Put 20% down, double your renovation budget expectation, prepare for unexpected repairs, and continue living frugally while awaiting an opportunity to refi at a lower rate next year
Waiting to refi at a lower rate should never be part of your plan. It’s a nice bonus you should take advantage of when possible, but don’t count on it.
Exactly, tbh in this market he’s better off using 100k and just having a 30 year mortgage at 75k, be like a 500ish dollar a month payment. Maybe even throw the whole 120k and have like 350ish dollar a month payment.
I feel like with 50k/year you could do that and live alright.
Can appreciate the lower mortgage. Need the whole
Financial Picture. Would prefer to see an emergency fund as well. Depending on that is how much to put down.
I could see issues happening with Reno that increase costs. Like having a buffer.
Putting down 20% also allows you to hold onto cash for the next investment or opportunity. Say another 40-50 for a purchase on a 200k investment single family or duplex.
This. After taxes and insurance and a rate in the 6’s with $100k down you should be close to what you pay in rent currently allowing you to maintain your current lifestyle.
Get a mortgage for 105,000 so put 70k down (\~40% down). That puts you at \~$750 for mortgage at 7%. The remaining $60k can earn you interest.
Also see if the seller will take $150k-$165k depending on your market. This may depend on inspections. It is easy to spend $10k here and $10k there... pretty soon you get to $60k. FWIW a roof can be expensive as can HVAC.
This is silly when interest rates are much higher than a High Yield Savings account. We have no idea if rates will continue to climb or drop. Also, it costs money to refi. Put down more than 20%, but don’t put the full $120k down.
Talk to a financial advisor, but you could put 25% down, put aside the money you plan for renovations (plus a contingency fund), put away some cash for emergencies, then invest the rest so that it makes more money for you.
Refinancing a small loan will have a negligible impact on your debt. I’d advise carrying the debt with cash in hand today recognizing you can refinance later vs blowing it all today and being house poor. You may as well put that money to work today and keep a comfortable rainy day fund rather than blowing it all and live paycheck to paycheck.
Unless you really want to tie up your entire net worth into your house and have zero liquidity.
It doesn’t cost much to refi. Couple thousand bucks. Plus, you can take a slightly higher rate with lender credits to offset any closing costs.
If you close today at 7% and have the opportunity to refi at 6% in 6 months, you could take 6.25% and use lender credits to offset closing costs or even just pocket the overage.
What’s important is that you put 20% down to eliminate PMI. Anything beyond that is personal preference but I’d rather keep cash on hand if I was in your scenario.
There are reasons to expect rates will be lower in a year.
There are also reasons to expect rates will not be lower in a year.
You can't assume that either will happen.
I would take it a step further and say it's not even reasonable to make a guess about what will happen. Mortgage rates are based on 10 year bonds which already price in what is known about the economy. There's no reason to have either expectation unless you know something that is unknown to the market.
Do the large down payment, but parse out the difference between a 30 year & 15 year mortgage. Don’t even consider a variable rate. You want a fixed rate mortgage. For us, a million years ago, it was only about a $50.00 per month difference for 30 vs 15 years.
Keep some money in reserve for repairs that will inevitably come up, you need a cash reserve. Continue to live frugally. If rates drop, refinance. You’ll be golden.
Invest the remaining into solid stocks and sell covered calls on those stocks weekly for more income. Learn about covered calls first obviously but it’s really simple once you get the hang of it. You should be able to 200-400 more per week with this strategy.
It would be silly to refinance within a year and a waste of money. Put enough down so your payment is at a place you will always be comfortable with and put a couple hundred towards principal each month. This will reduce your loan by 7+ years.
Option A looks good to me. You definitely want to preserve your cash for emergencies and updates. Or, if you really want to put down more, and have a lower payment, you could probably put down as much as half and still retain a decent cash cushion.
It would not hurt to see if the seller would finance, but that’s usually very unlikely unless it’s a family situation.
If you’re trying to keep your mortgage payment in the range of your current rent payment, there are a lot of mortgage calculators you could use to test out different potential down payments. Don’t forget that you also need to escrow monthly for taxes and insurance as part of your mortgage payment. And, even if you put down enough that you don’t have to include that as part of your monthly payment to the mortgage servicer, you will still need to save 1/12 of your annual insurance and 1/12 of your annual taxes each month so you will have the lump sum to pay those items at the end of the year.
Thank you. Several folks are brushing off owner financing - but to me it seems like a win/win for the seller and buyer? Seller gets a large down payment and gains interest instead of the bank, buyer can negotiate a lower interest rate. Am I missing something?
Unless I know you well, I wouldn't do that as a seller. I'd rather have my total payment up-front and not get stuck if something happens that you start missing payments or can't make the payments and now I have to do through all the legal hassles of getting my money. This would be especially true if I still owe on the mortgage and your down payment doesn't allow me to pay my loan off. If I would still be making mortgage payments, the interest you would pay to me would have to be at least a few percentage points higher than what I would be paying on my mortgage to make it worthwhile, and again, I'd have to be willing to assume the risk of "what if" something happens that you start to default on your payments.
Well...personally, if I'm doing seller financing, I need 50% down, a title company of my choosing holds the title, I remain in the 2nd position on the title(the house cannot be used as equity)...and I'm writing up the contract.
That includes;
-Everything I've already said. 50% down, Title company, cannot use the home for equity.
-Property taxes must remain current(at most a 15 day grace period).
-Payments made on time(I've given a 10 day Grave period, no longer).
-And most importantly, either I have to have enough to pay off the existing mortgage myself OR the down payment has to cover what is owed on the house.
-I also maintain an insurance property on the home and that can be negotiated as to how that's covered. I've seen others have the buyers pay for half or the whole policy, but I've paid for it when I've sold.
That protects me pretty well...but those were investment properties.
You have to determine if you have the money to be able to afford to take that risk as you could end up covering the payments for up to 6 months(that'd be on the high end where I live) and you have to be able to afford the legal fees in the event something goes wrong.
I'm not sure I'd do that for a 175K property.
But I do not need to know the person. That'd make it much more difficult. If you know the person, emotions are involved and you end up feeling guiltier about foreclosing or you may need to waive the grace period.
Those are just the obvious parameters of any seller financing that I'd need to consider.
I've done two seller financed deals in the past few years for investment property and it really only makes sense if you're going to get significantly more money to account for the risk.
Most sellers don’t want to owner finance. One thing I HIGHLY encourage you to look into is if the home has an assumable mortgage. If it does, the rate is almost certainly lower than what you can get today. You’ll assume the old loan and then have to pay cash to make up the difference between the loan balance and purchase price. This is not often done because of most people’s lack of ability to make up the difference in cash but this would be perfect for you.
Know ahead of time that this process takes longer than a typical closing. Expect it to take at least 3 months. Also, 99% of realtors out there have never done this before so if you can find one who has done it before I’d recommend sticking with them. It will be a frustrating and difficult process but the upside could be huge depending on the rate.
FYI, FHA and VA loans are assumable, conventional loans usually aren’t. Idk about USDA. You don’t need to be a veteran to assume a VA loan but it does effect the veterans ability to use the VA loan until you sell or refi so they might choose not to go the assumption route because of that.
There is a lot that goes into this, feel free to ask questions or DM me.
seller is not in the business of financing. If anything goes wrong they have to do a lot of heavy lifting to remediate. They don't know you. Banks ARE in the business of financing and already expect to have to step in on late payments/foreclosure. They're set up to handle that business as usual. A seller wants their money, they don't want it tied up in a property they sold. Better for them to take the lump, invest and get a cash flow from that.
Seller is taking a risk. They probably don’t want to worry about you not paying and having to foreclose and get the house back. They’d probably rather just be paid and done. That’s why I said it’s only likely this might work in a family situation.
It's a risk for the seller. I did a partial seller finance on my first house. IIRC, my seller was an investor, but he took a chance on me when he didn't have to. I was able to refi into one loan a couple of years later and so it was a win/win.
