Comments on: Homeowner Bailouts Destined to Fail

By: Mr. ToughMoneyLove

Mr. ToughMoneyLove — Tue, 06 Jan 2009 06:24:10 +0000

David: What you say makes a lot of sense, as long as the rents are relatively stable. Too many people are pushed into ownership when it makes little financial sense for them.

By: David

David — Mon, 05 Jan 2009 22:15:16 +0000

A mortgage payment plus taxes might equal rent but then there’s that “etc.” that everyone always dismisses as being nominal. I rent an i have never written a check to the gardeners or bought a lawn mower, paid to have appliances repaired, needed to buy tools to fix something myself, or deal with a contractor to fix anything. Also, i pay about $100 for renter’s insurance and i can’t imagine that homeowners insurance would be the same cost. Then there’s the opportunity costs of owning a home. Better job in another city? Take off. No weekends spent “working around the house” either.

By: Mr. ToughMoneyLove

Mr. ToughMoneyLove — Thu, 11 Dec 2008 03:44:04 +0000

Kristin: I agree with most of what you say but the facts have shown repeatedly that there are some people who are not fiscally or otherwise prepared to be homeowners. Some as you say got in over their heads and can be rehabilitated. But that should not include trying to keep them in a home that is too much home for them by fiddling with the mortgage terms. Get them out of the house, let them financially prepare themselves for another try, and then give them another chance. And yes the lousy sub-prime loans were overmarketed and oversold. The government seems to have taken over that role.

By: Kristin Brann (Everybody's Fool but Hopefully Wiser)

Kristin Brann (Everybody's Fool but Hopefully Wiser) — Thu, 11 Dec 2008 02:35:48 +0000

I do rather resent the implication that some people are not meant to be homeowners. We can blame the government, but this mess has been a case of greed and envy on many fronts. Potential buyers who would not have qualified under traditional mortgage requirements because we had too much debt already were encouraged by mortgage brokers to get in over our heads with ludicrous loans with the prospect of refinancing, possibly at a lower rate, later. Since in some cases, it was a matter of keeping up with the Jones’, who were also in over their heads, this can also be attributed to overly aggressive marketing, lax banking requirements, and naive believe that the housing market would continue rising in value at the unsustainable rate it was. For one, I hope that ten or fifteen years down the road I will not have any debt and will have enough money in the bank to afford a traditional down payment and mortgage. If criminals can be rehabilitated, why can’t those who make poor financial decisions? I prefer to think that maybe we’ve just had a lot of overgrown children in our society learning to grow up and not give in to peer pressure.

By: TMN

TMN — Wed, 10 Dec 2008 15:39:00 +0000

I totally agree, zero availability (without raising your housing costs) is absolutely a case where it does make more sense to continue renting.

By: G. Jules

G. Jules — Wed, 10 Dec 2008 13:45:16 +0000

looking for a home in a price range that will put your mortgage + taxes etc roughly at the same cost as you would otherwise pay in rent.

You’re assuming that a housing unit that would satisfy this formula is available in my area. It isn’t. (And yes, I’ve looked.) I could get a much smaller, much crappier studio apartment, in a very bad part of town, for several hundred a month *more* than I pay now in rent. I’d rather put that money in the bank and wait.

I do eventually hope to buy a home (that’s what that money in the bank is for, after all). But for right now, I’m happier renting. My rent money goes to get me a safe, comfortable place to live. I don’t consider that pissing my money away.

By: TMN

TMN — Wed, 10 Dec 2008 08:01:36 +0000

Yeah, I’m by no means saying that buying is best for every situation. And the attitude that most people have seems pretty bad to me. As you said yourself, some people assume that they’ll recover every dollar of principle plus extra in profit when they sell. And when people think that way, they probably tend to take out a larger mortgage than they should, thinking of it as an investment.

I’m talking about something different: looking for a home in a price range that will put your mortgage + taxes etc roughly at the same cost as you would otherwise pay in rent. That way you get guaranteed rent for as long as you stay, the freedom to make whatever internal changes you want (something you usually can’t do with an apartment), and as long as the house sells for the original cost MINUS your principle, you break even. It can actually go down in value by several percent a year and you’ll be no worse off than if you had rented. That sort of decrease is pretty unusual, especially if you put in some do-it-yourself improvement time while you live there, so you’ll likely do better than breaking even. But you don’t have to.

Again, I think the attitude that a house is a fantastic investment often leads people to take on mortgages with payments much larger than they would ever consider paying in rent, hoping to cash in on the appreciation of a larger property. And that’s indeed risky, because they end up putting their “oh shit” money into the house, instead of something guaranteed.

That’s not what I’m advocating at all. I’m saying aim low enough in the housing market that you convert your current rent to a mortgage payment, put your emergency money in a CD ladder where it’s guaranteed, and put further dispensable money in any well-diversified investments that are NOT your house. Don’t even think about paying off the mortgage early unless you’re just swimming in cash. The goal isn’t to pack as much of your income into your house as possible, it’s to keep as much of your rent cost as you can WITHOUT over-investing in one asset just because it’s called a mortgage.

The key is, figure out what you’d reasonably pay for rent anyway, and get a short mortgage that gives you the same total monthly payment. Way too many fail miserably at that step, and are enticed to do so by greedy lenders and a confused media.