First home buyer, financing questions (PMI, loan, interest rate, income tax)

[m4gnum]

Hello.
My and my wife are planning to buy a home or apartment in Florida. We dont know what kind of property would be the best choice so we wont regret it in the future. Our monthly income is around $4000, probably going to be around $5000 in the near future, of course it may be more but this is what are the facts at the moment. Right now we are paying $1450 in NY rent each month and we are doing fine from month to month but we are able to save any money. We have around $15k in savings. I think we would be good with paying around $1200 monthly mortgage fees (with all other property fees included like tax etc.) and there will still be some left to save with the perspective of making at least $5000. I cannot be sure that we would stay in the house for 30 years, probably not, I hope we would be making enough money in few years to afford a much better home so I want to get something with the perspective of paying it off, selling it or renting it in 10 years at most. Just to add we are under 30 years old. So my question to you is,

- Should I look for a home or an apartment? House would be around $200k, apartment would be under $140k, a small house with pool that I would be very satisfied with would be around $250k. Apartment would very likely have some HOA fees so it might be better to just get a home but apartment is easier to rent or sell in the future.

- What mortgage term should I get 10, 15, 20 or 30 years? I would be willing to pay weekly or bi-weekly to save some money on interest.

- What to do with the $15k that I have? I was thinking about putting a down payment but it might be better to leave it on a savings account

- Is it worth making principal payments if I wont plan to stay in the property for a long a long time? I would probably do better with putting that money to the savings account. If I would get a more expensive home I dont think its a good idea to make any principal payments as I would probably loose them when I would want to sell the house and pay off the mortgage. What do you think?

I have a lot going on in my mind, that is all I could think of at the moment. Answers from someone experienced with that would help me really a lot. Thank you.

[Grumpty]

My Thoughts:


- Should I look for a home or an apartment? I suggest the smaller the better.... to start. You can always upgrade at a later time and in the meantime can bank that money to help with purchasing the next property which I would also suggest is turned into a rental. The more you can supplement your income the better.

- What mortgage term should I get 10, 15, 20 or 30 years? IMO with rates so low I would suggest a 30 year which will allow you to put more towards the next rental purchase.

- What to do with the $15k that I have? Assuming you have another $10k'ish set aside for an emergency fund? If so keep it for down payment and closing costs. If you don't have an emergency fund then you don't have much for a down payment/closing costs. Ideally you want to put as much towards a down payment that will allow you to avoid insurance (PMI for conventional loans, MIP for FHA) which usually takes 20% down payment.

- Is it worth making principal payments if I wont plan to stay in the property for a long a long time? IMO it doesn't mater how long you are going to stay. If the interest rate is higher than you think you can earn otherwise then make extra principal payments. If not then make minimum payments and save/invest the rest.


HOA's are not all that bad especially with rental properties. They can help keep up the outer appearance of the buildings and keep out some of the riff raff. Not all HOA's are created equal though. My suggestion is to start talking to a few different Property Management companies. Tell them you plan to buy a small place to start that is renter friendly and then to add more in coming years. Ask them if they can recommend any neighborhoods that are renter friendly (not all HOA's are renter friendly). Avoid any where you have to submit the property to a wait list if/when you turn it into a rental. That is just asking for trouble.


My current HOA has no restrictions on turning my unit into a rental and I purchased much less than I can afford (according to the banks rules) with the intention of turning this place into a rental. I have incentive to move since once I do I create additional income by doing so. The trick is not to upgrade too much each time. Eventually you will have the place you want and other people paying for it.

[m4gnum]

Thank you for your response.

I am thinking more like you to pay as low as possible and save money (to invest in a renting property) but my wife thinks different. She says its better to live somewhere we would be happy living in and pay much as we are comfortable with. I am not sure however sure if we would pay less for a $200k house than a $120k condo, and we would have around $200-300 additional HOA fees. I am planning to do most of the maintenance myself. I would be more interested in a lower price house that needs some updates so it might be a better way on a long run.

I do not have any money saved other than those $15k. I am however pretty sure that our parents would help us with the costs a little bit.
The mortgage would be on my wifes name as she has a better and longer credit history. I however have balance free credit cards with pretty high limits so I planned to pay the closing costs etc using my cards, for the first years I would pay off the cards with money we saved.

Other thing that came up to my mind is that if I would get a home that needs some renovation and put the lowest down payment, I could make some updates which would add some value to the property. If the value would increase by around 20%, would I be able to get rid of the PMI?

[chet everett]

I disagree STRONGLY that smaller is better. It is nearly always smarter to get a SINGLE FAMILY DETACHED home than an condo. I also have seen many times that it can be a disaster trying to rent out any apartment or condo in an area where there is too much supply and not enough demand. In contrast, unless someone foolishly bought a home in an area that is overrun with crime, has terrible schools, or has literally toxic issues starter homes are much less like to decline in value.

The current mortgage rates remains FANTASTICALLY LOW and it almost certainly makes sense to use a 30 year loan to afford as much as possible. If you do not anticipate being this home longer than 5-7 years it might not make sense to buy. If you are pretty sure that you will be in the home for a decade it still probably makes more sense to have a 30 year mortgage for the flexibility it gives you -- it is one thing to accelerate your own pay-offs as you see fit and quite another to be FORCED to pay the whole thing off with larger payment over a short period. Please see that the the nearly 50% greater out of pocket monthly payments for a 30 vs 15 yr mortgage, even assuming about a .75% discount on the shorter mortgage, will not be plus -- 15-year mortgage or 30-year mortgage? You end up with a much smaller selection of homes to shop, that may be in worse condition or less desirable areas. That makes no sense!

