I've been told that today there are many mortgage companies that don't require a down payment. They help you with that. Is that true? Is it feasible?

These are almost impossible to get, if not impossible.

If you can't afford a reasonable down payment, you shouldn't be buying the house. It's really that simple.

Agree. With one of these you will have to pay PMI, most likely have to take an adjustable rate mortgage. If your income is not all that high, don't even think about it and you probably can't even get one without an excellent credit rating.
I'd rent if I were you.

Thanks for your advice. There is a very specific and important reason we are looking into buying a specific house. But I hear you all.

Is it a secret? Either way, is there a reason that renting a house is not an option?

No it's not. Just because you don't have $60,000 sitting around doesn't mean that you should continue contributing to your landlords retirement fund and not buy a house.

Right. You should be contributing to the bank's retirement fund instead.

Anyway, there are number of different ways to achieve 100% LTV. A recently popular (but now disappearing) way is to piggyback a 20% loan on an 80% loan. There is no PMI and the interest is deductible, unlike PMI.
I think you can also get downpayment assistence from a gemach.
In all, you have to run the numbers and see what makes sense. If you are going to end up spending 40% of your gross income on a mortgage, you'd probably want to reconsider.
I worked for 9 years in the mortgage biz, btw. You can PM me if you have specific questions.

I agree completely, for the reasons psychodad stated. It's a terrible idea. Your monthly payments will be astronomical and having no equity in a home is very risky in an environment in which home prices are declining.

At least the landlord's retirement fund pays for all repairs and most likely the water bill. The bank's retirement fund doesn't seem to do that

Well, I can't go into detail here. But part of the reason is because of the income we would have by buying a house. NOT renting out apartments at all. But we would need the space. The income would be feasible only with a bought house, not a rented.

Huh? Does buying a house make it bigger? People buy apartments (condos/coops) and rent single-family homes, so I'm not sure what you are saying.

It's not always smart to buy, a friend of mine recently sold his house in Lakewood and is now renting because it made more sense. He was paying $2,200 in mortgage, taxes and insurance. In addition it was an old house and he had high maintenance cost. It was costing him $32,000 year after everything. Now he is renting a brand new 2,500 sq. foot Lakewood style townhouse* which is slightly bigger then his ex-house. It's costing him $1,300 a month and he has no worries.

He saves $16k a year + he cleared a $70k profit when he sold his home. If he puts that money in a safe 7% muni he beats the return he would have gotten on his house by a wide margin.

Lakewood however has ridiculously low rental prices and my friend is subject to a huge rent hike which I think will happen** down the road. Not too many places have the purchase/rental spread Lakewood does.



* Huge four bedroom townhouse with a kitchen the size of my dira in Israel.

** IMHO the reason rentals are so low in Lakewood is because
1. the vast amount of investment property which is leading to glut in the rental supply.
2. Even with investments tapering off there is a huge apartment building complex going up now for the frum market and that will keep rental prices low for a while.
3. Most new homes built today and in the last 10 years have an apartment in the basement.
The rental market will slowly correct itself, but it's going to be a while.

Whateva. Hard for me to explain here without going into detail. I have to think about how to explain it.

Except that where I live, rent is so ridiculous that it's a crime to pay so much for the garbage.

Playgroup?

I just can't think of a situation where you could make money using your own house but not a rented one, unless you intend to do something to the house that would be illegal under a renters lease agreement.
I guess conducting a business there would probably be illegal under a renters agreement, so that's my best guess. Even then there are ways to get around it

Anything that would require modifying the house.

Brothel was my first guess, but that sounds like a good one too.

That sounds like short-term thinking. Also, you can get a 7% return on bonds? Where?

I was going to say pretty much the same...this makes sense on a short term basis but not always in the long run. It really depends on the person's unique situation....
Ditto on the 7% munis....sign me up!!!!

Here

You probably know a lot more about bonds than I do but those investments do not seem to be completely guaranteed (safe/ FDIC insured). Might as well put the money in to the market if you are not going to get a guarantee or something close to it.

True, but a AAA bond rating is close to a lock.

Yes, but it seems with those you have to lock your money in for 10+ years

Not really, he did the math. If rent prices shoot up, he could always buy a house with all the money he saved up until then. I don't see the rental unit glut ending for another 7-10 years.

