Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
First time homebuyer here.
We are now beginning the process of looking into purchasing our first home next year. I was under the impression that a large downpayment was desirable (since we will be going FHA, I know it's not required to have more than 3-5%). I was of the opinion that we need to wait a few months to build up the downpayment even more so that we would have a lower monthly mortgage (aiming for 30 year fixed).
A family friend who is a realtor (and one we are considering going with) was adamantly against putting down a large downpayment. Her view was that we should put down the minimum required (3%) and use a portion of the remaining money to "buy points" which she said would bring down our monthly mortgage far better than a downpayment would. Back when she bought her house it cost $750 to buy a point, she doesnt know what it costs now, so that's something we will have to look into. If it matters, we are in the Dallas area.
Do you guys agree with her statement? I had always thought you needed a big downpayment, but apparently that is not the case. But I just want to be sure.
Secondly, while I have good credit (FICO score 757), my wife's is terrible (below 500). My plan was just to purchase the house using my credit only. The realtor said that instead we should work on building up my wife's credit to at least 620 so that she could also be on the loan. My question is this; would we now get crappier interest rates together even if her credit score improved to 620 than if we went just on my credit? I know it would take too long to get her score up to the 700s since we want to move before the end of next year.
This is why realtors shouldnt give advice about mortgages. In today's market, a buy down point might only get you an .125% lower rate making the cost not worth the expense. For example...lets say $200,000 at 4%...principle and interest is $954. Now lets say you pay a discount point(1% of loan) of $2000 and get 3.875%. Well, $200,000 at 3.875% makes payment $940. Do you think it is worth it to pay $2000 to save $14, breakeven is 2000/14 or 142 months!
In more normal times when rates are near historic average, 30 year at 6%, a buy down point would lower the rate .375 to 1/2%. As rates have fallen, the buydown only buys a .125 or maybe a .25 lower rate eliminating the benefit. so, dont pay buy down points!
Not saying this is the case..but keep in mind, your realtor gets paid a commission based on the purchase price. the higher price home you buy, the more commission your realtor makes. This realtor might just be looking for a way to encourage you to buy more home. Most folks blame loan officers for the mortgage crisis while realtors got off scott clean...but in my opinion they are just as responsible.
As i have read, i see that you are buying in the Dallas area. I live in Plano and only do Texas loans. If you are buying with a FHA loan in our state, you can do the loan in just your name, but the lender will qualify you based on all the debt that both you and your wife has. So, your income alone will have to be great enough to qualify with joint debts, your debts and her debts.
As far as a bigger downpayment, each $1000 you put down lowers payment by about $5 per month.
Currently, with your wife's fico, she couldnt be on the loan. so the loan would have to be in just your name. On FHA to get the best rates you only need a 640 or higher score. 620 to 639, the rate would be maybe .125 worse, so would be best to try to do in just your name.
If you can put enough down to avoid paying PMI, you should do that. PMI is wasted money on your part. So if you can pay 20% down, do that. If you can't, it doesn't really matter much whether you put down 3.5% or 5% or 10%. You mentioned you are going FHA, and I'm not sure if you can avoid paying PMI on an FHA loan even if you put 20% down. I'm not a lender, or even a Realtor, but it seems like I remember hearing that FHA required PMI no matter how much you put down.
Honestly, with today's low mortgage rates, if I couldn't come up with 20% down and avoid PMI, I would put down as little as possible, keep my emergency fund fully funded, and pay down extra on the mortgage ONLY if I had no other debt, was fully funding any available 401k or IRA retirement accounts, and had 9-12+ months of emergency funds available.
When I bought my house 8 years ago, my husband and I were in a similar situation credit wise to what you've said. Mine was excellent, his was lousy, plus his debt load was high, while I had no debt at all. We bought the house in my name only. The only downside to that is that I couldn't count his income either. So we bought what I could afford on my income alone (not a bad decision anyway). So if you make enough money with no income help from the wife (if she even works), there is no real need to put her on the loan. You can always quit claim the deed after closing so her name is on the house too if you want to. I've never bothered, since my state is a community property state anyway.
