Real estate???

[yeldogt]

Platonic Solid: If long term is so great in this low rate environment - why not use the 40?

The key is to know what you can afford .. and then .... what should you spend. Using the 30 year calculation to determine that number is the point I am making -- the resulting figure is flawed. You don't have to, and should not, spend all that you can borrow ... and the 30 year allows for greater borrowing levels. I have been in a financial mentoring program since just before the crash of 1987 ... and I can tell you that the biggest problem is people spending too much .. because they could. I rarely see people with shorter term loans in trouble -- mostly because they tend to be more fiscally responsibility.

Buying a rental is an investment and takes into account various factors.. The goal for a rental is capitol appreciation --- and the smart money uses that appreciation (high values result in higher rents) to reduce overall debt. Without greater appreciation the drain of the financing can really impact the overall return ... it is different hen primary.

Also: Jinks -- May be speaking a credit lines --- and simple interest works that way. Thats the cheapest way to finance properties.

If you need to buy a house ... and historically this is a very good thing ...... and the only way to do it is with a 30 .. as a borrower you should understand what it is costing and the possible risks.

 

[themiller]

Use redfin.com

I will refrain from the financial comments...

 

[ratdoggy]

People should price out what they can borrow with a 20 year without PMI -- and see if that is available. That way they understand going in what penalty the are paying .. and 7 years with PMI you don't have any equity.

You need to have 20% down payment to avoid PMI. PMI doesn't protect you it protects the mortgage co.

 

[sublimate]

30yr rates are around 4% right now, but...
15yr rates are around 3%.

Take the 15 year - pay yourself, not the bank.

 

[Platonic Solid]

Platonic Solid: If long term is so great in this low rate environment - why not use the 40?

If short term is so great why not go 10 or 5 or spend the next 10 years living with your parents and buy the house cash?

This is why 30 year is a good choice for most buyers:

Housing prices are down. Interest rates are down. It will be a long time before this happens again. People get into financial trouble when they strap themselves with high monthly payments, which is exactly what a 15 year mortgage will do to most new home buyers. When you're older and hopefully have a better DTI (Debt to Income) ratio, then a 15 year might make sound financial sense.

Remember the "Growing Equity Mortgage" back in the 80s? What a great idea that was. First time home buyers could purchase and own their home in 17 years, saving tens of thousands of dollars in interest payments. Every year the principle payment would increase slightly enabling 17 year ownership. Oh wait, I digress, that's the program that was discontinued do to having the highest default and foreclosure rate of any mortgage ever offered.

Edited to add the following:
A quick google search reveals that the “Growing Equity Mortgage” is back. What sounds logical on the surface is devastating in actual practice. The borrowers will find the ever increasing mortgage rates added to always increasing property taxes and insurance creates a negatively sliding DTI ratio which inevitably overwhelms them within 5 years. Apparently history is destined to repeat itself, so just avoid it like the plague.

 

[Krash Kadillak]

1. Get a good Realtor. They often get leads on houses that aren't on the market yet, but will be soon. We've come across a couple that way.

2. Make a list of your 'must have's' - items that would be expensive or darn near impossible to add on later. DON'T settle for less!

3. If you have to really stretch your budget to get into your dream house, do it. After making a few payments, it won't seem like that much of a stretch.

 

[Jinks]

I don't think you really meant to phrase it that way, since making an extra principle payment this month has absolutely no effect on the regular P+I payment due next month. It's called "principal curtailment" which reduces the total interest paid and the length of the loan term, it doesn't reduce your monthly payment.

Yeah, I could have been clearer. Any extra is deducted from the remaining principal. The next month interest is figured on the remaining principal reducing the entire loan, but you're correct it does not reduce your regular monthly payment. However, paying extra each month has more effect than sporadic single payments during the year.

 

[elav]

Thank you for the updated information about your situation. A few things to consider... When you get reassigned, are you planning on keeping your stuff in the garage? If so, that will impact the amount of rent you can get. Also being a long distance landlord isn't ideal. You will most likely need to hire a management company that will take anywhere from 8-10% of the rent in order to manage it. That management company is motivated to keep your property occupied but might not be the best at filtering out the bad renters. You didn't mention how much you were planning on putting down but if you don't want the rental to be a burden, I would strongly suggest a large down payment (like 50% or greater). BTW, when you purchase a house you will sign papers stating that it will be your primary residence. The bank won't be too excited if they find out that it is no longer your primary residence but it is pretty unlikely that they will discover this.

 

[bczygan]

Buy a fixer upper that is already fixed up.

