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I have great credit and have been approved for a conventional 30 year loan with 3% down for the 417k Limit. I also have 60k in cash for a down payment and anything I want to put into a home. What I dont understand are what options are out there. Alot of the homes i have been seeing need work and are below the 417 like at 350. Really I can afford 417 plus 60 equals 477. can I buy a home for the 477 I have (buy the home at 350K and put into 127K) into it? what are my options?
I am not a mortgage expert, but my husband and I are in a similar situation, looking at homes that are under our max budget, but require some renovations. I had our mortgage broker run numbers both ways -- first with a renovation loan that would require 20% downpayment, then give us $60k for renovations and, second, with a 3% down conventional that would save our cash to pay directly toward the renovations. A couple of things...if you put 20% down, you avoid PMI. However, the renovation loan is at a higher interest rate (about .5-.8 higher in our case). In addition, they want to see approved plans before they approve the mortgage, which means at least 45-60 days to close.
So you really have to look at the numbers both ways and see where you come out better based on how long you're going to stay in the house. For us, the monthly payment was going to come out about the same, but by putting the cash directly into the renovations and snagging the lower interest rate, we felt we would be able to build equity much faster and close much earlier (which was important because our current house has already sold and we need a place to live).
Find a good mortgage broker and they will be happy to show you the numbers for your situation.
If it was me, I would buy a house below my means, fix it up with the cash I have in the bank. I'd also use all my left over money each month to make extra payments to pay the house off early. Paying all that interest to a bank every month for 30 years makes no sense.
$417,000 house paid off in 30 years = $299,695 in interest
Isn't there something you would rather spend that money on rather than giving it to a bank?
If it was me, I would buy a house below my means, fix it up with the cash I have in the bank. I'd also use all my left over money each month to make extra payments to pay the house off early. Paying all that interest to a bank every month for 30 years makes no sense.
$417,000 house paid off in 30 years = $299,695 in interest
Isn't there something you would rather spend that money on rather than giving it to a bank?
The theory is that instead of paying off a loan at 3.5-4%, you invest that money in the market or some other financial vehicle that will earn you greater interest. Therefore, instead of paying $299K in interest over 30 years, perhaps you could have earned a higher interest rate, paid the $299K and earned another $299K for retirement or whatever.
If you look over the last 30 years, the stock market has probably returned an average of 8-11% (this is a non-SWAG).
That's why paying off low interest loans doesnt always make financial sense but certainly can give you peace of mind.
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