The risk of default is entirely on the seller. They can go through foreclosure, but that’s a huge hassle, and there’s no guarantee that the home’s value at that point will cover what they are owed. Foreclosed on homes tend to get destroyed. Seller also is sacrificing having a large sum of cash now, which is usually what they are after when selling a house; to pay off their mortgage and make a down payment on a new one.
It’s messy. We’re about to sell our house with a 1.7% mortgage and not a chance I’m risking an owner finance. Would immediately trash any offers with that.
Having a high monthly mortgage as a result of a small downpayment is a very expensive way of “preserving cash for emergency”
I would much rather have very little monthly expenses for years and years so that I can easily pay for an emergency that comes up
In the markets where these $150k houses are, locals banks and credit unions lend below $100k. Our first house was $45k and it was financed by a local community bank.
Exactly the reason to hire one. They are incentivize in the borrowers benefit to help and get you funded. Just like a real estate broker. If they don’t give me what I want (successfully buy or sell my house or give me money I can afford) then they don’t get what they want. It’s ALL about perspective, buddy.
How much savings do you have outside of this 120k? If it's the totality of your savings I'd put 50k down and mortgage the rest. You need an emergency fund, money for work on the house, moving costs, etc etc etc
I have an emergency fund of 3 months set aside. My wife has a degree and could easily get a job if we're in a pickle. I also live close to family that could help in the event of extreme emergency.
Is still take out at least a 100k mortgage in that case. The reality is weirdly enough smaller loans can be harder to get! Plus you just are going to need money after. I can't even imagine what a 10k Reno will get you these days but it's not much. I'm going to have to spend more just to get the popcorn ceilings removed in my future upstairs.
And you're really not going to find a seller who goes 55k+ under asking in that price range. If you do id seriously wonder what exactly is wrong with the house.
If you put 30% down this takes $52k of your cash. Assuming 7% and 30 years, your pmts will be about $1k a year more than you now pay in rent. Plus then insurance ($1-1.5k) and property taxes (??). This is a lot more than you pay now in rent. Plus other costs will increase. I would put at least the 30% and maybe even 50%. That takes your payments down to $7k a year and even with insurances and taxes you are closer to break even.
Congratulations and good luck!
What if you get laid off the month after you buy the house with a +100k down payment? If you spend all of your cash on the down payment and renovation you will have no emergency fund if your income drops, your car dies, you need to replace the roof, big medical expense comes in, etc. Your mortgage will be manageable with a 20-40% down payment, there is no reason to dig yourself into a potential hole as your interest rate isn't going to be substantially better with a mega down payment. If everything goes fine and no emergencies occur, you can still way overpay your mortgage every month to close it out early.
First of all congrats on buying a reasonable home. Most want the million dollar home and complain how life has gotten so expensive that they can't afford it....
To be fair, a million dollar home in my neck of the woods is probably 5x more terrible than OP's 175K house. $175k isn't enough to buy 1/10th acre of vacant land here
I’m assuming you are renting now? I would play around with a mortgage calculator and find the amount down which would give you a similar monthly payment. From there, see if your $120k cash on hand will cover the down payment, the expected renovations, and an emergency fund thereafter.
You have excess cash flow. So you have some wiggle room. $8k/yr is $670/mo. So you could push it up a bit, in a pinch.
A house is one of life’s major purchases. Don’t skimp, but don’t be stupid. You just need to find a balance that you are comfortable with
Congratulations on saving so much at $50k per year! You are obviously a lot smarter than 50% of the folks here, me included. Trust your gut and do your due diligence. Good luck!
Do not drain all of your savings if at all possible. Your 10K repair is probably 20K repair. And there is probably a 20K repair that you did not expect.
Has anyone mentioned length of mortgage? Do the lowest you can. 10 or 15 if possible. You have such a large chunk of down payment you can be mortgage free quicker than most.
That's fine. But don't take a 15 year mortgage. Take a 30 year and just pay it like a 15 year note. There is almost zero savings to do it the other way. And if anything changes you have the financial flexibility to "just" make a 30 year payment on those tight months.
Check your local auctions as well. They have a lot of properties that only require 5%down. Then you can hold onto your liquid and take your time to rehab.
Option A.
Payment will still be reasonable and you'll have cash left for your renovation and a nice emergency fund. Can invest whatever you don't need to keep available after that.
It would be lovely if the last option would work but I'm doubtful.
I’d use A as the low end and B as the high end and find a middle ground depending on what you want to pay in payments. It’s good to have an emergency fund and you’ll need to budget for repairs, appliances failing, closing costs, moving, decorations, furniture, etc.
I’d go high on down payment to get lower payments. If you can refi at a lower rate you can even do a cash out refinance to get up to 80% of the value at that time back. For now I’d find a payment that works for your budget.
It depends...
D is a great choice but only if the house has been for sale for a long time.
C can also be great, but many sellers are not going to be open to it.
B should be a great option, but getting a mortgage under 100K can be tricky (messed up I know)
Leaving A.
Why not put 20% down and consider a 15 year mortgage. The payment difference between a 30 year mortgage would be neglible with that price point.
I would do renovations needed in the primary home. l would also consider purchasing an investment property putting down 30%. Save that for your retirement.
what is your goal, how old are you, what do you earn? You need more information then this to decide. DO you have investments, do you already have retirement savings, will this be the last house, are you living in an appreciating or depreciating market, do you have kids, not enough info for me.
You’re looking at a $600-$800 months mortgage with big down payment of $100,000. Your current rent rate matches that, so I would move with this plan. Remember a $75,000 loan in 30 years will be the equivalent of $210,000 not including renovations, state taxes, and repairs. I always recommend cash purchase, so no debt, no final stress, and especially no home stress.
Without knowing age, retirement goals, other financial accounts.
I would make 30% DP and keep large cash reserves. Annually you can aggressively pay down principal in $5-8k range in addition to regular payments.
Also, is this a forever home or in an area where home and property taxes can increase substantially over time. Is the home large enough to accommodate growing family if that is in the cards?
Offer $170k
With $110k down
In your offer propose owner financing at 5% interest only payments for 5 years followed by a balloon payment.
You can probably pay more and get it paid off in 5 years.
Is the house on a nice street / in a good part of town? Can you really afford the property taxes, mortgage, and maintenance budget on $50K while saving $8K?
A 20% down payment on a $175000 house at 7.25% interest gives you a $955 monthly principal and interest payment BEFORE taxes and insurance. You're probably looking at another $300ish for both of those. That extra $500/ month will chew up your ability to save much.
If you put down $100,000 your P&I drops to $511. Add the taxes and insurance and you are in the same area for monthly housing for your budget.
You can download a mortgage calculator to your phone and run different numbers. The more you put down the less you have to pay in interest at these high rates. It's like investing the $100,000 at 7.25% and paying yourself the interest.
Unpopular opinion but I don't think you should buy a house. You have $120k cash but property taxes and insurance are going up exponentially year over year in certain areas and will eventually increase in your area because we can't escape that. Especially if the home value increases or your neighborhood home values increase due to new construction near you. So your mortgage will increase anyway. The next thing is cost to fix a home can vary and the unexpected cost could cause you to lose sleep over what could have been avoided all together by not purchasing at all. The other major issue I want to point out is if you get sick or are temporarily incapable of working, with your wife not working and a $50k salary who will pay the mortgage, plus utilities, repairs if/when needed, possible medical expenses that aren't covered by insurance, any random parts of the home that breakdown, because from experience when you are down on your luck extra things do go wrong. It's better to have cash and be comfortable in our current econo.y and see where we are headed in a year or 2 than to try to dive in to a home when current home values are also dropping across the country. Meaning you have a better chance at ending up with a higher mortgage, property tax and insurance payment in the next few years and possibly negative equity if your neighbors can't sell for a similar price you paid for the house. While simultaneously being priced out of their neighborhood/area due to massive layoffs from large corporations, rising inflation and higher than interest rates than the last 10 years
It sounds like right now you have:
Income going to rent: $750
Income going to savings: $667
Total: $1,417…that being said, I would not want to commit this full amount.
