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Author Topic: Mortgages, there's a lot I don't know...  (Read 1217 times)
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Poomba
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« on: November 03, 2005, 03:29:50 PM »

My wife and I are meeting with a mortgage broker tonight to find out what products will fit us financially. We are expecting our first child in May and currently rent a condo and really don't have the space for a new baby.

So I guess I really don't care what kind of mortgage I am in, just as long as we can afford the monthly payment.

For you experienced home buyers out there...what can I expect? If we're looking at a $180,000 home, can I reasonably get a mortgage under $1,000 a month?? Or are we dreaming?

Any advice or insight would be helpful before we head off to our meeting tonight.
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Dreamshadow
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« Reply #1 on: November 03, 2005, 03:34:13 PM »

You know...I just went through the whole process.  ( Signed for my new home last friday..been living there a couple days now)


180K?   No way will you get it for less than 1K a month.

I have a 6.4% interest rate on an 84K morgage, and I'm paying 803 a month.  You have to consider that of the 803 I'm paying, only 500 of that is interest and principal.  The rest is my home warrenty, insurance, and another item I can't remember right now.  For 180K, you will probably will be paying 2K easily monthly.

Hope that helps.
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JLu
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« Reply #2 on: November 03, 2005, 03:40:56 PM »

I'd very much recommend a 30 year fixed rate mortgage, as far as any of the options are concerned.  It is the most conservative way to do it financially.

Avoid altogether an interest only loan.  Personally I don't think adjustable rate mortgages (ARMs) are a good idea either; especially with rates looking as though they are just going up from here...

There is also a fair chance that the bank will be willing to loan you more than you should borrow, if you have a good credit history.  Know what the most is that you believe you can afford, and make sure that the mortgage is there or below (including taxes, insurance, etc)

Not yet a homeowner but my fiancee and I are looking into all this right now too.  And I just have to say, living in the eastern half of Massachusetts, I'm jealous hearing about housing prices in other parts of the country.  Here, to just buy a condo, I don't know that I've seen anything under $225k.
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ATB
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« Reply #3 on: November 03, 2005, 04:07:01 PM »

Quote from: "Dreamshadow"
For 180K, you will probably will be paying 2K easily monthly.


Zippo chance of that.

I currently have a mortgage of 170k and it's only 1350 and taxes in Northern Virginia are OUTRAGEOUS.  I'm getting ready to buy a new house in NC and the lender says figure 60 dollars per ten thousand...so 180 = 18 x 60 = 1089 for princ and interest.

Figure 400 bones or so for insurance (per year)  + whatever your taxes will be.

You should be able to escape with a 1500 to 1600 mortgage.  Still well off of where you want to be but not near 2000.

Finally, is the 180 figure with down payment or before?  If you dont' put 20% down in one form or another you can expect to pay for Private Mortgage Insurance too (PMI).
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Dreamshadow
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« Reply #4 on: November 03, 2005, 04:37:37 PM »

Quote from: "ATB"
Quote from: "Dreamshadow"
For 180K, you will probably will be paying 2K easily monthly.


Zippo chance of that.

I currently have a mortgage of 170k and it's only 1350 and taxes in Northern Virginia are OUTRAGEOUS.  I'm getting ready to buy a new house in NC and the lender says figure 60 dollars per ten thousand...so 180 = 18 x 60 = 1089 for princ and interest.

Figure 400 bones or so for insurance (per year)  + whatever your taxes will be.

You should be able to escape with a 1500 to 1600 mortgage.  Still well off of where you want to be but not near 2000.

Finally, is the 180 figure with down payment or before?  If you dont' put 20% down in one form or another you can expect to pay for Private Mortgage Insurance too (PMI).


Thanks...that makes more sense than what I threw out.  I'll note, the numbers I gave for my home were for Texas.
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DamageInc
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« Reply #5 on: November 03, 2005, 04:40:11 PM »

30 year fixed mortgage.
Try to put 20% down or pull a second for that so you dont have to pay PMI
Usually the mortgage has other things like escrow for your taxes and home insurance so it is typically more than just the mortgage that actually makes up the entire payment.

Keep in mind you are going to want some reserve cash for capital expenses that may come up, especially if it is a used home. Also, you will need $$ for internal items like curtains and blinds which can get expensive.

Then accelerate your own mortgage by paying at least 1/12 more a month. This will dramatically reduce the overall cost and how much overall interest you pay out over the life of the loan.

If you can find a house that is being sold lower than its market value then you can use that equity to make up the 20% down you need to avoid PMI

PMI on 180K will be in the $200/month ballpark.

There are good mortgage calculators on the web you can use to play with the numbers, but they do not always factor in the other items I mentioned.

Here is an example of one:
http://www.mortgage-calc.com/
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Austin
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« Reply #6 on: November 03, 2005, 06:30:41 PM »

If you can't swing 20% there is no need to pay PMI.  Why anyone with even half decent credit is paying PMI is beyond me.  5% down, 15% loan that becomes the down payment on the other 80%.   (or it changes depending on your down payment.  Ask about 80:20's or 80:15:5's or whatever.

