Financing in Duluth>Question Details

Newbuyer2, Home Buyer in Duluth, GA

PMI and current economic realities. Your thoughts?

Asked by Newbuyer2, Duluth, GA Sat Jul 25, 2009

I am currently a renter, but my savings rate % is fairly high. I still see buying as a loss for years at least. Not because saving money is earning me much but because of just the increase monthly cost of buying. Rent vs buy calculations really and at least I still have extra cash I would be spending for mortgage, taxes etc to put in IRA. But I was willing to accept not breaking even on that scale for a while, but this PMI just kills my interest.

I can't justify the 20% down impact on cash reserves.
Then paying thousands over a short 8 years to cover this deficit also seems like a total waste considering the downward trends and the fact I have excellent credit and cash reserves and a home buyer credit on the horizon. I just don't want to give the money to the lenders now. I guess people didn't care before when values were booming. To me now, this just seems irresponsible on my part.

I'm no finance expert so I'm interested in other perspectives.

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If your premise is rent vs. buy, NewB, and your numbers are accurate, then you have your own answer for the present. If you want agents to "sell" you on the idea of buying a home, that's another inquiry entirely. More than likely, using your figures, in three years your upside on paying a mortgage will surpass paying rent and someone else's debt. Once that happens, you never look back. Good Luck!

Michael Hammond
SellsRealty@gmail.com
404-538-5499
0 votes Thank Flag Link Mon Jul 27, 2009
I read there are other ways to get around PMI with 80/10/10 but that would up monthly outlay so not ideal. The difference between my rent and my loan total with everything is about $500 more per month to buy at the loan I was looking at so including tax benefits would mean about 5k a year more to buy. Probably not much to many people but to me it's a bit.

So I decided to lower my price point. Maybe I could find something for less $ and narrow the increase a bit.
0 votes Thank Flag Link Sun Jul 26, 2009
What are you paying in rent? What would your monthly payment for mortgage + taxes + home insurance + PMI? If your rent is substantially lower than the total house payment, it probably makes sense to rent. Don't forget to factor in the mortgage interest tax deduction you get when you buy (that you don't get when you rent). I believe you can also write off the PMI as a tax deduction if your income is below a certain amount. Also you pay down the principle of the loan every month when you buy vs. rent.
0 votes Thank Flag Link Sun Jul 26, 2009
Good Morning Newbuyer2,

You obviously have a better understanding of finances than most and congratulations on your savings habits. Please allow me to interject several additional views. As a renter you are paying someone else mortgage as was stated by David. Also consider that the home mortgage interest write off is one of the few write offs that remain for reducing you income taxes. You also get to write off the real estate taxes and insurance. For most people this represents a considerable savings but consult your tax expert to see how this could impact your situation.

One of the positive aspects of the housing market in Metro Atlanta is that our market is primarily fueled by jobs and relocation verses other areas of the country who's market was fueled by speculation, which resulted in 30 to 40% reduction in property values. While overall the property values in metro Atlanta have decreased over the last 2 years, many professionals believe that this market has bounced off the bottom and has begun it's recovery. What this means for you is that you are able to enter into the housing market at the most opportune time. By taking advantage of the low purchase prices available in the market and couple that with historically low interest rates then add an up to $8,000.00 tax credit for first time buyers (the $8,000.00 tax credit is scheduled to go away 12-1-2009) and BINGO you have the making of a very sound financial decision.

I live in Gwinnett County and my office is in Duluth. I would appreciate the opportunity for us to sit down together and discuss this to see if it actually does make sense for you to enter into home ownership.

Mack Perry
RE/MAX Around Atlanta
770-318-2572
0 votes Thank Flag Link Sun Jul 26, 2009
PMI will only increase as more people choose to default on their mortgages. Your premise may well be correct, assuming the doubling of the money supply does not cause a corresponding increase in inflation next year. It will be interesting either way, watching or participating.
0 votes Thank Flag Link Sat Jul 25, 2009
Avoiding PMI makes sense especially in a year you get an $8,000 tax credit to help offset your down payment. If you have the money to avoid PMI you will be rewarded with lower interest rate and obviously a lower monthly payment. It's never made sense to me to have PMI it's seems like a complete waste of money. Prices are all time low, money is all time cheap.... buying now is just one of those decisions you have to make on a grand scheme of things.. look over the big picture. Whatever you buy could be worth 5% less next year, but the chances of it growing in value and building equity now (after everyone has taken the hit for you) is greater over time than it losing that much more. It all matters about wether you want to pay someone else's mortgage or your own and in 30 years own something even if you do pay 3 times what you borrowed originally.
0 votes Thank Flag Link Sat Jul 25, 2009
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