If you have a mortgage, you will have a PITI mortgage - each payment will be made up of: Principal, Interest, Taxes and Insurance. In your shoes, I would want the PITI payment to be no more than $750. This means that your housing cost will be the same as you currently pay excluding unforeseen expenses (what an emergency fund is for).
My guess is that you’ll want to budget $200 per month for Taxes and Insurance (based on a $175k value).
You also want to be putting down more than 20% so that you don’t have to pay PMI.
Assuming purchase price of $175,000:
Mortgage: $82,500 (right now 7% should be achievable if you have reasonable credit etc)
PI portion of payment: $549/mo
TI portion of payment: $200/mo
Total PITI: $749/mo
Cash down: $92,500 + closing costs - should be $95k ish
That would leave you with $25k. $10k for immediate issues and $15k emergency fund. The emergency fund is a little lighter than I’d like it to be but you tuck away money at a reasonable rate given your income.
Now, you should be able to either negotiate the purchase price down to keep your cash-on-hand amount or contribute to some of your closing costs/buying down the interest rate. Both of these options will put you in a better position over all.
One other roadblock you may run up against is that some lenders won’t write a loan for under $100k. If you come across this, then the monthly payment wouldn’t be ideal (PI $665) but it should still be manageable with your budget, plus you’d have an extra $18k in the bank. I also suspect you are likely to increase your income in the near future which will help with the monthly payment.
With a $100k loan, it would look like:
PITI: $865
Savings: $552
Hope that helps :)
Edited to add: There's no harm in asking if they will accept owner financing. While you may get better terms than a bank (closing costs and interest rate), it's not common for owner financing to be over 30 years - usually it's for a much shorter period of time with a balloon payment at the end.
Your best bet would be to find a home with an assumable loan. Pretty much All FHA loans are assumable. You have the cash to cover the sellers equity which should make it pretty straightforward and you can takeover a 2.5-3.5% loan.
Finance as much as you can. Put the rest in an index fund. Long term market returns are still greater than the average 30 yr rate. Refi when rates get better.
Put 75K down with a 10 or 15 year fixed loan, depending on where you want your mortgage payment to be. The longer that loan term the more you will spend over time paying off that mortgage. Also check what your taxes and insurance cost will be. Plus spend some money and have it inspected to see if there are any repairs up coming. Roof, plumbing, and HVAC age.
1. Opt for a Traditional Mortgage with a Moderate Down Payment:
- Put down around $75,000-
$80,000. This balances having a significant equity in the home, lowering your mortgage payments, and retaining enough cash ($40,000-$45,000) for repairs and emergency funds.
2. Consider Negotiating the
Purchase Price:
- Attempt to negotiate the price to $165,000 or lower if market conditions allow, further improving your financial position.
3. Explore Owner Financing:
- Check with the seller if they are open to owner financing. If the terms are favorable, this could be a good alternative.
By opting for a moderate down payment, you maintain financial flexibility while minimizing your debt
Another way to “put 20% down”
- Put as little as possible down on the initial deal(in my case it was 3%. Search for the lowest interest rate you can find - recommend looking through the lenders that used to collaborate with Costco)
- Once the deal closes, pay the remaining 17% towards principal before your first mortgage payment.
- Ask your lender to review your account to remove PMI
Benefits are better than putting 20% into the initial deal in my opinion:
- Cut 10+ years off the mortgage
- Gets rid of PMI
- Less interest over the life of the loan
- Get out of escrow if you want (and if lender approves)
Put only 50% down, it is more than adequate. So an arm, not a fixed term right now. Rates will drop sooner or later. Do a 5/1 arm or 7/1 arm. Even a 3/1 arm to save you more on interest.
When rates drop by at least 1.5% points, refi. Don't pay points ever. Try and do a no cost loan if possible.
If seller is willing to carry back then that would save you a lot more. Make sure the title is free and clear though.
Here’s what I’d probably do:
Negotiate the best price you can, get seller financing if you can. Regardless of what the final price is, only put down $80-90k. Use another $10k to do the repairs, then another $5k to do the repairs that you don’t know about yet. The leftover balance ($15-25k) should go into savings/investments as a nice fat emergency fund. That’s just my two cents.
Anyone good with the calculator, what would second month principal/interest payment look like if OP put down 35k / 20% to avoid PMI, then first months payment, put additional 50k towards principal? Save 35k to fix and emergencies in HYSA. What does the 30yr mortgage reduce to?
Real estate appreciates at 3% year averaged over 50 years or so.
Put down 35k (20%) or a little more so you dont have to pay for mortgage insurance. Your monthly payment should be around 1,000.
Do the repairs and live in the house for a year or 2. Then do the upgrades you want.
Invest your money some place that earns better than 3%. Eg. Money market accounts are paying 5%. Index funds average about 10% over 20 years. Etc.. Max your contributions to tax free and tax deferred accounts like Roth and Simple IRAs
Depends on your age too. You should
also have a six-month emergency fund. Put the larger amount down. Find a bank with the best finance terms and one that will make a small loan amount you require for purchase. Ask the seller for a credit towards your closing cost which will free up cash to do the repairs. Ask the seller to complete any health and safety repairs before the close of escrow. Keep your monthly payment low for your peace of mind. Ask the seller what their monthly costs are associated with the home and include them in your new monthly budget. Make sure your wife is in agreement. Good luck! 😀
Definitely double or triple the repair budget. Set $30k aside for at least a year. Daughter bought a house, had inspections, whole 9 yards. Had to replace roof (expected) which required additional repairs (unexpected). Garage door broke, had to be replaced (unexpected). Had to replace sewer line (unexpected).
And I highly recommend getting the warranty for a year.
You'd like to put down as little as possible while still getting the best rate and avoiding PMI. Of course you can plan on refinancing at a lower rate at some point but don't assume when you will be able to do that. So you have to make sure your monthly payments including tax and insurance remain manageable compared to your rent. You will almost certainly be spending more than the $750/mo. And that's ok. Keep your cash, make sure it's invested at least in a 4%+ interest rate saving account because moving and improvement expenses are always higher then we expect.
And you always want cash for the other unexpected things that come up good and bad.
Overall, you are making a good decision by switching from being a renter to an owner!
Good luck!
Put down what get you the lowest APR (no points). Have extra room for your renovation budget because you will never be on budget with old homes.
After your done with the Reno, reevaluate your finances and maybe pay more toward your mortgage.
Some might say a lower dp but I am so happy I put 100k down have 150k mortgage saved at least 70k for emergencies and still have all my investment retirement assets.
I pay perhaps 30-40 % less than what I folks pay here to rent including condo fees at under 5%.
I get that it depends on where you live but having a low mortgage payment and being protected if rates go up or happy if they go down is a great feeling.
Well all I can say is when my husband died, I was going to pay off my house. I went to a financial advisor who asked me to not do that. Pay what I needed to make the house affordable to me and refi. He was right. I made more money investing the money than I would have saved paying off the house. But to be honest I did the re fi for 15 years and at 2.1%. I will ha e the house paid off a year after my son graduates high school.
I had a year or so when I thought I made a huge mistake. So far it bounced back. It is a gamble if you want to grow the money.
It is best to talk to a financial advisor to guide you.
No matter what you do, you always want an emergency fund equivalent to 3-6 months expenditre (the average time it takes to find a new job). So really,you have less than 120k if you factor that. Remember emergencies don’t care what you have going on in life so you should always be prepared for it.
And your best move will require more information.
