Taking more mortgage (loans, fixed rate, interest, property tax)

[proudowner]

Hi - I'm torn between taking more or less mortgage, read everywhere and came here to ask for sane suggestions.

I'm 50, never bought a house. Earn good salary $130-150k, saved good amount of cash($400-$500k) being in a apartment. I've a family with 12 yr old son. I've missed boat to buy home previously and grudgingly decided to buy a home. Never comfortable to buy home > $550k. I want to move to west windsor NJ area for good schools. Not found a good home in that price range. I've found home that is $750,000 in west windsor NJ area, bit pricier knowing myself but finally decided to bite the bullet. Putting 20% down payment comfortably. I plan to be there 10 years at least. No loans what so ever.

Question is: Should i take $600k jumbo (750-20% 150) at 4.75% rate about $5000 monthly,
or take non-jumbo $417,000, 4.5%, monthly mortgage of $3000. If I take $417,000, I have to put down a lot of cash $183,000 more. I'm torn between these two, lower monthly payment, less interest obviously but losing opportunity on $183,000. Or $600k mortgage, more interest and possible opportunity to invest elsewhere.

Thanks for your suggestions and appreciate your help.

[2040f]

I'd say owe less with less interest. Still you will have considerable savings.

[Pfhtex]

You have lived for a long time with a good-sized nest egg. You have to weigh what makes you MORE uncomfortable: the higher payment, or the smaller nest-egg.

Although you can write off mortgage interest on your income taxes, thus making the larger mortgage more fiscally palatable, this is your first foray into home ownership. When you buy a house, you buy a ton of furniture, housewares, yard tools, you replace fences, carpets, kitchen items, maybe an air conditioner, you start living in the home and every day it's "oh, let's do this to the house," - - and it really never ends. It's fun, and it makes your house a home.

To that end: If you can get 4.75% on a Jumbo (10/1 ARM, right?), that would be my play. But I'm not you. I think you should spend time in the house (attic, yard, neighborhood), and really look for things you want to change.

Also, you likely can use the write-off on your taxes, which makes it smart to place more debt in the larger mortgage, and put your nest egg in an interest bearing account - - now that rates are going up, you can finally see a meager return!

[Jkgourmet]

Pfhtex gave you some excellent advice. I'd differ on one point - and it's an important one, IMHO.

If he is correct and you are looking at an ARM (Adjustable Rate Mortgage), I'd revisit that decision and seriously consider a 30 year (or less) fixed rate. Why Because I suspect you are the kind of person who will worry themselves silly with what's going to happen to your mortgage rate at the end of the ten years

[proudowner]

Originally Posted by Jkgourmet

Pfhtex gave you some excellent advice. I'd differ on one point - and it's an important one, IMHO.

If he is correct and you are looking at an ARM (Adjustable Rate Mortgage), I'd revisit that decision and seriously consider a 30 year (or less) fixed rate. Why Because I suspect you are the kind of person who will worry themselves silly with what's going to happen to your mortgage rate at the end of the ten years

You read my mind . I'm a bit conservative, that's why didn't invest in very risky assets and might have missed good returns, during the last 3 years. Slowly getting back in the market though.
I understand from members' posts here (thanks!) that

- I should keep aside 12 months of expenses(mort + home/personal exp) in safe assets
- Emergency fund for home repairs and personal need
and then consider on the down payment. In 7 years, my son will come to college and another big hit with expenses.


Emotionally, paying $6k mortgage is kind of frightening compared to $1500 rent I've been paying. I should have bought a town home long ago to get experience.

Can you guide to calculate "missed opportunity" cost of putting $180k ?

[Jkgourmet]

Originally Posted by proudowner

Can you guide to calculate "missed opportunity" cost of putting $180k ?

Unless you have a crystal ball, there's really no way to do this.

