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Old 03-26-2015, 09:35 AM
 
147 posts, read 227,155 times
Reputation: 81

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So, there's a house that I'm interested in, that's very close to work and generally has most of what I'm looking for. It's also larger than I really need, but it's split-level, so I can easily rent out some of the extra rooms with minimal inconvenience to myself (I'm still fairly young and single, and am used to being on the other side, renting rooms in someone else's house).

Now the question is, should I go with a 15 or 30 year mortgage? If I get a 15 year mortgage, my total debt goes up to 37.5% of gross income, assuming that I rent out no rooms. Renting out some of the rooms should bring this down substantially. The only other debt that I have is a car payment, which I'm planning on paying off as soon as I can after getting the house, since I'll no longer be saving for a down payment, which would bring the debt load down to about 33%.

That's still over the "recommended" 28%, and I can't guarantee that I'll be able to rent out the extra rooms, but the amount that I've been saving per month for the downpayment + my old rent + recent salary increase for a promotion is still more than the 15 year mortgage cost. If I do manage to rent out the lower floor, out-of-pocket drops significantly.

I really like the idea of getting the house paid off sooner and throwing away less to interest (the 15 year mortgage comes with a 0.75% interest rate reduction), but I don't want to be putting myself in a corner, either. My initial plans are to make "big payments" on the house (half my salary + all of the rental income) to get it paid off as soon as possible.
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Old 03-26-2015, 10:00 AM
 
Location: Somewhere in USA
537 posts, read 453,014 times
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Not enough info gsilver. You need to provide your monthly income (not including bonus), your longevity in the job and your total cash flow available currently to this minute.

after you provide all info, and get yourself a calculator or use one of the calcs on bankrate.com you can figure out all by yourself.

But here's a thumb rule, DO NOT overburden yourself with high payment monthly, granted you want to pay off the mortgage sooner but your money should be better off elsewhere, like 401k, investments, stocks and etc... NOT to pay off mortgage now as you are single, young and can take a lot of risks. 15 or 30 year mortgage differs greatly. 15 yr gives you very low interest rate but requires hefty payments monthly in order to get the mortgage down quickly...while 30 years is the opposite.

Stay young, stay foolish and stay hungry...don't throw all cash into the house yet...do it when you're a little older like late 30s and up... or when settling down
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Old 03-26-2015, 10:22 AM
 
Location: The Triad (NC)
26,855 posts, read 57,874,473 times
Reputation: 29275
Quote:
Originally Posted by ameridreamNoT View Post
But here's a thumb rule, DO NOT overburden yourself with high payment monthly

Stay young, stay foolish and stay hungry...don't throw all cash into the house yet...
do it when you're a little older like late 30s and up... or when settling down
^^Good Advice.

30 year amortization with the right/ability to make additional PRINCIPAL payments.
When your budget allows and/or some windfall arrives... pay down the balance some.
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Old 03-26-2015, 11:08 AM
 
147 posts, read 227,155 times
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Ok. I make 80K (no bonuses) with 10% going into a 401k, $4200/mo net, $2200/mo for the 15 year mortgage. My old rent is $750/mo, and I was saving $1000/MO, prior to a recent salary increase of 10K/year (about $500/mo net). I have about $8000 left on the car loan @ $300 a month. The car will be the first to get paid off, now that I'm not worrying about saving for a big down payment. No other debt, as I completely pay off the credit card every month. I've been at the job for 4 years, and an additional team lead promotion is expected in the next 6 months. Though if past patterns can be extrapolated, I can expect 6-8 months after getting that promotion before seeing a corresponding salary increase (my recent 10K salary increase was for a promotion that I got in the middle of last year)

The house is a 6 bedroom, and I plan on renting out the three lower-floor rooms at $3-400/mo each. By comparison, a less nice 3 bedroom in the same area was going for only 10% less, so going with the larger one was an easy decision.


Well, it's possible that I might want to leave the area at some point, and the 30 year mortgage could work as an investment property/eventual retirement home.
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Old 03-26-2015, 11:18 AM
 
Location: Somewhere in USA
537 posts, read 453,014 times
Reputation: 467
there you go, you already made the right decision. 30 conventional no principle prepayment penalty and you can rent it out all you want down the road as an investment property. Your income is good enough to cover the payment in case tenants pulled out and repair/maintenance that is unpreventable down the road. Don't realize the potential income increase down the road, not 'til it's official.

validate you have great credit scores and also emergency funds set aside in case of shtf ...
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Old 03-26-2015, 11:28 AM
 
Location: New York
2,251 posts, read 4,161,942 times
Reputation: 1607
.

Dito on the extra payments with a 30 year mortgage.

One extra payment a year reduces term to 23.5 years (average), two extra payments a year takes term to 18 years...

Sending extra the borrower gets reported to the credit bureaus as being more responsible. Their credit score goes high. A person with high credit has more opportunities than one would with a low credit score.

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Old 03-26-2015, 11:40 AM
 
Location: Annandale, VA
5,098 posts, read 4,123,743 times
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Quote:
Originally Posted by MrRational View Post
^^Good Advice.

30 year amortization with the right/ability to make additional PRINCIPAL payments.
When your budget allows and/or some windfall arrives... pay down the balance some.

I disagree. Why payoff tax-deductible debt with a low interest rate when you can INVEST that extra money or use it to maintain your 6-month liviing expense cushion in case of emergency?
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Old 03-26-2015, 12:33 PM
 
Location: The Triad (NC)
26,855 posts, read 57,874,473 times
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Quote:
Originally Posted by Spaten_Drinker View Post
I disagree.
With what? Having maximum flexibility?
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Old 03-26-2015, 12:43 PM
 
147 posts, read 227,155 times
Reputation: 81
I'm kind of iffy on general investment spending.

I'm OK with the 401k since I won't be dipping into that for a good long while, but looking at market volatility vs guaranteed returns via reduction of principal with extra house payments, I'd rather do the latter.

Though building a savings buffer back up will be much easier with a lower required house payment.
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Old 03-26-2015, 02:59 PM
 
7,672 posts, read 9,330,192 times
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I would do the 30 years with no early payoff penalty and pay it down as aggressively as you wish. But if you run into a bind or something happens, you have a lower payment to help out those lean months.

Good luck on whatever you do!
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