buying a house

[A.Nonymous]

Exactly. That's what loaners care about. Better the credit score = better the trust = better the rate.

If you can afford to purchase a 1 million dollar house or start up a 3.5 million dollar business in cash, then great for you. If you can't, then that's where the credit score comes in to help you out. My parents are my example.

You can perhaps get a "good" rate on a loan with 0 credit... but how much better would it be if you credit scores were 800+?

But you're not calculating for risk is the problem. Borrowing money entails risk. If I borrow a million bucks I can potentially lose all that money and my house. If I plop down a million bucks of my own cash, I can potentially lose all of that money and that's it.

I know people who run big businesses that didn't have to borrow money to do it. There are a number of big corporations right now (Wal-mart and Microsoft jump immediately to mind) that run completely on cash and with little or no debt. Studies have shown that companies that run with no debt or very little debt are more profitable long term than companies that don't. Why would this same principle not apply to individuals?

 

[Kamdon]

I also wanted to say that the lending company ( IE bank) wanted to see 3 open lines of credit. That doesn't mean 3 credit cards. We don't have those and WONT get them. We have school loans that we pay each month, a car payment, and a cell phone bill that we have been paying on each month for at least a year. (or some kind of utility bill). Hope that helps

 

[lordofthereef]

weve been dating since october of 2005 living together for 2 years at my place (live with grand parents) and weve been thinking of finalyl getting our own place. I am completely against renting of any sort just doesnt seem worth it to us. we have close the 35k in the bank most of which would be going to a house purchase and refurnishing.fixing up a house when we do decide on one.

If I may post my personal thoughts, you are by no means required to justify your decision on buying a house. You asked one thing and people got into your personal life and debates. We are talking about completely different things in this thread than what you asked in the beginning, from what I can tell anyway. Just my two cents.

 

[A.Nonymous]

I also wanted to say that the lending company ( IE bank) wanted to see 3 open lines of credit. That doesn't mean 3 credit cards. We don't have those and WONT get them. We have school loans that we pay each month, a car payment, and a cell phone bill that we have been paying on each month for at least a year. (or some kind of utility bill). Hope that helps

To me the whole lending system is ridiculous nowadays. It's become so automated that no one pays any attention to the person actually borrowing the money. When I went house shopping, they ran my credit and promptly approved me for a home loan where the payment would've been roughly 50-60% of my take home pay. In what world does that make any financial sense at all? I saw a guy once who wanted to buy a $120k house. He had about $80-90k saved up for a downpayment. The bank turned him down because his credit wasn't good enough. To me that's insanity. If you have a mortgage for $40k on a property that's worth $120k you'd think you would pray to any deity you could think of for a reason to foreclose on the guy. It was pure idiocy. But the guy was a square peg who didn't fit into their little round hole in their computer program and they weren't intelligent enough to figure out what was going on so they turned him down.

 

[jamor]

First of all, I wouldn't buy a car with my rainy day fund. If I did, it would be because my car had completely died and wasn't worth fixing. If I did have to buy a car I'm not going to buy a $12k car. I'd buy a $1-2k beater car and drive it while I saved to buy something better.

That's exactly my point. You aren't supposed to use your rainy day fund to buy a car. Some people need a decent car for work and don't have the extra cash even though they have a steady career. Thus they would need to finance a vehicle!!

Which is exactly what I would do. Buy a beater used car and save up money to buy something nicer.

Not everyone can just save up to buy something nicer. People with families that could be years. Thus financing a decent car would make a lot more sense.

I've rented before and they never ran my credit. I don't borrow money for cars or anything else so I couldn't care less about the interest rates. You can get a good interest rate on a mortgage with 0 credit. One of these days there will be a class action suit against people who charge more for insurance just because of a credit score. Just saying.

Then that was probably a shady desperate apartment. You are in the minority because most of the time, if you want to live somewhere decent, your credit is checked. Obviously moving in with friends or some desperate person on craigslist or roommatesdotcom is an exception.

