Monday, October 27, 2014


I wholeheartedly agree with Megan McArdle, who tells it like it is in “Can't Afford a House? Don't Buy One” at BLOOMBERG VIEW, and the following advice included therein (highlights are mine) -

But buying a house is a good idea only if you meet the following conditions:

1. You can afford a sizable down payment to cushion you from the effects of local economic downturns or you have a super-stable job, such as working for the government or your father-in-law, that makes you unlikely to ever miss any payments.

2. You can afford the maintenance as well as the payments, insurance and property taxes.

3. You have good disability and/or mortgage insurance to make sure that you do not miss any payments even if you break your back and can’t do your job anymore.

4. You are pretty sure you do not want to leave your area or move to a larger, more expensive home anytime in the next five years.

5 .Your payment is a reasonable percentage of your take-home pay (I shoot for under 25 percent; anything over 35 percent is far too risky).

6. You have a sizable emergency fund to deal with contingencies.

7. You can afford other forms of savings, rather than counting on your house as a piggy bank for future needs. In general, if declining home prices would send you into a hysterical panic about your financial situation, you are buying too much house.

If you do not meet these conditions, then buying a house is gambling -- not just on rising home prices, but also on the continued soundness of your roof, boiler and plumbing. If you wouldn’t borrow the money to go to Vegas, then don’t borrow it for a house, either.”

For some time now yuppies and others think all they need is 5%, or less, down .  This is wrong. 

A decade ago my sister had two separate offers to purchase her condo a who wanted to put only 5% down.  Both offers fell through at the last minute when the bank eventually wanted more down, which the “offerers” did not have (my sister eventually got fed up and sold the condo to my parents).

And just this month a client had a firm offer on his home, with the buyer only putting 5% down.  A closing date was set and the client put his furniture in storage and moved into his father’s apartment temporarily - and put a 20% down payment on a new home in Florida.  Again at the very last minute – days before the scheduled closing - the mortgage fell through because of the minimal down payment.

Read my lips – you should not even think about buying a house, or a condo, unless you have at least 20% to put down!

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