Need advice- down payment for mortgage!- UPDATE post 104!

[daughtersrus]

Regarding FHA loans, you must pay A PMI (Private Mortgage Insurance) if you don't put 20% down. The percentage recently decreased but I also think that you have to pay it for the life of the loan vs. up to 20% equity (which is how our loan is structured). Our PMI is over $450 a month but our mortgage is about twice what yours will be.

Keep in mind that not all sellers will agree to sell to a buyer that is getting a FHA loan

 

[DisneyMandC]

Keep in mind that not all sellers will agree to sell to a buyer that is getting a FHA loan

Understandable. I think in this situation, the people are probably going to be willing to sell though. It's not some sort of fancy up and coming neighborhood or a really good location in the city. It's off the beaten path, back in the country, and a log cabin. Not exactly everyone's idea of a dream home, but it's what we want! Hopefully it's something that can work out! I will keep everyone updated if things progress!

 

[daughtersrus]

Understandable. I think in this situation, the people are probably going to be willing to sell though. It's not some sort of fancy up and coming neighborhood or a really good location in the city. It's off the beaten path, back in the country, and a log cabin. Not exactly everyone's idea of a dream home, but it's what we want! Hopefully it's something that can work out! I will keep everyone updated if things progress!

That may the reason they won't accept a FHA loan. FHA requires an inspection. Anything that they find wrong (including peeling paint) needs to be repaired by a licenses/registered professional. FHA will send the inspector back out to make sure the repairs are made and check the documentation to see who did them.

Many sellers of older properties don't want to mess with this and will refuse an offer from a buyer if it's FHA.

 

[starry_solo]

That may the reason they won't accept a FHA loan. FHA requires an inspection. Anything that they find wrong (including peeling paint) needs to be repaired by a licenses/registered professional. FHA will send the inspector back out to make sure the repairs are made and check the documentation to see who did them.

Many sellers of older properties don't want to mess with this and will refuse an offer from a buyer if it's FHA.

Agreed. FHA has strict guidelines on repairs before they will lend the money.

There are options that the buyer can assume the cost of the repairs, but those would have to be done before the close of escrow. Since you don't have enough for a 20% down payment, I am going to assume you probably won't have enough for repairs, assuming the repairs are expensive.

 

[DisneyMandC]

I don't know that anything would be "wrong" with it. It's not in bad shape or anything, and it's still a newer home. Just out in the country where no one would think to look! Thanks for advice though!

 

[GaryDis]

We are able to deduct our pmi.

In most cases, you can deduct the interest on the second mortgage as well.

The interest on the second mortgage is being "thrown away" just like the PMI. So you really need to run the numbers to see whether the second mortgage is truly cheaper. And factor in that a second mortgage is likely to depress your credit rating a small amount (because it increases outstanding liabilities), though that's only a big issue if you're likely to need credit before paying it off. It could, for example, increase the cost of borrowing for a car.

You can't borrow money from a friend or relative without telling the lender that you have the outstanding debt. If they gift you the money, that's ok.

 

[DisneyMandC]

You can't borrow money from a friend or relative without telling the lender that you have the outstanding debt. If they gift you the money, that's ok.

I saw that as well. I need to find me one of these relatives with a bunch of money laying around to gift!

 

[GaryDis]

I don't know that anything would be "wrong" with it. It's not in bad shape or anything, and it's still a newer home. Just out in the country where no one would think to look! Thanks for advice though!

You will, of course, have a licensed home inspector go through the property with you.

We bought a relatively new house. They did a poor job on the attic ventilation, so it already had water damage from ice dams (nothing structural, just ceiling repainting). But it did mean that when we had the roofing redone, we had to pay extra for a proper ice dam barrier.

Asphalt shingling comes with lifespans between 10 and 25 years. So on the average, figure 5 to 12 years before you need a new roof, if that's the type of roof you have.

Boilers are typically 20 years. Most newer household appliances should only be counted to last 10 years.

One always hopes for no other structural problems, and usually there aren't. But, at least in my area, if you spend a weekend going to open houses, you can count on seeing at least one house in need of structural repairs. And they're not always the older homes.

 

[mickeyfanachey1999]

I am 5 years down and I would be lucky to make 20K

Then market is improving but just not the "demand" in our area currently.

The only reason I would be able to walk away with anything would be because I put 20% down. We bought at nearly the worst time possible. 6 months after we bought our house had increased in value by over 10%. 6 months after that it had DECREASED by over 22%! It continued downward from there to the point that I was WAY underwater. Thankfully, I didn't have to sell then and I'm back to the plus side based on comps and estimates. The house still isn't worth what we paid but at least it's worth more than we owe.

 

[mistysue]

PMI is going to vary by lender.
When I bought my house I went with the credit union I did because their PMI was $47/month, vs my other offer which was slightly lower interest but over $300/month for the same PMI on the same loan amount. In the long term, paying that extra money directly toward the loan meant I saved WAY more in interest by paying less for PMI with that higher interest rate.

 

[Ngwira]

If you give me a dollar, I'll give you a quarter back. Just because it's deductible, that doesn't make it a good idea. PMI is insurance for you lender that you have to pay for. It doesn't benefit you at all.

It DOES benefit me by allowing me to buy a house when we don't have 20 percent to put down.