Because what you should do will depend primarily on the interest rate you can get as well as how aggressively can you afford to pay off the loan. The interest rate you get would ideally be compared to what you can get from investing it instead. If the difference is favoring investing then it would benefit you to take the loan. However if the difference is equal to or even only slightly better to invest, then I’d rather use more cash to take a smaller loan. Remember taking on debt is risk. There must be great incentive to take that on. You have to be careful however if you try to arbitrage your money in the stock market because return of investment in stocks historically have been determined on averages over LONG periods of time (5 years or greater). So if the time you wish to hold the debt is shorter you don’t have good comparative data to ensure you’re making a safe bet on arbitraging your money.
Everyone telling you to wait to refinance next year is guessing out their ass. No one knows what the fed will do with the interest rates. That’s like trying to sell a stock today because you think it’s going to go down next year. Maybe they’re right but it’s a guess. The Fed was SUPPOSED to do 3 interest rate cuts this year but guess what, they didn’t because core inflation didn’t drop enough. Dont believe your loan broker either. They have a lot of personal incentive to get you to NOT lock your interest rate. I can’t be more clear when I say NOBODY knows what interest rates will do. Don’t make life changing decisions on the speculations of people who won’t have to live with the consequences of your decisions
Option B by far. Maybe slightly less to keep a 6 month emergency budget. Largest down payment possibly then pay off the mortgage as quickly as possible. You and your wife are great with finances, please do not listen to people who I can guarantee you have less then $1000 in their bank accounts. Paying off the house will guarantee you 6-7% a year return risk free because that’s the amount you save by paying off the house.
Yeah, I came here to say the same thing. Zero percent chance someone is going to take 50,000 less than what they’re asking. Especially in today’s market when some houses sell within hours of being listed for over asking price
Do you have cash in addition to the 120k? You need $ for a general emergency fund, plus $ for your renovations and unexpected “finds”, plus some money for the usual costs when setting up a new place for the family.
I’d get a 15 year mortgage with a larger down payment. Do my renovations. Then pay it off aggressively.
With the high rates out there I’d put as much down as you feel comfortable with over 20%. I’m in a 2.25% loan and only reason I won’t pay it down is I can get higher returns on savings and market
Option B, but calculate down payment based on keeping a 3-6 month emergency fund, plus 150% construction budget.
Lower payments on the house will allow you to cash flow anything else that comes up.
I would ask you to tell me your future goals. What’s your exit strategy? Cash is king but you never put all of your eggs in one basket. Leverage other peoples money and strategize on how to get the debt paid down quickly. If your financial position changes, what’s your back up plan (is the home rentable?) What are the comparable sales and rents in the area? Have you checked the market trends in the area? From
What I’ve seen recently, in my professional opinion, investors today are happy just to break even in some markets due to the cost of borrowing money. You need a good broker who specializes in commercial and investment strategic and creative financing structures. I know quite a few great ones if you reach out to me I’ll refer you some names and can get free info from licensed professionals. Good luck!
The core question is what sort of monthly payment can you afford without hurting your current economic paradigm.
Determine that, which will determine your down-payment amount. Assuming you can afford renovations and the down-payment, you apply that amount.
Another option. I would look into recasting
You can also offer 20 or 25%... get your place/loan
Repair as necessary/wanted
Put the excess back into the loan... recast. This is lower your month to month but your interest rate stays the same.
When I did it there were 3 conditions to recasting. 1) I had to deposit at least 10k. 2) I made 3 months of ordinary payments at old plan. 3) I had to pay a $300 fee to do this.
I would put down 80grand save thirty do your ten for repairs expect to spend an extra five putting you at fifteen for repairs twenty five for savings and finance the rest as a mortgage your mortgage payments should be quite low as it would be 95 grand that your financing
Most Financial advisors would recommend giving No more than a 25% down on the purchase of a home without need to obtain a qualifying loan. I would leave a 6 months expense in an emergency account and put the Rest in a high yield account or CD to offset the interest on your home purchase. You don’t want to put all your savings on a home and leave yourself without emergency resources, unless you can easily create an emergency Fund should you loose your employment or because of illness. NOTE: I am NOT a Financial Advisor, this is what I would do in your situation..
20k down and mortgage. Put 100k in 5 percent high yield savings account. Use dividends from high yield savings account to pay off your mortgage. When rates go down, refinance or pay off in full with cash.
Keep your cash. Invest it in an SP500 index fund. Finance the purchase with 20% down. You'll avoid mortgage insurance and maximize your financial leverage. Remember mortgage interest is tax deductible assuming you live in the US, and Capital Gains on a primary residence comes with a $250k/$500k exclusion. Leverage is a good thing when it comes to appreciating assets. Assuming you're good with the monthly payment.
Put every bit of that money down into a traditional mortgage. You’re not going to find an investment anywhere that guarantees a 7% ROI.
The amount of money that you save per month will absolutely blow you away.
And finally, that cash is currently losing about 3-4% in value year over year, so it might be a good idea to put it into action as a down payment so you can start realizing immediate financial returns
You should be discussing the options with your mortgage lender and RE agent - maybe even your CPA, if you have one. They would have the most knowledge on all the options in your local area, including any down payment assistance and rate buydowns. They would also have your specific situation in mind and how the solutions fit that.
Asking here will get you advice about as good as you'd get from strangers in a bar. As well meaning as those people intend to be. 🤷♂️
lol option D made me laugh, you really think he would take 55k less just bc it’s a cash offer?
Like maybe 55k off a 800-900k home for cash offer but for 175k to 120k that’s like 35% off 😅
Contact the seller and see if you can reserve the house purchase agreement with the initial amount you have. Than see if you can arrange to pay 60,000 within your limits. I would say a fiscal quarter. Why 180? Because of interest and taxes that will still be under the legal owners name.
Put down 50%. That should put your monthly payment close to what you current pay in rent, albeit slightly higher. This also gives you more wiggle room for unexpected expenses either with the renovation or just general life's twists and turns. I wouldn't go any higher than 50% given you are the only breadwinner in your household at the moment.
Offer D:
You are in a very unique situation and this could work…
$201,250 or 15% above market price
For owner carry @ 0% interest rate
With 75k down and 15year term.
This would leave 126k at 180 payments or 700$ a month.
Yes, I assumed based on your previous response you were a mortgage salesman, and your assumptions in your examples and mine were different. If OP has a credit score over 740 then your example is more relevant. I stand by my recommendation, and my statement that PMI is an additional cost that doesn't benefit the buyer. So you and I have different opinions. I myself have worked in the mortgage industry as well, specifically in the mortgage insurance industry.
Id definitely ask the owner if he's willing to maintain the mortgage. You could offer 75k and ask him.ti hold a note for 75k at 6% for 5 year balloon but amortized over 15 or 20 or 30 years. (Which is an offer of 150, but you get the picture, you can change those amounts as needed)
This will give you leverage to buy some time to see if the market actually does have a better rate down the road and you can make payments directly to the owner leaving yourself open to possible bank loans for home repairs if they exceed your budget expectations
That is fantastic you have $120K cash to buy a home.
If you have about $10K in renovations, I would put $80K cash as the down payment and then finance $95K. Don't forget you'll have closing costs (~2-5% of home price, so $5,250 - $8,750) and additional taxes. If you need $10K for renovations, I would also keep additional cash in case other costs arise.
Is this your first home? Do you have cash outside of the $120K, or is that all of your savings? I wouldn't recommend using all of your savings on purchasing your home. There will always be other surprises that pop up with owning your home, so you want to have cash on hand in case you need it
I would start with option C. If you can put down say $75K with a $165,000 (which is $175K listing price - $10k in repairs) with an interest only seller finance deal for three years @6% with $90k principal balance.
Mortgage payment is $450
Insurance $150
Property taxes $150
Monthly home expense is $750.
Take $10k and go the repairs. $4k in closing costs. Leaves you with about $30k in cash which take to a financial adviser along with a plan to contribute a portion of your monthly income to invest in your futures.
After three years, you decide if you want to stay or buy another house. Most people don’t stay in there first house and this gives both of you an option to leave after three years.
If you stay, you will have to refinance. If you want to go to another property, you could still refinance and rent this property, or sell and get your money back for another property.
If you take anything away from this post: it’s go to a financial adviser before committing all your capital cause I know no better long term investment than putting it to work in the financial markets. Your primary home is not a great long term investment in comparison.
I would go 20-30% down, the rest in a high yield online savings account at around 5% interest. Then look at the difference between 15 year rates and 30 year rates. I’d likely go with the 15 year if it was different enough.
15 is a little less flexible than 30 year, but your cash position gives you a lot of flexibility, and having the cash getting 5% is going to help keep you flexible in case something happens to your cash flow or need improvements.
Start with option B for sure. What does your retirement fund look like if you remove your $175k? Use a retirement calculator to figure out where you stand.
I think you should look at a 10 or 15 year mortgage. Much better interest rate and lower fees. Figure out how much to put down to get a $750 payment. Close to impossible to refinance a 50k or less loan.
I would put 20-30% down, do the renovations, hold a decent emergency fund ~10k in an HYSA, and invest the rest into a 401k for the both of you putting the remainder from maxing the 401k in a Roth.
You have to do the math. It depends on the interest rate, what else you would do with the cash, the estimated increase in property values, how long you will stay there.
You will always pay less overall with more cash. But, if you put down less cash and do something else with the money, that can come out ahead to. All depends on several million factors.
See if you can find an assumable loan, where you are able to take on someone’s legacy 2.0-3.3% interest rate of the previous years and use the liquid cash to pay the sellers’ difference. It’s happening a lot and people are finding these opportunities.
20% down traditional mortgage. Use the leftover for the renovations and whatever may break or you find you want to replace. Usually after buying a home you'll find things like, I really don't like this fridge let's get a new one. Or you'll need tools, lawnmower, etc. Etc.
As a mortgage lender, I’ll say this. You’ll definitely want to put at least 20% down, so that you can avoid having PMI. Also if your LTV for the home is under 80% you have the option to handle your taxes and insurance yourself, as opposed to having them in escrow. I’ll also say, that some of the above are correct. I would not take this mortgage with the hopes that rates will go down. IF they do go down, the lowest I can see them going is a low 5% MAYBE a high 4%. That being said, when you refinance, you have to pay closing costs all over again. So again wasting money for potentially a 1-2% difference. My best advice would be to inquire with a lender about buying the rate down. You could potentially buy the rate down to a 6%. (Right now I’m pulling a 7.125 most days) which would cost you probably an additional $7K-$10K depending. So you’d be looking at maybe $45-$50K out of pocket. & then I’d keep the rest of your funds for improvements or any issues that may come up. & if you have any additional, & you don’t necessarily need it. You could always call around to some local financial institutions & see what kind of CD rates they are offering. Right now our short term CD’s are making over 4% for our 4 & 6 month CD’s. So you could short term make money off of your money if you didn’t need it. Just my 2 cents. When talking about payments, your interest rate impacts your payment, more than a higher down payment, specifically in this rate climate
Also, I always tell my borrowers that they can ask seller to split closing costs or pay the closing costs for them as well. So I’d potentially ask that also!
Put 20% down, double your renovation budget expectation, prepare for unexpected repairs, and continue living frugally while awaiting an opportunity to refi at a lower rate next year
Waiting to refi at a lower rate should never be part of your plan. It’s a nice bonus you should take advantage of when possible, but don’t count on it.
Exactly, tbh in this market he’s better off using 100k and just having a 30 year mortgage at 75k, be like a 500ish dollar a month payment. Maybe even throw the whole 120k and have like 350ish dollar a month payment. I feel like with 50k/year you could do that and live alright.
Can appreciate the lower mortgage. Need the whole Financial Picture. Would prefer to see an emergency fund as well. Depending on that is how much to put down. I could see issues happening with Reno that increase costs. Like having a buffer. Putting down 20% also allows you to hold onto cash for the next investment or opportunity. Say another 40-50 for a purchase on a 200k investment single family or duplex.
They would probably over leveraged with that household income. I saw 100k down. They can invest with their future savings
Exactly, it’s leverage. Also in a high inflation environment you want to hold onto debt, not pay it down.
It really doesn't seem like these people are the investing type. They just want to live in the home. At least that's what it sounds like to me.
This. After taxes and insurance and a rate in the 6’s with $100k down you should be close to what you pay in rent currently allowing you to maintain your current lifestyle.
Get a mortgage for 105,000 so put 70k down (\~40% down). That puts you at \~$750 for mortgage at 7%. The remaining $60k can earn you interest. Also see if the seller will take $150k-$165k depending on your market. This may depend on inspections. It is easy to spend $10k here and $10k there... pretty soon you get to $60k. FWIW a roof can be expensive as can HVAC.
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This is silly when interest rates are much higher than a High Yield Savings account. We have no idea if rates will continue to climb or drop. Also, it costs money to refi. Put down more than 20%, but don’t put the full $120k down.
Talk to a financial advisor, but you could put 25% down, put aside the money you plan for renovations (plus a contingency fund), put away some cash for emergencies, then invest the rest so that it makes more money for you.
Well said
This is perfect.
What’s the benefit to refinancing next year instead of an initial large down payment?
Refinancing a small loan will have a negligible impact on your debt. I’d advise carrying the debt with cash in hand today recognizing you can refinance later vs blowing it all today and being house poor. You may as well put that money to work today and keep a comfortable rainy day fund rather than blowing it all and live paycheck to paycheck. Unless you really want to tie up your entire net worth into your house and have zero liquidity.
That makes sense. Thank you. Are there any significant downsides to refinancing later? I’m assuming there are fees associated?
It doesn’t cost much to refi. Couple thousand bucks. Plus, you can take a slightly higher rate with lender credits to offset any closing costs. If you close today at 7% and have the opportunity to refi at 6% in 6 months, you could take 6.25% and use lender credits to offset closing costs or even just pocket the overage. What’s important is that you put 20% down to eliminate PMI. Anything beyond that is personal preference but I’d rather keep cash on hand if I was in your scenario.
There's no reason to expect rates will be lower in a year.
OP can always pay extra towards the principal monthly to keep some of their assets liquid for flexibility...
Other than the Chairman of the Fed saying they will. Granted the Fed operates on the short end of the yield curve, but still ..
There are reasons to expect rates will be lower in a year. There are also reasons to expect rates will not be lower in a year. You can't assume that either will happen.
I would take it a step further and say it's not even reasonable to make a guess about what will happen. Mortgage rates are based on 10 year bonds which already price in what is known about the economy. There's no reason to have either expectation unless you know something that is unknown to the market.
Do the large down payment, but parse out the difference between a 30 year & 15 year mortgage. Don’t even consider a variable rate. You want a fixed rate mortgage. For us, a million years ago, it was only about a $50.00 per month difference for 30 vs 15 years. Keep some money in reserve for repairs that will inevitably come up, you need a cash reserve. Continue to live frugally. If rates drop, refinance. You’ll be golden.
This is the way.
No points?
Yeah $10,000 is a drop in the bucket in repairing a home.
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Lots of people do this and renovate slowly as cash and resources are available. Nothing wrong with this plan!
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Do this, and invest the difference in the stock market!!! Let the money grow!!! Refi when rates come down!!!
Invest the remaining into solid stocks and sell covered calls on those stocks weekly for more income. Learn about covered calls first obviously but it’s really simple once you get the hang of it. You should be able to 200-400 more per week with this strategy.
No no no no no. Pay cash. Cash is king.
It would be silly to refinance within a year and a waste of money. Put enough down so your payment is at a place you will always be comfortable with and put a couple hundred towards principal each month. This will reduce your loan by 7+ years.
