Why not absorb more debt now?greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Please explain your feelings about this. I can see how living beyond your means after the rollover could be a burden and why some people wouldn't want to bite off more than they can chew.
But this house we have wanted to buy for along time is coming on the market and we have a buyer for our current house. The new house would be terribly more expensive but we can afford it.
Why not buy it? If the real estate bubble is going to burst it will hurt me the same. I'm overleveraged where I am now and would be in the new place. Its on 15 acres of great land in a farm community. I'm just a y2k prepared there as I would be here.
If the banking system falls apart I would rather be holding the keys to that house than the one I'm in now.
Please I need some wisdom.
-- forum regular using alias (I'm email@example.com), August 16, 1999
You have answered your own question. If it all goes to pot which house would you sooner have the keys to? If it doesn't, you said you could afford it. What's the question?.....Pray for wisdom.
-- FLAME AWAY (BLehman202@aol.com), August 16, 1999.
-- move on it (firstname.lastname@example.org), August 16, 1999.
Can you lease the "new" house with an option to buy? I suspect that will not be an option, but if it is, it might be worth considering.
-- Jerry B (email@example.com), August 16, 1999.
Personally, I would be careful on this one .... If things DO get bad, the banks will not hesitate to cut lines of credit. Although the argument is that we are all in the same boat, where will the banks go to liquidate the debts ? A third world country or a property that they can at leat get a % back on (albeit the YOU are responsible for the difference).
In the last recession in the UK, people were badly stung by the negative equity trap. Falling house prices, rising interest rates caused a vicious reposession cycle that some people are still trying to get out of 10 years down the road.
I did the reverse of what you are planning, I sold my 3 bedroom house releasing equity, bought a small 2 bedroom cottage and am renting a 2 bedroom flat in London for less than my original mortgage. If the wheel does come off, I dump the flat and move in full time to the cottage. Sure it's half the size of my original house but it is paid for. Worst case scenario, if the banks come after me for my remaining debt I can get a mortgage on it.
My advice has always been minimise your debts. The banks don't act ethically in good times, so why should they behave better in bad ?
Unless the new property has some very attractive feature, I would be tempted to rethink. My wife and I had the same problem BTW, it was much nicer than our current cottage but we decided against getting into debt for it. We now realise we made the best decision.
The previous post is good advice - pray about it !!!
-- Rob Somerville (firstname.lastname@example.org), August 16, 1999.
My uninformed opinion...
If you think there's a good chance the real estate bubble is going to burst, why do you want to own either house? Maybe you can see if the owners of the house you want will consider leasing it to you for a year with an option to buy at the end of the lease. This puts you in the position (after selling your house) of (1) having in your pocket the equity on the sale of your house, (2) you're in the house you want to be in without the mortgage exposure to a big drop in real- estate prices, (3) you've locked out other potential buyers for the time being, and (4) if TSHTF you can probably get a better price next year if you still want the house. (CAVEAT: I'm ignorant of how "options to buy" work with regard to leases--I don't know if you have to agree to a purchase price when you sign the lease or if that's something you can negotiate based on prevailing market conditions at the time the lease ends.)
Yes, there's rent to pay for a year (with no mortgage interest deductions, assuming the IRS is still around), but I'd prefer not to be saddled with a mortgage that's more than the property is worth if TSHTF. Also on the down side, if you get the lease and TS(doesn't) HTF, the property might be even more expensive in a year, which wouldn't be wonderful--you might not be able to afford the purchase price, and/or you'd lose the appreciation in the value of the property during that year.
I don't think there's a clear-cut answer here. It depends on your view of what next year will bring, how you feel about having lots of debt, how badly you want the other house, and so on. Good luck with your decision. I hope everything works out for the best.
-- Don (email@example.com), August 16, 1999.
I say go for it!
Don't live in fear of the future or what might happen. Don't forsake your life today based upon the possibility of problems tomorrow. If you do you'll always live in fear of what might happen.
If you're overleveraged already, like me, then what ever will come will come right?
Maybe you could even allow people to camp on part of the 15 acres if things go badly. They can help you work your land or perhaps pay you a small amount monthly to help offset your debt. Plus, it's good karma and maybe that's the whole purpose of why this opportunity has presented itself...at this time.
-- Michael Taylor (firstname.lastname@example.org), August 16, 1999.
Why would anyone say to lease purchase? If teotwawkt and no more banks can't the original owners who he is leasing from kick him out? If he owns the house and teotwawki and the banks fall apart and they can't foreclose on everyone then he has a house he really wants. And if nothing happens to lower his income then he has a house he really wants and it would't seem like a busted real estae bubble would matter cause he really likes the house.
I say buy! and pray.
-- Johnny (JLJTM@BELLSOUTH.NET), August 16, 1999.
You folks kill me! Buy and Pray?? What an oxymoron! I think by FAR Don has the best advice here...it's time to MINIMIZE expenses, raise cash, and pay off debts....not create more. You see, if in fact TSHTF, there will be foreclosures in droves. If your current home is already under "Homestead Exemption" then you can't lose your home. If however you move, it will be AT LEAST the second quarter of 2000 before you can file for homestead exemption. I truly believe that those with the most debt will suffer the greatest losses in the coming months. You are only fulfilling a "want"....not a "need"....WWJD?...think about it. HINT: (the answer is not MORE DEBT)
-- keepon (email@example.com), August 16, 1999.