I know a guy who is a multi-millionaire. He hasn't borrowed money in 20-30 years so his credit score is 0. If he walked into the local Ford dealer and tried to borrow money to buy a new Mustang, they would not loan him a red cent. However, he could whip out his checkbook and write a $35k check and buy the car with cash and it wouldn't hurt him. But they wouldn't loan him a dime for it. Does that really make any sort of logical sense? Is his credit score really a measure of how successful he is financially? All your credit score measures is your ability to borrow and repay money. That is not a measure of financial success at all.

That's not an appropriate analogy at all. Multi-millionares? lol. First of all, I don't know any millionares that have never borrowed before. Nonetheless, even if you've only had a credit card or two, which I'm sure he's had, his credit score wouldn't be 0 lol.

Nobody said a credit score measures how successful he is financially. You missed the boat on this one.

The credit score, as Vihzel noted, measures your ability to borrow money and pay it off in full without missing payments. Thus, it measures how trustworthy you are when you borrow someones money.

The bank or loaner needs to see if they can trust you and that is what a credit score is for. It doesn't measure how much you make! A person could make 80,000 a year and that doesn't make them credit worthy. Maybe they decide to pay their bills once ever 4 months and have defaulted on loans in the past. Maybe they blow all their money on nice cars. Maybe they have a serious gambling problem or spend half of their salary on drugs. Maybe they have no job security. Maybe you just don't like paying bills so you don't. The list is endless.

Just because a girl is hot doesn't make her a good girlfriend and just because you make a lot of money doesn't mean you are credit worthy.

In fact, your salary is not part of your credit score.

 

[Kamdon]

To me the whole lending system is ridiculous nowadays. It's become so automated that no one pays any attention to the person actually borrowing the money. When I went house shopping, they ran my credit and promptly approved me for a home loan where the payment would've been roughly 50-60% of my take home pay. In what world does that make any financial sense at all? I saw a guy once who wanted to buy a $120k house. He had about $80-90k saved up for a downpayment. The bank turned him down because his credit wasn't good enough. To me that's insanity. If you have a mortgage for $40k on a property that's worth $120k you'd think you would pray to any deity you could think of for a reason to foreclose on the guy. It was pure idiocy. But the guy was a square peg who didn't fit into their little round hole in their computer program and they weren't intelligent enough to figure out what was going on so they turned him down.

That is an unfortunate event and sucks to say the least. But given todays CRAP with the finacial system this is what we are stuck with. It's like this all over the world too. Sucks but we have to play by the rules or have nothing at all.

 

[A.Nonymous]

That is an unfortunate event and sucks to say the least. But given todays CRAP with the finacial system this is what we are stuck with. It's like this all over the world too. Sucks but we have to play by the rules or have nothing at all.

A little common sense could be mixed in there. I mean a guy wanting to put down $90k on a house that's selling for $120k is a no brainer regardless of what his credit score is. That's common sense. Is the house really going to go down in value so much that you can't sell it for $30k? Really? Even if you foreclose and sell it for half of what the guy bought it for you come out $30k ahead. You can more than pay all the necessary expenses out of that.

 

[Vihzel]

But you're not calculating for risk is the problem. Borrowing money entails risk. If I borrow a million bucks I can potentially lose all that money and my house. If I plop down a million bucks of my own cash, I can potentially lose all of that money and that's it.

I know people who run big businesses that didn't have to borrow money to do it. There are a number of big corporations right now (Wal-mart and Microsoft jump immediately to mind) that run completely on cash and with little or no debt. Studies have shown that companies that run with no debt or very little debt are more profitable long term than companies that don't. Why would this same principle not apply to individuals?

You and I, sir, are on two different wavelengths. I'm simply stating the importance of a credit score... not the risks of taking a loan. If you don't need a loan, then that's great. It's safer to use your own money.

