Should I do 100% financing for a 30 year fixed or 5% down? The sale price was under $75K and I have the funds, but is it really worth the extra couple of Intrest rate points? Does it help getting approved quicker?
More points equal more money you spend over the life of the loan. If you have the money to put down that will get those down I HIGHLY suggest doing it.
Since you have the money, you might as well pay it off. If you're taking out a fixed rate loan, you should take a one 15 yr or less as they have a lower interest rates than the 30 yr. Also, you might consider an adjustable rate loan since you'll most likely move out of that studio apt once you get married in a few years.
There are a handful of good home loan advisors on here, but Master Baiter's advice sounds right to me.
I aggree - if you can make the payment without dipping into your 'rainy-day' money, it's worth it to keep the rate low. In the world of interest rates, points and half-points make a world of difference.
IMHO, the real question is...how much did my $3750 (5% OF 75k) save me in interest over 30 years? As low as interest rates are and on that amount of principal, there would have to be vast rate difference to be significant. Assuming you already have the numbers from the lenders' involved, multiply out your payments and then subtract the principal. That (plus closing costs) is the difference between the loans. And that should give a good indication of how much the $3750 saved you. That said, I'd strongly (like was already mentioned) consider a 15 year note as an option. The better interest rate plus your down payment really eats into the interest you'll pay over the life of the loan. Plus, you'll be building equity at a much faster rate because chances are good you'll want to move again within the next 15 years.
I was different and went with 40% down in cash and a 15 year fixed mortgage. I wanted the lowest monthly payment possible.
The point of that post was to state that I talked to a LOT of home financing advisors and the one thing they all had to say in common was to put down as much as you can afford to because you will have more equity in the home, have smaller payments, and would own the home quicker. I plan to put another 30-40% down by the end of the year (fingers crossed).
Also, dont know if this will make a difference, but I only plan on being in this condo for 3 years possibly 4 max. I was planning on using the $3000 for improvements, but if I end up saving more for using it as a down payment...... Dont think I can afford the 15 year loans.... Just dont fit my montly budget. I guess I need to work out the numbers..... My math sucks.
Drewdog - Not to be too personal or overbearing but if you have that short of a time frame it changes things a bit. Get the best rate you can get and put something down. See if you can swing a note greater than 15 but less than 30....it will likely have a lower rate. I'm basing my opinion on your "improvements" comment. Improvements (unless they are needed repairs) do not generally make a property more valuable. At least not $ for $. Your best bet for a short time frame is to gain as much equity as possible. Partly because condo's in general don't appreciate at the rate houses do. And partly because of the "hidden" expense of paying a realtor.
No worries. I paid 60K for the thing which I know is dirt cheap. Its in midtown and needs to be updated. I was planning on puting about $5000 in upgrades (floors, counters, ceiling fans, paint, etc). and then sell it in 3 or 4 years for considerably more based on the awesome location, view, and all the improvements. I want my monthly payments to be low, and my thinking was to do 100% financing in order to save the $3000 cash for my improvements. I dont know what beneifits me more 100% and improve or 95% and save. That being said, the place is livable but not in the condition that I would like it to be (Im pretty picky) so I want it to be updated when its vacant. Does that make sense?
Yes, it makes sense. You're buying at a good price and are expecting a degree of appreciation based upon location. All indications are that a drop-dead worst case scenario is that you break even but at least it was your place and you didn't throw away rent $. IMHO, the bottomline for the decision is still the rate spead between the 100% and the 95%. I have my morgages worked up in a spreadsheet and if I were at home I would gladly plug-in some parameters and provide better feedback. What is your timeline for the decision?
You can also get a lower rate if you with a variable intrest rate loan which will allow you to lock in at a lower rate for 3-4 years if you plan to get out of your place in just a few years.
That's a good idea. You can get a 3/1 ARM or a 5/1 ARM for a lower interest rate than the 30 year fixed. Also, when you get your loan, make sure they don't add in a prepayment penalty of 5 years or something. As for putting money down, it will lower your interest rates, however, since you are in the house for such a short time (3-5 years), you won't feel the brunt of the interest payments. But, putting money down does make it easier for you to be approved. Obviously there are so many factors that I don't know about you which changes your situation so I can't specifically tell you which is better for you.
If you don't put at least 20% down, don't you have to pay mortgage insurance? How much is that? Have you looked into it?
Be careful with these, though. If you aren't completely confident you can have it paid off in the 3-4 years, you might end up in interest hell. These are very good only if you're completely sure you can get it paid off so soon.
Drewdog - A $75,000 note with nothing down at 6% will cost you $449.66/month. After 4 years, you will have paid $17,544 in interest and owe $70,961. You will probably have to pay the highest PMI (mortage insurance) rate since you are financing 100% LTV (nothing down). My guess is 2% PMI. A note for $71,250 (5% down on $75,000 ) at 5.75% will cost you $415.80/month. After 4 years, you will have paid $15,954 in interest and owe $67,246.03. You will pay a slightly lower PMI since you are financing 95% LTV. My guess is 1.75% PMI. I've been out of the mortgage market for several years, but my hunch is that with 5% down you can get at the very least a 1/4 % spread on the mortgage and at least that in the PMI rate for total of 1/2 %. We are all different but if I were in your position, I'd look for a 5.375% rate with no points attached and put down the 5%. Your payment will be $399/month and in 4 years you will only owe $66,985.19. With any kind of appreciation, you could easily have $14k+ in equity in 4 years. It may mean you have to stagger the improvements during the course of the 1st year, but you could make up a good portion with the payment differences. Apologies for the long-windedness but I like numbers.
Good analysis. I would also add, if you want to, you can split your loan into a 80/20 with the second loan as a HELOC. The second loan is interest only while the first loan is smaller than 100% obviously so your payment will be lower. The second benefit is that you won't have to pay PMI since your loans aren't more than 80%.
Thanks for the help GATER! I appreciate the number crunching. I think the 80/20 loan might work the best. Cheaper payments and no PMI sounds good to me.
No necessairly. You cvan avoid it by getting two loans..one 80 percent, one 20. The 20 percent loan has a slightly higher interest rate, but you can pay of pretty quickly. I put 15% down and got a 80/20 15 year mortgage.
