Author Topic: Looking at Homes, Still in Debt  (Read 3135 times)

HawaiianRyan08

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Looking at Homes, Still in Debt
« on: June 14, 2016, 04:43:14 PM »
Hello everyone!  Long-time reader, first time poster. 

I have pretty much devoured all of Mr. Money Mustache's posts in the past several months, as well as podcasts from Mad Fientist and the like.  I have reduced mine and my wife's spending by a significant amount and started tackling our debts with a wild ferocity.  I know that I'm supposed to get out from under my giant flaming pile of debt before I even consider taking a mortgage, but I can't help but notice how LOW the interest rates are RIGHT NOW and wonder. . .is waiting until I'm out from under my debt still the smart decision, even if that means having an interest rate that is two or three times higher than it is now when I finally do take the leap?

I'm hoping you guys can give me some confidence in my decision, whichever decision that might be .  I'm currently leaning towards NOT trying to take advantage of current interest rates, because I feel like my wimpy brain is just trying to justify getting a home before I can afford it, but I just can't shake the feeling that I MIGHT be making a big mistake. 

Thoughts?

frugalecon

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Re: Looking at Homes, Still in Debt
« Reply #1 on: June 14, 2016, 04:49:59 PM »
Hi Ryan!

If you wait, what sort of timeline are you looking at? The future of interest rates is unknowable, but I am very skeptical that you would face interest rates that are two or three times higher than current levels, which are very low. People have been predicting the imminent rise in interest rates for years, and they have fallen to almost record lows.

lthenderson

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Re: Looking at Homes, Still in Debt
« Reply #2 on: June 14, 2016, 04:51:11 PM »
They've been steadily declining for the last 35 years. What makes you think they are going to double or triple tomorrow?

HawaiianRyan08

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Re: Looking at Homes, Still in Debt
« Reply #3 on: June 14, 2016, 05:02:08 PM »
Hi Ryan!

If you wait, what sort of timeline are you looking at? The future of interest rates is unknowable, but I am very skeptical that you would face interest rates that are two or three times higher than current levels, which are very low. People have been predicting the imminent rise in interest rates for years, and they have fallen to almost record lows.

If I wait, it will likely take me about 5 years to get out of my current debt, and then I would have to save for a decent downpayment which could take another 2 years. 

They've been steadily declining for the last 35 years. What makes you think they are going to double or triple tomorrow?

I didn't know that!  I have mostly been hearing that they have been historically low for a few years, and I thought (perhaps naively) that lows now likely mean highs later.  That chart alone makes me feel more confident in waiting, but would you say that waiting is the right choice? 

If I know I can make the mortgage payments, and still pay my debt off in the same time frame, why am I waiting?

Jeremy E.

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Re: Looking at Homes, Still in Debt
« Reply #4 on: June 14, 2016, 05:05:20 PM »
Personally, before I would get a mortgage, I'd first make sure it's cheaper than renting,
http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
If it was cheaper to buy, I would pay off all debt with more than 4% interest, and save up 20% for a down payment to avoid PMI and FHA. Then wait for the perfect home and jump on it.

rpr

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Re: Looking at Homes, Still in Debt
« Reply #5 on: June 14, 2016, 05:51:18 PM »
What sort of interest rates are we talking about on the debts that you have? If the interest rate is low, then I could consider saving for a nice downpayment first.

PDM

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Re: Looking at Homes, Still in Debt
« Reply #6 on: June 14, 2016, 05:51:52 PM »
Keep in mind, cheap debt means expensive assets. A low interest rate makes a large debt more serviceable - it doesn't make it a good investment.

In Australia, huge decoupling of rental yield vs house prices - meaning rent doesn't support actual price. 

singlemominmass

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Re: Looking at Homes, Still in Debt
« Reply #7 on: June 14, 2016, 06:03:29 PM »
Not sure about your area, but in Boston home prices are increasing at a crazy rate.  That makes me very nervous.  I would wait to buy and just focus on saving/reducing debt.

therethere

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Re: Looking at Homes, Still in Debt
« Reply #8 on: June 14, 2016, 06:13:55 PM »
Work on your high interest debt first. If you have enough debt that its going to take you 5 years to pay back that's a huge red flag. Unless its student loan debt, this is likely going to hold you back from getting the best interest rate anyway. If you have a high debt burden I wouldn't add more required monthly payments on top of that. That's just too much stress for me. Its exactly why I don't own right now.

Rates definitely aren't going to double overnight. Think 0.25% increments over time is much more likely. You have time. Don't rush into anything. Continue on getting your financial house in order first. Depending on the type and interest rate of the debt it doesn't have to be a hard line of "must pay all debt before downpayment savings". For me, I put my line at all debts >5% to payoff before even considering money for anything else.

lthenderson

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Re: Looking at Homes, Still in Debt
« Reply #9 on: June 15, 2016, 07:36:42 AM »
They've been steadily declining for the last 35 years. What makes you think they are going to double or triple tomorrow?

I didn't know that!  I have mostly been hearing that they have been historically low for a few years, and I thought (perhaps naively) that lows now likely mean highs later.  That chart alone makes me feel more confident in waiting, but would you say that waiting is the right choice? 

If I know I can make the mortgage payments, and still pay my debt off in the same time frame, why am I waiting?

The funny thing about houses is they aren't just mortgage payments. There are repairs and upkeep, more space to fill, higher utilities, property taxes and the list goes on. Perhaps the most important is that it is a major asset that can be lost if something were to happen to your steady job and your security net (i.e. emergency savings and too many debt payments) isn't secure. I have seen too many people lose their houses these last six years due to too much debt and not enough savings. Many more are still underwater in their house, meaning they still owe more than it is worth. Like any large expenditure of money, one should be cautious and do lots of what if scenarios to make sure they can afford it. You will know when the time is right after doing your own due diligence.

Altons Bobs

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Re: Looking at Homes, Still in Debt
« Reply #10 on: June 15, 2016, 09:19:28 AM »
PPs are right, are you willing to be underwater when the housing market goes down and you owe more than what your house is worth?!  Determining whether to buy based on interest rates is a bad idea.

MsSindy

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Re: Looking at Homes, Still in Debt
« Reply #11 on: June 15, 2016, 09:26:31 AM »

The funny thing about houses is they aren't just mortgage payments. There are repairs and upkeep, more space to fill, higher utilities, property taxes and the list goes on. Perhaps the most important is that it is a major asset that can be lost if something were to happen to your steady job and your security net (i.e. emergency savings and too many debt payments) isn't secure. I have seen too many people lose their houses these last six years due to too much debt and not enough savings. Many more are still underwater in their house, meaning they still owe more than it is worth. Like any large expenditure of money, one should be cautious and do lots of what if scenarios to make sure they can afford it. You will know when the time is right after doing your own due diligence.

This is what I wanted to say.  Owning a house is SO MUCH more than just the payment.  Get your self financially set before taking on such a huge financial and time responsibility.

frugaliknowit

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Re: Looking at Homes, Still in Debt
« Reply #12 on: June 15, 2016, 10:03:28 AM »
Doing something on the basis of an interest rate or price projection is a fool's game.  No one can predict interest rates or housing prices, so don't try it.

Make sure your finanacial house is in order and that you plan to own any home for at least 10 years.