I do agree that if you are unable to get more returns than your TAX ADJUSTED mortgage cost it might make sense to accelerate your loan pay off BUT given the VERY LOW MORTGAGE rates I would be shocked if anyone was unable to find a better investment.

I further agree that HOAs are often overly demonized -- if the choice is between a nicer area where the HOA has rules about landscaping and everybody pretty much abides by the rules vs a crummy area where one house is nice and the neighbors all have dead weedy lawns it is no brainer to got with the HOA. OTOH if you can find an area where things are well cared for and there does not seem to be a need for the HOA you have to ask yourself if things are likely to remain this way or will they deteriorate??

Loans with PMI has specific conditions to be met before the PMI is removed; it is not common for you to be able to get it removed simply by improving the property or getting an appraisal that shows a new value greater than the cash equity of 20% -- why not just try to get your downpayment up to the level needed first, especially if parents have expressed willingness to help!

[jaynarie]

You cannot pay for closing costs with credit cards. It must be cash and you have to have proof of funds. Any deposits (other than your weekly pay or something like an income tax refund) over a certain percentage of your loan have to be explained. The amount is pretty low, although that may vary by lender- I am not sure. I know for me, anything over a few hundred dollars had to have a paper trail to prove it wasn't a loan.

The lowest possible down payment is either 3% for conventional or 3.5% for FHA. Conventional is harder to qualify for.

If you take the mortgage out in only your wife's name, they will only be able to count her income. Can she qualify without your income? I assume the 4k per month is BOTH of your incomes. You didn't mention your debt load. Rough numbers, with a 30 year loan, and very low debt, you will be looking at about $150K max. HOA fees and debt load could lessen the number.

Do you have jobs in Florida? Are you transferring? You will not likely be able to get a mortgage without the jobs already in hand.

Are either of you from Florida? If you are moving to a new area, I'd strongly suggest renting first. Far too many people move somewhere and hate it. Even if you love it, it helps you learn neighborhoods and pinpoint exactly where you want to move. Plus, by renting you may be able to build up more savings.

To get rid of PMI by the way you are suggesting, you would have to pay for a new appraisal and it would have to prove the value has increased enough.

[ihatedcu]

Make sure you roll the closing cost into your offer. For example, house cost $175,000. Make a offer of 180,000 with $5000 seller credit for closing.

[LifeIsGood01]

Originally Posted by m4gnum

Hello.
My and my wife are planning to buy a home or apartment in Florida. We dont know what kind of property would be the best choice so we wont regret it in the future. Our monthly income is around $4000, probably going to be around $5000 in the near future, of course it may be more but this is what are the facts at the moment. Right now we are paying $1450 in NY rent each month and we are doing fine from month to month but we are able to save any money. We have around $15k in savings. I think we would be good with paying around $1200 monthly mortgage fees (with all other property fees included like tax etc.) and there will still be some left to save with the perspective of making at least $5000. I cannot be sure that we would stay in the house for 30 years, probably not, I hope we would be making enough money in few years to afford a much better home so I want to get something with the perspective of paying it off, selling it or renting it in 10 years at most. Just to add we are under 30 years old. So my question to you is,

- Should I look for a home or an apartment? House would be around $200k, apartment would be under $140k, a small house with pool that I would be very satisfied with would be around $250k. Apartment would very likely have some HOA fees so it might be better to just get a home but apartment is easier to rent or sell in the future.

- What mortgage term should I get 10, 15, 20 or 30 years? I would be willing to pay weekly or bi-weekly to save some money on interest.

- What to do with the $15k that I have? I was thinking about putting a down payment but it might be better to leave it on a savings account

- Is it worth making principal payments if I wont plan to stay in the property for a long a long time? I would probably do better with putting that money to the savings account. If I would get a more expensive home I dont think its a good idea to make any principal payments as I would probably loose them when I would want to sell the house and pay off the mortgage. What do you think?

I have a lot going on in my mind, that is all I could think of at the moment. Answers from someone experienced with that would help me really a lot. Thank you.

Closing costs are very expensive, even $7K for a small home, down payment will be a few grand even with just 3% down.

I think homes are easier to sell than condos and more valuable, if you get into a condo with high HOA fees and assessments you many never be able to sell it.

[jackmichigan]

Based upon your other threads, I think you should really question whether you are financially ready to buy a house. Plus, since you'll be new to Florida, I think your best course of action would be to rent for a while so that you can familiarize yourself with a particular area. It doesn't seem that you have even settled on an area yet, so buying in a place you may not wish to remain could be a costly experience. I think you already realize that based upon this previous post of yours in another thread:

Originally Posted by m4gnum

Its a really hard choice to settle down somewhere in Florida, its even more complicated on the west coast as its more extensive. The best bet will be to rent something for a year or so and get more familiar with the places and everything before we buy something. We are going to lose a year of paid off mortgage and a happy home life but it might be a better option than risk of buying a house that we wont be that happy with.

When you do determine where you want to live for an extended period of time, I would suggest that you shop around for a single family house that needs cosmetic repairs. It shouldn't be a full-blown fixer-upper (unless you're really into doing a lot of work), but you can easily build up equity by doing many repairs yourself. I think that's a good way for a young couple to start out. Good luck.