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Down payments, interest rates and other newbie questions...
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SuperBreakout



Joined: 28 Jul 2007
Posts: 11

PostPosted: Tue Jul 31, 2007 7:22 pm GMT    Post subject: Reply with quote

john p, that was probably the most thorough response I've ever seen. I really appreciate it Smile I often think about the long term economic health of the USA... the trade imbalance, credit culture, housing bubble, weakening dollar, the cost of the war, the coming boomer retirements, outsourcing, decline of stature worldwide and so on. I'm with you on being optimistic about the American people, I wouldn't have moved here otherwise.

Yeah, I agree that $9000 in the bank isn't much for someone my age. To make a long story short, when I moved to the US in 2005 I had $5000 in various debts and 3 more years of car payments. While covering all the expenses of our 2 person household I paid off the $5000 and managed to get myself in the black for the first time in my adult life. The last two posts have really made me think about my financial history with an emphasis on not repeating it.
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john p



Joined: 10 Mar 2006
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PostPosted: Tue Jul 31, 2007 9:03 pm GMT    Post subject: Reply with quote

At least you're in the black. You should be psyched to have accomplished what you have; it also will help your credit rating.
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Mike



Joined: 01 Nov 2006
Posts: 28

PostPosted: Thu Aug 02, 2007 2:42 pm GMT    Post subject: Reply with quote

JCK wrote:
I believe the general setup is that a first (i.e., normal) mortgage, either fixed rate or ARM, can be up to 80% of the appraised value of the home without paying PMI. Many lenders will let you go up to 95% (loan to value) LTV with the first mortgage (again, either ARM or fixed) if you pay PMI until you reach the 80% LTV threshold.



You actually need to pay PMI until you reach 78% of the threshold, i.e. you need to pay down 22% of the original appraisal. The only way around this would be to get a re-appraisal that shows your home has increased in value, but that's not likely in today's market.
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Mike



Joined: 01 Nov 2006
Posts: 28

PostPosted: Thu Aug 02, 2007 2:45 pm GMT    Post subject: Re: Down payments, interest rates and other newbie questions Reply with quote

admin wrote:

I think that normally, the 6% commission that the seller pays to his broker gets split evenly between the selling agent and the buyer's agent, so they each get 3%. However, there are buyer's brokers who will refund part or all of their 3% to you, and who you pay hourly during the search. I think the implications are pretty obvious - there is a potential conflict of interest in the traditional scenario since the buyer's agent has an incentive to rush you and to have you buy at a higher price, whereas in the second scenario the broker will probably be quite happy about a prolonged search, since that means more hours for him.

- admin


The general commission nationwide is 6%, but the Boston area is only 5%. This is paid by the seller to the seller's agent, who then gives half of it to your buyer's agent, if you use one. If you don't have one, then the seller's agent pockets the whole commission. You never have to pay for a buyer's agent -- it's free for the buyer. This is why it's recommended to use a buyer's agent -- try to find one who only works as a buyer's agent and doesn't participate in any listings. They will be the most independent.
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Mike



Joined: 01 Nov 2006
Posts: 28

PostPosted: Thu Aug 02, 2007 3:02 pm GMT    Post subject: Reply with quote

john p wrote:

What you'll find is that kids that had their parents pay 100 percent of their college, gave them a car once out of school, and let them live at home rent free for a period after college have had an opportunity to sock away money which by 30 has been able to grow. Around 30 these groups start to separate. Think about if you had $100k in the bank. A 6-10% return would be more than most raises people get in a year. This is why hard workers that have had to foot their own bills and pay their own way for everything fall behind those who start off with family money. The rich are getting richer.


Wow John, you're absolutely right there. It's kinda funny though -- I'm one of those "kids" you talked about here, but I really don't consider my parents rich at all. They're both immigrants who moved here in the 1960's, went to NYC public schools, and have been working in the same job since the 70's -- government workers! Yet they somehow saved enough to give their 3 children $100-200k EACH in gifts for various things like cars, college, weddings, and houses. That's in addition to their retirement fund (IRA + pension) which yields the equivalent of $150k/year in INTEREST. HOW DID THEY DO THAT? If my parents can do it, I feel like anyone can.
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john p



Joined: 10 Mar 2006
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PostPosted: Thu Aug 02, 2007 4:12 pm GMT    Post subject: Reply with quote

Make sure you pick out a nice retirement home for them.