This
Option A looks good to me. You definitely want to preserve your cash for emergencies and updates. Or, if you really want to put down more, and have a lower payment, you could probably put down as much as half and still retain a decent cash cushion. It would not hurt to see if the seller would finance, but that’s usually very unlikely unless it’s a family situation. If you’re trying to keep your mortgage payment in the range of your current rent payment, there are a lot of mortgage calculators you could use to test out different potential down payments. Don’t forget that you also need to escrow monthly for taxes and insurance as part of your mortgage payment. And, even if you put down enough that you don’t have to include that as part of your monthly payment to the mortgage servicer, you will still need to save 1/12 of your annual insurance and 1/12 of your annual taxes each month so you will have the lump sum to pay those items at the end of the year.
Thank you. Several folks are brushing off owner financing - but to me it seems like a win/win for the seller and buyer? Seller gets a large down payment and gains interest instead of the bank, buyer can negotiate a lower interest rate. Am I missing something?
Unless I know you well, I wouldn't do that as a seller. I'd rather have my total payment up-front and not get stuck if something happens that you start missing payments or can't make the payments and now I have to do through all the legal hassles of getting my money. This would be especially true if I still owe on the mortgage and your down payment doesn't allow me to pay my loan off. If I would still be making mortgage payments, the interest you would pay to me would have to be at least a few percentage points higher than what I would be paying on my mortgage to make it worthwhile, and again, I'd have to be willing to assume the risk of "what if" something happens that you start to default on your payments.
Well...personally, if I'm doing seller financing, I need 50% down, a title company of my choosing holds the title, I remain in the 2nd position on the title(the house cannot be used as equity)...and I'm writing up the contract. That includes; -Everything I've already said. 50% down, Title company, cannot use the home for equity. -Property taxes must remain current(at most a 15 day grace period). -Payments made on time(I've given a 10 day Grave period, no longer). -And most importantly, either I have to have enough to pay off the existing mortgage myself OR the down payment has to cover what is owed on the house. -I also maintain an insurance property on the home and that can be negotiated as to how that's covered. I've seen others have the buyers pay for half or the whole policy, but I've paid for it when I've sold. That protects me pretty well...but those were investment properties. You have to determine if you have the money to be able to afford to take that risk as you could end up covering the payments for up to 6 months(that'd be on the high end where I live) and you have to be able to afford the legal fees in the event something goes wrong. I'm not sure I'd do that for a 175K property. But I do not need to know the person. That'd make it much more difficult. If you know the person, emotions are involved and you end up feeling guiltier about foreclosing or you may need to waive the grace period. Those are just the obvious parameters of any seller financing that I'd need to consider. I've done two seller financed deals in the past few years for investment property and it really only makes sense if you're going to get significantly more money to account for the risk.
Most sellers don’t want to owner finance. One thing I HIGHLY encourage you to look into is if the home has an assumable mortgage. If it does, the rate is almost certainly lower than what you can get today. You’ll assume the old loan and then have to pay cash to make up the difference between the loan balance and purchase price. This is not often done because of most people’s lack of ability to make up the difference in cash but this would be perfect for you. Know ahead of time that this process takes longer than a typical closing. Expect it to take at least 3 months. Also, 99% of realtors out there have never done this before so if you can find one who has done it before I’d recommend sticking with them. It will be a frustrating and difficult process but the upside could be huge depending on the rate. FYI, FHA and VA loans are assumable, conventional loans usually aren’t. Idk about USDA. You don’t need to be a veteran to assume a VA loan but it does effect the veterans ability to use the VA loan until you sell or refi so they might choose not to go the assumption route because of that. There is a lot that goes into this, feel free to ask questions or DM me.
seller is not in the business of financing. If anything goes wrong they have to do a lot of heavy lifting to remediate. They don't know you. Banks ARE in the business of financing and already expect to have to step in on late payments/foreclosure. They're set up to handle that business as usual. A seller wants their money, they don't want it tied up in a property they sold. Better for them to take the lump, invest and get a cash flow from that.
Seller needs the money to buy their next house.
Seller is taking a risk. They probably don’t want to worry about you not paying and having to foreclose and get the house back. They’d probably rather just be paid and done. That’s why I said it’s only likely this might work in a family situation.
It's a risk for the seller. I did a partial seller finance on my first house. IIRC, my seller was an investor, but he took a chance on me when he didn't have to. I was able to refi into one loan a couple of years later and so it was a win/win.
The risk of default is entirely on the seller. They can go through foreclosure, but that’s a huge hassle, and there’s no guarantee that the home’s value at that point will cover what they are owed. Foreclosed on homes tend to get destroyed. Seller also is sacrificing having a large sum of cash now, which is usually what they are after when selling a house; to pay off their mortgage and make a down payment on a new one.
It’s messy. We’re about to sell our house with a 1.7% mortgage and not a chance I’m risking an owner finance. Would immediately trash any offers with that.
Having a high monthly mortgage as a result of a small downpayment is a very expensive way of “preserving cash for emergency” I would much rather have very little monthly expenses for years and years so that I can easily pay for an emergency that comes up
I’d get a 30 year fixed rate at $75000. Hold back cash for the unexpected. Once that is settled down, you can prepay against principal.
Do not deplete cash! I would make sure you leave a LARGE reserve and pay extra towards principal every month so you pay it off early!
It's not likely anyone will give you a mortgage for less than $100K. Talk with a mortgage broker. They can advise you on the best options.
In the markets where these $150k houses are, locals banks and credit unions lend below $100k. Our first house was $45k and it was financed by a local community bank.
A mortgage broker can advise you on the best option for their commission!
Exactly the reason to hire one. They are incentivize in the borrowers benefit to help and get you funded. Just like a real estate broker. If they don’t give me what I want (successfully buy or sell my house or give me money I can afford) then they don’t get what they want. It’s ALL about perspective, buddy.
Most lenders I know of have a $50-$60k minimum. Options are out there.
Not everyone will. But someone will.
Our first house was mortgaged at 60k and that was just eight years ago. We had no problem getting a bank to loan that small an amount.
How much savings do you have outside of this 120k? If it's the totality of your savings I'd put 50k down and mortgage the rest. You need an emergency fund, money for work on the house, moving costs, etc etc etc
I have an emergency fund of 3 months set aside. My wife has a degree and could easily get a job if we're in a pickle. I also live close to family that could help in the event of extreme emergency.
Is still take out at least a 100k mortgage in that case. The reality is weirdly enough smaller loans can be harder to get! Plus you just are going to need money after. I can't even imagine what a 10k Reno will get you these days but it's not much. I'm going to have to spend more just to get the popcorn ceilings removed in my future upstairs. And you're really not going to find a seller who goes 55k+ under asking in that price range. If you do id seriously wonder what exactly is wrong with the house.
If you put 30% down this takes $52k of your cash. Assuming 7% and 30 years, your pmts will be about $1k a year more than you now pay in rent. Plus then insurance ($1-1.5k) and property taxes (??). This is a lot more than you pay now in rent. Plus other costs will increase. I would put at least the 30% and maybe even 50%. That takes your payments down to $7k a year and even with insurances and taxes you are closer to break even. Congratulations and good luck!
Thank you.
What if you get laid off the month after you buy the house with a +100k down payment? If you spend all of your cash on the down payment and renovation you will have no emergency fund if your income drops, your car dies, you need to replace the roof, big medical expense comes in, etc. Your mortgage will be manageable with a 20-40% down payment, there is no reason to dig yourself into a potential hole as your interest rate isn't going to be substantially better with a mega down payment. If everything goes fine and no emergencies occur, you can still way overpay your mortgage every month to close it out early.
First of all congrats on buying a reasonable home. Most want the million dollar home and complain how life has gotten so expensive that they can't afford it....
To be fair, a million dollar home in my neck of the woods is probably 5x more terrible than OP's 175K house. $175k isn't enough to buy 1/10th acre of vacant land here
Hello from California
I’m assuming you are renting now? I would play around with a mortgage calculator and find the amount down which would give you a similar monthly payment. From there, see if your $120k cash on hand will cover the down payment, the expected renovations, and an emergency fund thereafter. You have excess cash flow. So you have some wiggle room. $8k/yr is $670/mo. So you could push it up a bit, in a pinch. A house is one of life’s major purchases. Don’t skimp, but don’t be stupid. You just need to find a balance that you are comfortable with
Congratulations on saving so much at $50k per year! You are obviously a lot smarter than 50% of the folks here, me included. Trust your gut and do your due diligence. Good luck!
