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Old 07-09-2015, 07:32 PM
 
253 posts, read 235,928 times
Reputation: 578

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Looking for some general advice here.

I'm in the twin cities. I'm looking to buy a house for somewhere under $150k. Here, in this market, this s basically the bottom of the market. Older (75-100 year old) houses, foreclosures, short sales, etc.

I have about $25k in savings, but I want to put down only 5%, so $7500 for reasons I'd prefer not get into. I assume closing costs could potentially be another $2500 or so. From my estimate I will need about $10,000 to close. I want to avoid an FHA loan because the rate on MIP is so much higher. I know I'll have to pay for PMI with a traditional loan. With any luck after a year or two I will lump some pay to get above 20%. I need to stay liquid for about 2 years for personal financial reasons. Paying the PMI is well worth the liquidity for me right now.

I want to get a traditional loan at 5% down, hopefully with 0 points. I would really like to get the seller to pay closing costs-- but not sure how reasonable that is. I'm looking at alot of bank owned properties.

So here are my questions:

1. Will bank owned properties pay your closing costs?
2. How likely am I get to get a loan at 5% down for a decent interest rate?
3. If I have all of my money in stock index funds, except $10,000 set aside for closing, will the bank view that as risk because I won't have cash after the sale?

General Stats on me:

Age: 25
Credit Score: 765
Debt to Income: 4%
Income: ~$70k/year
Length at Current Job: 5 years (though 6 months ago accepted promotion, considerable raise and moved to Twin Cities)
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Old 07-09-2015, 08:04 PM
 
3,319 posts, read 7,259,582 times
Reputation: 4105
Excellent post.

You are low on closing costs, with less than 20% down, you must include property taxes and Homeowners insurance into the payment, thus you have to pay whatever amount is due at closing such that 1) you prepay a full year of insurance and 2) you reimburse the seller for the taxes they have paid beyond the closing date, when you take possession, and 3) you pay at closing an amount sufficient that THAT amount, plus your monthly escrow payment (part of the house payment) will result in sufficient funds for your mortgage company to pay the tax bill when it comes due.

So, for our purposes, just double the closing cost amount in your mind for now, then, when you find a property, and can ballpark a closing date, we check with the state & county for tax collection procedures and can reverse engineer funds due at closing.

Your questions:

1. Will bank owned properties pay your closing costs? Probably not. Like, 10% of the time, if that.

2. How likely am I get to get a loan at 5% down for a decent interest rate? Excellent odds, if you did the loan today, you would be in the low 4%s.

3. If I have all of my money in stock index funds, except $10,000 set aside for closing, will the bank view that as risk because I won't have cash after the sale? Not really. You are not working with a loan type or lender that will require months and months of reserves because this will be your only home that you own, for now. So, after re-visiting the closing cost scenario, you can keep the $$ where it is, but it's really smart to have a few months of reserves liquid.

Added cost will be Mortgage insurance. Using www.radian.biz I'm seeing a monthly fee of $64.13 per month, added to your primary payment, monthly property taxes, and monthly Homeowners Insurance.

Payment: $142,500 (95% of $150k) @ 4.25% (ballpark) = $1,072 + (1/12 of Property Tax Bill) + (1/12 of Homeowners Insurance Premium) + ($64.13 MI from Radian paragraph above) + HOA (paid separately but a consideration) = payment. I'm seeing a significant disparity in property taxes in that area, if you can post a zip code or two wherein you are shopping, we can be more specific for you. Even if taxes are $500 a month, House payment would be about $1700 ish, with your existing $233-ish per month, all in, you are rolling in the vicinity of 35% all day for your debt ratio.

IMO, your assumptions and analysis are spot-on, except closing costs will be higher due to property taxes and insurance, and keeping liquid (atable) reserves on hand post-purchase.
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Old 07-09-2015, 09:13 PM
 
Location: MID ATLANTIC
7,602 posts, read 17,634,581 times
Reputation: 8084
I suspect your credit profile may be strong enough to get an 80/15/5% and be able to avoid mortgage insurance altogether. The way it works is you get an 80% first loan, a 15% second trust loan, and put 5% down. This program option is not widely advertised, because only the strongest candidates have a shot at getting the exception. Rate on first could be as low as 4% with no points.

Or, what about a 97% first time homebuyer loan? Rate would be ~4.25% 0 points.
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