My folks are go-givers like yours. You get older and you start to appreciate them more huh? I would characterize your parents as working rich as opposed to ownership rich, who don't work but live off the capital they, have working for them.

I don't have contempt for the rich; I'm a capitalist. I'm just pointing out that if you had disposable income in your early 20's that a kid paying for a car, rent, and student loans doesn't have, that compounds over time. My only concern is that if opportunities aren't available for a broad spectrum of the population we won't be able to draw out talent. Think about it, do you think that the best athletes are polo players like Prince William? No, because you need lots of money to get into that game. If Brockton High School doesn't have the sport, it's not worthy of considering as being a seriously competitive sport in my opinion. Those dudes hit so hard you get snot-bubbles coming out of your nose; if blood doesn't come out anyway.

In this capitalist system an area like Boston might just be like hey we've got enough of this or that and we can afford to put a moratorium on a few years of graduates. With all the graduates, we have a strong supply chain feeder. Think about when Boston was booming, plenty of non-natives moved in and we might have gotten a lot of extra workers in some industries. When the baby-boom retires, I think that you will see the supply chain pull for more workers... When I was trying to get an entry job in architecture in 1993 we had a recession and like 40% of architects were out of work or something. Well there is this school called the Boston Architectural Center and it is sort of a co-op school where they work and go to school. Well, lots of the entry jobs went to some of the kids that would work for free for school credit. You needed to be a rich kid to be able to pull that one off. Getting through the first years of the industry was hard, but now there are fewer in my cohort.

As far as the government worker thing: I think many made out like bandits. The financial construct for their retirement package was based on the assumption that government workers traded a high salary for job security. For that, they got a retirement package of say 20 years of service- 80% of salary pension. That made sense when they would make like 55% of their counterpart in the private sector. Now, there isn't that much of a difference in the salaries of private to public, yet they still get that 80% pension (80 percent of their high three years of salary). Think about it, if they retire making $80k that's $64k in retirement. That's like having $1 million and living off the interest. Now if two retired with a combined $160, they have a nest egg equivalent worth $2 million without saving anything. Further, if they were making $160k they must have been doing a standard amount of saving which may have put them at the $1 million mark in investments anyway. They are actually better off than the great majority of private sector workers.

It's kind of like why are we still paying 5% for realtors now that the internet is doing most of the walking and most forms are filled out and there are just standard input fields... The market needs to make other types of corrections in my opinion. There is a big disparity within the governmental workers; the Boston Herald piece which posted the salaries sent shock waves into a lot of governmental offices because of the inequities it unveiled. Now that situation compounds when the pensions start to kick in. I think that the US automakers are also competing with foreign companies that don't have this big pension payout to contend with. I wonder what some of these companies obligations are if they sell out to foreign companies.

My point is that we have a potential here for a whole generation to be shut out based on a growing macro trend. In spite of this, I see greatness coming out of this generation because we have been tempered necessity is the mother of invention.

Admin, I think this market is metamorphic: objects and morphisms. Think category theory, ordered triples in your functions... Different price strata, different clusters behave differently and behave with eachother, dense sparse, environmental gravities and air pressures at different altitudes you know.

