high mortgage?

[mjbaby]

I'm not sure how "we won't have as much purchasing power in a few year so we should move now" and "we will grow into the mortgage" are compatible ideas. Seems to me that either one of these would/should cancel out the other, you know?

 

[MrsPete]

I'm not sure how "we won't have as much purchasing power in a few year so we should move now" and "we will grow into the mortgage" are compatible ideas. Seems to me that either one of these would/should cancel out the other, you know?

I think it's a confused reference to inflation. He's thinking that the value of a dollar will decrease, while the cost of goods increases . . . so $1000 today seems like a great deal of money, while in the future it'll buy less . . . kind of like how my mom might've bought a week's worth of groceries for $25 back in the 70s, but now I pay $100 for the same amount of food . . . he's thinking that $3500 today is a great deal of money, while in the future it'll be a moderate amount.

But I think he's wrong. Even if he is right, it isn't going to happen tomorrow -- what are they to do until inflation magically lowers their house payment? No, too risky for me.

 

[ducklite]

My 5/1 ARM is based off the 1 year treasury as reported by the Federal Reserve Board as of a certain date with a 45 day look back. It is 275 basis points over the said rate. The servicer does not have the ability to arbitrarily raise the reset rate if, in fact, interest rates have gone down. In fact, in the US, all ARMS are based off of some formula, which is clearly stated in the contract. I have no idea what you are talking about unless you are referencing Australian or UK mortgages.

Actually, not all ARM's are US treasury based. One significant example would be the COFI, another would be the LIBOR. The COFI (Cost of Funds Index based on the 11th District) is about the only ARM that I've ever seen lower rates, however, that loan is funky. The monthly payment stays the same no matter what, and it can result in negative amortization.

The LIBOR is based on the London Interbank Offering Rate, and you still find them in some portfolio products.

Anne

 

[sara74]

We were in the same boat a few months ago and walked away from the house. We were looking to build or move in the next few years but a lot came up in the perfect spot - just a little too early. We know for certain that DH's income will be increasing in the next 4 years (he is buying his practice and will have it paid off in 4 years) but we couldn't bear the thought that we would be reaching so far for the next few years to pay for this house - so as much as I cried when we decided not to do it, it was the right thing to do.

The other good point raised here is the cost of the utilities and maintenance of a very large house. We do have 3 kids and we would like the space, but there is a point at which things seemed to get out of control for us. We have friends who are building a 6500 sf house with 14 foot ceilings. Once the house is built they won't have any money for furniture (they are currently in a 1600 sf house) so she is planning on buying furniture during a 'no interest, no payments for 12 months sale' I don't think they have truly realized how much this house will cost to heat, paint, landscape, furnish etc. It is going to be interesting watching what happens to them in the next 5 years...

 

[punkin]

Actually, not all ARM's are US treasury based. One significant example would be the COFI, another would be the LIBOR. The COFI (Cost of Funds Index based on the 11th District) is about the only ARM that I've ever seen lower rates, however, that loan is funky. The monthly payment stays the same no matter what, and it can result in negative amortization.

The LIBOR is based on the London Interbank Offering Rate, and you still find them in some portfolio products.

Anne

I agree. I was just talking about my ARM. COFI's really only exist in the California Market (we can talk about hedging this stuff off line). The other very popular index lately is the MTA (Moving Treasury Average) which is 12 months moving average of the 1 year treasury as reported by the fed at the end of the month.

Loans made off the MTA are also called option ARMs where you have the option to pay the teaser rate for 12 months except the teaser is only valid for the first month so the interest short fall is ADDED to your principal amount.

LIBORs are found more in the subprime land. Also there are multiple LIBOR rates due to it being an interbank offering rate.

DH is a mortgage bond analyst (so I get these lectures ALL the time )

 

[mjbaby]

I think it's a confused reference to inflation. He's thinking that the value of a dollar will decrease, while the cost of goods increases . . . so $1000 today seems like a great deal of money, while in the future it'll buy less . . . kind of like how my mom might've bought a week's worth of groceries for $25 back in the 70s, but now I pay $100 for the same amount of food . . . he's thinking that $3500 today is a great deal of money, while in the future it'll be a moderate amount.