Now is not the time to fix up a property.

Find one with all the bells and whistles, all the options, all the quality additions already installed by the last owner. New kitchen and bath remodels with the latest appliances, big garage or shop, all insulated and plumbed and heated, pool (If that is to your liking), area that is improving (Not declining), etc. etc.

Improvements that will cost you retail if you have to do them, can be bought for pennies on the dollar.

The market is improving, so move quickly, prices are going up.

 

[Delfonik]

Good advice in this thread.

 

[Whitworth]

Large down payment ? 50 percent down ? 15 year ARM ? The OP wouldn't be able to buy a trailer in a trailer park with some of this "advice." Unless he has $100 grand in his back pocket. It's all fantasy talk.

30 year mortgage. Why not leverage lending to your advantage, especially with historic low rates. Your going to pay principle and interest anyways, I'd rather have a low rate locked in for 30 years than 15 years.

Gary

 

[banjoreid]

Thank you again for the all the finical advice.

A question I do have is for those of you that are paying PMI currently. From the small amount of knowledge I do have I understand that you MAY be able to claim it as deduction on income taxes as an itemized deduction if one qualifies. One thing I need to gain more knowledge on is income taxes (hopefully I didn't open another can of worms).

ELAV-as for storing my stuff in the garage when turning the property into a rental. That will not happen, the military will move my house hold goods or store them.

 

[HoosierMark]

If the OP is disciplened enough to want to invest in a rental, he should be able to grasp the value difference between 15 and 30 year mortgages. If he goes 30 years and saves the difference between the 15 and 30 year mortgage, he will build a reserve, have money for another down payment, etc. It could be the cheapest money he will ever borrow. If he borrows the money for 15 years and builds a lot of equity say after 10 years, that is great but if rates have now risen to say 8 % and he needs money it will cost more. he may be forced to refinance. If he had put the payment difference into savings, or similar, he could simply take it out of there and leave the low rate loan alone.
Bottom line is if you are disciplined,now is the time to go long because money is cheap, if you are not then borrow short and force yourself to save thru higher payments.

 

[Platonic Solid]

Thank you again for the all the finical advice.

A question I do have is for those of you that are paying PMI currently. From the small amount of knowledge I do have I understand that you MAY be able to claim it as deduction on income taxes as an itemized deduction if one qualifies. One thing I need to gain more knowledge on is income taxes (hopefully I didn't open another can of worms).

Effective Jan.1 2014 PMI is no longer deductible.

This is not an issue for you if you qualify for a VA loan: (linked)
"A VA loan doesn't require mortgage insurance, as do Federal Housing Administration and conventional loans with less than 20 percent down payment."

 

[banjoreid]

Effective Jan.1 2014 PMI is no longer deductible.

This is not an issue for you if you qualify for a VA loan: (linked)
"A VA loan doesn't require mortgage insurance, as do Federal Housing Administration and conventional loans with less than 20 percent down payment."

Thanks for the input on PMI. In regards to the VA Home Loan I have mistakenly been under the impression they required PMI. I just confirmed that is not the case.

 

[Platonic Solid]

You lucky dog! You got it made.
I was just looking at San Antonio area on realtor.com and there looks to be some real nice properties between $130 and $180K. You should be able to find a realtor who's willing to email you a link to the MLS for you to browse with automatic emails when something new hits the market without signing an exclusive contract. Just tell the agent that you want them to show you a few houses before signing any exclusive contracts. I prefer never to sign a contract, but if you find an agent who is truly working hard for you, signing a 60 day contract may be justified.

 

[banjoreid]

You lucky dog! You got it made.
I was just looking at San Antonio area on realtor.com and there looks to be some real nice properties between $130 and $180K. You should be able to find a realtor who's willing to email you a link to the MLS for you to browse with automatic emails when something new hits the market without signing an exclusive contract. Just tell the agent that you want them to show you a few houses before signing any exclusive contracts. I prefer never to sign a contract, but if you find an agent who is truly working hard for you, signing a 60 day contract may be justified.

Thanks, I really am not wanting to spend more than around $120k. Reason being I don't want to be house poor and should I have to cover mortgage while it sits vacant in between tenants, I dont want to end up in a bad situation.

Once January rolls around I am going to start contacting some Realtors. Im overseas now so signing exclusive clause contracts would not happen until i get a good vibe, which includes good communication.

As previously stated one of my main goals is as big as garage as possible. Im already have three vehicles in the stable and an ever growing tool collection.

 

[sean Buick 76]

I wish you luck, and hope to hear about a successful house purchase in due time!