Let me clearly state that I did not buy my first home until I was 34. I LIKE RENTING. I like the flexibility of being able to pick up and move. I like that I don't have any maintenance or repair issues. But I have owned four homes since 1991 (as a single person and a married couple, no kids), and will give you an idea of the other side of the coin if you continue renting.

* You and your wife are limited as to what you can do to decorate the apartment the way you want. You can't do any major renovations that would aesthetically please you, add value to the place or simply make it more suitable for your family's lifestyle

* Families who rent (NOT ALL) often feel like transients. I often wonder how kids would feel about that.

* Your neighbors are likely to be moving more often in a rental, limiting the sense of continuity and community.

* You and your family may be missing out on some memories of a HOME instead of a place to live. This is important, but can occur in a rental.

*You will likely have a backyard for BBQ's, games of catch with the kids, a place to play with a dog, herb garden and flowers for the wife, etc. etc. etc. Backyards can provide an enormous amount of pleasure and peace - and I suspect you've been living in an apartment for so long that you've forgotten that feeling.

I know it's hard, but try not to turn this into a purely financial decision. Certainly, financial considerations are very, very important. And clearly, you've got that covered better than 99% of first time homeowners. Try to look at it as an investment in your family's happiness, their sense of contentment and stability. Especially from the viewpoint of the kids.

[proudowner]

Thank you very much. You guys are awesome, hard to find in internet fora.

Update:
I gave contract and went for inspection. It's 25 yrs house in W.Windsor, nj. The owner has rented out and he is overseas. He got realtor for renting and you should see the house. I'm ashamed to say that the house is not in good condition, owner didn't do any maintenance for the last 6 years. Tenant didn't care and doesn't even clean their own house. They didn't run a/c. There is water damage in basement. I spent about $800 in attorney+inspection fees. The costs to fix appear to be around $60k. repairs $20k, driveway 5k, deck is going away $30k, hvac going away $15k. That's too much to bear. And not major upgrades in house. Unless owner gives deep discount to around 700k, I am thinking of backing out. What I like is, brick front, hardwood floors, extra room on 1st floor for my old relatives when visit.

[willow wind]

Run away as fast as you can. You don't need this house.

NJ has many excellent schools systems. If you're more comfortable buying a house in the $ 500,000 range, then keep looking. You will eventually find something.

You're stretching to have buy this one, then you have to add in very high NJ property taxes. Even if the owner dropped the price for the repairs, you're still going to have to pay for them, plus any updating and remodeling needed. It's all a dreadful pain in the neck. And you'll have to live in the house while it's undergoing repairs, etc.

This is not going to be a good first time buyer experience. Also, whatever you think repairs, plus remodeling will cost, expect it to cost much more. You're going to be choking financially for no good reason. In your salary range, you don't need a $ 700,000 fixer upper, with $ 100,000 worth of additional costs at a minimum.

Go find another house

[rmissourimule]

You SURE don't want that money pit. The money you spent upfront is peanuts compared to what it will cost you to put it in proper condition.

I don't know your market where you live but if you can afford it, what about a new house? You'll pay more but you can get the latest bells and whistles and it will be move in ready. Where I live one can buy a new "castle" for less than $300K. Prices out east must be out of the ballpark.

Right now I have two houses and two mortgages. I stepped out on a limb and cut it off behind me. A house (especially a second one) can be a millstone around your neck. But there is the mortgage deduction but one should NEVER buy one in order to make money. Buy one because you want to live there. All the rest is just rationalization.

But at the low interest rates this IS the time to buy IF you want to become a homeowner. I remember when rates were 18%. My last mortgage was at 3.25% two months ago.

The $800+ is money well spent. Run, run away quickly. The inspection is your way out. Don't be dissuaded from backing away. You owe them NOTHING. This is your money.

[proudowner]

Yes, prices in the east are horrible, especially in good school districts. New houses $850+ range at least.
Edison, 20yr houses $700k, etc. Yes, you are right that it's too much to bear for me as first home owner, and I don't know idiosyncrasies of what goes in the house maintenance. Thank you for sane advice.