For the financially savvy- Mortgage question

[airchucknorris]

Niketalk,

I'm thinking about buying a home.  I have a 50k down payment(gifted).  If the home costs 130k, the monthly payment on a 30 yr mortgage would be ultra affordable for my current situation. 

My question is, if I sell the home after 3-4 years, am I only liable for the principle (80k) and the interest for those 3-4 years? Or are their other things I need to worry about?

 

[proper english]

sometimes i wish i didn't live in the Bay Area. 

 

[jbnsoul]

Originally Posted by proper english

sometimes i wish i didn't live in the Bay Area. 

We can't even buy a parking space in the City for $130K...

  

 

[lazyj10]

Your down payment, assuming it remains, is your equity.

The difference between the sale price and your mortgage is all you.

Therefore, the flip side is, when you go to sell, factoring in absolutely NO appreciation/depreciation, you only owe the bank the balance of the note. Which they'll get before cash net to seller during closing.

Now if you home depreciates and you sell short, you'd owe the difference on the note.

If it appreciates and you sell for more than you paid, the difference goes to you.

I believe for Federal tax, you can net up to $250k and not owe tax on it.

 

[4wrestling]

Yeah, LazyJ pretty much summed it up.

My question is, if you have $50k to put down, why are you only getting a place for $130k?

If you are set on the $130k place, you might as well only put 20% down ($26k), and invest the other $24k. You can hopefully earn a better rate of return than you would be paying 5-6% interest on the mortgage.

 

[airchucknorris]

^ Thanks, much appreciated.

 

[lazyj10]

The higher down payment may yield more affordable payments and a cushion versus negative equity...coupled with the ever important peace of mind?

 

[ddot7]

Originally Posted by 4wrestling

Yeah, LazyJ pretty much summed it up.

My question is, if you have $50k to put down, why are you only getting a place for $130k?

If you are set on the $130k place, you might as well only put 20% down ($26k), and invest the other $24k. You can hopefully earn a better rate of return than you would be paying 5-6% interest on the mortgage.

He may not be able to qualify for a mortgage for any more than $80k.  Since that $50k was gifted to him, a bank will not look at it as the same as $50k he had saved or otherwise earned.  Sure, a $104k mortgage (based on putting 20% down) is a low payment but it doesn't not mean that just because that it is "affordable" that he would be approved for that amount, especially if he doesn't have have a high enough income or strong enough credit history and since he may not have other savings available and the bank would require a certain amount in reserves.  He is much more likely to qualify for an $80k mortgage.

All of that being said, if he can get away with putting down less, he might want to.  He should talk to a mortgage advisor about his options, how it will affect his payments and what is really best considering his financial situation.  He can always use the additional money he doesn't put down immediately towards paying off the principal of the loan.

To the OP, I don't know how far you've looked into it but make sure you have money available for closing costs, etc and, like I mentioned, enough in reserves.  To get pre-approved and ultimately qualify for a mortgage, that will be a requirement.

 

[airchucknorris]

ddot-

I've taken that into consideration. And you nailed my situation pretty much on the head.

Thanks for all the help.

 

[cowabungaxxx]

make sure you also get a mortgage that has no prepayment penalty, sometimes they will have a range between three to five years.

 

[lazyj10]

Out of curiosity, what is property tax like where you're buying?

 

[airchucknorris]

LazyJ-

Right around $2000 per year for the one im looking at. Just to clarify, when you say remainder of the mortgage note, does that include the scheduled interest? or just remaining principal?

I'm slow when it comes to this stuff...

 

[juicy j 32]

Ddot did a good job of summarizing your situation. I'll try and help out a little bit as I work in the mortgage industry.

If you have the credit scores to qualify for a conventional mortgage I would definitely go that route. Assuming you live in Nebraska (based off of your sig) you could get a 30 yr conventional/conforming mortgage ranging from 4.875-5% (based off of todays Wells Fargo rate sheet). By putting that much money down you would be looking at a note of roughly $80,000, a Principal and Interest payment ranging from $423.36-$429.45 then you would have to add on taxes and insurance which probably won't be more than $150-200/month so a potential mortgage payment of $580 (which is very good all things considered). I am not too sure about how closing costs or down payment gifting goes for a conventional mortgage, but I think you can get a gift letter that can be accepted by the lender.

Additionally the most important aspect of you borrowing the money is your debt to income ration. Lenders will pull your credit report and add up all of your debts (CC payments, auto loans, installment debts, student loans*, any mortgages you have, etc). They generally won't approve your loan application unless your back end debt ration is under 50% meaning your debt obligations can't be more than half of what your average monthly income is. * In the case of student loans if you have deferred payments, you must prove that they will be deferred for the next 12 months to have them not count in your DTI ratios.

If you were to go through the FHA, your rate could be lower by 1/8 of a point given todays rates (they fluctuate daily), but you would have to pay an upfront mortgage insurance premium (UFMIP) that is currently 1.75% of your loan amount and is increasing to 2.25% at some point in April. You also have monthly mortgage insurance added to your escrow account which .005-.0055% of the final loan amount each month for the first 5 years of your mortgage.

Majority of loans today do not have a pre-payment penalty so you don't have to worry about that. The only thing you really have to worry about is you DTI ratio. Even if it is too low you could have a relative co-sign as a non-occupant co-borrower, which essentially allows you to qualify with their income, but they would be on the loan and any late payment would have an adverse affect on their credit.

EDIT- To answer your question, the remainder of the mortgage note will have a payoff that includes whatever principal balance you have and one months interest, because interest is payed in arrears.