How much house can I afford?

[crew]

"Millionaires are millionaires because they don't do debt."

While I agree with most of what you said, I would disagree with this. Many millionaires are millionaires because they have capital which they invested. Sometimes this capital was created via debt.

As for a safer investments vs downpayment, certainly there is no guaranteed ROI of 2% without forex risk but neither is putting 100% of your investment (i.e. downpayment) on a single type of asset. If you look at the span of the loan, say for 35 years, that would be a safe enough ROI from a good mix of ETFs and bonds to beat 2%, not to mention a liquid asset. Yes yes nothing is guaranteed but I am not counting on that as a fail safe. I recognize the risk in anything and what I am trying to figure out is if the risks of one are far greater than the other.

Great advice though and I am certainly taking it seriously!

[ricardo]

I wonder if you might be able to help with my new post at viewtopic.php?f=8&t=194 ??

Together my wife and I stumped up with more than 35% of our total land + house price, mortgaging the remainder. Our housing guy said that we were relatively ‘sugoi’.

Then I refinanced the mortgage at 1.0% a year later, knocking the monthly repayment down nicely. I am still paying more than 30% of my monthly after tax income in repayment now, and feels more comfortable. My wife’s income is not involved.

I think a higher percentage like this is ok, if you absolute income is large enough, it depends on your overall budget. Someone on the minimum wage with the same percentage would be in trouble

[fools_gold]

Pay as big of a down payment as you can, get a 15-year fixed rate mortgage with the payment no more than 20-25% of your monthly salary, and make sure you can make additional repayments at no extra fee.

Ignore the 1% - obviously take advantage of it, but do NOT let that entice you into a 'no down payment/30+ year' mortgage.
That's a recipe for buying way too much home and being too far in debt.

Have you *ever* heard anyone say, "you know, the problem was we just didn't borrow enough"?

Good advice, but I think the size of the down payment is a matter of personal preference. I considered the following things before deciding to go for a smaller (10%) down payment:
1. Property, especially Japanese property, is pretty illiquid. Putting too much of your savings into a property could land you in trouble if you need a lot of money in an emergency.
2. Saving up for a bigger deposit while renting property didn't seem to make much financial sense.
3. The interest on savings and investments compounds whereas loan interest is levied on an ever decreasing principal, narrowing the spread between the saving and borrowing rate. The tax credit also influenced my thinking here.
4. I always find savings easier to spend than accumulate. To impose a bit of financial discipline on myself I've promised not to touch savings/investments until I retire or stop working.

Saying that, I made sure only to buy what I could afford and keep the repayments within 20% of my salary.

[DragonAsh]

"Millionaires are millionaires because they don't do debt."
While I agree with most of what you said, I would disagree with this. Many millionaires are millionaires because they have capital which they invested. Sometimes this capital was created via debt.

Go read the millionaire surveys - very very few millionaires created wealth by borrowing. Quite the opposite - most of the never bought a new car, for example.

Yes, some people became wealthy by starting a company that needed debt & investors etc. to get going. And some people started out already rich. But that's not what we're talking about here. We're talking about normal, every-day people with 9-5 jobs that became millionaires by avoiding debt, staying on a budget and taking advantage of long-term low-cost investing.

[crew]

"every-day people with 9-5 jobs that became millionaires by avoiding debt, staying on a budget and taking advantage of long-term low-cost investing."

I think we are talking about two different things here. I don't mean enter debt to be able to afford something which is what these "surveys" refer to. I mean having the money but instead of paying the downpayment, invest it in something else.

[DragonAsh]

"every-day people with 9-5 jobs that became millionaires by avoiding debt, staying on a budget and taking advantage of long-term low-cost investing."

I think we are talking about two different things here. I don't mean enter debt to be able to afford something which is what these "surveys" refer to. I mean having the money but instead of paying the downpayment, invest it in something else.

No, we're talking about the same thing. The 'everyday millionaires' focus on first and foremost, no debt, then savings, then investment, in that precise order. Get out of debt, and stay out of debt, that comes first. Then focus on savings and getting a good solid emergency fund in place. Then, and only then, do they focus on investing.

Do it the wrong way around, and life has a habit of kicking you in the teeth...