Just on the $75k profit he made. Compound it 30 years and you get 570k.

Let's say he locks in his rent 5 years at a time.
5 years = $1,300 - Annual Savings = $16,000
5 Years = $1,600 - Annual Savings = $13,000
5 Years = $2,000 - Annual Savings = $9,000
5 Years = $2,400 - Annual Savings = $6,000 (The cost of ownership also goes up)
5 Years = $2,900 - Annual Savings = $2,000
5 Years = $3,400 - Annual Savings = $-3,000

After 30 Years he makes $900K after calculating the money he has to pull out to meet rent for the last five years.

570K + 900K = 1.47M

He bought his house for 220K, assume it appreciates at 4% that would calculate to 713K. Even if you would assume a 5% appreciation it only comes out to 950K.


ETA: I made a few errors so I changed a few numbers.

If you're thinking long term then that doesn't matter.

What are the tax savings from deducting mortage and property tax as opposed to nothing for rent?

Also, the tax implications in the future from selling his (fictional) appreciated home as opposed to the taxes on his investments?

I don't know the answers to these questions, but they do seem to be relevant to the situation. Especially, when dealing with such high figures.

This is a very valid point that I overlooked, it really depends on the tax bracket the person is in. It would affect the numbers but not enough.


I'm not sure about the tax implications when selling your own home. He would have to pay 15% capital gains tax on his profits. That would mean his return would have to be 8.25% instead of 7%. I think 7% is a lowball number anyway because anyone with half a brain would throw his money into the S&P instead of a muni and make more then the munis.

Not that simple. If rent prices shoot up, so will the house prices and it takes time and huge effort to find a house that's both priced right and liveable. There is no extrapolation from the stock markets to real estate, [un]fortunately.

That's usually the case, but Lakewood is an anomaly.

Ridiculous proposition. Someone who threw her money into the S&P in 2000 still hasn't turned around, and probably has a $500,000 medical bill to pay for that heart surgery.



Lakewood properties are a big shaala in general, as עיר הנדחת -- כתותי מיכתת שיעוריה .

Could be both.

One business feeds the other, a natural synergy.



Even if someone put their money in at the height of the bubble after 30 years you'll still beat 7% annualized.

Why are the muni bonds you listed paying giving such a high rate of return when other AAA muni-bonds are giving a return of about 4%?

for example:
Maturity Yield Yesterday Last Week Last Month From Yahoo finance
2yr AA 3.66 3.65 3.57 3.51
2yr AAA 3.61 3.59 3.60 3.55
2yr A 3.64 3.62 3.70 3.72
5yr AAA 3.59 3.58 3.58 3.56
5yr AA 3.62 3.61 3.63 3.58
5yr A 3.71 3.71 3.70 3.66
10yr AAA 3.74 3.72 3.76 3.68
10yr AA 3.72 3.71 3.75 3.63
10yr A 4.02 4.00 4.04 3.98
20yr AAA 4.13 4.13 4.14 4.16
20yr AA 4.43 4.43 4.43 4.46
20yr A 4.27 4.24 4.30 4.03

Munis are tax-free, that's why. 7% on them means that they pay as a 7% treasury.

Thanks.
I thought he was saying 7% tax-free bonds.

Even that doesnt get you too far in the NY metro area

My friend bought a house in Cleveland for 140K. 140K

Yea but now he has to live in Cleveland

I don't see any 7% yield on munis on this link. Unless you're confusing current yield with yield to maturity.

I am, but there is still this

It's perfectly legal and the income is on the books. We were thinking of taking in 2-3 mentally disabled people through an agency that pays a pretty nice wage. The issue with renting for that is, that if I rent a house that has two entrances etc.. that's set up for sucha situation, it costs LOADS, and I can only do 1 or max 2 people. But if I put that into buying and it goes directly towards the mortgage, my mortgage is almost fully covered. How's that?

Now let the arguments begin

Please tell me you aren't being serious

So this bond is yeilding about 7% tax free which is about 10% taxable income, and is AAA rated.
Why is it higher than other tax-free bonds?

Better than a brothel. Or a playgroup. Or both.














No, I wasn't serious.

No idea. I have never purchased a bond in my life. I don't know that much about them other then what I read occasionally in financial magazines.