|
Posted by John A. Weeks III on September 24, 2006, 7:49 pm
wrote:
> 28, 27 Married couple, no children.
> Combined monthly income: 7300
> Combined Mortgage (1st and Heloc): 3000
> Within about two years we are planning on having children. With that my
> wife will be out of work for at least a few years but may continue to do
> some freelance design work from home. Until then I would like to give
> myself as much cushion as possible.
You have far too much house for your income. Once your wife
starts having children, you are going to have a serious house
problem, and may end up losing it. That goes double since you
have a job that I would consider to be unstable (computer
industry, which has been cutting back and moving off-shore).
Best bet is to put the McMansion up for sale, and move into
something where your total monthly payment is about $2000 with
a 15 year loan (maybe $2200 max a month).
Paying interest only like you are doing today is a bad plan.
You are not paying down the amount of the loan, so you owe
just as much today as you did when you bought the house. With
house prices taking a nose dive over the past year, you probably
owe much more on the house than what it is worth. You have
things wound up so tight here that all it takes is one job loss
or extended illness to make the thing blow sky high.
-john-
--
======================================================================
John A. Weeks III 952-432-2708 john@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================
|
|
Posted by Mark Bole on September 28, 2006, 8:01 pm
John A. Weeks III wrote:
[...]
> Paying interest only like you are doing today is a bad plan.
Depends on the interest rate and a whole bunch of other things we don't
know.
> With
> house prices taking a nose dive over the past year, you probably
> owe much more on the house than what it is worth.
If they owe "much more" on the house than it is worth, how exactly are
they going to come up with the real estate sales commission, closing
costs, and difference between net sales price and amount owed on
mortgage, not to mention the cost of moving to a new place that is still
within commuting distance of their jobs?
-Mark Bole
|
|
Posted by John A. Weeks III on September 28, 2006, 10:03 pm
> John A. Weeks III wrote:
> > Paying interest only like you are doing today is a bad plan.
>
> Depends on the interest rate and a whole bunch of other things we don't
> know.
We have all the information that we need to know that it is
a bad deal. Doing interest only is simply renting a house, you
get all the downside responsibility and none of the upside
advantages of ownership. It is not a wealth-building technique.
In comparison, buying a reasonable house and paying it off in 15
years is a wealth building strategy.
If you want to be wealthy, you need to do the things that wealthy
people do. If you want to be poor, you do what poor people do.
Wealthy people rarely use interest only loans. Interest only loans
are almost exclusively used by broke people to buy more house than
they could otherwise afford. If you go interest only, you are
setting yourself up to be broken an in debt for a lifetime. Like
the former first lady used to say, just say no.
-john-
--
======================================================================
John A. Weeks III 952-432-2708 john@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================
|
|
Posted by joetaxpayer on September 28, 2006, 11:07 pm
John A. Weeks III wrote:
>>Depends on the interest rate and a whole bunch of other things we don't
>>know.
>
> If you want to be wealthy, you need to do the things that wealthy
> people do. If you want to be poor, you do what poor people do.
> Wealthy people rarely use interest only loans. Interest only loans
> are almost exclusively used by broke people to buy more house than
> they could otherwise afford. If you go interest only, you are
> setting yourself up to be broken an in debt for a lifetime. Like
> the former first lady used to say, just say no.
>
> -john-
>
Let me add, a $250K, 6% mort, amortized over 30 years is just under
$1500/mo. Same rate, interest only, is $1250. If one's budget is so
tight that they cannot afford this difference, the $250 to principal,
they are in over their heads.
JOE
|
|
Posted by John A. Weeks III on October 1, 2006, 12:35 pm
> For house #1 it was a condo, house #1 and within 1 year of moving I
> received a raise from work and my wife got a new job. Payment was one
> of my paychecks. Still had some debt when we moved in.
In my opinion, spending a full paycheck on shelter is totally out of
whack. You should spend no more than 1/2 a paycheck, 1/3 is even
better. In the situation above, one paycheck each month goes to
a building, which leaves on one paycheck a month for living expenses,
entertainment, and savings for the future. One of these ends up
short changed, and the person is living in a high risk situation.
An interruption in the pay check flow means the house goes away.
> For house #2 4 years later we bought house #2. We were debt free on
> close and just finished paying off car repair bills which approached
> $12,000 for 6 months in 2006. My wife started a new job 1 week before
> we closed and I received 2 significant raises for around a 10% salary
> increase since we moved.
>
> There is more to the decision of buying than just the income. Knowing
> the career paths of purchasers and raises typically given, it makes
> some sense to take some chances. In our case we have NO kids (just my
> wife and me) so if a mistake is made the two of us will work through
> it.
That might have worked out OK in the 1970's. Today, you cannot count
on a career path. In the industry that I am in, I have seen average
wages cut in half since 2000 as jobs are given to folks from India
who will work for pennies on the dollar. I have seen whole entire
areas of the engineering field move to Malayasia.
Years ago, a person was in their peak earning years from age 50 to
age 65 as they got seniority and was at the top of the pay scales.
Today, once you hit 50, you are most likely ejected as cannon fodder
so they can hire some drippy-nosed 23 year old who is going to be far
less costly to provide health insurance to. That is why there are
Subway stores on every block in every city of the US these days--
there are so many older men who are out of work and cannot find a
job to save their lives that they have to buy a franchise in order
to get an entry level job.
Buying a house where survival depends on getting raises and promotions
at work is a plan for disaster these days. The only safe thing to do
for your family is to buy what you can afford, and move up after you
can afford to do so.
> I would assume a more family oriented person would have to take fewer
> chances, or older couples would want to take fewer chances and heed the
> advice of the 2X income=home price. When we moved it was 3X income
> (combined)=home price.
For someone who is established and financially well behaved, a 3x
income home price is not out of line. What is being discussed is a
2x mortgage. If you earn $100K, a $200K house is reasonable if you
have nothing down. But if you have $100K equity in your old house,
then the $300K house is reasonable.
-john-
--
======================================================================
John A. Weeks III 952-432-2708 john@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================
|
| Similar Threads | Posted | | need to do financial planning | September 24, 2006, 10:34 am |
| Ages for financial planning | September 29, 2006, 11:10 am |
| best approach to financial planning | October 2, 2006, 7:15 pm |
| Personal financial planning | December 30, 2006, 10:15 am |
| Dental Financial Planning | January 31, 2007, 5:27 pm |
| Choices to be made in Financial Planning | April 8, 2007, 7:38 pm |
| financial planning for natural disaster | May 7, 2007, 12:44 pm |
| Business Model for Personal Financial Planning | March 29, 2007, 5:00 am |
| cancer and financial planning/home purchase | May 10, 2008, 5:06 pm |
| SEP-IRA planning Help | December 13, 2006, 4:30 pm |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap