Think plankton theory.


Getting a home loan just got harder
Published March 20, 2007
As some lenders collapse under the weight of bad mortgages, others are getting pickier. Now you have to have a real down payment -- and actually be able to afford the house.
By Marilyn Lewis


http://articles.moneycentral.msn.com/Banking/Homeb uyingGuide/GettingAHomeLoanJustGotHarder.aspx?page =all

EastChestnut's little homebuying tip:

If you don't have at least $15,000 saved up somewhere to buy a home (includes your 401(k)), you shouldn't even be looking to buy a home.

EC does have this money and would rather stay put where he can walk to work rather than pay more per month on a mortgage and sit in packed trains and busses to get to the office.

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Don't forget:

http://www.youtube.com/watch?v=spUJF...eature=related

Blah. When I moved here the boom hit everywhere else but didn't even peak here yet... we were still in a rental conversion boom then it stopped dead [and then rental conversion to condo took hold].

I see a future in Center City at of more rental coming online. Good for me as I'd rather buy a 30yr fixed at 7, hell even 8 percent if rates climb that high if I can knock most of the house price out up front with cold hard cash.

Banks are not going to tie everything up and put themselves out of business voluntarily, they'll start loaning out to less risky prospects. Rental buildings in UC/Center City are not risky... not when you can command rents for 1 bedrooms over $1,400 a month now.

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Don't forget:

http://www.youtube.com/watch?v=spUJF...eature=related

http://www.nytimes.com/2007/03/23/ny...789&ei=5087%0A

The analysis shows that Manhattan’s 35,000 or so white non-Hispanic toddlers are being raised by parents whose median income was $284,208 a year in 2005, which means they are growing up in wealthier households than similar youngsters in any other large county in the country.

You think people should include their 401K to determine if they have enough money to buy a home? Call me conservative, but I never count the money in 401ks and other retirement accounts as "available" funds. I think it's better to put as much as you can into them and forget they exist...we don't plan to touch them for (gulp) decades. Or am I misunderstanding your tip?

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Courage doesn't always roar. Sometimes courage is the quiet voice at the end of the day that says, "I will try again tomorrow."

---Mary Anne Radmacher

No, you can legally withdraw from a 401(k) or your IRA* without penalties going into the purchase of a home. However, if your account is subject to after-tax, then of course, you will treat the withdrawl as earned income at that point in time.

You do not have to pay this money back.

Another option is to take a 401(k) loan and use the downpayment like that instead (and pay the loan back)--that way at least you chance getting a fixed interest rate on the downpayment, you can make a much larger down payment than a smaller cash deposit, or you can add a cash deposit with the retirement amount to get the principal on the home loan as low as possible.

The lower your principal starts out when you take on the mortgage, the better you can handle the house payments.

Just don't get stupid and "upgrade" to a bigger home just because you can leverage the retirement funds to do it.



*You are limited to a $10K withdrawl limit for this purpose.

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Don't forget:

http://www.youtube.com/watch?v=spUJF...eature=related

My wife and I moved here last fall. Prices where we lived started flattening in 2003 so we were well aware of the trend. We offered much lower than asking for the home we purchased here. The agent thought we were nuts, but I advised her to get used to it. The market here is not what I would call weak, just realistic.

For those folks who have unrealistic ideas about prices, their homes are still for sale. I see the signs still hanging on a number of homes we looked at over 9 months ago. These are homes mostly in the Mil.+ range, some of them very nice. Houses that are in marginal locations(busy street), lack certain amenities(parking), or are not in the best of condition(dated kitchens or bathrooms) are going to sit. Buyers like us are still there but we are far more selective.

All of this is not good in the end. As those marginal homes don't sell the buyers will lower prices, possibly by considerable amounts. This hurts comps. That's what happened with our purchase, we used a low comp to push our point. We won, they lost.

Oh and this is still Philly and not New York. The crime is too high, government is weak, and the high employment tax is a reckless policy. Why there wasn't a stronger push to lower it when times were relatively good is beyond me. With the economy moderating the politicians will be reluctant to act on it now.

It seems people always like to point to places like Rittenhouse and Old City and say "Wow, who's buying all these expensive homes?!? The market must be ready to crash!" Well, cities have a limited size to their downtowns and thus a limited supply of homes, and there will always be enough rich people able to buy these fancy homes (now, willing to buy is another story depending on crime, etc).

The real worry is all these homes priced between $100,000 and $200,000 in Philly. Almost all of these homes on the market are small, crappy, old, outdated, or in totally sketchy neighborhoods--or all of the above. With interest, PMI, insurance, and principal included, the mortgages on these homes would be between $850-1500 a month! Now, just HOW MANY working class families out there can afford payments like that??? Exactly. The uber-inflated lower end of the market is totally going to crash since no buyers will be left who can afford this.

An example of crazy lower-end of market:

Fancy House in Ritt Sq in 2000: $450,000
FH in RS in 2007: $650,000 (a 45% increase)

Tiny Row Home in Scary Neighborhood in 2000: $55,000
TRH in SN in 2007: $145,000 (a 165% increase!)

This lower-end of the market is clearly the side that is out of control, and when it crashes, it's pulling the rest of the market with it.

an excellent post. in the past, these moderately priced homes would have been purchased by people who were staying in the city (newlyweds moving out of parents' homes and the like) or by people moving into the city for jobs. unfortunately, philly is incapable of generating jobs that would allow middle class migration (either from the bottom up or from the outside in). without a serious amount of job creation, the market outside of University City and Rittenhouse/CC is going to die.

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No matter where you go, there you are. (b.banzai)

I'd totally agree with your analysis, if Nutter wasn't going to be our next Mayor.

I say he will be and he'll implement a new tax incentive to promote buying in lower priced areas.

He outlined it in some detail but the crux of it is, he'll give a larger tax abatement{probably 15 years} for new construction and total rehabs to encourage growth in certain economicaly depressed areas.

He's also proposing to decrease the current 10 year that is offered as insentive to possibly 8 years, and that will be for certain areas that are higher priced homes.

I'm no economist by any stretch but on the surface I see his idea as solid and promoting growth, which as you mentioned is needed in the lower end of the middle class market.

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Learn the truth about Danny Faulkners
murder and his murderer here:

http://www.danielfaulkner.com/