But I think he's wrong. Even if he is right, it isn't going to happen tomorrow -- what are they to do until inflation magically lowers their house payment? No, too risky for me.

Ah...gotcha. Thanks, Mrs. Pete.

I agree that he's not precisely right on this one. Not *wrong* exactly, but not right, either. Inflation will eventually cause the payment to become relatively moderate in time. When that happens is anyone's guess and I bet that even highly credentialed economics would find it a risky bet.

Not to mention, when one has a bigger house, one needs more stuff to put in it and around it (i.e., landscaping), it takes more to heat/cool and clean. When you start talking about these Plywood Palaces, the mortgage is just a part of the monthly cost.

 

[allyphoe]

That also seems like a low payment for that price.

Going rate for a 30-year fixed jumbo is about 6.5%; if the OP's $3,500 payment is PI only (rather than PITI), it comes out to an 8% down payment. If you figure 20% down at 6.5%, PI is a hair over $3k a month, which leaves $5,600 a year for taxes and insurance. (IMHO, that's not going to be enough to cover it.)

 

[gilby]

You better take into consideration that your payment will only be 3500 for one year and it goes up every year with property taxes, school bonds, home owners insurance. Our house payment goes up every year since we move 8 years ago. Plus with a larger home goes higher water, electricity, gas bills. Plus with a larger home you need more furniture. Alot to think of for the next 30 years, then if you have kids they cost several thousand a year to raise and that is giving them what they need not what they think they need. Also take into consideration a retirement acct. We had a financial advisor come over and do a portfolio. What a shock. We are around a million short in order to retire in 23 years.
I wish you all the luck.

 

[goofyforlife]

As a general rule of thumb, your mortgage should be no more than 25% of your income.

except that in the MD/DC area... That 25% wouldn't even rent you a one bedroom apartment let alone one in a nice (not great but ok) school district.

TO the OP: Have you considered a little further out? maybe like Westminster or Sykesville.

I know you could get so much more for less thinking about that.

I envy you peeps with the $100K mortgages.

My townhouse (2,100 sf) markets around $320K. (We bought it in 04 for $250K though)When we moved to MD from PA we actually lost money to get our previous house sold and that was after renting a year so a large down payment just wasn't possible.

 

[MrsPete]

The other good point raised here is the cost of the utilities and maintenance of a very large house. We do have 3 kids and we would like the space, but there is a point at which things seemed to get out of control for us. We have friends who are building a 6500 sf house with 14 foot ceilings. Once the house is built they won't have any money for furniture (they are currently in a 1600 sf house) so she is planning on buying furniture during a 'no interest, no payments for 12 months sale' I don't think they have truly realized how much this house will cost to heat, paint, landscape, furnish etc. It is going to be interesting watching what happens to them in the next 5 years...

I think there's a "happy medium" that, for the great majority of us, is "just right". It's hard to live in too small a house -- nowhere to store things, no privacy, no space to spread out a project. On the other hand, too large a house is also a burden, but in a different way -- paying to heat/cool space that isn't being used, large lawns that need maintaining, cleaning and paying taxes. As with most things in life, a balance is necessary.

Our house isn't outrageously large -- it's 2600 sf -- but I'm amazed at what it costs to replace /repair things (and since it was a fixer-upper when we bought it, we've replaced /repaired a good bit). The roof was double what I would've guessed. The countertops were 1.5 times what I woudl've expected, and the cabinet knobs were about 50Xs what I thought they'd be! Right now we're replacing the carpet with hardwood, and let's just say that I could buy a small used car with what it's going to cost!

On the other hand, my brother and his wife (no kids) live in a SMALL house, and they just re-did their floors. He bought some special order laminate that someone ordered at Home Depot but never came in to pick up -- the few boxes that they had in the clearance area were plenty to do his small living room. Small houses cost less in several ways!

 

[kileybeth]

to the OP boy, you sure opened the flood gates with that question!

anywho, I guess I would chime in to say. a larger home doesn't necessarily mean higher payments for everything.

