So me and my husband were talking to a broker the other day who is also a credit counsler. Our current situation is we have only about a 10% down payment saved up. We have no debt, our FICO rating is excellent and our salaries combined we make a decent amount. We're definelty sick of throwing our money away in rent but always believed we needed more money saved up which can take awhile. His suggestion based on our situation was to put 0-5% down and use our 'nest egg' to renovate the home we buy. Now this is where I get lost he said something about keeping the mortgage payments low the 1st few years (like primarily paying interest?) so we can put more money into the house and then we can switch to a 15year mortgage where the payments will be more but obviously we will have the house paid off for quicker. We only met briefly so if this something we'll consider we will have a more detailed explanation. If anyone understands what I just said what are pros/cons?
dkwife
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Re: Looking for feedback on mortgages (a little long)
All I can say is that sellers are usually not that happy about someone only putting down 5%, and you will get penalized and have to pay PMI insurance.
TracyInQueens
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Re: Looking for feedback on mortgages (a little long)
I guess he is suggesting that you refinance down the line and change the type of mortgage?
I am not an expert but that does not sound like a good idea to me. I think if you can put down 10%, you should. IMO, I would rather get a house that was not in need of serious renovations- I would prefer to make changes as we went along and had the money. I know several people who have done renovations over the course of a few years, but these were also people who were planning to stay in their houses for the long haul. Your ideas about how long you want to be in the house you buy should be a factor.
I think no matter what, it might be tight anyway. I think you will be better off building more equity. And as you and your husband move up the salary scale, you will find it easier and you may be able to pay off the mortgage early anyway. I know our mortgage has no penalty if we pay it off early.
Hope this helps. Again, it's my very unexpert-opinion.
Summerbride04
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Re: Looking for feedback on mortgages (a little long)
Thanks Tracy! Well part of the reasons for his suggestions was that we told him that once we bought a house we planned on staying in it for the long haul.(not interested in the whole starter home deal) Also if we buy a house sooner rather than later our 'rent' money we'll be going towards building equity. Yes we'll probably get penalized like crazy but if we can afford it I think it's better than blowing almost $2000 a month in rent
LisaT
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Re: Looking for feedback on mortgages (a little long)
Sounds like he was suggesting an interest only mortgage with the plan to refinance later down the line.
The downside is, refinancing cost money and you don't know that interest rates will be as low as they are now when you go to refinance.
As for the 10%, I think you're better off putting more money down. You can take your time fixing up any house (if it needs it).
DjPiLL
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Re: Looking for feedback on mortgages (a little long)
Banks and brokers LOVE to sell interest only mortgages because it allows the buyer to buy more house that way... which in the end equals more commission for them.
Unless you have a good reason to get an interest only mortgage... like if you plan on selling within a few years... using for investment property... I personally wouldn't do it.
Are you plan on living there for at least five years? Get a fixed loan. Interest rates arent going to rise too quickly... but in a few years time... we could be back at 7-8%.
You don't have to put as much money down... you can get a fixed loan and only put 5% down. Its definitely doable.
steph4777
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Re: Looking for feedback on mortgages (a little long)
There are many other mortgage options. You can do a piggyback loan (I think that's what it's called) for 80/15/5. The primary loan will be for 80% of the cost of the house, the second loan is primarily interest for 15% of the cost of the house and then you only have to put down 5 percent. We did this and we were able to avoid PMI and the second loan is mostly interest so it's tax deductible.
We purchased in Chicago and putting less than 20% is not a deal breaker. But maybe the real estate market is a little different here. Our real estate agent made it clear to the seller's agent that financing was not a issue for us, it was just a matter of finding a house we wanted.
In an ideal world putting 20% would be great, but not everyone can afford to. It is possible to purchase without putting 20%. For us it worked out bc our mortgage ended up being less than what we were paying in rent.
Good luck! Talk to the broker and see what other options you have.
Kra5hnburn
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Re: Looking for feedback on mortgages (a little long)
If you switch types of mortgages, you'll have to pay closing costs all over again.
Valentinegirl
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Re: Looking for feedback on mortgages (a little long)
Posted by steph4777
There are many other mortgage options. You can do a piggyback loan (I think that's what it's called) for 80/15/5. The primary loan will be for 80% of the cost of the house, the second loan is primarily interest for 15% of the cost of the house and then you only have to put down 5 percent. We did this and we were able to avoid PMI and the second loan is mostly interest so it's tax deductible.
In an ideal world putting 20% would be great, but not everyone can afford to. It is possible to purchase without putting 20%.
We did this exact same thing. We only put 5% down and used the rest of our savings for closing costs and fixing the house.
IrishBride-05
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Re: Looking for feedback on mortgages (a little long)
Posted by Kra5hnburn
If you switch types of mortgages, you'll have to pay closing costs all over again.
You don't have to pay the same amount in closing costs as when you originally buy. Anyone I know who has refinanced (including myself) only paid about $2k - $3k. In my case it was totally worth it to get a rate almost 2% less than what I had previoulsy.
Kra5hnburn
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Re: Looking for feedback on mortgages (a little long)
Isn't there a difference between refinancing your current mortgage at a different rate and getting a whole different kind of mortgage, when it comes to closing costs? That's what I thought, but the further I go in this process, it feels like the less I know
IrishBride-05
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Re: Looking for feedback on mortgages (a little long)
Posted by Kra5hnburn
Isn't there a difference between refinancing your current mortgage at a different rate and getting a whole different kind of mortgage, when it comes to closing costs? That's what I thought, but the further I go in this process, it feels like the less I know
I'm certainly no expert, but I refinanced for a different term and there was never a mention of a difference in closing costs. Most of the costs incurred in an initial closing are related to the property being surveyed etc., once you're the owner any kind of remortgage is much simpler. I do know that if you do a no-closing cost mortgage and refinance before 2 years you have to pay back the original closing costs. I believe that's the only exception, but I'm open to correction.
MrsSchultz
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Re: Looking for feedback on mortgages (a little long)
Deleting for redundancy
bluegrl24ny
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Re: Looking for feedback on mortgages (a little long)
Posted by steph4777
There are many other mortgage options. You can do a piggyback loan (I think that's what it's called) for 80/15/5. The primary loan will be for 80% of the cost of the house, the second loan is primarily interest for 15% of the cost of the house and then you only have to put down 5 percent. We did this and we were able to avoid PMI and the second loan is mostly interest so it's tax deductible.
My sister and her husband just did this with the house they bought. They are in the same boat where they both have good credit and are throwing away almost 2K a month to rent, so their broker suggested the piggyback loan also. They have a good amount saved up, but it wasn't 10%, so this worked out for them and they are now closing on their house in July!
thiadora
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Re: Looking for feedback on mortgages (a little long)
It sounds like he might be talking about an Negative Amortization Mortgage. I did some research on it the other day because I wanted to find out what exactly it was. Here's a link that explains it:
