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Old 05-02-2013, 08:18 AM
 
912 posts, read 1,521,517 times
Reputation: 2295

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Hi everyone,

My husband and I are starting the home-purchasing process on the house we're currently renting and I have a few questions.

We've been homeowners before, in another city. We bought when the tax credit was still going on in 2010, and had an FHA loan with 3.5% down. Not smart, and we took a pretty big bath when we had to sell our house last November as a result of my husband's corporate relo. However, we paid our mortgage in full, no short-sale and I left the process with a vow to not repeat that particular experience.

We weren't planning on buying this year, but the opportunity to buy our rental fell onto our lap -- it's a fantastic house in a wonderful area, and the price our landlord wants for it is excellent. As a result of the relo, we're also entitled to some pretty great benefits from my husband's company that will expire in September, so the time does seem right in most ways.

Since we weren’t planning on buying this year, we don’t have nearly the down payment saved that I had hoped. We’ll be able to put about 5% down, and I’m contemplating several options: FHA versus conventional, 15 year fixed versus 30 year fixed?

With a 30 year fixed conventional loan @ 5% down, our estimated monthly note (including PMI, insurance and taxes) will be 1/6th of what we take home in a month. With that, would it be smart to see about a 15 year loan instead, or should I keep the 30 year loan and do something better with that money?

Also, we have solid credit – I do have some credit card debt, but it’s under 30% of my available credit and I’m paying double my monthly minimums per month, plus some extra. My husband is debt free. No car notes, no student loans. In checking my credit yesterday, I noticed that the utility company in our old town put me in collections in January for $123 – no one ever contacted me about it. It’s apparently for our last bill – which I never received and doesn’t appear in my online account. I’m calling the collections agency today with the intent of disputing it – but if they can prove to me that I owe it, I will pay it. Is this going to have a huge impact on my credit? I have no other collections or charge-offs, no late payments on any account – same with my husband. I just don’t want anything to get in the way of this home loan, and now I’m nervous it will.

Last, if anyone’s ever purchased their rental home from their landlord, I’d love to hear your experience!

Thanks!
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Old 05-02-2013, 08:42 AM
 
Location: NC
9,355 posts, read 14,014,289 times
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I did this many years ago with 10% down and a five year note (held by my seller-landlords) calculated over a 30 year period. However, interest rates were very high at that time, expected to fall during those 5 yrs during which I would need to refinance.

In your case, locking in today's very low rates would preclude you wanting to do what I did. Instead, how about a 30yr fixed, then pay as much extra per month as you can to bring the principal down faster. The sooner you get to 20% equity, the better (removes need for PMI). And you might have it payed off in 15 yrs anyway.
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Old 05-02-2013, 04:34 PM
 
4,039 posts, read 4,934,360 times
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Quote:
Originally Posted by luv4horses View Post
I did this many years ago with 10% down and a five year note (held by my seller-landlords) calculated over a 30 year period. However, interest rates were very high at that time, expected to fall during those 5 yrs during which I would need to refinance.

In your case, locking in today's very low rates would preclude you wanting to do what I did. Instead, how about a 30yr fixed, then pay as much extra per month as you can to bring the principal down faster. The sooner you get to 20% equity, the better (removes need for PMI). And you might have it payed off in 15 yrs anyway.

I agree. I would go with the 30 year fixed and then if you have extra go ahead and pay it if not then you don't have to worry about it.
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Old 05-02-2013, 06:52 PM
 
Location: Santa Rosa
486 posts, read 830,511 times
Reputation: 497
what the buy vs rental ratio look like?
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Old 05-02-2013, 06:59 PM
 
Location: Philaburbia
41,885 posts, read 74,952,198 times
Reputation: 66814
I'd go with the 30-year loan and pay what extra I could each month toward the principal, at least until you build up enough equity to ditch the mortgage insurance.
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