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My wife and I just went into contract on a new larger home this morning. We have been looking to up buy for over a year now. SF Bay area is a you know what to try and buy. Anyways, original plan was to buy with 10% down and then rent our current small home. We were approved for mortgage holding our current home/mortgage.
Fast forward to last week. We realized with comp sales we could sell our current house and have enough equity to easily cover the other 10% to go the 80/20 route and avoid PMI and have a MUCH lower monthly payment.
We offered yesterday and were accepted on the house(first of 7 tries).
Here is my dilemma....
Our house is not on the market yet so we now have two options..
Have the inlaws "gift" us 10% or $47000 and pay them back after our house sells
Go the 80/10/10 route and pay off the 10% loan as soon as our house sells.
Best would be to get gifted the money, but $47,000 is a lot of money to borrow from family considering even though we are confident we can sell our house for more than the $47,000 there is still risk involved and I would rather take that risk on my shoulders than that of family.
My broker said that between the extra admin. costs and early payment penalty 80/10/10 would cost me an additional ~$800 if payed off
Are there any other risks associated with a 80/10/10 loan is the plan is to pay it off within a few months? ANything I am not aware of?
The loan would be $47,000 5.24% interest only
The 80 loan would be 4.25-4.5% fixed 30 year
Cost of a 10% 2nd, when compared to the eternal damnation of borrowing money from your in-laws, is negligible.
The company I use for 2nds would charge $475 if paid off in the first year. They use the title policy from the 1st, so your TOTAL "loss" would be at or below that $800 number.
Are you seriously looking to save $800 so your in-laws can hold this over your head for the rest of your life?? I don't care how nice they are. You will end up rushing the sale of the home just to get the monkey off your back, and lose a lot more $$ by rushing that sale.
Look at the numbers to see where you will be financially....
(100%) $470,000 purchase Price
Plan A
(10%) $47,000 < savings
(10%) $47,000 < in-law gift
(20%) $94,000 < down payment
(80%) $376,000 x 4.25% x 360 = $1874.29 < P/I monthly payment
total payment Pay off in-law's when previous home sells.[/list] Plan B
(10%) $47,000 < savings
(10%) $47,000 < 2nd monthly payment $205.63
(20%) $94,000 < down payment
(80%) $376,000 x 4.25% x 360 = $1874.29 < P/I monthly payment
Examining a two year payment period, waiting to payoff to avoid prepayment penalty.
Plan A -
Required payment $1874.29 x 24 = 44982.86
$205.63 Option to sent extra into payment
Total paid out $49918.08
1st remaining principle $357,906.13
Plan B -
Total paid out $49918.08
2nd principle $47,000 to be paid off
1st remaining principle $363,047.57
I look at this as your in-laws are looking to help you as positive. It would be best to go the gifted the money route. It's not the rest of your life, you said you would be paying them back when your previous home sells. If everything this will make them happier with you,
If you applied what you would be paying out on a 2nd mortgage, applying that into your payment every month from the beginning, it would knock off 6.5 years off the term....
Look at the numbers to see where you will be financially....
(100%) $470,000 purchase Price
Plan A
(10%) $47,000 < savings
(10%) $47,000 < in-law gift
(20%) $94,000 < down payment
(80%) $376,000 x 4.25% x 360 = $1874.29 < P/I monthly payment
total payment Pay off in-law's when previous home sells.[/list] Plan B
(10%) $47,000 < savings
(10%) $47,000 < 2nd monthly payment $205.63
(20%) $94,000 < down payment
(80%) $376,000 x 4.25% x 360 = $1874.29 < P/I monthly payment
Examining a two year payment period, waiting to payoff to avoid prepayment penalty.
Plan A -
Required payment $1874.29 x 24 = 44982.86
$205.63 Option to sent extra into payment
Total paid out $49918.08
1st remaining principle $357,906.13
Plan B -
Total paid out $49918.08
2nd principle $47,000 to be paid off
1st remaining principle $363,047.57
I look at this as your in-laws are looking to help you as positive. It would be best to go the gifted the money route. It's not the rest of your life, you said you would be paying them back when your previous home sells. If everything this will make them happier with you,
If you applied what you would be paying out on a 2nd mortgage, applying that into your payment every month from the beginning, it would knock off 6.5 years off the term....
