You mean an interest only loan. I'd say it's bad if it's 100%. If you put a decent down payment down then you won't be upside down right away. You never know what the market will do. We are in phase 2 of our neighborhood. The exact same townhomes are built across the street, but were sold for $30k-$50k less than ours less than 5 years ago. Now they are all about the same price - and all of their houses have gone up $30-$50k and ours have maybe gone up $5k. Maybe. In nearly 3 years. And the houses that are on the market are not selling. Who would have known that? The people across the street hit a jackpot while people over here are probably upside down on their houses. The market just completely stalled out. Also, if your house doesn't appreciate much and you go to sell it - you won't have enough for realtor's fees, closing fees, etc.
A good compromise would be to take out an 80% interest only or a 40 year mortgage. Then put something down (even 5%) and take out 15 year 2nd mortgage. Pay THAT down, send extra, whatever you can do until you have 80% equity in your house. That's a much better safety net than being upside down!
I totally understand trying to do whatever you can to buy a house! They say you should only spend 25% of your income on the mortgage - but ours is higher than that even owning one of the less expensive houses in the area. There isn't much to choose from on the low end here - everyone is building $500,000 houses... |