deduction (666) = -86
Actually, i'm kind of surprised it came out negative. If i plug in our actual number from when we first bought our house, i get about $670/month which is cheap considering all the happiness our house brought us, and only got cheaper over time as we paid off principal with extra cash we didn't need and wasn't bringing any happiness to us in the bank.

If i plug in the numbers for our next loan payment, i get -430 (it's now a 15 year loan). So in 4.5 years, our price of homeownership happiness went from +670 to -430 i.e. it's now cheaper for us to be happy homeowners compared to renting. I encourage Patrick.Net readers to think for themselves rather than putting their lives on hold based on the macro-economy. If you're waiting for house prices to return to levels suggested by Patrick's homepage (e.g. 3 times annual earnings), it may never happen because people don't all use the same maths to make the decision to buy.

Looks like rates are going to keep going down anyway...

http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2010/10/15/financial/f051853D88.DTL

Fed policymakers are widely expected to announce a Treasury-buying program at their next meeting Nov. 2-3.
"There would appear — all else being equal — to be a case for further action," Bernanke said

As the Fed snaps up Treasury bonds, the rates on those bonds will fall. Rates on mortgages, corporate debt and other loans pegged to the Treasury securities will drop, too. It's a case of supply and demand: Higher demand for bonds lowers their rates, or yields. And it drives up their prices.

bert says

y … i guess the point i’m trying to make is that i want to encourage Patrick.net readers to look at their own situation and make their own decisions, rather than basing their life choices on the macro economy and/or what they read in this blog. I know people who seem brainwashed in their own actions because they can’t seem to disassociate their lives from what’s happening in the broader economy. I’m hoping for some good karma by by offering a dissenting opinion that may save people putting their lives on hold just because we all agree the macro economy sucks.

Putting our lives on hold is exactly right, that is what I was doing for the last three years.
Bert it's very Adult of you, to view your purchase from your own perspective, with out wearing a Modern Armchair Economists pov, where interests lie only when something is being gamed and in play.

The single thing that kills me the most about the Bubble buyers.
In the height of the Bubble, they emoted their psyche in their purchase of buying their home. There were so much emotion involved in their buying decision, there was no way any other logic would have swayed them otherwise. They believed they were buying a piece of the American dream,(and presumed foreseeable appreciation) they didn't care if the market cratered or not. As that was not the normal thinking and was crazy talk. But I bet you a dollar to a dozen donuts that if you asked those home owners. "What if the house depreciates 200% in 3 years?" Most would have said, "Well I guess I would have lost money in the short term, but inflation will eventually kick in. We are buying for our selves anyway..."

Then when that actually happened, all of these same people are ready to put down the family dog for flatulence. Just the Lemming heard mentality has exacerbated the RE decline, in a perfect tandem of the Governments intervention to keep the prices inflated.

If every one would have held their ground and the Government governed like sensible adults.
RE prices would have still fell, but all that negative psyche energy would not have fell over on the Buyers.

I can truly attest to that. I was ready to buy as much as two years ago at 225K I was just tired of putting my life on hold. I was expecting a lot for that 225K mind you. But I was starting to consider that 225K is the new norm for a "DECENT" place.

But nope, all of the Greedy Petty behavior from the Banks, Realtors, Mortgage ditchers, Shortsales that never close, Forclosures that all of the good ones get absconded by the local investor groups and the cozy relationship they seem to have with the City and the bank...

It was blatantly obvious, I was being played and couldn't actually "BUY" any of the decent houses if I wanted to. I was going to have to wait for someone needing to move, that needs to sell that was not upside down. Which was what eventually happened.

Now that I've bought, and am out of that rat race, I feel a big load is off my mind. That is the load of worrying about the Market, which was a market you couldn't buy at any price if wanted to, unless it was the Ugliest Ugly Betty nobody in the RE investment Trifecta wanted, in slum town.

People want to buy, and have been for a while. The spectacle gives them great pause, how can they buy with all of the Shenanigans and blatant thievery and Con job going on?

The easiest way to work this out is through a mortgage table (or calculator).

The monthly mortgage payment on $200k with 6% is about $1,190.

Now you look at how much principal an $1,190 monthly payment covers at 10%, the answer is ~$139k, which is a drop of about 30% (obtained by [(200-139)/200] ).

That 30% really represents a ceiling rather than an actual drop, because there are other factors involved that affect prices, like wealth effects (buyers with cash), rental markets (which work as a substitute good) and so forth.

First time poster here so I apologize in advance if this is in the wrong place. Just wanted to get your guys opinions and hear suggestions about our website www.SavvyRent.com. SavvyRent is totally free and shows rental history (if we can get it or someone already shared it with us) for apartments/houses. We also show what is currently renting near by, which helps with making rent or purchase decisions. You can do all this without creating an account. If you login, you can save favorites to track rentals/houses over time or create and save custom searches.

For example for this address we show 1 historical record and 6 places currently renting near by (using Craigslist) between $925 and $1950/mo so $1400/mo is right in the middle of the range. Of course location and condition affect the actual rent.