It's great that you know people who run big business that didn't have to borrow money. As far as I know, there are a lot of people who needed extra help. Entrepreneurs often borrow money, are in debt for a while, and then go into the black and make money and more if they well manage everything. I don't think it's fair to compare big name corporations such as Walmart and Microsoft that have billions of dollars to an average middle-class citizen. It's not surprising they can run completely on cash considering that they have huge reserves of cash that they can "play" with.

 

[A.Nonymous]

That's exactly my point. You aren't supposed to use your rainy day fund to buy a car. Some people need a decent car for work and don't have the extra cash even though they have a steady career. Thus they would need to finance a vehicle!!

Not everyone can just save up to buy something nicer. People with families that could be years. Thus financing a decent car would make a lot more sense.

Disagree. I don't think financing a car ever makes financial sense. Look at it this way. Average car payment in America is around $450. You mentioned a $12k car earlier so let's assume that's what we've got in our rainy day fund. Our hypothetical car dies on us and isn't worth fixing so another car is needed.

Case 1 - Person keeps their $12k in the bank and finances a car. They pay $450 a month for 5 years and at the end of the 5 years they own a car they paid $27,000 for, but is now probably worth $10,000 or even less. They have lost $17,000 in the deal in depreciation. Each year they are spending $5400 for which they are getting a negative return.

Case 2 - Person takes $2k out of the rainy day fund and buys a reliable beater car just to get around. This person makes car payments to themselves (since he'd be paying $450 to the bank anyway) and in 4 months, the $2k is back in their rainy day fund. (This assumes they make no effort to save anything above the $450.) They can then take that $450 a month and stash it in a cookie jar (or an equivalent) and in another 8 months, they've got $3600 stashed away. So in the first year he's replenished his rainy day fund and has $3600 in cash. The $2k car is not likely to have lost a lot of value in a year. He can sell it, toss in the $3600 and buy a $5k car and pay cash for it. He drives the $5k car for a year and pays himself car payments. Now he has a $5k car that probably hasn't gone down in value much at all and has $5400 in cash. He can sell the $5k car and use it and the cash to buy a $10k car. Again, he's losing next to nothing in depreciation and in two years he's driving a pretty nice car he paid cash for.

Then that was probably a shady desperate apartment. You are in the minority because most of the time, if you want to live somewhere decent, your credit is checked. Obviously moving in with friends or some desperate person on craigslist or roommatesdotcom is an exception.

No idea how desperate the landlord was. He was definitely shady though. The duplex in question was nice enough though.

That's not an appropriate analogy at all. Multi-millionares? lol. First of all, I don't know any millionares that have never borrowed before. Nonetheless, even if you've only had a credit card or two, which I'm sure he's had, his credit score wouldn't be 0 lol.

His score is 0 because he has no credit cards and hasn't borrowed any money or had a credit card in 20-30 years. Credit is based solely on borrowing and repaying money. Since he has no history of borrowing and repaying money in the past 20-30 years he has no credit score. Personally, I've not had a credit card in 4-5 years myself. My credit score has gone down. Yet, I'm wealthier now than I was 4-5 years ago.

The credit score, as Vihzel noted, measures your ability to borrow money and pay it off in full without missing payments. Thus, it measures how trustworthy you are when you borrow someones money.

Fair enough definition. However, if you have no intentions of borrowing money (as I do), then it's not necessary.

The bank or loaner needs to see if they can trust you and that is what a credit score is for. It doesn't measure how much you make! A person could make 80,000 a year and that doesn't make them credit worthy. Maybe they decide to pay their bills once ever 4 months and have defaulted on loans in the past. Maybe they blow all their money on nice cars. Maybe they have a serious gambling problem or spend half of their salary on drugs. Maybe they have no job security. Maybe you just don't like paying bills so you don't. The list is endless.

And see that is where my problem is. FICO is not the be all and end all of loaning money like people make it out to be. Take the guy I mentioned earlier who wanted to borrow $30k against a house that was on the market for $120k. Does his score really matter there? They turned him down because his score was too high. Really? I would make that loan in a heartbeat and pray he didn't pay so I could foreclose on his ass. That's a no brainer.