..
The thing is that I do not want to be paying the extra $205/month, that's why I would hopefully pay off the entire second once I sell my current house.
Am I wrong that if I sold my house quickly, paid off the second loan immediately with first payment due I would only be out the ~$800 after the two years vs. taking the gift from my in-laws?
OK, now I have another idea.
Go 90/10 pay the PMI and bank the $47,000.
Still waiting on final loan summaries to compare, but it appears the 90/10 will cost me ~$300 more per month. With $47,000 banked, that's roughly 13 years worth. Not to mention I now have an emergency fund just in case for...
THoughts?
The thing is that I do not want to be paying the extra $205/month, that's why I would hopefully pay off the entire second once I sell my current house.
Am I wrong that if I sold my house quickly, paid off the second loan immediately with first payment due I would only be out the ~$800 after the two years vs. taking the gift from my in-laws?
If you don't want to be paying the extra payment, your answer is clear on which route to go.
An interest-only loan, you're paying only the interest due on the loan (no money towards the principle). Most I/O mortgages are setup on a 30 year payment payment. The payment dramatically shoots up after ten years because your required to start paying principle. Though this doesn't apply to you because you are looking to pay this off sooner.
The payment for the I/O 2nd mortgage calculated
$47,000 x 5.24% / 12 = $205.23 per month
$205.23 x 24 months = $4925.52 paid to wave PP.
Once you walk away from the closing table the loan is yours. Purchases do not have a rescission period and Banks are pretty serious in collecting what they can get out of you. The rationality behind prepayment penalty's. There's no closing costs for a 2nd mortgage and they are giving up a low interest rate. For the lender to make their money, you are required to keep this loan for a certain period. Some loans don't have them, it depends on the lender and terms of loan. Having one there's no way of getting around not paying it.
You are saying "When I sell", what if it takes a long time for that to happen? I feel your are being lead into this 2nd mortgage, being told a lower amount to get out of this loan.
When I was a loan officer structured many refinances that involved paying prepayment penalty on a previous loan. The penalty was usually based on percentage of the remaining mortgage balance or 12 of months worth of interest (which ever was lower). A more realistic amount is probably $2462.76?
I've been married almost 24 years. When we brought our house also had the option of getting a second loan. My wife's father help us contributing towards our down payment. Doing so resulted a lower payment and we paid him back over a year period. My advice is to get the lowest possible payment, split that payment in half and make bi weekly payments. Additionally sending extra towards principle, this will reduce the years on the loan. We paid off our 30 year loan in 13.5 years.
Because no one can read the future, you need to choose the safest most predictable route to accomplish your objective (your future)....
OK, now I have another idea.
Go 90/10 pay the PMI and bank the $47,000.
Still waiting on final loan summaries to compare, but it appears the 90/10 will cost me ~$300 more per month. With $47,000 banked, that's roughly 13 years worth. Not to mention I now have an emergency fund just in case for...
THoughts?
Do not go the PMI route
You will box yourself in to a much larger monthly payment. $2250 plus, $300 PMI, $$$.cc taxes and $$$.cc HO Insurance.
> In the future getting PMI removed is a major hassle! <
You future LTV score will be to be better than 77% for the bank to consider removing the PMI. On top of that have to pay out of pocket an for the lenders "approved" appraisal to check to value of the home. They will be super conservative on the value (if they want future appraisal work from the lender), I have seen many times home owners wasting $450 for a worthless appraisal with a lower than expected value.
I see what you are doing as many younger couples do. This is normal to start counting and planing the money before you have it. Right now you have tunnel vission trying to predict the way everything is going to fall into place.
If you were on your own with no family assistance, then the 80/10/10 route would be the best route.
You have an extra card that many buyers don't have - your parents. Play that card!!!!
O... I now have an emergency fund just in case for...
You don't currently have an emergency fund? What if the house gets struck by lightning? What if you have foundation issues? What if your house burns down???? You have no savings? Yikes! You should never put all your money into your house. Things happen. Life happens...
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