Our generation, being tempered with our environmental challenges will transform us to a new constitution like an alloy.
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john p



Joined: 10 Mar 2006
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PostPosted: Thu Aug 02, 2007 4:59 pm GMT    Post subject: Reply with quote

http://www.futurepundit.com/archives/004323.html
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john p



Joined: 10 Mar 2006
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PostPosted: Thu Aug 02, 2007 5:34 pm GMT    Post subject: Reply with quote

http://jcwinnie.biz/wordpress/?p=2278

I'm with the band.

http://ieeexplore.ieee.org/xpl/freeabs_all.jsp?arnumber=4084812

My father put his fist through a microwave when my little brother said he wanted to go to Papa Ginos instead of Jevelli's in East Boston.

http://adsabs.harvard.edu/abs/2006JOSAA..23.2961K

http://en.wikipedia.org/wiki/Reflection_coefficient

That bridge went down because it wasn't redundant.
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admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Thu Aug 02, 2007 6:05 pm GMT    Post subject: Reply with quote

Mike wrote:
This is paid by the seller to the seller's agent, who then gives half of it to your buyer's agent, if you use one. If you don't have one, then the seller's agent pockets the whole commission. You never have to pay for a buyer's agent -- it's free for the buyer. This is why it's recommended to use a buyer's agent


In a way, the buyer does pay for the agent via a higher purchase price. However, you can get most of that money back by using an agent who refunds the commission in exchange for an hourly fee or some other fee structure.

Mike wrote:
Wow John, you're absolutely right there. It's kinda funny though -- I'm one of those "kids" you talked about here, but I really don't consider my parents rich at all. They're both immigrants who moved here in the 1960's, went to NYC public schools, and have been working in the same job since the 70's -- government workers! Yet they somehow saved enough to give their 3 children $100-200k EACH in gifts for various things like cars, college, weddings, and houses. That's in addition to their retirement fund (IRA + pension) which yields the equivalent of $150k/year in INTEREST. HOW DID THEY DO THAT? If my parents can do it, I feel like anyone can.


That sounds rich to me, or at least well above average. As a ballpark estimate, earning $150K/year in interest would require a net worth in at least the top 20% for all baby boomers, based on Table 1 at http://www.heritage.org/Research/SocialSecurity/cda05-02.cfm (assuming the pension payments are combined into a single present discounted value and added to the net worth). I guess whether they are "rich" or not would depend on making that less of a ballpark estimate and also on how you want to define "rich." I would say a net worth of two standard deviations above the median would be rich, which would work out to the top ~2.2% if this were a normal distribution (it's not, I'm just approximating). So maybe they aren't there yet (or maybe they are), but they are certainly above the norm.

john p wrote:
My point is that we have a potential here for a whole generation to be shut out based on a growing macro trend. In spite of this, I see greatness coming out of this generation because we have been tempered necessity is the mother of invention.

Admin, I think this market is metamorphic: objects and morphisms. Think category theory, ordered triples in your functions... Different price strata, different clusters behave differently and behave with eachother, dense sparse, environmental gravities and air pressures at different altitudes you know.


I think those are very good points. It sounds like it may be worthwhile to identify the most prominent clusters and determine the scenarios which would denaturize them. Time by itself may be enough in some cases.

- admin
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Thu Aug 02, 2007 7:30 pm GMT    Post subject: Reply with quote

read the abstract

http://cat.inist.fr/?aModele=afficheN&cpsidt=5340216

Where can you go to get the sales data broken down into the different price strata? The reporter that does this will unveil quite a bit in this metamorphic market.
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john p



Joined: 10 Mar 2006
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PostPosted: Thu Aug 02, 2007 10:32 pm GMT    Post subject: Reply with quote

The prior link's abstract was referenced because it kind of states the obvious in general terms, (when you zap something with something foreign it will react). Their work is obviously about the specifics...

Anyway, economically different price strata's buyers and sellers are feeling different wavelengths, it's not uniform across the board; we have some winners and some losers, some feeling good vibrations and others are feeling a bit of a shock wave.
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john p



Joined: 10 Mar 2006
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PostPosted: Fri Aug 03, 2007 2:09 pm GMT    Post subject: Reply with quote

Paragraph 7 is great.

http://people.hofstra.edu/charles_merguerian/Abstracts%20and%20Papers/19Primer.htm

I would love to see a price strata graph overlaid like Admin's historical charts. Kimberly Blanton did it in a plan view with the colored Boston neighborhoods last year; I would like to see a sectional view with the price strata. I think this might unveil the historical behavioral differences in the different price strata. If you imagine the disposition of personalities and financial positions of the cross section of buyers and sellers in each price range, you'll get a better insight on the properties of the material, so to speak. Are they ductile like toothpaste (flowy) or brittle. Will the cooling off of the bubble transform a segment from one state to another? Will the densities change and gaps form between the strata that may cause greater pressure like a fracture.

