owner occupied (PMI, loan, escrow, income tax)

[austin138]

I am looking to buy my first home. My fiance and I would like to decrease our monthly payment though and so have been looking at duplexes. We are aproved for a loan and are looking at under 200k. we currently pay 1k a month and would like to decrese that (to increase savings). The thing is with the FHA loan were aproved for (3 % down) it seems like we will be paying more than the renters if we want to live in a descent neighborhood. We are getting a 6.5% apr. Is that poor in comparison with other loans? What am I doing wrong here? Any suggestions?

[atlanta hope]

I think the national average is around 5.5%, isn't it? You can check rates on different sites. Bankrate.com is one that I look at...

[atxcio]

Originally Posted by austin138

The thing is with the FHA loan were aproved for (3 % down) it seems like we will be paying more than the renters if we want to live in a descent neighborhood. We are getting a 6.5% apr. Is that poor in comparison with other loans? What am I doing wrong here? Any suggestions?

Housing is generally at a premium to own, so it isn't suprising that you'd be paying about the same as rent on a duplex (which is cheaper than a SF, where you'd be paying much more than rent to own.)

My quick calcs-

$200K Duplex
$6K down

194K financed = $1226.21 P&I

Add $5K/yer prop taxes (probably lower than that, but just to be safe)
Add $800 hazard ins

= $1709 / mo payment

At 3% down, you'd also have PMI which would likely bring your payment up to $1800.

So, if one side rents for $850, you'd be paying $950. You should also consider the cost of holding a couple of grand in savings in case you need repairs or for unrented times. So your calcs are correct, that you very well might be paying more than the renters for now. There are still some reasons duplex ownership might be good, though:

1) It's an effective tax shelter. You would probably be able to show a loss each year, especially with depreciation, reducing your income tax.

2) You're building equity in a $200K property with an effective payment of $950, putting you ahead of people building equity on a $130K house with the same payment.

3) Rents are going up right now; not fast, but if they continue in that direction you might find yourself paying less than rent in a few years.

So, you should consider that when making your decision. My only one piece of advice, and this is extremely important, buy in the BEST LOCATION POSSIBLE. Make sure it is a place you'd be comfortable living in and raising your family. If the property meets that test, chances are you will do well in the long run.

You can look up tcad.org and find out how many other owner occupants are on the street. Call them up if you want, usually they are landlords and I can't imagine they would mind receiving a call about how they like their property.

[Trainwreck20]

If you are a handyman type (planning to do your own maintenance), an old friend of mine bought a duplex in a duplex 'neighborhood' and manged to get hired on by several other absent owners to take care of their properties. It was a bit of work, but I know he made some deal and made a decent little bit of money doing that. He contracted out the big things and did the small things himself.

[austifornian]

Your only mistake is that you are looking at this as a way to save money instead of as an investment. Take yourself out of the equation for now and think of the duplex as a business that you are interested in buying. Think about the duplex as having two tenants, yourself in one unit and your tenant in the other.

Use his example, $200K duplex which costs you $1800/month to own. If you were able to rent each unit for $900/month you would break even. Could you realistically rent the units for $900 each? If not how much could you rent them for? $850? That would be $1700/month. Work backwards from there. What price could you pay for a duplex where your cash outlay would cost you $1700/month?

What would happen if you made an offer of $185K on the condo and it was accepted? For one thing, your monthly payment would drop about $100/month and your monthly cost would now be around $1700. See how that works? Figure out what kind of income a property can generate, figure out your costs then craft an offer based on those numbers. You also need to understand that you are at a disadvantage here because of your low down payment. The easiest way to create cash flow in a property is to reduce your financing costs.

[austin138]

thanks, this new way of analizing is very helpfull

[austin138]

Originally Posted by atxcio

You can look up tcad.org and find out how many other owner occupants are on the street. Call them up if you want, usually they are landlords and I can't imagine they would mind receiving a call about how they like their property.

