Buying a house is a pain! A few questions...

[Descartes]

All these numbers/loans/questions/papers/ad nauseum are stressing me out 🙂. Luckily I have a friend who is a real estate agent and another who is a CPA, so I'm working on getting the best deal possible.

I'll be glad when all this is over (whether my bid on the house is accepted or not).

I'm doing a conventional loan on the house that I'm already qualified for, but I still have a few questions:

- They were talking about doing an 80/20 loan. Apparently this means I don't have to have private mortage insurance and I can tax deduct both the 80 and the 20? If this is true, then I'll benefit overall with the investments I can make with the yearly tax deduction.

- The other is the traditional 97 w/ 3% down.

Which is best out of the two? Thanks!

 

[dman]

I'm not an accountant/etc... but, imo w/ the 80/20 your overall payment will be higher and you'll be limiting your abiltiy to get a second mortgage (or more cash) later if you need it. (Basically you are really extending yourself).

Probably better off going w/ the 97 3% and hedging your bets that you'll be able to refi in a year or so. Hopefully the property will have increased in value enough to give you some additional equity.

 

[conjur]

Originally posted by: dman
I'm not an accountant/etc... but, imo w/ the 80/20 your overall payment will be higher and you'll be limiting your abiltiy to get a second mortgage (or more cash) later if you need it. (Basically you are really extending yourself).

Probably better off going w/ the 97 3% and hedging your bets that you'll be able to refi in a year or so. Hopefully the property will have increased in value enough to give you some additional equity.

Uh...it's the opposite.

80/20 means 20% down and financing 80% of the purchase price. You'll have a lower payment, possibly a better interest rate, and no PMI.

Although, I only put 10% down when I bought my first home (new home construction) and still didn't have PMI.

But, be sure to put property taxes/homeowners insurance into an escrow account unless you plan on keeping enough money set aside each month to pay them in full when they are due.

 

[Descartes]

Thanks for the reply.

I think the only reason they suggested the 80/20 is because I can keep my down payment and therefore accrue interest and have the ability to deduct more at tax year end from the 80/20.

I'm trying to get the mortgage broker to call my tax man but I think he found the request offensive. Oh well...

 

[Descartes]

Originally posted by: conjur

Originally posted by: dman
I'm not an accountant/etc... but, imo w/ the 80/20 your overall payment will be higher and you'll be limiting your abiltiy to get a second mortgage (or more cash) later if you need it. (Basically you are really extending yourself).

Probably better off going w/ the 97 3% and hedging your bets that you'll be able to refi in a year or so. Hopefully the property will have increased in value enough to give you some additional equity.

Uh...it's the opposite.

80/20 means 20% down and financing 80% of the purchase price. You'll have a lower payment, possibly a better interest rate, and no PMI.

Although, I only put 10% down when I bought my first home (new home construction) and still didn't have PMI.

But, be sure to put property taxes/homeowners insurance into an escrow account unless you plan on keeping enough money set aside each month to pay them in full when they are due.

They said I wouldn't have to put any down. The payments would only be $48 higher and I could keep my down payment. I could still make a down payment, but I'd benefit more overall by keeping it and accruing interest on my account.

 

[vi edit]

Really depends on the specifics and your overal Loan to Value. I just re-fi'ed with an 80/15 loan. The second mortgage is an interest only mortgage that could be done two different ways. First way was a variable interest rate, the second way was a fixed interest rate. The variable adjusted each month, and the fixed, was exactly that - fixed interest rate for 10 years. I did a 7 year ARM on the first half of the mortgage, and a fixed rate on the second one. I eliminated a $90 a month PMI payment doing it this way. We aren't going to be in the house for much more than 5 years, so it was a safe bet going with the ARM. Even so, if we stick around for another two years, the most we'll be paying at 9 years is 7% interest - still not bad.

We reduced our monthly payments by over $300 a month refinancing a 30 year fixed(w/ 5% down) @ 7.25% by going with an 80/15 split 7 year ARM w/ no PMI.

