Buying first house

re:
A tax deduction by itself isn't a reason to buy a house, and certainly not a reason to carry an unnecessary mortgage. You need to look at the whole picture.

You can get a tax deduction just by losing money, but who wants to do that. Remember a deduction always costs more than it pays. You paid $1.00 in interest to get a 30 cent deduction. Not exactly a winning formula BY ITSELF. Does it reduce the cost of borrowing money? Sure. That's simple math.

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The above is pretty simplistic while purporting to be basic wisdom...

Actually, having a generous mortgage to defray taxes, especially at higher tax brackets, has traditionally been fairly basic personal financial planning-- which I teach at a 4 year college.

For 7 straight decades from 1938 thru 2008, home values rose steadily on average nationally, generally often from 5-7% a year. Ergo, when you borrowed the mortgage $, the guvment effectively subsidized your investment in a home, whereas the guvment taxed earnings on other investments like stocks and corporate bonds. We are the ONLY free country that so heavily taxes interest on savings, stocks, etc. The primary source of retirement asset accumulation for most families was in home equities-- FOR 70 YEARS! Ergo, the ONLY form of debt recommended in most texts has been mortgage debt, especially when rates are VERY low as they have been for some years now.

What queered the traditional housing investment for everybody from 2009 until the trough in late 2011 was the result of the PC Left's egalitarian idea that what had prevented the lower 1/3 socio-economically from joining the middle class was that they could not get mortgages.

Ergo, they came up with the swell theory of mortgages for everybody, regardless of true capacity to pay or creditworthiness. Part of this facile theory was that rising values would allow those who could not pay simply to sell and come out whole.

Banks were told to significantly increase CRA lending or mergers would not be approved, and the banks would be put on bad lists for lack of commitment to their communities. The guvment encouraged aggressive lending by all of the non-bank lenders (think Citywide Mortgage, Quicken Loans, etc.) whose practices were WAY TOO LOOSE. But again, the theory was that the Fannie Mae, etc., guarantees would keep the system solid. Instead, $ MEGA-BILLIONS of loans were extended to those who never should have had them, so the values of ALL homes plummeted.

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Buying first house

Buying first house

re:
A tax deduction by itself isn't a reason to buy a house, and certainly not a reason to carry an unnecessary mortgage. You need to look at the whole picture.

You can get a tax deduction just by losing money, but who wants to do that. Remember a deduction always costs more than it pays. You paid $1.00 in interest to get a 30 cent deduction. Not exactly a winning formula BY ITSELF. Does it reduce the cost of borrowing money? Sure. That's simple math.

~~~~~~~

The above is pretty simplistic while purporting to be basic wisdom...

Actually, having a generous mortgage to defray taxes, especially at higher tax brackets, has traditionally been fairly basic personal financial planning-- which I teach at a 4 year college.

For 7 straight decades from 1938 thru 2008, home values rose steadily on average nationally, generally often from 5-7% a year. Ergo, when you borrowed the mortgage $, the guvment effectively subsidized your investment in a home, whereas the guvment taxed earnings on other investments like stocks and corporate bonds. We are the ONLY free country that so heavily taxes interest on savings, stocks, etc. The primary source of retirement asset accumulation for most families was in home equities-- FOR 70 YEARS! Ergo, the ONLY form of debt recommended in most texts has been mortgage debt, especially when rates are VERY low as they have been for some years now.

What queered the traditional housing investment for everybody from 2009 until the trough in late 2011 was the result of the PC Left's egalitarian idea that what had prevented the lower 1/3 socio-economically from joining the middle class was that they could not get mortgages.

Ergo, they came up with the swell theory of mortgages for everybody, regardless of true capacity to pay or creditworthiness. Part of this facile theory was that rising values would allow those who could not pay simply to sell and come out whole.

Banks were told to significantly increase CRA lending or mergers would not be approved, and the banks would be put on bad lists for lack of commitment to their communities. The guvment encouraged aggressive lending by all of the non-bank lenders (think Citywide Mortgage, Quicken Loans, etc.) whose practices were WAY TOO LOOSE. But again, the theory was that the Fannie Mae, etc., guarantees would keep the system solid. Instead, $ MEGA-BILLIONS of loans were extended to those who never should have had them, so the values of ALL homes plummeted.

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Buying first house

Buying first house

You might want to wait a bit and see what things look like around the summer of 2016/2017.

The federal reserve just instituted its first rate hike, and there is quite a bit of debate right now as to whether this is a one off move or part of a hiking cycle that will take rates to 2%. If it is the latter, it will probably take them all of 2016 to get there given the 25 basis point move they just made. It's a bit unusual to have a central bank taking a hawkish stance at a time where most economic data indicate the fundamentals are softening. If this is a one and done, or another 25 basis points and done you won't have much to fear from interest rates on a potential mortgage.

Even if rates go all the way to 2%, if you wait a year and save more for a down payment you're going to be that much better off.

Meanwhile, if the economy turns south you'll likely find a better property for the same money or get what you've been looking at force less.

http://www.zillow.com

While the estimates aren't always accurate, I'd check the price/tax history of any home you are considering. They often reflect what the original list price was and if any price cuts have been made.

If you're looking at buying the cheaper house and moving in 4-6 years, I'd wait and get the more expensive one.

One wife, one house: one of the keys to financial success.

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Buying first house