So, I like the tcad.org but ive had trouble finding the people who actually own the place. Its almoast always a name, but then how do you give them a call? And alot of them are absentee owners, I dont know how to tell whos owner occupied.

[atxcio]

Originally Posted by austin138

So, I like the tcad.org but ive had trouble finding the people who actually own the place. Its almoast always a name, but then how do you give them a call? And alot of them are absentee owners, I dont know how to tell whos owner occupied.

It's easy -- if the address of the owner matches the property address, that is owner-occupied. No, the phone number isn't given on TCAD... but you can find it, through directory assistance or the web. It might take a bit of extra legwork, but it's worth it. Don't be afraid to call the owner/occupants. They'll be happy to speak with you, esp if you are thinking about becoming an owner/occupant too! (better for them than pure rental!)

[Daddys///M3]

6.5% is pretty high for an FHA loan. I locked a client in last week at 5.625%. Are you being charged any origination points? How about broker fees? I guarantee the broker is making max yield spread premium on that rate, probably 3.5% from the lender for the higher rate. I would not accept that. Based on the pricing that I've seen today, I would say that 5.75% to 6% is very reasonable. The broker still makes enough to pay their bills and you are not stuck paying an extra $782 or more a year (based on a $200K purchase price). 6.5% is probably the note rate and not the APR. The APR on a mortgage is a roundabout way of disclosing costs to the borrower. For example, if your rate is 6% and your APR is 6.225%, then the fees are about standard. If the APR is 6.07% then the fees are minimal, and if the APR is 6.883% then the fees are exorbitant. The payment you actually make is based on the note rate, always.

I don't know where you got the idea that owning would be cheaper than renting, but I do realize that many RE agents and mortgage brokers advertise this falsehood. Use your common sense to look through the smoke. Unless you are going from renting a 3000 sq ft luxury home to buying a 500 sq ft condo, it's just not going to happen.

Also, to the poster that mentioned Bankrate.com, they use advertised rates to come up with their averages. I can tell you for a fact that many, many brokers and lenders advertise rates that they cannot deliver on or that require buy-down points or other points or fees not disclosed, so probably not the best source.

[renriq02]

Your information applies to regular mortgage loans NOT FHA.

If I wanted to give my borrower a free loan.....no fees...no YSP...no attorney fees....no escrows...no appraisal...and the rate is at 6%

The APR will still be 6.506%. (200,000 loan amount)

The ONLY 2 things I included in the APR is the monthly MIP...and the upfront MIP.

I have seen MANY FHA lenders do it your way..and it's wrong!

It's downright DECEIVING!

Edit* It's also against Federal Law TILA

Originally Posted by Daddys///M3

6.5% is pretty high for an FHA loan. I locked a client in last week at 5.625%. Are you being charged any origination points? How about broker fees? I guarantee the broker is making max yield spread premium on that rate, probably 3.5% from the lender for the higher rate. I would not accept that. Based on the pricing that I've seen today, I would say that 5.75% to 6% is very reasonable. The broker still makes enough to pay their bills and you are not stuck paying an extra $782 or more a year (based on a $200K purchase price). 6.5% is probably the note rate and not the APR. The APR on a mortgage is a roundabout way of disclosing costs to the borrower. For example, if your rate is 6% and your APR is 6.225%, then the fees are about standard. If the APR is 6.07% then the fees are minimal, and if the APR is 6.883% then the fees are exorbitant. The payment you actually make is based on the note rate, always.

I don't know where you got the idea that owning would be cheaper than renting, but I do realize that many RE agents and mortgage brokers advertise this falsehood. Use your common sense to look through the smoke. Unless you are going from renting a 3000 sq ft luxury home to buying a 500 sq ft condo, it's just not going to happen.

Also, to the poster that mentioned Bankrate.com, they use advertised rates to come up with their averages. I can tell you for a fact that many, many brokers and lenders advertise rates that they cannot deliver on or that require buy-down points or other points or fees not disclosed, so probably not the best source.