 

[Descartes]

Originally posted by: vi_edit
Really depends on the specifics and your overal Loan to Value. I just re-fi'ed with an 80/15 loan. The second mortgage is an interest only mortgage that could be done two different ways. First way was a variable interest rate, the second way was a fixed interest rate. The variable adjusted each month, and the fixed, was exactly that - fixed interest rate for 10 years. I did a 7 year ARM on the first half of the mortgage, and a fixed rate on the second one. I eliminated a $90 a month PMI payment doing it this way. We aren't going to be in the house for much more than 5 years, so it was a safe bet going with the ARM. Even so, if we stick around for another two years, the most we'll be paying at 9 years is 7% interest - still not bad.

We reduced our monthly payments by over $300 a month refinancing a 30 year fixed(w/ 5% down) @ 7.25% by going with an 80/15 split 7 year ARM w/ no PMI.

Great info... thanks!

 

[woowoo]

Dont count on a "Tax savings" until you run the numbers.
I would put down as much as I could

 

[conjur]

Originally posted by: woowoo
Dont count on a "Tax savings" until you run the numbers.
I would put down as much as I could

Esp. since banks are paying bupkis for interest right now.

 

[Garet Jax]

My preferred mortgage would be an 80/15/5. With 5% down, I am typically able to get the best interest rate on the 80% loan. The 15% loan would typically have a slightly higher interest rate, but would result in higher tax deductions then if I were to go with a generic FHA loan (3% down and 97% loan).

There are two problems with an FHA loan. One is upfront mortgage insurance equal to 1.5% of the total loan value. The other is the 0.5%/12 monthly mortgage insurance. The problem with mortgage insurance is that it isn't tax deductable and it is very difficult to eliminate (without refinancing) under an FHA loan.

The good thing about FHA mortgages though is that they are assumable. This means that if you get a good interest rate, then you can transfer the remaining mortgage to the new buyer at the good interest rate (assuming rates go up between when you buy and when you sell). This may be a real selling feature a few years down the road.

 

[Ornery]

I think hunting for a house was the most fun I ever had! You guys put hours and hours into saving a few bucks on Hot Deals, and enjoy every minute of it. But the biggest purchase you'll ever make in your life, you turn into a nightmare. Sheesh!

Go with the 80/20. You can use the money saved for mortgage insurance for more important things... like Hot Deals! You'll be money ahead in the long run, too. Once you know how much you can spend, find the best possible location within your means. You can change almost everything about a house... but the location. Get close to work, good schools, shopping, freeways etc. Stick to your guns. Once you decide on an area or neighborhood, don't let anybody talk you into someplace else.

Suit yourself on what type of layout you want, but I prefer the master bedroom and laundry to be on the main floor. Little conveniences like that really add to the comfort factor. Check out privacy from neighbors on either side or behind. It's nice to not have to live in a fish bowl.

Finally, if you do find a house that fits the bill, don't balk because of minor repairs. Location is worth doing a few repairs for. Also, don't lose a deal on the perfect house, just to save a couple grand on the purchase. You'll forever remember the house you could have had, if only you hadn't been outbid for a few lousy grand. 🙁

 

[kt]

Originally posted by: conjur

Originally posted by: dman
I'm not an accountant/etc... but, imo w/ the 80/20 your overall payment will be higher and you'll be limiting your abiltiy to get a second mortgage (or more cash) later if you need it. (Basically you are really extending yourself).

Probably better off going w/ the 97 3% and hedging your bets that you'll be able to refi in a year or so. Hopefully the property will have increased in value enough to give you some additional equity.

Uh...it's the opposite.

80/20 means 20% down and financing 80% of the purchase price. You'll have a lower payment, possibly a better interest rate, and no PMI.

Although, I only put 10% down when I bought my first home (new home construction) and still didn't have PMI.

But, be sure to put property taxes/homeowners insurance into an escrow account unless you plan on keeping enough money set aside each month to pay them in full when they are due.