Interest only can be a good move.  Wait it can be an excellent move.  Wait it can be an absolutely outstandingly excellent move.  If you have an auto loan, credit card loan, or any other non-deductible or high interest loan, please tell me why you wouldn't pay that off first?  It just boggles the mind that people would rush to pay principal down on their homes while paying 7-17% on a credit card or 5% non-deductible on a car.

Pay off the high interest stuff first, than worry about the house.  In other words if your payment is $1200.00 and 900 of that is interest, pay $900.00 on the house and $300 on your CC's or car or other loans.  It just makes cents.  (haha!)
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JLu
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« Reply #7 on: November 03, 2005, 06:54:04 PM »

Quote from: "Austin"
Interest only can be a good move. Wait it can be an excellent move. Wait it can be an absolutely outstandingly excellent move. If you have an auto loan, credit card loan, or any other non-deductible or high interest loan, please tell me why you wouldn't pay that off first? It just boggles the mind that people would rush to pay principal down on their homes while paying 7-17% on a credit card or 5% non-deductible on a car.


The problem with the interest only loans is that, the first few years of the loan, you only pay interest, and build up no equity in the home.  Then, the monthly payment shoots up.  Unless you have a good reason to expect that salary will increase by a good amount, this is asking for trouble.  Should you need to move in the short term, the only equity you'll have in the house is your original down payment.

And the interest a mortgage at 30 years at 6.25% adds up to a bit more than a car loan - say 7% tops for 4-5 years?  If you manage to put one extra payment towards a mortgage every year, a 30 year mortgage can be paid off in 22...
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« Reply #8 on: November 03, 2005, 07:08:32 PM »

I used a VA loan along with Texas Veteran Land Board something or another to get my home.  

I paid 160,000 total for my house in San Antonio and my mortgage is ~1300.00 a month.  Thats with crazy property taxes Texas has.  I moved here from New Mexico where property taxes were only like 400.00 a year.  Anyway, good luck with your home.
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Laner
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« Reply #9 on: November 03, 2005, 07:57:11 PM »

Quote from: "JLu"
Quote from: "Austin"
Interest only can be a good move. Wait it can be an excellent move. Wait it can be an absolutely outstandingly excellent move. If you have an auto loan, credit card loan, or any other non-deductible or high interest loan, please tell me why you wouldn't pay that off first? It just boggles the mind that people would rush to pay principal down on their homes while paying 7-17% on a credit card or 5% non-deductible on a car.


The problem with the interest only loans is that, the first few years of the loan, you only pay interest, and build up no equity in the home.  Then, the monthly payment shoots up.  Unless you have a good reason to expect that salary will increase by a good amount, this is asking for trouble.  Should you need to move in the short term, the only equity you'll have in the house is your original down payment.

Yup.  80/20, 80/10/10, etc. mortgages are terrible for that very reason - very poor equity buildup.  MIght as well just rent.

As for why people would rush to pay the principal down... it's because you're investing in an appreciating asset.  No, you shouldn't be paying extra on the principal as long as you're carrying outstanding debt elsewhere.  But if you're going to be paying a mortgage payment, you might as well be getting *something* out of it, rather than just throwing money you're never going to see again at an interest-only loan.
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Austin
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« Reply #10 on: November 03, 2005, 08:46:45 PM »

Quote from: "JLu"


The problem with the interest only loans is that, the first few years of the loan, you only pay interest, and build up no equity in the home.  Then, the monthly payment shoots up.  Unless you have a good reason to expect that salary will increase by a good amount, this is asking for trouble.  Should you need to move in the short term, the only equity you'll have in the house is your original down payment.



Um... not quite.  You may have equity in the house from appreciation.  But forget that for a minute.  If you did what I suggested, you would have paid your other liabilities down.  (CC, car etc...)  And these other liabilities were harsher from an interest stand point so you have been more effective in paying down your over-all liabilities.  Paying down liabilities = gaining equity.

Say I owe $200,000 on my house and have $10,000 in CC debt.

House interest is 6.5%. (after deductions it's much less)
CC interest is 10%

My mortgage payment is $1500.00
$1150 of that is interest.
$350 is principal

You are going to be paying the $1150 either way.
If you pay the $350.00 on the mortgage that is $350.00 you are not paying on the CC.
That $350 is costing you 10% on the CC and saving you 6.5 (less at tax time) on your mortgage.

How does it not make sense to pay the $350.00 on the CC where you are paying 10%?  Again, $350.00 paid down is $350.00 paid down.  Your over-all equity is the same once you make the payment.  When you begin compounding interest, you're worse off with the higher CC and lower mortgage.
Quote

And the interest a mortgage at 30 years at 6.25% adds up to a bit more than a car loan - say 7% tops for 4-5 years?  If you manage to put one extra payment towards a mortgage every year, a 30 year mortgage can be paid off in 22...


6.25% is before deductions.
You are clouding the issue here.  We're talking about one amount/month and where it will do the most good to you over-all.  From my above example that $350.00/month is going to pay down a debt by $350.00.  It is better for it to pay down a debt at 7% than one at 6.25%.