A plan view of the state showing a scatter diagram of price range of homes sold like on page 4 and page 5 for a sectional view/scatter diagram. It would be cool to see the planar migration as well as the vertical strata disposition. With this, you could predict air pockets where declines could take place or where upward pressures (good buys) may be.

http://www.minsocam.org/ammin/AM66/AM66_204.pdf

Lastly, this isn't a nicely controlled laboratory. We've got all sorts of foreign forces at play here. I think trying to encapsulate this behavior with set theory mathematics might prove to be difficult. Instead, it might be better to create a viewing instrument to just get a closer and stratified perspective, then reverse engineer the trends and do math to forecast the projections once you have a clear understanding of the disposition. I think having a fundamental understanding of the basis of design is the best starting point. I think with a mapping/gis program and maybe a cad support program with a database system you could really use mapping to find domains, codomains, etc.

I just ate a burrito for breakfast and I'm starting to cramp up.
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john p



Joined: 10 Mar 2006
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PostPosted: Fri Aug 03, 2007 2:40 pm GMT    Post subject: Reply with quote

http://www.genome.gov/10000715

A nice link on mapping. Have they found the genome that fixes Montezuma's Revenge?

http://en.wikipedia.org/wiki/Montezuma's_Revenge_(medicine)

This is what I use.

http://www.jdsinglebarrel.com/experience.htm
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SuperBreakout



Joined: 28 Jul 2007
Posts: 11

PostPosted: Sat Aug 04, 2007 11:30 am GMT    Post subject: Reply with quote

I found this definition of sub prime on the Boston Globe real estate blog:
Quote:

Defining Subprime mortgage
By Rona Fischman
August 03, 2007 | 02:54 PM

Subprime mortgages, are you sick of hearing about them yet? They are bad news, yes? Does everyone know what a subprime mortgage is and why they cost you so much more?

Let me explain:

Prime Lending Rate is set nationally. It is the base rate of all loans. Residential mortgages rates are higher than that prime lending rate. The subprime residential mortgage rate will be even higher than conforming residential mortgage rate.

The opposite of “subprime mortgage” is not “prime mortgage”; it’s a “conforming” mortgage. To get a conforming (or conventional) loan, borrowers must conform to rigid standards developed by mortgage lenders. These standards are not exact; there is some judgment involved. An applicant is judged on these factors: income to support the requested mortgage plus all other debt the borrowers has outstanding, credit history, job stability, and assets. So, someone with an unsteady job may still get a loan if he/she has a good credit history, a good income, and a hefty down payment. Likewise, someone with no down payment may get a prime mortgage if his or her job is stable and credit is excellent. Someone with a lot of debt, but good credit and income could get one.

Subprime mortgages have higher interest rates. They are frequently Adjustable Rate Mortgages that will go up in 2 or 3 years. They often have high up-front costs added into the debt. They are a significantly more expensive way to borrow money.

If you do not qualify for a conforming loan, it should be a warning sign. If the lender’s actuaries think you are a risky borrower, you may be. Check with another lender. If multiple lenders are tell you that you should not borrowing money, maybe you shouldn’t.

The trouble began when subprime lenders made it possible for almost anyone could borrow anything, for a price. It is a good thing that those days are over.
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admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Sat Aug 04, 2007 3:05 pm GMT    Post subject: Reply with quote

SuperBreakout wrote:
I found this definition of sub prime on the Boston Globe real estate blog:

I saw that too and was going to post a link to it here, but you beat me to the punch. Anyway, the original post is at:

http://www.boston.com/realestate/news/blogs/renow/2007/08/defining_subpri.html

- admin
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