If I walk into a bank and I want to take out a mortgage and I've got a history of paying my landlord early or on time that I can document and I've got pay stubs documenting what I earn and I've got documentation that I've paid my utilities early or on time, why does my credit score of 0 even matter at all? I've got a history of paying people on time. Yet someone with a credit score in the 500s has a better chance of getting a loan than me? Where's the common sense?

 

[Crude]

My advice is rent. The housing market has essentially stalled. More and more people are trying to rent a property instead of selling. This should be a clue to you that IF you buy plan and being there until things start looking up for the seller again...this could take a very long time with the poor choices our government is making.
The biggest reason why most people buy are home is as an investment. The problem is that these investments just aren't making enough of a return to justify the risk at the moment.
It also seems that local entities are strapped for cash also. The easiest way to pay for local bills is property taxes. I don't think there's a single home owner in the US at this point that hasn't been surprised by an un-usually large tax increase in the last 5 years. This could end your dream prematurely if you are already strapped for cash due to a 30 year note with all the bells and whistles.

As a summary, my advice is wait.

 

[A.Nonymous]

My advice is rent. The housing market has essentially stalled. More and more people are trying to rent a property instead of selling. This should be a clue to you that IF you buy plan and being there until things start looking up for the seller again...this could take a very long time with the poor choices our government is making.
The biggest reason why most people buy are home is as an investment. The problem is that these investments just aren't making enough of a return to justify the risk at the moment.
It also seems that local entities are strapped for cash also. The easiest way to pay for local bills is property taxes. I don't think there's a single home owner in the US at this point that hasn't been surprised by an un-usually large tax increase in the last 5 years. This could end your dream prematurely if you are already strapped for cash due to a 30 year note with all the bells and whistles.

As a summary, my advice is wait.

Could not disagree more. If you've got no debt and you've got a 20% down payment there is not a better time to buy a house than right now. It's a bad time to sell a house, but an awesome time to be buying.

 

[Roze]

Could not disagree more. If you've got no debt and you've got a 20% down payment there is not a better time to buy a house than right now. It's a bad time to sell a house, but an awesome time to be buying.

Yeah, I agree with you. It's a buyer's market right now. If you don't plan on selling your house for the next 5-20 years, you should be OK. By then, the economy should be back to more or less normal (hopefully).

 

[jamor]

Disagree. I don't think financing a car ever makes financial sense. Look at it this way. Average car payment in America is around $450. You mentioned a $12k car earlier so let's assume that's what we've got in our rainy day fund. Our hypothetical car dies on us and isn't worth fixing so another car is needed.

Case 1 - Person keeps their $12k in the bank and finances a car. They pay $450 a month for 5 years and at the end of the 5 years they own a car they paid $27,000 for, but is now probably worth $10,000 or even less. They have lost $17,000 in the deal in depreciation. Each year they are spending $5400 for which they are getting a negative return.

Case 2 - Person takes $2k out of the rainy day fund and buys a reliable beater car just to get around. This person makes car payments to themselves (since he'd be paying $450 to the bank anyway) and in 4 months, the $2k is back in their rainy day fund. (This assumes they make no effort to save anything above the $450.) They can then take that $450 a month and stash it in a cookie jar (or an equivalent) and in another 8 months, they've got $3600 stashed away. So in the first year he's replenished his rainy day fund and has $3600 in cash. The $2k car is not likely to have lost a lot of value in a year. He can sell it, toss in the $3600 and buy a $5k car and pay cash for it. He drives the $5k car for a year and pays himself car payments. Now he has a $5k car that probably hasn't gone down in value much at all and has $5400 in cash. He can sell the $5k car and use it and the cash to buy a $10k car. Again, he's losing next to nothing in depreciation and in two years he's driving a pretty nice car he paid cash for.

Holy Moses. Those examples are waay extreme.