 

[tvguy]

The only reason I would be able to walk away with anything would be because I put 20% down. We bought at nearly the worst time possible. 6 months after we bought our house had increased in value by over 10%. 6 months after that it had DECREASED by over 22%! It continued downward from there to the point that I was WAY underwater. Thankfully, I didn't have to sell then and I'm back to the plus side based on comps and estimates. The house still isn't worth what we paid but at least it's worth more than we owe.

People expect to make money on a house, and of course that doesn't always happen. My neighbor lost $140,000 on his house. Owned it 8 years. Said he should have rented instead. That works out to about a $1,500 loss every month he lived there. He moved into a rental. Rental is smaller, and rent is $1,800 a month. Hmmm, that's $300 a month more than his "loss" on the house, or $28,800 over the 8 years that he SAVED by NOT renting. I guess it's a "that glass is half full, the glass is half empty" point of view, but it is a different way to look at it.

 

[supersnoop]

People expect to make money on a house, and of course that doesn't always happen. My neighbor lost $140,000 on his house. Owned it 8 years. Said he should have rented instead. That works out to about a $1,500 loss every month he lived there. He moved into a rental. Rental is smaller, and rent is $1,800 a month. Hmmm, that's $300 a month more than his "loss" on the house, or $28,800 over the 8 years that he SAVED by NOT renting. I guess it's a "that glass is half full, the glass is half empty" point of view, but it is a different way to look at it.

That $1,500 loss doesn't account for taxes and maintenance, but the rent does.

 

[tvguy]

That $1,500 loss doesn't account for taxes and maintenance, but the rent does.

True. Nor does it take into account the tax write-offs he got with homeownership......interest deduction and property tax deductions, etc.

 

[DisneyMandC]

Well just got the email from the realtor with the pics of the inside. AND I LOVE IT. Now to put on my lawyer face and just like it's "meh, ok" when we go tour it. It has a clawfoot bathtub guys. HOW COOL IS THAT?! And yes I know they have a lot of issues, just let me have this moment of joy lol!!!

 

[supersnoop]

True. Nor does it take into account the tax write-offs he got with homeownership......interest deduction and property tax deductions, etc.

Which wasn't included in his "loss" to begin with. That's a max of 25% of the extra costs listed, and probably more like 10%.

 

[tvguy]

Which wasn't included in his "loss" to begin with. That's a max of 25% of the extra costs listed, and probably more like 10%.

But, the hit wasn't nearly as bad as he was representing. He about croaked having to come up with $5,400 for first, and last months rent and security deposits on the rental.

 

[manning]

Fortunately, we are not planning to have children, so future education expenses will not be a concern. Yes, I know "anything can happen." No, it's not happening.

Famous last words. Remember that 'we never will commercial' I like the part he says 'we never going to have another one' and she says I'm pregnant'

Also I know a couple who got married and didn't want children. Six months later she was pregnant.

 

[3boymthr]

We are currently in the process of buying our home (the one we've rented for the last twenty years). Before we decided to give in and buy this house we went and looked at a lot of other homes on the open market. Here's what I've learned through this process.

You want to get Pre APPROVED, not pre qualified. Pre Approval is a longer process and involves credit checks and reviews of employment history and employment verification and debt and income verification and bank balance verification and..., and it will lock you in to a interest rate for a period of time and PMI structure and it gives you a leg up over pre-qualified buyers as it means that you will probably get the loan providing the house appraises for what you are offering for it. A prequalification just means you are approved to go forward with shopping for a house and that you'll probably get a loan but there's no guarantee that you'll get a loan.

FHA and VA loans make it extremely tough to find a home unless the home is perfect, and by perfect I do mean PERFECT. There can be nothing wrong with it in any way shape or form except needing new paint colors, not even worn carpet or a crappy stove. Plus FHA and VA loans require that if putting down less than 20% you must carry PMI which NEVER goes away. They also carry a higher base interest rate than traditional loans.

If you can get a family member (or more than one family member) to gift or loan you with the difference in 20% down payment go for it. It will save you in the long run, even if you have to pay the family member back (say in increments equal to the PMI), because PMI is just insurance that you never get back but a loan you pay back to a family member even if the payment is equal to what the PMI would have been is at least going toward the value of the house.

If you don't have family members you can borrow from, you may be able to borrow against your 401k - again, making an investment in yourself and your home vs investment in useless insurance.

Absolutely get a home inspector. We got one for this house and even though we've lived here for 20 years he still found a problem we didn't know about (our electrical box is rusted out and doesn't meet code - we never have problems with the electrical so we hadn't looked at it in ages). Also have radon testing done. It's an additional expense but it could save your life. If the home inspector doesn't do pest inspections you may want to have that done as well; As a friend learned to their regret - termites are expensive.

We were also looking at homes in the $250,000 range and were looking at PMI of about $300/mo. Home insurance of course does vary significantly by region but ours was estimated to be in the $800 range. We are in a suburban area with very low crime.

Make sure you can afford not only the mortgage and the PMI and the homeowners insurance but the taxes and other bills as well. We were thinking about putting in an offer on a home that was in better shape than the one we're buying but in a different town nearby. The taxes were about the same. But, because our auto insurance, water bill and electric bill went up and we gained a sewer bill, trash and recycling bill, and gas bill (the house had oil heat but gas stove) even though the other home was priced slightly less than this one with additional ancillary costs totaling around $200/mo we decided against it.

 

[DisneyMandC]

Famous last words. Remember that 'we never will commercial' I like the part he says 'we never going to have another one' and she says I'm pregnant'

Also I know a couple who got married and didn't want children. Six months later she was pregnant.

Trust me on this. It would never happen.