I think when he says 80/20, he meant 80% on first mortgage and 20% on second mortgage. Meaning you are borrowing your down payment as well at a higher rate of course.

 

[bsobel]

The 15% loan would typically have a slightly higher interest rate, but would result in higher tax deductions then if I were to go with a generic FHA loan (3% down and 97% loan).

This logic makes no sense. Your basically saying that because your paying a higher interest rate, your tax deduction will be higher. True, but if you pay a lower rate you've paid out less money in the first place.

Bill

 

[LeeTJ]

Originally posted by: dman
I'm not an accountant/etc... but, imo w/ the 80/20 your overall payment will be higher and you'll be limiting your abiltiy to get a second mortgage (or more cash) later if you need it. (Basically you are really extending yourself).

Probably better off going w/ the 97 3% and hedging your bets that you'll be able to refi in a year or so. Hopefully the property will have increased in value enough to give you some additional equity.

it's not that simple. a 20% loan can get you better interest rates.

 

[Ornery]

I'm not an accountant/etc... but, imo w/ the 80/20 your overall payment will be higher and you'll be limiting your abiltiy to get a second mortgage...

WTF? 😕

The only thing higher will be the down payment. Get mom and dad to help on that if you have to, and pay them back over time.

The payment will be LOWER, because you'll be borrowing less to start with. Refinancing later is really a no go, because interest rates will NEVER be lower than right now.

It will be easier to get a second mortgage because you'll have more of the value of the house paid for up front.

 

[Garet Jax]

Originally posted by: bsobel

The 15% loan would typically have a slightly higher interest rate, but would result in higher tax deductions then if I were to go with a generic FHA loan (3% down and 97% loan).

This logic makes no sense. Your basically saying that because your paying a higher interest rate, your tax deduction will be higher. True, but if you pay a lower rate you've paid out less money in the first place.

Bill

True, except that doesn't consider mortgage insurance which is included with FHA and not with the 80/15/5.

 

[Garet Jax]

Originally posted by: Ornery
I'm not an accountant/etc... but, imo w/ the 80/20 your overall payment will be higher and you'll be limiting your abiltiy to get a second mortgage...

WTF? 😕

The only thing higher will be the down payment. Get mom and dad to help on that if you have to, and pay them back over time.

The payment will be LOWER, because you'll be borrowing less to start with. Refinancing later is really a no go, because interest rates will NEVER be lower than right now.

It will be easier to get a second mortgage because you'll have more of the value of the house paid for up front.

I think I am the only one who understood him. He is not putting 20% down and borrowing 80%. He is borrowing 100%, but splitting it into two loans to avoid mortgage insurance. One loan is for 80% and is a conventional loan, the second loan is 20% may be a regular loan, may be a second mortgage or may be a line of credit.

 

[conjur]

ooof...buying a new house and financing 100% of it? Guess it's not too bad of an idea given the incredibly low interest rates.

 

[Ornery]

I think I am the only one who understood him. He is not putting 20% down and borrowing 80%. He is borrowing 100%, but splitting it into two loans to avoid mortgage insurance. One loan is for 80% and is a conventional loan, the second loan is 20% may be a regular loan, may be a second mortgage or may be a line of credit.

Oh! Pretty slick. I didn't know that was even possible. I need a CPA...

 

[Garet Jax]

Originally posted by: Ornery

I think I am the only one who understood him. He is not putting 20% down and borrowing 80%. He is borrowing 100%, but splitting it into two loans to avoid mortgage insurance. One loan is for 80% and is a conventional loan, the second loan is 20% may be a regular loan, may be a second mortgage or may be a line of credit.

Oh! Pretty slick. I didn't know that was even possible. I need a CPA...

It didn't used to, but they were finding a lot of good credit risks weren't able to buy homes with even a few percent down. 🙂

You will pay for this luxury though. They charge you a higher interest rate on the 80% loan than the current going rate and an even higher one on the 20% loan. Most of the people I talked won't restore the rates until the down payment hits 5%. The other catch is that it is only available to people who have the best credit scores.