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bargainchaser | Mortgage Loan Question? |
Our good friends are buying their first home. They are more than confused about how to finance it.
The home costs $130,000
They do have $10,000 to use for closing and or down if it is the best option.
There seems to be so many options. I do know that they need 30 year fixed. But is it better to put some down? I know it only changes the monthly amount by less than $50.
But from what we have gotten from the mortgage lender or broker.. Is that if you don't put anything down, then you have to pay PMI's?
ANY input at all would help. I don't even know if anyone can help.. I just thought this was a good sounding board!
Thank you so much!!!! |
 |
 
thinking-guru
 |
They could go with either a 100% financing loan or they could put 5% down and get a better rate. These are fixed rate loans - don't let them get talked into any ARMs. Here is how it looks:
100% financing: $130K @ 6.75% = $843.18/month without escrow for taxes and insurance. PMI would be $63.92/month.
5% down($6,500): $130K @ 6.5% = $780.60/month without escrow, PMI would be $80.28
I suggest they go with 100% financing and save their $10,000 - or use it towards closing costs. When you have a new home it is ALWAYS a good idea to have some extra $$$ in the bank after closing vs. using everything for a down payment. The 100% loan allows the Seller to pay ALL of their closing costs so they could buy the home for almost nothing.
Tell your friends there are no dumb questions when buying a home - so ask away! |
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Sergio S
 |
Not necesarily they have to pay a MI (mortgage insurance), what they can get is a better broker and second get a split on the loan, in other words a 80/20 meaning they will have 2 loans one at 805 of the purchase price and the second at 20% of the price.
When they make an offer, they can ask the seller to cover the closing cost, and use those 10K towards down payment.
Shot me an e-mail for further questions... |
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silbecl
 |
I say put enough down to eliminate the PMI. Any less and you're making a useless payment that raises the effective cost of a mortgage while providing no benefit to the consumer. Any more, and you're forfeiting the leverage and tax breaks available to homeowners.
When I bought my first house, I didn't have enough of a down payment to avoid the PMI. Once I was able to do so, however, I paid down the principal, paid for an appraisal, and got rid of that waste of money. |
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chuckimagine
|
That's correct. PMI is private mortgage insurance. Any time you have less than 20% to put down you have to have PMI. That's to protect the issuer of the mortgage in case you default. Once you have paid enough to pass the 20% downpayment, the PMI will cease. |
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John M
|
the best thing to do is ask the lender what will happen under a few different scenarios and evaluate them for how they best fit your friend's particular needs and desires. You are correct about Private Mortgage Insurance, most lenders require that if you have a substantial down payment to waive the PMI. |
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loan me
 |
Hello my name is Jeremy and i work for Colonial Investment Group. I have been doing real estate for 7 years. I do specialize in 30 year mortgages and option arms. Please email me so we can talk more about the whole situation. And if the deal does go down i am willing to give referral fees. e-mail me direct at jeremyf@coloniallender.com. Thank you. A 130,000 loan amount will roughly be around 758.64 month. based on there credit. That's with no money down. What state is the property in? with 10,000 down her payment would be around 700.29. And that's with no PMI. Please email me. |
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whiskeyman510
 |
The fact that interest rates are still very low right now means put as little down as possible, as you can find more productive uses for any excess cash. If they put down 5%, that would be $6,500. Unless they are first time, home buyers, they will have to do that. Then they should get a 2nd loan for 15% so the main loan is only 80%. Doing that means they don't have to pay any (PMI) mortgage insurance as you would on loans over 80%. Mortgage insurance, like a lot of insurance, is a complete rip off and waste of cash.
Then, they can invest any left over cash in stocks or mutual funds, which can probably bring returns of 10% or better, whereas putting it towards there house, when interest rates are about 6%, would be roughly a 4% (or worse) loss in how they used their cash. |
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MISSY E
|
I am not sure but paying a pmi really stinks. Basiclly I have to pay insurance for the bank incase I default on the loan. It is money that doesn't benefit me at all. I would say to put the money down. |
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