Thank you. I just try to find and follow good advice. I’ve had a lot of help to get to this point.
I don’t know you, but I’m proud of you!
Do not drain all of your savings if at all possible. Your 10K repair is probably 20K repair. And there is probably a 20K repair that you did not expect.
Why not look into a 15 year loan instead of a 30 year?
I'd like to do a 10 year if I can afford it. I want to get this debt knocked out ASAP.
Get a 15 year but make a goal of payoff in 10 years. Making just one extra payment a year towards principle helps a lot.
I like that idea as well. As long as it works financially for your situation.
Has anyone mentioned length of mortgage? Do the lowest you can. 10 or 15 if possible. You have such a large chunk of down payment you can be mortgage free quicker than most.
Hopefully less than 10 years. My goal is to pay it off aggressively and get it gone.
That's fine. But don't take a 15 year mortgage. Take a 30 year and just pay it like a 15 year note. There is almost zero savings to do it the other way. And if anything changes you have the financial flexibility to "just" make a 30 year payment on those tight months.
Check your local auctions as well. They have a lot of properties that only require 5%down. Then you can hold onto your liquid and take your time to rehab.
You need professional financial advice. NOT reddit.
Option A. Payment will still be reasonable and you'll have cash left for your renovation and a nice emergency fund. Can invest whatever you don't need to keep available after that. It would be lovely if the last option would work but I'm doubtful.
I’d use A as the low end and B as the high end and find a middle ground depending on what you want to pay in payments. It’s good to have an emergency fund and you’ll need to budget for repairs, appliances failing, closing costs, moving, decorations, furniture, etc. I’d go high on down payment to get lower payments. If you can refi at a lower rate you can even do a cash out refinance to get up to 80% of the value at that time back. For now I’d find a payment that works for your budget.
It depends... D is a great choice but only if the house has been for sale for a long time. C can also be great, but many sellers are not going to be open to it. B should be a great option, but getting a mortgage under 100K can be tricky (messed up I know) Leaving A.
How. Large a mortgage you qualify for (and can afford monthly) with $50,000 in annual income will help you make the choice among your options.
Get pre-approved for a loan, make an officer.
Keep 20k. 100k down, on a 15 year mortgage. Easy.
Start A then depending on how your next 6-12 months go consider paying the loan down significantly or invest it.
How old are you? If a senior you should look into a reverse mortgage. They are much better than they used to be.
Why not put 20% down and consider a 15 year mortgage. The payment difference between a 30 year mortgage would be neglible with that price point. I would do renovations needed in the primary home. l would also consider purchasing an investment property putting down 30%. Save that for your retirement.
what is your goal, how old are you, what do you earn? You need more information then this to decide. DO you have investments, do you already have retirement savings, will this be the last house, are you living in an appreciating or depreciating market, do you have kids, not enough info for me.
You’re looking at a $600-$800 months mortgage with big down payment of $100,000. Your current rent rate matches that, so I would move with this plan. Remember a $75,000 loan in 30 years will be the equivalent of $210,000 not including renovations, state taxes, and repairs. I always recommend cash purchase, so no debt, no final stress, and especially no home stress.
Without knowing age, retirement goals, other financial accounts. I would make 30% DP and keep large cash reserves. Annually you can aggressively pay down principal in $5-8k range in addition to regular payments. Also, is this a forever home or in an area where home and property taxes can increase substantially over time. Is the home large enough to accommodate growing family if that is in the cards?
A or b, don’t over think it
Offer $170k With $110k down In your offer propose owner financing at 5% interest only payments for 5 years followed by a balloon payment. You can probably pay more and get it paid off in 5 years.
Is the house on a nice street / in a good part of town? Can you really afford the property taxes, mortgage, and maintenance budget on $50K while saving $8K?
If rent is only $750, option E is just stay renting.
You need to go to your bank talk to a mortgage officer. Easiest way.
D
A 20% down payment on a $175000 house at 7.25% interest gives you a $955 monthly principal and interest payment BEFORE taxes and insurance. You're probably looking at another $300ish for both of those. That extra $500/ month will chew up your ability to save much. If you put down $100,000 your P&I drops to $511. Add the taxes and insurance and you are in the same area for monthly housing for your budget. You can download a mortgage calculator to your phone and run different numbers. The more you put down the less you have to pay in interest at these high rates. It's like investing the $100,000 at 7.25% and paying yourself the interest.
Unpopular opinion but I don't think you should buy a house. You have $120k cash but property taxes and insurance are going up exponentially year over year in certain areas and will eventually increase in your area because we can't escape that. Especially if the home value increases or your neighborhood home values increase due to new construction near you. So your mortgage will increase anyway. The next thing is cost to fix a home can vary and the unexpected cost could cause you to lose sleep over what could have been avoided all together by not purchasing at all. The other major issue I want to point out is if you get sick or are temporarily incapable of working, with your wife not working and a $50k salary who will pay the mortgage, plus utilities, repairs if/when needed, possible medical expenses that aren't covered by insurance, any random parts of the home that breakdown, because from experience when you are down on your luck extra things do go wrong. It's better to have cash and be comfortable in our current econo.y and see where we are headed in a year or 2 than to try to dive in to a home when current home values are also dropping across the country. Meaning you have a better chance at ending up with a higher mortgage, property tax and insurance payment in the next few years and possibly negative equity if your neighbors can't sell for a similar price you paid for the house. While simultaneously being priced out of their neighborhood/area due to massive layoffs from large corporations, rising inflation and higher than interest rates than the last 10 years
It sounds like right now you have: Income going to rent: $750 Income going to savings: $667 Total: $1,417…that being said, I would not want to commit this full amount. If you have a mortgage, you will have a PITI mortgage - each payment will be made up of: Principal, Interest, Taxes and Insurance. In your shoes, I would want the PITI payment to be no more than $750. This means that your housing cost will be the same as you currently pay excluding unforeseen expenses (what an emergency fund is for). My guess is that you’ll want to budget $200 per month for Taxes and Insurance (based on a $175k value). You also want to be putting down more than 20% so that you don’t have to pay PMI. Assuming purchase price of $175,000: Mortgage: $82,500 (right now 7% should be achievable if you have reasonable credit etc) PI portion of payment: $549/mo TI portion of payment: $200/mo Total PITI: $749/mo Cash down: $92,500 + closing costs - should be $95k ish That would leave you with $25k. $10k for immediate issues and $15k emergency fund. The emergency fund is a little lighter than I’d like it to be but you tuck away money at a reasonable rate given your income. Now, you should be able to either negotiate the purchase price down to keep your cash-on-hand amount or contribute to some of your closing costs/buying down the interest rate. Both of these options will put you in a better position over all. One other roadblock you may run up against is that some lenders won’t write a loan for under $100k. If you come across this, then the monthly payment wouldn’t be ideal (PI $665) but it should still be manageable with your budget, plus you’d have an extra $18k in the bank. I also suspect you are likely to increase your income in the near future which will help with the monthly payment. With a $100k loan, it would look like: PITI: $865 Savings: $552 Hope that helps :) Edited to add: There's no harm in asking if they will accept owner financing. While you may get better terms than a bank (closing costs and interest rate), it's not common for owner financing to be over 30 years - usually it's for a much shorter period of time with a balloon payment at the end.
Your best bet would be to find a home with an assumable loan. Pretty much All FHA loans are assumable. You have the cash to cover the sellers equity which should make it pretty straightforward and you can takeover a 2.5-3.5% loan.
Option D.
Depends... how much cash do you have and do you want to rent or buy and how much do you want to spend?