DH and I more than doubled the size of our home 2300 vs. 5400 sq.ft.
Our utilities are actually nearly the same or some months less then they were in previous house. older home vs. new construction with all energy effecient systems, construction etc. Our lawn care/landscaping/maintainance cost have gone way down. Less trees, no inground pool, vs. newly planted beds with low maintance ground cover (rocks vs.mulch) our taxes are still very reasonable. Decorating cost is negotiable no matter where you live. I happen to enjoy finding great bargains and putting an effort into it so no problem there. Schooling cost would be around same if you intend on private schooling anyway (despite where you would live) , on and on.

It is really a very personal decision. That said, we purchased for roughly $250,000 and within 3 years our value is over $500,000. No way we could have saved/earned that much any other way in 3 years time. so buying sooner made sense for us.

also amount of space each family is comfortable with is a very personal issue. I love my vaulted ceilings and 2 story rooms and "wasted space" in my
"plywood palace" for those who choose to call it such. I find much more often my family of 7 (6 right now with one off in college) evokes a feeling of warmth and family and is perfect for my 4 younger kids to play in and I do entertain often (often 30-50 people at once) and nothing could suit us better than lots of room in our home.

sorry, off my soap box now is it tight money wise, well, sure sometimes but when I think of what we have gained? worth it every time. sometimes we all make sacrifices temporarily to get ahead down the road. (ie. schooling to bring in better income)

if you are comfortable, solid with your decsion, then go for it.

 

[mattnday]

We live in California and are blessed to have a beautiful 3200 sq ft house in a good but not great neighborhood. We are actually considering downsizing slightly in order to hand pick our neighborhood and schools.

Around me the going rate for a 2500 sq ft house is about $500-600,000. believe me the pain is real. The real killer is taxes. Our taxes are what a lot of people pay in Principle and Interest.

There is no doubt $3500 is hard to swallow for most working folks. My only comment is their is a difference between extension and strangulation.

 

[barkley]

We live in California and are blessed to have a beautiful 3200 sq ft house in a good but not great neighborhood. We are actually considering downsizing slightly in order to hand pick our neighborhood and schools.

Around me the going rate for a 2500 sq ft house is about $500-600,000. believe me the pain is real. The real killer is taxes. Our taxes are what a lot of people pay in Principle and Interest.

There is no doubt $3500 is hard to swallow for most working folks. My only comment is their is a difference between extension and strangulation.

adavantage for long term owners/disadvantage for downsizing owners in california is because of the jarvis gann initiative that impacts property taxes, a person can downsize but end up paying much more property taxes. our former home sold for 619,000 but because we 'only' paid 210,00 for it our property taxes were way less than if we downsized and bought a place half the size (and paid around 400,000). you can own a hellaciously high valued home in california and depending on what the selling price/value was when you purchased-you can end up paying less in taxes than the 'shack' owners pay for more recent purchases.

people who bought our home ended up paying 3 times the property taxes we were paying

 

[maedelken]

Our price includes taxes and insurance. Yes Baltimore does have some bad schools but Catonsville actually has good schools. The area of Catonsville we are moving to is actually similar to some of the neighborhoods in towson. So we won't have to do private school. We may send them to private highschool because it is tradition. Okay what else can I cover um right now I stay at home we would be doing this on one income. I am planning on going back to work in a year or two so we would add a lot to our income. Right now my DH makes just over six figures so it would be tight but this house in theory should be the one we stay in. Housing prices in this area are high yes there are some parts of Catonsville that you can buy the same type of house for half the price but they are not in good areas. Because they have the same zipcode they get included as being called Catonsville. Our 1200 sq foot townhouse just sold for 335,000 in a week houses do not stay on the market long when you live in the right areas. The only reason we were able to get the new house was because we knew someone. My DH's job is very secure and we are both still young so we feel like we have plenty of earning potential. We are very lucky my DH's parents treat their children to vacations and we will still save for our Disney vacation. I was hoping to get more positive advice but I think all the negative vibes righted my ship anyway so Thanks I think. Oh we thought about going farther out we even looked at houses and loved a few but our life revovles around this area so after much soul searching we decided to stay here even though it would cost us more and we get less. I forgot we don't have any other debt besides the house everything is paid off.