 

[hackwelder]

Thanks for the input on PMI. In regards to the VA Home Loan I have mistakenly been under the impression they required PMI. I just confirmed that is not the case.

A VA loan essentially IS PMI at no cost to you, the VA will guarantee up to 25% of the loan amount to the lender in case you default, I bought a house w/ one in the late 90's and it worked out well...sold that place and paid it off in full so I could do it again. A VA loan costs the seller slightly more and requires more inspections but that can be figured into your offer if necessary in your area and market...in an overheated market it might be tough to have an offer w/ a VA loan considered at all. When I bought last time I made 2 offers and one was rejected specifically because I was using a VA loan...the other was accepted and the deal went through smoothly.

 

[yeldogt]

You need to have 20% down payment to avoid PMI. PMI doesn't protect you it protects the mortgage co.

Yes -- I understand.. Most people would be better off saving more to avoid PMI -- especially since many are permanent today.

With PMI and a 30 year -- you have very little equity at 7 years .. that is a lot of wasted money

 

[yeldogt]

If the OP is disciplened enough to want to invest in a rental, he should be able to grasp the value difference between 15 and 30 year mortgages. If he goes 30 years and saves the difference between the 15 and 30 year mortgage, he will build a reserve, have money for another down payment, etc. It could be the cheapest money he will ever borrow. If he borrows the money for 15 years and builds a lot of equity say after 10 years, that is great but if rates have now risen to say 8 % and he needs money it will cost more. he may be forced to refinance. If he had put the payment difference into savings, or similar, he could simply take it out of there and leave the low rate loan alone.
Bottom line is if you are disciplined,now is the time to go long because money is cheap, if you are not then borrow short and force yourself to save thru higher payments.

The problem is that most spend all the money they can get with the 30 -- so they don't have any extra.

So... I should borrow more now .. although .. it will cost me more in the hope that I will save money in the future?

Buy within a reasonable budget -- purchase based on appreciation .. use ever increasing rents to pay down or purchase additional. Purchase using the cheapest financing ...

Its not hard ..

 

[SALIV8]

Some good and not so good advice in here.

Always go 30 yr fixed mortgage. You can pay it down as fast as you want..

 

[Platonic Solid]

My son has been house hunting for 2 years now. This is his first house and, as most first time buyers, is looking in the lower end of the market which here in CT is around $160,000. In this area you don’t get into anything really worthwhile until you hit $225,000. He has more than enough savings to cover the 20% down + closing costs + still have a cushion in the bank.

We’ve looked at 100s of properties. Foreclosures are by far in the worst condition. The vast majority of them have some kind of water issue. We’ve got this down to a very quick routine: Walk in and smell for mildew, then head straight for the basement. If things don’t look good in the basement we don’t even bother wasting the realtor’s time looking at the rest of the house.

Many times we’ve found windows and skylights intentionally left open a crack in an attempt to vent out the mildew smell. One house had a nice man made koi pond outside with a waterfall feature. Turns out the koi pond was actually built around a natural spring. Further investigation revealed the house was also build on top of this natural spring leaving the basement eternally wet.

The coolest place we’ve seen was an old church converted into a 1 bedroom house with the world’s largest tallest living room. What it lacked in a garage, it made up for with a huge 12ft high ceiling basement. This was a foreclosure that he bid on 3 times. The first 2 times the bank accepted higher offers from people who hadn’t done their homework (we already knew the septic system was completely solid – in a bad way – and would need full replacement) and the deals fell through. The third time an investor came in with an all cash offer.

Tired of looking at ****, we're now looking at houses in the $240K price range with a purchase price goal of $225K max.

 

[Farm Hand]

Obviously there is a lot to think about when buying real estate, here are a few of things I would comment on based on my experience.

This does not have to apply at all it depends on the purchaser and their overall situation. Real estate has the ability to be a very, very good investment with the potential to give you a great return. If you are interested in this then I would say always begin to look for quality property first location wise and then building wise, as the second can be changed the first cannot.

Personally I don't use a real estate agent or broker for any thing other than showing me something I have selected to see. My feeling on brokers (is harsh, I know but I am speaking from personal experience after meeting quite a few of them) is they are always first and foremost working for themselves; and if you can, when you are buying any thing for a 100k or more it is best to get to know the market you are dealing in your self. I feel trust in business is something earned through time and many transactions.

Look at as much data you can as far as what has sold for what in the past.

Most of all try to enjoy the process and don't put your self in any stressful situations. Take your time real estate isn't going any where.