Mortgage advise needed (first time)

**krantcents** · 12-30-2014, 03:28 PM

The difference in interest rates of 2.875% vs. 4.125% is huge. A 15 yer mortgage also has a lower interest rate which makes up for part of the higher payment. If you plan to own this property forever, you should get the lowest interest rate and pay it off as soon as possible. Renting out the spare bedrooms will help in that respect. I would also try to find a home that is below market. The theory is find the worst home in the best neighborhood because it has the most potential and it is relatively safe choice. The home may be below market because of deferred maintenance or it is a fixer upper.

My first home was in that category and it doubled in value in 3.5 years. Good luck.

**element926** · 12-30-2014, 03:54 PM

Yeah, it definitely is. That just would require about a 20k down payment.

**autoxer** · 12-30-2014, 04:22 PM

Have you messed around with an amortization calculator?

The no down payment, 4.125% would have you paying a total of $133,669.24 in interest.

5% down and 2.875% interest, you would only pay $86,050.22 in interest.

How much of a monthly payment would you be comfortable with? Have you estimated how much you will have to spend on utilities, insurance and maintenance?

**Destind4** · 12-30-2014, 04:49 PM

The interest is going to be a killer if you don't put anything down.

Here's an example of how much interest can be even when you put the industry standard down (20%).

Home Value: 100k
Loan Amount: 80k
Interest Rate: 5%
Loan Term: 30 Years

Monthly Payment:$533.62

Total Interest: $74,604.63

Total Payments: $192,104.63

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**snafu** · 12-30-2014, 10:10 PM

Avoiding punishing mortgage insurance and getting 2.87% is a terrific rate. I've the impression that you make a plan and carry it out so if your job is stable, you've studied the 'solds' in the district in the past 3-6 months and offer a sum based on square footage, out buildings, lot size, amenities, less any negatives. Hire a successful, experienced RE agent as they can point out problems and save you a ton of headaches. I've found it helpful to call the seller's heating, water and electrical providers to ask their highest month bill and whether that is above/below/average for that size/style house. You can ask for anything you want on the offer to purchase and make it conditional on inspection, appraisal, surveyor's report etc.

Buying a house is total capitalism. The buyer and seller negotiate through their agents so it's only worth what someone is willing to pay. You can always offer more if your initial price is too low...you can't reduce it if too high. I'd never use the seller's agent since their commission is based on the selling price. While the commission is deducted from the sale price and technically paid by the seller...it's paid with the money you supply.

While school rating may not be an important factor to you at this point, it can be to a future buyer of your property. I presume you'll have the selected house inspected by a certified, reputable, inspector [thermal imaging is popular here] using the list you've made up for roof, foundation, basement, windows, heating, water systems, plumbing, electrical etc. If you're willing to do some basic DIY updates/upgrades I'd jump in. Personally I'd opt for a 30 year mortgage with the intention of paying extra each and every month, directly to the principal.

A mortgage is not a traditional loan. The interest is front loaded so the 1st dozen years, most of your monthly payment is interest. If you can add renter's payment directly to principal you'll save yourself a huge amount of interest over the years and you'll be in control if you have a room empty for a month. We paid out a 30 yr mortgage in 13 years by sending extra income or monetary gifts and awards directly to principal.

If you hop over to 'Blogs,' you'll see several SA participants apply credit card cash back or promotion sums directly to mortgage principal.

**Goldy** · 12-31-2014, 06:08 AM

This is a no brainier. With a 300k house your 2.875 loan with 5% down only charges you about 680 a month in interest where the other loan with no money down charges you over 1000 a month. This means your 15k downpayment will be recovered in 15 months by the savings you make on the interest rate.

**element926** · 12-31-2014, 09:25 AM

All of this advice makes sense, I guess I'm just fighting the temptation of taking 20k out of my investments to pay for the downpayment. I guess what I need to understand that is that this is an investment and will make X number of returns from using this money effectively.

I'm hoping to find a house more in the 300-340k range.

**autoxer** · 12-31-2014, 09:42 AM

Lowering the rate from 4.125% to 2.875% is a good investment for putting 5% down.

And you don't have to liquidate your other investments, just use what's in your savings account.

**Destind4** · 12-31-2014, 09:47 AM

Set a goal & then make it happen.

**element926** · 12-31-2014, 10:09 AM

If I'm able to aggressively save the next 6 months (3k per month). I think I could get that downpayment saved and still have 20k for my emergency fund. As mentioned above, without touching my other investments. It's pretty clear that the lower interest rate even with the deposit is the unanimous choice. Thank you all for the information. This is my first time purchasing any other pointers?

**Destind4** · 12-31-2014, 10:13 AM

I almost moved to Macon, GA a couple of months back. Be sure to have an emergency fund for at least 6 months of expenses. (i.e. mortgage, insurance, food, utilities, etc.) Also the money it'll take to completely furnish your residence. I wish you the best my friend.

**element926** · 12-31-2014, 10:19 AM

Good point. I just made an excel list of required purchasing that I plan to get prior to purchase (besides a couch and TV)

**snafu** · 12-31-2014, 12:23 PM

"This is my first time purchasing any other pointers?" In hope of being helpful I offer some random thoughts...

I hope you're running Excel with net income as opposed to gross income shown here. What is the RE market like in your region right now? Often the period between Thanksgiving and New Years is miserable and agents are anxious to get offers submitted and sales in their commission stream. They'll pressure sellers to take a more modest offer, they'll reduce their commission by a few thousand dollars to get the deal signed. The period April - August is likely high season, buyers are plentiful, not faced with bad weather or children's school year issues.

Do roomies in your area expect furnished accommodations? How do you feel about buying gently used, 'hard' items that can be sanitized in a DW or W/D or have boiling water poured over? If you don't care about trendy, & stove, fridge, DW, W/D are not included, you can buy these at a discount at 'scratch & dent' outlets. Even cheaper are newer appliances from CraigsList or FB buy 'n sell page. So many people are dissatisfied with 'builder' grade appliance, they buy units with every bell and whistle and need to sell those new items for cash. If buying used to save cost appeals to you, it's important to 1st review Consumer's magazine to avoid brands and models with abysmal records. The older magazines/books available at your library, outline Best Buy and useful features.

Wood or wood-like furniture like kitchen, coffee, end tables, chairs, headboards,nite stands, desks, bureaus can transform from ugly to great in under an hour with a can of primer or undercoat [ Kilz, Zinsser] and paint/spray paint and it's fun to re-claim something from junk to useful.

**element926** · 01-01-2015, 04:03 PM

Yep, all was under net. I calculated 4600 net per month (after maxing out my 401k) and subtracted $790 for my car payment. This left me $3810 per month of disposable income. This doesn't include raises I have set in the future or contract work I do throughout the year.

Mortgage advise needed (first time)