First of all, I co-own a title company and I own my own real estate investment company. I have a BA in Law from UB and 9 years of experience in the real estate/mortgage industry.
When I first broke into the business I was closing mortgage loans at around 10 - 11% interest and that was for people with ‘good credit’. Today good credit (680 fico or better) can get you between 5.75 - 6% interest. So overall there is already a benefit just in rate reduction over the past 9 years.
Also, the myth about closing costs… SELLERS pay the real estate commission, it is clearly stated in the NY State Bar real estate sale contract (and in FL and just about every other ‘title’ state), title evidence (search, exam, owner’s title insurance, etc.) and the survey is also the SELLER’s responsibility. So the claim of 5% overall closing costs and 6% to the realtors is FALSE.
The most expensive part of buying a house and where a MAJORITY of closing costs come from is when a lender is involved. Cash transactions typically have WAY less closing costs. LENDERS charge discount points, closing fees, appraisal fees, credit report fees, etc. etc. which is usually around 2% - 3% of the loan amount in closing costs.
The problems stated in the original post are mostly attributes of the ‘Zero money down, adjustable rate, stated income and interest only mortgages’ that are now not available due to the reformation of the mortgage industry. For instance, here in FL the housing prices shot up DRAMATICALLY in the past 5 years due to the thriving market and demand. Lenders were giving loans to people with a heartbeat who could sign their name because housing was appreciateing so rapidly they took a calculated risk that if they had to foreclose, the house would be worth more or as much as the original loan amount.
The problem is, buyers who were either ignorant, stupid, or both signed up for loans they could NOT afford when the rates adjusted or when the interest only period expired. Also, without putting money down adn paying interest only, people had no EQUITY into their homes of their own and when the values of homes declined in recent months, they were unable to refinance due to houses not appraising at original value.
Buying a house still is the best investment. If you look at the past 30 years overall as a whole you will see that houses typically appreciate at a rate of 100% return every 10 years, even with ups and downs in the market. If you put the same money into say a money market you might get a return in 10 years of at best 5%, stocks and mutual funds at about 11%. BUT, you should diversify and not put all your eggs into one basket either.
Owning a house builds wealth over time, typically homeowners who are responsible with their credit have a much better credit rating than someone making the same money with similar debt who does not own a home. Also, home equity lines of credit have a much better rate then unsecured loans and you can use the equity in your home to pay off high interest debt and consolidate debt into a more manageable payments and save yourself anywhere from 10 - 15% in interest. I can proudly say I that I have NO credit card debt and with my credit (which is in the 700’s) my credit card rates are around 11 - 12% and I still only use them as needed and typically pay the entire balance every month.
The best thing you can do when buying a house to make sure you are in a win/win situation (even in this market) is to PUT MONEY DOWN when purchasing. At minimum 5% is required by lenders now for purchases. If you can afford it put down 20% (that is the ‘magic’ number) because you will eliminate PMI (private mortgage insurance, which all lenders require unless you have 20% or more in equity into your home and it will save you at least 2% of your loan amount in PMI).
Search around, shop lenders and rates and right now you can purchase homes under market. I am loooking at another property here in FL for my investment company to ‘flip’ (and no, it is not like the partially bullshit TV show) that when all said and done, even in this market, I could stand to make about $35,000 in about 3 months or less (already even have a buyer lined up). Don’t be afraid to look at short sales (pre-foreclosures), REO’s (foreclosed properties) and distressed properties… they have so much potential equity into them if you know what you are doing and buy it in the right location. Do your homework and research, talk to someone who knows what they are doing and have no fear, you will end up over time much better off owning than renting.