That $350.00 on it's own is going to cost you money on either loan.
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Austin
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« Reply #11 on: November 03, 2005, 08:53:37 PM »

Quote from: "Laner"

Yup.  80/20, 80/10/10, etc. mortgages are terrible for that very reason - very poor equity buildup.  MIght as well just rent.


Mrh?  Seperate issue here.  80/20, 80/10/10 are for not having PMI.  PMI is stupid.  It's a lot of money and it's not tax deductible and there is little reason for it.  You can get an 80/20 or 80/10/10 and still pay principal down.  I don't know about you but $150 PMI would be better spend paying down the actual mortgage.  Again, 80/20's != interest only.
Quote

As for why people would rush to pay the principal down... it's because you're investing in an appreciating asset.  No, you shouldn't be paying extra on the principal as long as you're carrying outstanding debt elsewhere.  But if you're going to be paying a mortgage payment, you might as well be getting *something* out of it, rather than just throwing money you're never going to see again at an interest-only loan.


You are getting something out of it.  You still own the asset.  Again on the whole your equity = assets - liability.  If you pay down your liabilities by $12,000 in a year you equity improves by 12,000.  (Over simplification as assets devalues etc...)  Still you owe X and paying down what you owe increases your equity.

I'm saying pay down the equity that hurts the most, than worry about the house.
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JLu
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« Reply #12 on: November 03, 2005, 09:44:52 PM »

I would agree that in general it makes sense to pay down things that are charging a higher interest rate...   I'd personally ensure that my housing was taken care of and worry about the credit card being shut off though if money were tight.

The 'interest only' loan is what I thought we were discussing there?  In an interest only loan, you pay zero principal for the first few years; which in the end costs much more money than if you do a 30 year fixed, because you still owe $200,000 at the end of those starting years, and pay even more interest on it than you would have otherwise.

Nevermind what would happen if the house were to lose value over those years, and you had to sell for one reason or another.
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DamageInc
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« Reply #13 on: November 04, 2005, 12:18:44 AM »

The question was about mortgages, or did I miss something in the original post?

My reply was strictly for home mortgages and not debt counseling.
I don't have any debt other than my home so that's why we would want to pay off the home faster. If we pay it off faster we have some interesting retirement options, or we can buy another place as an investment.

You are correct though, if you have high interest credit card payments then you should pay them off first. Banks get all the interest up front with mortgages, so you pay hardly any principle especially in the first five years.

The key is that if you got in this situation in the first place then you need to prevent it from happening again.
After the cards are paid off you will need to cut them up.
Keep one card with a very low balance for things that require a card, and only use it if you have the cash to pay it off.
Credit cards are like quick sand, the more you spend the deeper and faster you go.
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Austin
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« Reply #14 on: November 04, 2005, 02:54:24 AM »

Quote from: "DamageInc"
The question was about mortgages, or did I miss something in the original post?

My reply was strictly for home mortgages and not debt counseling.


This is the internet... things derail.  slywink
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DamageInc
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« Reply #15 on: November 04, 2005, 03:26:03 AM »

LMAO, lol
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ATB
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« Reply #16 on: November 04, 2005, 02:24:00 PM »

Quote from: "DamageInc"
LMAO, lol


OMG LMAO, lol!
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Poomba
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« Reply #17 on: November 04, 2005, 03:23:29 PM »

Thanks for all of the insightful comments. We actually had a very positive meeting last night. Looks like we'll be looking for a place in the next couple of months with a move in date in either Feb. or March.

Our mortgage officer suggested an FHA fixed rate loan. In addition, he said we can negotiate the down payment as part of the sale and have the seller cover our down payment.

In addition, he detailed the tax benefits that neither me or my wife were aware of. It boiled down to - "OK, so you can afford a $1,000 a month mortgage, what if I were to give you an extra $200 a month? Now you can afford a $1,200 a month mortgage payment." He went on to explain that the extra $200 comes from the federal government because the interest and property taxes are 100% tax deductible.

We are really looking forward to looking for homes!!
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Dreamshadow
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« Reply #18 on: November 04, 2005, 05:37:24 PM »

Quote from: "Poomba"
Thanks for all of the insightful comments. We actually had a very positive meeting last night. Looks like we'll be looking for a place in the next couple of months with a move in date in either Feb. or March.

Our mortgage officer suggested an FHA fixed rate loan. In addition, he said we can negotiate the down payment as part of the sale and have the seller cover our down payment.

In addition, he detailed the tax benefits that neither me or my wife were aware of. It boiled down to - "OK, so you can afford a $1,000 a month mortgage, what if I were to give you an extra $200 a month? Now you can afford a $1,200 a month mortgage payment." He went on to explain that the extra $200 comes from the federal government because the interest and property taxes are 100% tax deductible.

We are really looking forward to looking for homes!!


I don't know anything about the 200 a month...but the the first part is what let me into a home.
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Tom "Dreamshadow" Tjarks
Aunt Wu: Care to hear your fortune, handsome?
Iroh: At my age there is really only one big surprise left, and I'd just as soon leave it a mystery.
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