*Edit* Just noticed what Victor said about having to count both of your debts for Texas. I don't know if that is specific to that area, or if the rules have changed in the last 8 years. I suspect probably the latter. I know I didn't have to count my husband's debt load, but the rules have changed a lot.
all FHA loans with terms greater than 15 years requires monthly MI for a minimum of 5 years whether you have 20% equity or not. Mi is not as big a waste nowadays as it was in the past. MI is now tax deductible for incomes of $105,000 or less. ON FHA if you do 5% or more down, the montly MI is a little lower but not much.
Lacerta, you can right now but a home with less than 20% down with no MI. there is lender paid MI, single premium mi or you can doa 80/15/5 mortgage.
Yes, in Texas we are a community property state so on govt loans only, you have to count all debts of married couple whether both are on loan or not. Conventional loans do not require this.
all FHA loans with terms greater than 15 years requires monthly MI for a minimum of 5 years whether you have 20% equity or not. Mi is not as big a waste nowadays as it was in the past. MI is now tax deductible for incomes of $105,000 or less. ON FHA if you do 5% or more down, the montly MI is a little lower but not much.
Lacerta, you can right now but a home with less than 20% down with no MI. there is lender paid MI, single premium mi or you can doa 80/15/5 mortgage.
Yes, in Texas we are a community property state so on govt loans only, you have to count all debts of married couple whether both are on loan or not. Conventional loans do not require this.
Ah, I was a conventional loan, so maybe the rules haven't changed, maybe if I had gone FHA, we couldn't have done what we did. I don't know how you lenders keep up with all the rule changes and different programs. I just catch the edge of it at my job, and it seems like the rules are different every single week.
I had no idea there was anyone out there still doing 80/15/5s or the like. Every deal we've had come through the office lately has been either an investor (different rules), a cash buyer (no rules), a conventional buyer with 20% down or more, or an FHA buyer who paid 3.5% down and had to pay PMI. My sister is buying a house right now, and she and her husband have immaculate credit and very good income (A++ buyers and as low risk as possible), and they are having to pay PMI. Since the PMI up front cost is almost enough to pay that extra 1.5% now under the new rules, any ideas why they might not go for an 80/15/5 instead? Are the interest rates on the 15% super high? She is very financially savvy and my mom is a 20 year real estate broker, so the only possibilities I can think of are that the 15% was too expensive (would have to be really expensive to beat out the super high PMI numbers these days), or no one is doing that type of loan here.
Oh, and PMI is still wasted money for someone like me, with a low mortgage, a normal job, and no kids. Despite owning a house, I can't even itemize. For the 8 years I have owned my house, the standard deduction has been a better deal for me 8 times. Unless the PMI deduction was in addition to the standard deduction, like student loan interest, it wouldn't mean anything to me. But even if you can write it off, you are just wasting a little less money than you did before. It is still pretty much the same as just throwing your money in the fire. The only benefit a buyer gets from it is that they won't let you have the loan without paying it.
If you can put enough down to avoid paying PMI, you should do that. PMI is wasted money on your part. So if you can pay 20% down, do that. If you can't, it doesn't really matter much whether you put down 3.5% or 5% or 10%.
Well, with more down, PMI would be less, but it goes down in brackets, so not every additional $1000 or so down would make a difference in payments
[quote=biafra4life;22101471]
Her view was that we should put down the minimum required (3%) and use a portion of the remaining money to "buy points" which she said would bring down our monthly mortgage far better than a downpayment would. Back when she bought her house it cost $750 to buy a point, she doesnt know what it costs now, so that's something we will have to look into. If it matters, we are in the Dallas area.
You should get as far away from this realtor as possible. The definition of points is one of the most basic terms in financing. It is 1% of your loan amount and different for everyone. She is obviously giving advice in an area that she has proven she has no knowledge of and this will only get worse throughout the buying process.
Now as far as points go just crunch the numbers when it is time to lock and see what is your best use of your funds. There is no blanket answer to this one.
Yes...Texas is a community property state so both husband and wife will always be on title regardless of who is on the loan.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
