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Old 10-15-2013, 08:56 AM
 
Location: NE USA
120 posts, read 217,947 times
Reputation: 129

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thelopez- you make great points. What I meant by 'investing' was that I was purchasing the property to live in and not to rent it out or flip it and try to make a profit.

I do see it as an investment in my own future - rent-free living, pride in ownership and a chance to learn some hands-on skills. I do agree you have to decide which mortgage to invest in and I was really shocked to calculate how much more one pays in interest between a 15- and 30-year mortgage.

I usually do not carry any debt so I was uneasy getting into a mortgage. Unless I have an emergency, I don't plan on borrowing against the house but I was curious what happens to the equity if home values fall.
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Old 10-15-2013, 01:57 PM
 
Location: Southern California
4,350 posts, read 4,929,984 times
Reputation: 2129
I do understand that this is purely hypothetical and academic.
Lets say the house you want to buy is $200,000. There is nothing wrong with just saving to buy with all cash. Buying on a fixed, locks in your monthly payment. You can speculate about prices dropping and interest rates going up, but in reality you can't predict the future monthly payment.

If you are interested in learning some skills, you might volunteer at an organization like Habitat for Humanity which builds homes.

If you want emergency cash, open credit cards or as you pay off your home get an equity line of credit. It is a variable payment , variable rate loan tied to your property.

The interest of the 15 and 30 years which you saw are projected, if you make extra payments, you'll end up paying less than that number but your monthly payments won't drop. You'll just end up paying it off sooner.

I'll give you an example why people feel the pressure to buy. The house I want is $400,000. I saved $10,000 a year towards the down payment. In 4 years I have 10% down. In some parts of California the appreciation from last year is over 10%. Many buyers were waiting for the right time and time the market, now they are chasing the market. That $400,000 house is now $440,000, I'd have to save another $4,000 just to be at the same LTV of 90%. But now the 90% loan to value amount increase from $360,000 to $396,000. So to get the monthly payment you'd have to pay down an extra $36,000 if rates don't change. This is why people are chasing the market, they are trying to lock in their monthly payment.

There is nothing wrong with trying to save and buy all cash, but if you watch the market it will just add extra pressure to buy when you think you will be priced out.

If you don't know how tax deduction work with interest, talk to an accountant. It might ease the pain.
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Old 10-22-2013, 02:12 PM
 
532 posts, read 1,393,754 times
Reputation: 339
Quote:
Originally Posted by TheHausMaus View Post
Hypothetical questions:

My home+land has assessed value $x and my mortgage is near enough $x. Imagine I have paid off the mortgage.

Say interest rates rise and that causes a depression in home values.

This depression in price would only affect my home value if I tried to sell correct? What if I wanted to borrow against the equity in the house - is that what I paid or what the 'value' is?

Thanks for any insight.
Hi--I bought a house with cash and wanted to take money out. Yes, they did an appraisal and based it on the current market. If you want a very small LTV , you can save the price of a full appraisal and do a quickie, drive by appraisal (forget what it is called; ask your loan officer) . The quickie appraisal still costs maybe 150.00; and it might not work for the underwriter. So I went for the full appraisal.

NOW, your bigger question. You can get a home equity loan (HELOC) right now based on the current value of your house. You do not have to take the money out now. If you need it years from now, you can take out the amount your house appraises for today! the loan will probably have variable rate, but maybe you can even get a fixed rate.

I did this. I applied for a HELOC loan in 2007 for a condo that I owned (no mortgage). I never took out any money and never paid any interest and there was no closing fee. (no appraisal, even) When I needed the money (2012) I took the full amount of the loan I was appraised for in 2007. I explained this to the bank who gave me the loan:

Dear Bank Officer: I am no longer living in this home. It is not worth anything like what you appraised it for in 2007. I want to use this money to buy another property. When I buy that property with this cash, I want to turn around and take a HELOC out on the new property. Is that that okay to do?

Yes. It was okay to do, plus I only had to pay interest on both loans, no principal.

Drawback: The Heloc I took on the new property is only good for ten years, and then I would have to make aggressive payments. (Until then, only interest.) Both HELOCS were variable rate, not fixed. (BTW, since then, I paid them both back, but I do have the loan on my house)

It only takes a half hour to get the HELOC and costs nothing--I suggest you apply for a HELOC on your house, for today's value. (if it works for you like it did for me) Hope this helps.

Last edited by Karen59; 10-22-2013 at 02:30 PM..
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Old 10-22-2013, 04:04 PM
 
1,263 posts, read 2,643,743 times
Reputation: 1872
Quote:
Originally Posted by Karen59 View Post
Hi--I bought a house with cash and wanted to take money out. Yes, they did an appraisal and based it on the current market. If you want a very small LTV , you can save the price of a full appraisal and do a quickie, drive by appraisal (forget what it is called; ask your loan officer) . The quickie appraisal still costs maybe 150.00; and it might not work for the underwriter. So I went for the full appraisal.

NOW, your bigger question. You can get a home equity loan (HELOC) right now based on the current value of your house. You do not have to take the money out now. If you need it years from now, you can take out the amount your house appraises for today! the loan will probably have variable rate, but maybe you can even get a fixed rate.

I did this. I applied for a HELOC loan in 2007 for a condo that I owned (no mortgage). I never took out any money and never paid any interest and there was no closing fee. (no appraisal, even) When I needed the money (2012) I took the full amount of the loan I was appraised for in 2007. I explained this to the bank who gave me the loan:

Dear Bank Officer: I am no longer living in this home. It is not worth anything like what you appraised it for in 2007. I want to use this money to buy another property. When I buy that property with this cash, I want to turn around and take a HELOC out on the new property. Is that that okay to do?

Yes. It was okay to do, plus I only had to pay interest on both loans, no principal.

Drawback: The Heloc I took on the new property is only good for ten years, and then I would have to make aggressive payments. (Until then, only interest.) Both HELOCS were variable rate, not fixed. (BTW, since then, I paid them both back, but I do have the loan on my house)

It only takes a half hour to get the HELOC and costs nothing--I suggest you apply for a HELOC on your house, for today's value. (if it works for you like it did for me) Hope this helps.
HELOCs and drive-by appraisals were great in a rising housing market. It's gotten harder to get either in today's market, but not impossible. A HELOC can be capped or cancelled in a falling market, if the bank gets nervous about the house value. You can't predict the future, though, and that's just the way it goes...

Definintely try this approach with your local bank if it sounds like it would work for you - the worst they can do is say no.

You don't pay interest on a HELOC until you actually use it, so it's great for home improvement projects that need large periodic draws for construction. It's also great for "just in case" money if you're starting a business or worried about big expenses. HELOCs are almost always variable rates and 10 yr terms. Generally you must refinance them at the 10 yr mark, although some then turn into fully amortized 10 yr loans at the end of the first 10 years.
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