Case 1:

Who in their right mind would finance a car at 38% over 5 years? I sure don't know anyone who would. Because that's what a $450 car payment over 5 years is on a $12,000 car that you pay $27,000 for.

Here is a real life example pour votre education.

You have good credit. You've been responsible with credit cards and have payed off all of your loans and/or are doing so on time. You don't get reported to collections but you may have missed a payment once or twice over the past 5 years that happened to be submitted to the credit agencies (for the most part you aren't reported until 60+ days). Your score is between 700-800.

You have a pretty good relationship with your bank and they finance your car at 3.99% over 48 months or 4 years (mind you I know people with 0%-2% loans). Your monthly payment on a $12,000 car would be $270.89 and the interest payed on the vehicle would be around $1,000 total.

a. You have $12,000 in the bank. You took out $8,000 and put it in a savings, money market, or stock market and do well over 4 years of investing... You keep the other $4,000 in the bank for cushion and bills. You made money on the car you bought due to wise investing and even had plenty of cushion/rainy day money to spend on other necessities as well.

b. You have $12,000 in the bank. You took out $8,000 and put it together with your girlfriends $8,000. You purchase a HOUSE and you still have $4,000 cushion, a new house, a beautiful new(used) car, and a very happy girlfriend/wife.

Win, win, win.


Case 2:

I don't even know where to begin with this. Since you've inserted your 38%, 5 year car loan example... it's pretty much void.

For starters, you aren't going to find a reliable car for $2,000.

 

[NYCHitman1]

Case 2:

I don't even know where to begin with this. Since you've inserted your 38%, 5 year car loan example... it's pretty much void.

For starters, you aren't going to find a reliable car for $2,000.

$2,000 is 1-month worth of rent money in NYC

 

[gallandof]

we were talking a little more yesterday and we plan on hopefully making a purchase withing the next 10 months. we are looking for a small house for now just 2 or 3 bedroom, and will more than likely be moving out of it after about 10years. Although we decided that we are still going to save as vigilantly as we have been after buying a house so that we can buy a bigger house and just rent out the small one. granted this is mainly talk at this point, and were not certain but thats our goal.

 

[Roze]

we were talking a little more yesterday and we plan on hopefully making a purchase withing the next 10 months. we are looking for a small house for now just 2 or 3 bedroom, and will more than likely be moving out of it after about 10years. Although we decided that we are still going to save as vigilantly as we have been after buying a house so that we can buy a bigger house and just rent out the small one. granted this is mainly talk at this point, and were not certain but thats our goal.

I think 3 bedrooms is more ideal. If you're planning to keep the house for 10 years. You don't know in the future if there's going to be a kid or two If it's one, you'd have a spare room for office/guest room. Two kids and they each get a room.

 

[A.Nonymous]

Holy Moses. Those examples are waay extreme.

Case 1:

Who in their right mind would finance a car at 38% over 5 years? I sure don't know anyone who would. Because that's what a $450 car payment over 5 years is on a $12,000 car that you pay $27,000 for.

Here is a real life example pour votre education.

You have good credit. You've been responsible with credit cards and have payed off all of your loans and/or are doing so on time. You don't get reported to collections but you may have missed a payment once or twice over the past 5 years that happened to be submitted to the credit agencies (for the most part you aren't reported until 60+ days). Your score is between 700-800.

You have a pretty good relationship with your bank and they finance your car at 3.99% over 48 months or 4 years (mind you I know people with 0%-2% loans). Your monthly payment on a $12,000 car would be $270.89 and the interest payed on the vehicle would be around $1,000 total.

a. You have $12,000 in the bank. You took out $8,000 and put it in a savings, money market, or stock market and do well over 4 years of investing... You keep the other $4,000 in the bank for cushion and bills. You made money on the car you bought due to wise investing and even had plenty of cushion/rainy day money to spend on other necessities as well.

b. You have $12,000 in the bank. You took out $8,000 and put it together with your girlfriends $8,000. You purchase a HOUSE and you still have $4,000 cushion, a new house, a beautiful new(used) car, and a very happy girlfriend/wife.

