Real Estate and Home Mortgages - Swimming in info - please help

First off, thank you for such helpful information!

Here is my situation. I am hoping to sell my current house in MI and relocate to Arizona (this will be for a new job - not a relocate job). Hoping to have about $40,000 in pocket after selling to put towards down payment/closing costs on new residence. Also hoping to get home (condo - more likely in the area I'm looking in AZ) for $240,000. No other debt at all, credit score around 725 and can handle total monthly payment of $1,300 - $1,400.

So - questions! What is the best way to figure out how much money to put down and how many points to pay? I've been looking at the info. here and would be most interested in a combo. loan with the first being 30yr fixed and the 2nd a 15 yr fixed. Is this a realistic option? Is this the best option for my situation? What hard figures do I need to use to compare? Yikes! Please give me a little direction - I very much appreciate it!

Well, I wouldn't buy until I had spent enough time in AZ to determine for sure which part of town I want to be in, and which parts to avoid. Then I'd save like crazy to have enough to put 20% down to avoid PMI.

Remember, with a condo you're going to have to pay condo fees on top of everything else. Make sure you consider that when you look at your monthly payments.

frank

I am with Frank on this one.

Move to a new city, always rent first, get to know area and then buy.

I will be going there next month for a visit - and to check out the general area. I do know where the job will be and want to be as close to work as I can afford (I know Scottsdale is pricey). Would prefer not to rent - as I never have - but it is an option of course.

Here's another question - what is a good target percentage to have saved? The 20% for down payment + what percentage for "closing costs"?

Also, with the new rule on the PMI being deductable, does that make the 20% down to avoid it a 'non-issue'?

Thanks a bunch

Here's a guide to shopping for a loan, a sticky in this forum:
http://forum.doityourself.com/showthread.php?t=176367

Whether to pay points to get the rate down depends on your long term plans for living in the house. It might make sense, but if only planning to live in it for 5-6 years, it might not.


As for the MI deduction,
You may still save money each month with the combo loan. Do the math, get quotes for that and straightforward financing with MI. There is NO RULE OF THUMB for this. If putting down 15%, I'd take the MI since you won't have it long and it will be at a low rate. If putting down 5%, I'd probably take the combo loan. If putting down 10%, you really need to get some numbers in front of you to decide.

I'm still a few months away from doing anything - but seems the way to go is with a straight 30yr fixed rate. I plan on being in the place over 5 years and plan on putting at least 15% down. I'd really prefer a 15yr fixed - but don't believe I could swing the payments.

What is then the best way to build more equity? Paying an additional amount each month? Is there a good rule of thumb for that - or just throw whatever I can at it each month?

I've gotten quotes (just online) for combo loans that are for a 30 yr fixed on the first and 15yr balloon on the second (5.974 APR / 8.75 APR respectively). Is the balloon something to steer clear of? Just stick with the 30yr??

Thanks again

My answers will generally be more conservative (financially) than that of others so keep that in mind when evaluating.

I've always set a "minimum target" of how much extra principle to pay each month, and then competed with myself to exceed the target. My situation was a bit different though because I generally worked in commission only sales, so my income often varied wildly from month to month. However I had a working wife with a salary so we knew the minimum and a pretty solid average.

Normally I'd say avoid the balloon, but if it's for a small % of the total price, and it's a 15 year, you sound like you'd have it retired in plenty of time anyway. Just avoid adjustable rate loans at all costs.

To me the deductiblilty of the PMI is a non-starter, just like the deductibility of the mortgage interest. What you're doing is paying the bank A DOLLAR to avoid paying the government TWENTY CENTS. I used to always say a QUARTER on the government, but most people pay less than 20% average income tax. As someone else says if you want to buy two dime from me for a dollar we can conduct sales as fast as you want, for as long as you want!

FYI, the interest you're paying on the first BARELY EXCEEDS the amount of the STANDARD DEDUCTION on your income taxes in the first year! Project that a few years into the future when the amount of interest has dropped, and the standard deduction will probably have increased, and you're probably at a wash on deductibility anyway. I realize this ignores taxes and the interest on the second (which you'll probably retire pretty early anyway).

frank

I'm still a few months away from doing anything - but seems the way to go is with a straight 30yr fixed rate. I plan on being in the place over 5 years and plan on putting at least 15% down. I'd really prefer a 15yr fixed - but don't believe I could swing the payments.

What is then the best way to build more equity? Paying an additional amount each month? Is there a good rule of thumb for that - or just throw whatever I can at it each month?

I've gotten quotes (just online) for combo loans that are for a 30 yr fixed on the first and 15yr balloon on the second (5.974 APR / 8.75 APR respectively). Is the balloon something to steer clear of? Just stick with the 30yr??

Thanks again

You have more options than a 15 or 30 year term. Most lenders offer a 20 year and 25 year as well.

If going the route of paying additional to principle, it's best to get in a habit of a set amount each month. Otherwise, most won't do it. Pick a reasonable amount that you can do every month. If you can do $100 this month, but not every month, then maybe consider $50 a month EVERY MONTH. Steady is better than bursts since you'll keep up with it. Check with your lender to see if they'll do the extra on draft with your payment so you don't even notice that you're doing it. You need to be sure that this is going towards PRINCIPLE and not being applied as paying your next note in advance. Big difference. The sooner you start doing this the more effective it will be over the long haul.

RE: online quotes.
Those are pretty much worthless, as is the APR. APR is not the same as your contract rate, and APR with online quotes is usually calculated incorrectly. Call people, talk to PEOPLE and get a list of typical fees and rate for the program you want. Shopping rates without fees is a waste of your time. I can get you 5.5% fixed on a 30 year mortgage right now. However, if you don't know that I'm going to charge you 2% (or whatever it is) to get that, then you haven't learned anything useful at all. Read that shopping for a loan sticky, as well as the APR vs Interest rate sticky.

Thanks again for the invaluable information.

Last time around, I trusted others. Now I've learned the only one looking out for me - is me. The information is out there (like this site) just gotta arm yourself with the knowledge.

Very much appreciated! I'll be back with more questions when I'm ready to take the plunge -

You have more options than a 15 or 30 year term.
RE: online quotes.
Those are pretty much worthless, as is the APR. APR is not the same as your contract rate, and APR with online quotes is usually calculated incorrectly. Call people, talk to PEOPLE and get a list of typical fees and rate for the program you want. Shopping rates without fees is a waste of your time. I can get you 5.5% fixed on a 30 year mortgage right now. However, if you don't know that I'm going to charge you 2% (or whatever it is) to get that, then you haven't learned anything useful at all. Read that shopping for a loan sticky, as well as the APR vs Interest rate sticky.

Family Guy is right on with this one. I've owned my own mortgage company for 10 years and lately I've been hearing more and more horror stories with these online lenders~stay clear~ My suggestion is to stay local with a mortgage broker or lender/bank, most of the time you can find them advertising rates in your local Sunday Real Estate section. Now when your ready to do this,contact at least 3 mortgage companies and have them prepare a "Good Faith Estimate" which will spell out the rate,program and closing costs. Ask questions too, like number of years in business, do they provide a written rate lock guarantee and check the local BBB. On the point(s) front if your in the house less then 5 years it's not a wise idea to pay points. Try to find a mortgage company that will not charge you points or *origination fees (*this is a mortgage company charge usually) and decide on your feeling of which one will provide the best rates and service to you. Good Luck.