DiputadoVolador

This is kind of off topic but, a couple guys talked about Dave Ramsey. I was listening to his show the other day, A lady called in and asked about student loans for flight school. He went off. Said he would never advise anyone to spend 60-100k to get a 20K per year job. That is a bad investment. It was interesting to hear a financial advisors view on finances and aviation.

Pilotpip

The housing market isn't going to recover any time soon because the rest of the economy is in the dumps. If fuel continues to escalate we're only going to see the number of forclosures rise which will further depress the market.

328dude

While this is what the banks will approve you for anyway, cut it in half just in case something happens to one of your incomes. Also, a 15-20 year fixed rate morgage is the way to go.

328dude

While I see his point, his other advice is very good. Been doing his program for about 3 years now. It's nice to only have a morgage as debt.

Chickenwolf

Forgive my ignorance, but is a 15-20 year loan the "only way to go" because you'll actually have it paid off in a shorter period of time thus getting you out of debt sooner? If you only plan on living in the house for 5-10 years then why should'nt you go for the cheaper 30 year loan?

328dude

Because you will be paying more interest than principal unless you want to make an extra principal payment.

You will have more equity over the same time period (what you want anyway if your going to sell it) than a 30 year note. Going from a 30 year to a 15 year upped my payment about 75 bucks, but saved me 60 grand in interest.

Led Zep

Exactly! One of the basic needs in life is shelter. Your attitude when purchasing a house should simply be one of purchasing shelter for you and your family.

A lot of people are under the false impression that your home is an investment. A lot of people will point to the value of their home and say how much wealthier they are because of how much their home happens to be worth. Fact: you have no idea how much your home is worth until you sell it and receive a check from the buyer. Whatever value is printed on that check is exactly how much your house is worth.

Another fact: your home costs you money. Mortgage payment, property taxes, heating and cooling expenses, and miscellaneous expenses associated with home ownership. Aside from things such as brokerage fees, most investments should earn you money.

In most cases you have no choice but to purchase a more expensive home than the one you sold. If you make a profit on the sale and then downsize, you will be hit with capital gains taxes.

Led Zep

Good on ya 328dude. You are one of the few people who look long-term instead of just looking at the monthly payment. Also, going to a 15 year means you will also own your home a lot sooner too.

LJ-ABX

The math is the same for a 15yr or a 30yr loan. The difference is that with the 30yr loan you are paying less toward principal reduction each month. If you sell in 5 to 10 years you'll have more equity (i.e. lower remaining loan balance) if you had the shorter-term loan.

Assume a $200,000 mortgage at 5.75%.

Your monthly principle and interest payment would be $1,660.82 on a 15 year loan or $1,167.15 on a 30 year loan. The interest charge that first month is the same on either loan, $958.33 so the difference in what you pay, $493.67, goes directly to principal reduction.

On the second month you'll owe $493.67 less with the 15 year loan than you would with the 30 year loan. Since you now owe less, your interest charge the second month will be less--$2.37 less--which increases the amount of "extra" principal reduction applied to $496.04.

After one year, you're saving $26.65 per month in interest charges and $520.33 per month of your payment is going to principle reduction. At that point you'll owe a total of $6,082.74 less than if you'd done the 30 year loan.

74plb

Quote:
"You got to live somewhere, so if you sell that fancy house for lots of money, just means you have to spend lots of money on the next house and you are no better off."

Led Zepp typed:

*In most cases you have no choice but to purchase a more expensive home than the one you sold. If you make a profit on the sale and then downsize, you will be hit with capital gains taxes.*

This used to be true, but you have a $250K capital gains exclusion if you owner occupied the property for two years. So if you and your wife bought a house together, you would have a $500K gain on the sale of your house.
Then you could downsize and invest the rest.
In 1989 I purchased a townhouse in the SFO Bay area. I owner occupied this property for a year then converted it to rental status. In 2002 I did a 1031 exchange into a single family home in the bay area. This was rented for two years, then I did another 1031 exchange into a house in the NorthWest. We rented this house for just under 2 years and when I got laid off in 2006, we moved in and we are owner occupying the property. When the current down real estate market recovers eventually we will sell and downsize.
When/if we sell this property, I have to recapture the depreciation and the capital gains are mine to keep.
Being a landlord has been trying at times but overall it has done good things longterm for my families security and offered some good tax benefits as well.

More info than anyone needed but there it is. YMMV