Win, win, win.


Case 2:

I don't even know where to begin with this. Since you've inserted your 38%, 5 year car loan example... it's pretty much void.

For starters, you aren't going to find a reliable car for $2,000.

First of all, I completely typo'd on the cost of the car in example 1. Example 1 assumes you buy a brand new car in the $25k range. And yes, you can buy a reliable car for $2000. I've driven a few of them in my life. I drove a beater car that I paid $1k for all through high school and through part of college 'cuz I was broke (like most college students) and couldn't afford anything else. It was ugly as sin, only had an AM radio in it, but it worked.

I have no idea what you're trying to prove with either of your example. You're not going to make money on your car payment. If you drive that $12,000 car for 4 years it ain't gonna be worth $12k when you sell it. A car is not an investment. If you think it is, I'll gladly let you give me $12k over 4 years and at the end of the 4 years I'll give you $4-5k back and maybe less than that. That's your great investment. Even if you get a 0% loan, you still lose that money in depreciation. Depreciation on a new car is the equivalent of tossing a $100 bill out the window on your way to work every Monday. You're not making money on the deal.

 

[gallandof]

I think 3 bedrooms is more ideal. If you're planning to keep the house for 10 years. You don't know in the future if there's going to be a kid or two If it's one, you'd have a spare room for office/guest room. Two kids and they each get a room.

thats are thinking, we dont plan on kids for closer to 6 years but you never know.

 

[Crude]

Could not disagree more. If you've got no debt and you've got a 20% down payment there is not a better time to buy a house than right now. It's a bad time to sell a house, but an awesome time to be buying.

I agree, but what I am taking about is circumstances that cause you to need to relocate and now you're a seller. The market is soo bad right now that when it starts to recover you'll get close to the same deal without the risk.

When investing it's important to see the bigger picture to maximize your returns and minimize your risk.

 

[Vihzel]

thats are thinking, we dont plan on kids for closer to 6 years but you never know.

First think about marriage before kids! Take it easy. lol If you're not planning on getting married at all, then I guess kids would be the next step.

 

[A.Nonymous]

I agree, but what I am taking about is circumstances that cause you to need to relocate and now you're a seller. The market is soo bad right now that when it starts to recover you'll get close to the same deal without the risk.

When investing it's important to see the bigger picture to maximize your returns and minimize your risk.

Real estate is local and the market being so bad makes it a buyer's market. There has never in my recent memory been a better time to buy a house.

 

[Crude]

Real estate is local and the market being so bad makes it a buyer's market. There has never in my recent memory been a better time to buy a house.

nm

 

[gamma]

It looks like housing values are falling even further...My neighbors house that sold for 440K in 2007 won't even sell for 180K now...

Shit is def not a good sign,,,,


I would say don't rush things....As long as you have a place to live you should be happy...


Be positive

 

[A.Nonymous]

It looks like housing values are falling even further...My neighbors house that sold for 440K in 2007 won't even sell for 180K now...

Shit is def not a good sign,,,,


I would say don't rush things....As long as you have a place to live you should be happy...


Be positive

Which proves my point. Now would be an awesome time for the OP to buy your neighbor's house. Horrible time for your neighbor to be selling, but awesome time for the OP to be buying.

 

[Crude]

It looks like housing values are falling even further...My neighbors house that sold for 440K in 2007 won't even sell for 180K now...

Shit is def not a good sign,,,,


I would say don't rush things....As long as you have a place to live you should be happy...


Be positive

Thanks you. It's a good time to buy, but wouldn't you hate to be on the seller side of things if this mess doesn't clear up in the next 5 years?

What the op does it probably the right thing for the op. I've given you my advice. While I'm just a user on a forum and I hold no authority here, I give this advice because I'm trying to help.

Good luck on whatever path you take.