>> The new house would be terribly more expensive but we can afford it. [...] I'm overleveraged where I am now and would be in the new place. <<
I have a difficult time reconciling these two statements. If you are overleveraged now in your current house, and the new house is terribly more expensive, in what sense can you afford this new house?
In my own mind there is a difference between being able to qualify for a loan and being able to afford the payment. That is my own view. You must personally arrive at the figure that you are really comfortable with.
>> Its on 15 acres of great land in a farm community. <<
Are you able to take economic advantage of this? Or is it simply an aesthetic choice?
>> If the banking system falls apart... <<
Banks have survived wars, famines and plagues. It would be a chancey bet at best to rely on the system falling apart. A much more conservative criterion would be: "If my job falls apart I'd rather be paying the payments on this house than the payments on that one."
Buying a house in the throes of emotion is a risky business. When my wife and I bought our house we agreed on a prioritized list of criteria, and then we evaluated houses strictly according to how well they met our top five or six criteria. Fitting a price range we could afford was was at the top of the list.
Just my opinion.
-- Brian McLaughlin (firstname.lastname@example.org), August 16, 1999.
Keep on we don't have that Homestead exemption in my state, and wwjd he wouldn't be living in the house I currently live in. His time on earth was more a hutt type of habitat.
Brian by overleveraged I mean I refinanced our house at 100 percent market value in the spring and won't get anything out of it by selling.The land would mostly be elbow room and just in case I need it. We have several children so I don't really see it going to waste.
BTW my wife and I are in our early thirties and if our jobs are disrupted by y2k then y2ka will be devastating.
I am thankful for all opinions.
-- forum regular using alias (I'm email@example.com), August 16, 1999.
Follow your heart. You probably already know the answer.
-- Linda A. (firstname.lastname@example.org), August 16, 1999.
Forum regular: A number of issues here. First, I understand you are financed at 100% currently, so you will walk away from the sale of your present home with $0. What about the down payment on the new home? (on this acerage I would expect a minimum of 10% would be required + closing costs and prepaids.) Therefore, you will need to convert a substantial amount of cash on-hand (which could otherwise be converted into currency or precious metals) for the down payment on this more expensive home -- which could fall in value in a serious downturn.
Assuming a meltdown short of TEOTWAWKI, you would likely lose either house in foreclosure should one of you lose your jobs -- sorry, I know nothing about your personal situation, so I'm making assumptions. If, however, you were to be forced out of your present home, you would presumably still have the many thousands of dollars that are available today for the down payment on the new home. [therefore you would not be *totally* broke].
On the other hand, if you are anticipating a mild recession (perhaps serious inflation and higher interest rates), then it could be quite beneficial to upgrade now and take a long-term fixed rate loan.
The "right" answer must therefore be based on *your* analysis of what's going to happen with the economy. All things being equal (safety of location, etc.) it would appear that a "Plan for the worst, hope for the best" strategy favors staying where you are (and keeping your available resources safe and liquid). And by all means, DO pray about it! Best wishes.
-- DaveW (email@example.com), August 16, 1999.
Saw a posting from a banker in which he stated that following the oil patch collapse in Texas in the early 80s, banks went after properties in which the owner had lots of equity and owed little while leaving those holding large mortgages largely alone.Also, there have been rumors about anti-foreclosure and anti-eviction legislation on the drawing boards in the event a stock market crash and Y2K tank the economy and send unemployment skyrocketing.If that happens, banks might be willing to renegotiate mortgages. Beats having thousands of vacant properties producing no income.The Government might push such a scenario as no government wants 50-60 million formerly middle class citizens living in tents while millons of repoed houses stand vacent.That would be a receipe for social chaos, violence and getting voted out of office. Both parties are well aware that it took the Republicans two decades to regain the White House after being seen as the villians of the last depression. Seems like two major considerations in deciding about the new house would be safety and commuting distance. If TSHTF which neighborhood would be the safest? If,(when) fuel becames nonavailable, can you commute to work by bike or mass transit? Don't laugh! If the refineries go down and foreign oi dries up, rush hour in America gonna be like rush hour in China; overloaded buses and a bizillion bikes going in all directions.Also, which property is the most self sufficient if basic services go down? Acerage and a well might come in handy.
-- Ralph Kramden (firstname.lastname@example.org), August 16, 1999.
How long will it take you to do the deal and close? You wouldn't want any deals running into the bad later months and whatever bank snafus that might come. I agree with the rest who say pray and wait for a positive indication. If all goes easily, it might be the right thing to do.
-- Mara Wayne (MaraWayne@aol.com), August 16, 1999.
We DID buy at the beginning of the year, committing to over 1/4 million in loans...which was an awful lot for us... But we have a place of our own, with more land than I can turn into garden. For us, it seems worth it. (Ask us in, say 6 months!) We prayed about it first. That's a good idea anyway. If the new place has a bunker, go for it...
-- Mad Monk (email@example.com), August 16, 1999.
Children? Take it. Maximum leverage. With at least a year of payments stashed safely.
-- Possession (is@9/10ths.of.it), August 17, 1999.
15 acres??? I'd take it in a second. Even if you couldn't farm all the land, if TSHTF you would still have some good distance between you and the rest of the world (your neighbors). It's no secret that the higher the population density, the greater the potential problems.
-- rick (Ifirstname.lastname@example.org), August 17, 1999.