Please share your insight as we are always looking to add useful features, email to admin@savvyrent.com.

Does anyone know anything about a neighborhood in San Ramon called Windmere? My fiance would like us to look at homes in the area because she says its a pretty up and coming place for immigrants (she is Chinese - working on becoming a naturalized citizen). I want to make her happy, but I’m very reluctant to look at higher end homes that have had price runups before the crash.

Anyone have anything to say about Windmere?

I've read about the whole "if the bank can't produce your mortgage note get you house for free" thing, but I haven't read any stories where this actually happened. I did read about stories where lawyers were able to able to prevent the bank foreclosing on there house becuasse the bank couldn't produce a mortgage note. Even though these people haven't made a payment in years they are still living there. The houses are now in a legal limbo, they can't sell there houses because who legally owns them is in legal limbo. Just because they are living there isn't proof they actually owns the property. They can't produce the deed cause some bank has them probably misfiled in some box buried in a warehouse. There is a "quiet" title process that can be filed to clear a title if no one can prove they hold the title.

shrekgrinch says

Someone else on another posting wrote how the bank just called him up out of the blue for a free re-fi. Several of us smelled the ‘they lost the note’ stink with that one.

Hmm, this could very well be they lost the note situation. Perhaps they should demand to see the note before the refinance. This phone call just screams Free Houses for everyone!

Reminds me of a tenant demanding a receipts for something that is obvious (like repairing a window) .

No one wants to admit it but the banks are the being screwed here.

People living in houses without paying anything for years?

If it brings down the mortgage securitization edifice I'm all for it. I'll settle for PATCHING the system so it's done right, not "good enough for a smash-n-grab". The banksters wanted everything arranged to favor them and consequences to law & order & society be damned. English Common Law has had "chain of title" as an important concept for how many centuries? And we just toss it out blithely and let these pudknockers run this funny business where MERS and investors all pretend they own things and trade them like baseball cards without even keeping track of who owns what anymore. Time for pushback and revision. The core lesson of the last decade has been they can run roughshod over law and long-established procedures, and until that is redressed why should we expect the peasants to stay in line. Once you start unraveling all the threads of society that conceives itself as egalitarian, you can expect eventually some consequences.

shrekgrinch says

Debts can be disputed (and that is a legal phrase that involves more than just ‘challenged’) for validity. Debtor’s have the right to demand proof that the debt even exists (the note) and that holder is the correct person the debtor should send payments to. This is in state and federal law and goes back in common law for centuries.

Shrek is probably one of "those people" that think the Fed is private and that you don't have to pay those illegal federal income taxes.

To shrekgrinch:

You're defending a technicality to delay the INEVITABLE outcome. IF there are two people asking for payment of the same debt, YES you are right.

HOWEVER, this is NOT the case. There is ONLY ONE debtor in all of these cases.

What you're advocating is unethical because you know that the foreclosure process is legitimate but you're saying, "Oh, look!!! They didn't get a signature on so and so document years ago".

When I pay my credit card every month I don't ask for verification of every item with indisputable paperwork!!

Stalling is still stalling.

kronicade says

To shrekgrinch:
You’re defending a technicality to delay the INEVITABLE outcome. IF there are two people asking for payment of the same debt, YES you are right.
HOWEVER, this is NOT the case. There is ONLY ONE debtor in all of these cases.
What you’re advocating is unethical because you know that the foreclosure process is legitimate but you’re saying, “Oh, look!!! They didn’t get a signature on so and so document years ago”.
When I pay my credit card every month I don’t ask for verification of every item with indisputable paperwork!!
Stalling is still stalling.

You are absolutely right screw those that can’t or won’t pay, they should not have the houses. But the fact is still true, if you don’t know who owns your mortgage yet are still giving the money to someone you are being just as unethical. It is financially irresponsible not to know who owns each of your debts.

Each month the servicing organization that handles my Student Loan makes it very clear who the current owner is on the bill and they have told me at least a month a head of any change of ownership. There is no excuse not to be told each month who the current owner of your mortgage is. If they don't tell you don’t pay.

If you have a problem about not paying your debt, then take your monthly payments and place them in a special savings account each month and hold them until you are told how owns your note. This is no different than what the law ethically allows in many states when a landlord fails to live up to their obligations. The tenant can withhold rent under some circumstance as long has they can prove intent to pay usually by placing rent in a savings account.

This is not about defending those that should be removed from house they can not pay for. This is about everyone else that can and is willing to pay. Why don’t you know who owns your mortgage! It is extremely financially irresponsible and is completely unethical not to know.

Odds are I will never own a home at this point as I will never accept a mortgage unless I have a lawyer add a few stipulations about its re-sale and transparency of ownership.

With apologies to those that actually have or are taking the ethical actions to understand who owns their mortgages.

it's hard for people to ignore a troll.

I implemented an "ignore" link next to comments a while ago so you can ignore people if you want. If you want to argue, you can do that too.

Let me know if I can improve that somehow.