 

[ducklite]

DH is a mortgage bond analyst (so I get these lectures ALL the time )

You have my sympathy!

Anne

 

[ducklite]

Not to mention, when one has a bigger house, one needs more stuff to put in it and around it (i.e., landscaping), it takes more to heat/cool and clean. When you start talking about these Plywood Palaces, the mortgage is just a part of the monthly cost.

I want to address this.

The stuff to put "in it" can come with time--if the home owner has the patience and restraint to wait.

If the house is a resale, the landscaping is probably already there, so that shouldn't be a concern--although coming from a townhome the OP may or may not have gardening implements and a mower, so that is something to think about.

As far as utilities, don't always bet on the larger home costing more. My first home wasn't built all that well (at one point we removed a piece of drywall to do some work and found that there was no insulation between about half of the studs! ) and my electric/gas bill for the home I'm in now--which is double the size--is about $20 more per month. Because some of my other utilities are lower in this area than they were where we used to live, it actually works out to costing less for utilities here.

And this home is much easier to keep clean and maintain. The old house I could spend four hours cleaning and it still never felt clean to me. This one I spend four hours cleaning and it sparkles. I have no idea why, but it's something I noticed soon after we moved in. This place just keeps itself clean as far as a lot of the cleaning goes. The only thing I can figure is that there is a lot less carpet, which I think contributes to less dust, and we've got a HEPA filter on the blower for the heat pump/AC which also cuts down on dust.

OK, that said, I still think that the OP shouldn't be buying the house for as long as she needs to ask herself how she'll be able to make the payments, and for many of the reasons mentioned above.

Anne

 

[klj27]

My husband makes nearly what your does and we bought a new house last year. Our mortgage payment with taxes is $1213. We have a 4 bedroom two story, 2600 sq ft. People were telling us that we could afford so much more house and why were we buying this one. My husband was in a very secure job and had guaranteed increases.

Right now I am so thankful we didn't listen to everyone else. We have had a heck of a year and my husband is switching employers to the tune of a $40000 paycut. I am so glad that we can still afford our home.

If someone would have told me last year everything that we were going to go through I never would have believed them.

 

[punkin]

Right now my DH makes just over six figures so it would be tight but this house in theory should be the one we stay in. Housing prices in this area are high yes there are some parts of Catonsville that you can buy the same type of house for half the price but they are not in good areas.

Two things:

If he makes just above six figures, you will be extremely tight, as you will be spending approximately 50% of your take home pay for PITI. This does not include other housing expenses.

Housing prices are going down. They will go down even further. My opinion is, if you have already sold your townhouse, I would rent for a year and then re-enter the market. The prices will go down.

Good luck whatever you decide.

 

[suevee]

I am going against the pack. In your favor you already live on one income, you have no debts and you are a young family. This is great. It shows you know how to budget. Also I am assuming you would be in the professional job market when you go back to work. So you have the potential of substantially increasing your income. Then you have a strong family network.

I think with the base realignment in Ft. Meade and Aberdeen that the prices will not go much lower. I think in this area this is the dip year for housing. Also with the realignment will come not only a larger influx of military but also of contractors. There are only so many homes in our area and very few new places to build.

I know $3500 is high but has anyone looked at the rentals in our area? A single family house is at $2400 or more. Townhouses rent for $1600 and up.

It will be difficult for a few years but not impossible. I am wondering why you are not looking in Howard County? The housing market seems comparable and the school system in better than Baltimore County. Why did you choose Catonsville?

 

[mickeyfan2]

We went from a 2000 squ. ft. house to 5500 squ. ft. We were shocked at how underestimated the costs were. Fortunately we could afford it but we were shocked none the less. We sold the house b/c we realized how much we were wasting in utility costs and taxes (10% increase in a year ends up being a lot more money on the bigger house). We had winter months when our heat bill (propane) cost over $900! We are not even home for 10 hours a day and we kept it on 62 at night. We now realize how wasteful the two story foyer and 10' ceilings were.

We heat our 4000 sq foot home with propane. We live in PA. Our entire bill last year for heat and hot water was $1100. We still have propane left. We heat to 70 degrees. We have 10' ceilings on our first floor and 12 feet in the family room.