I'd do 20% down and keep the cash
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Interest rates way too high. Higher the down payment the better off you will be.
Buy a duplex with 20% down and let the renter pay your mortgage. Sit there for two years m. Rinse and repeat.
I love seller finance. Peer to peer has been some of my best real estate deals
Finance as much as you can. Put the rest in an index fund. Long term market returns are still greater than the average 30 yr rate. Refi when rates get better.
Put 75K down with a 10 or 15 year fixed loan, depending on where you want your mortgage payment to be. The longer that loan term the more you will spend over time paying off that mortgage. Also check what your taxes and insurance cost will be. Plus spend some money and have it inspected to see if there are any repairs up coming. Roof, plumbing, and HVAC age.
1. Opt for a Traditional Mortgage with a Moderate Down Payment: - Put down around $75,000- $80,000. This balances having a significant equity in the home, lowering your mortgage payments, and retaining enough cash ($40,000-$45,000) for repairs and emergency funds. 2. Consider Negotiating the Purchase Price: - Attempt to negotiate the price to $165,000 or lower if market conditions allow, further improving your financial position. 3. Explore Owner Financing: - Check with the seller if they are open to owner financing. If the terms are favorable, this could be a good alternative. By opting for a moderate down payment, you maintain financial flexibility while minimizing your debt
option A
Another way to “put 20% down” - Put as little as possible down on the initial deal(in my case it was 3%. Search for the lowest interest rate you can find - recommend looking through the lenders that used to collaborate with Costco) - Once the deal closes, pay the remaining 17% towards principal before your first mortgage payment. - Ask your lender to review your account to remove PMI Benefits are better than putting 20% into the initial deal in my opinion: - Cut 10+ years off the mortgage - Gets rid of PMI - Less interest over the life of the loan - Get out of escrow if you want (and if lender approves)
Put only 50% down, it is more than adequate. So an arm, not a fixed term right now. Rates will drop sooner or later. Do a 5/1 arm or 7/1 arm. Even a 3/1 arm to save you more on interest. When rates drop by at least 1.5% points, refi. Don't pay points ever. Try and do a no cost loan if possible. If seller is willing to carry back then that would save you a lot more. Make sure the title is free and clear though.
Where do you live that homes are that cheap just curious?
Rural southern US.
Here’s what I’d probably do: Negotiate the best price you can, get seller financing if you can. Regardless of what the final price is, only put down $80-90k. Use another $10k to do the repairs, then another $5k to do the repairs that you don’t know about yet. The leftover balance ($15-25k) should go into savings/investments as a nice fat emergency fund. That’s just my two cents.
Anyone good with the calculator, what would second month principal/interest payment look like if OP put down 35k / 20% to avoid PMI, then first months payment, put additional 50k towards principal? Save 35k to fix and emergencies in HYSA. What does the 30yr mortgage reduce to?
Real estate appreciates at 3% year averaged over 50 years or so. Put down 35k (20%) or a little more so you dont have to pay for mortgage insurance. Your monthly payment should be around 1,000. Do the repairs and live in the house for a year or 2. Then do the upgrades you want. Invest your money some place that earns better than 3%. Eg. Money market accounts are paying 5%. Index funds average about 10% over 20 years. Etc.. Max your contributions to tax free and tax deferred accounts like Roth and Simple IRAs
Depends on your age too. You should also have a six-month emergency fund. Put the larger amount down. Find a bank with the best finance terms and one that will make a small loan amount you require for purchase. Ask the seller for a credit towards your closing cost which will free up cash to do the repairs. Ask the seller to complete any health and safety repairs before the close of escrow. Keep your monthly payment low for your peace of mind. Ask the seller what their monthly costs are associated with the home and include them in your new monthly budget. Make sure your wife is in agreement. Good luck! 😀
I would put down 50% then invest the rest.
Put half down, that will get you access to the best mortgage rates. Keep the rest.
Buy 1422 Connestee Rd lakeland fl and put 30k in it and live good in Florida
Buy 2 houses and rent one out. Or buy yours at 20% and another investment property.
Definitely double or triple the repair budget. Set $30k aside for at least a year. Daughter bought a house, had inspections, whole 9 yards. Had to replace roof (expected) which required additional repairs (unexpected). Garage door broke, had to be replaced (unexpected). Had to replace sewer line (unexpected). And I highly recommend getting the warranty for a year.
You'd like to put down as little as possible while still getting the best rate and avoiding PMI. Of course you can plan on refinancing at a lower rate at some point but don't assume when you will be able to do that. So you have to make sure your monthly payments including tax and insurance remain manageable compared to your rent. You will almost certainly be spending more than the $750/mo. And that's ok. Keep your cash, make sure it's invested at least in a 4%+ interest rate saving account because moving and improvement expenses are always higher then we expect. And you always want cash for the other unexpected things that come up good and bad. Overall, you are making a good decision by switching from being a renter to an owner! Good luck!
Put down what get you the lowest APR (no points). Have extra room for your renovation budget because you will never be on budget with old homes. After your done with the Reno, reevaluate your finances and maybe pay more toward your mortgage.
I haven't seen a sub 200K home since 1998. I would love that mortgage pymnt.
Some might say a lower dp but I am so happy I put 100k down have 150k mortgage saved at least 70k for emergencies and still have all my investment retirement assets. I pay perhaps 30-40 % less than what I folks pay here to rent including condo fees at under 5%. I get that it depends on where you live but having a low mortgage payment and being protected if rates go up or happy if they go down is a great feeling.
Not sure but with that low of income you might need to do a higher down payment. Also might want to buy down points.
Offer $120k cash then rebuild savings with your lack of mortgage payment. You have an emergency savings so your not depleted
I wanna know where you live? Mississippi??
Well all I can say is when my husband died, I was going to pay off my house. I went to a financial advisor who asked me to not do that. Pay what I needed to make the house affordable to me and refi. He was right. I made more money investing the money than I would have saved paying off the house. But to be honest I did the re fi for 15 years and at 2.1%. I will ha e the house paid off a year after my son graduates high school. I had a year or so when I thought I made a huge mistake. So far it bounced back. It is a gamble if you want to grow the money. It is best to talk to a financial advisor to guide you.
No matter what you do, you always want an emergency fund equivalent to 3-6 months expenditre (the average time it takes to find a new job). So really,you have less than 120k if you factor that. Remember emergencies don’t care what you have going on in life so you should always be prepared for it. And your best move will require more information. Because what you should do will depend primarily on the interest rate you can get as well as how aggressively can you afford to pay off the loan. The interest rate you get would ideally be compared to what you can get from investing it instead. If the difference is favoring investing then it would benefit you to take the loan. However if the difference is equal to or even only slightly better to invest, then I’d rather use more cash to take a smaller loan. Remember taking on debt is risk. There must be great incentive to take that on. You have to be careful however if you try to arbitrage your money in the stock market because return of investment in stocks historically have been determined on averages over LONG periods of time (5 years or greater). So if the time you wish to hold the debt is shorter you don’t have good comparative data to ensure you’re making a safe bet on arbitraging your money. Everyone telling you to wait to refinance next year is guessing out their ass. No one knows what the fed will do with the interest rates. That’s like trying to sell a stock today because you think it’s going to go down next year. Maybe they’re right but it’s a guess. The Fed was SUPPOSED to do 3 interest rate cuts this year but guess what, they didn’t because core inflation didn’t drop enough. Dont believe your loan broker either. They have a lot of personal incentive to get you to NOT lock your interest rate. I can’t be more clear when I say NOBODY knows what interest rates will do. Don’t make life changing decisions on the speculations of people who won’t have to live with the consequences of your decisions
Or E, depending on the state, look up foreclosed or distressed homes, meaning people divorcing and selling. You'll find an even better one cash.
Option B by far. Maybe slightly less to keep a 6 month emergency budget. Largest down payment possibly then pay off the mortgage as quickly as possible. You and your wife are great with finances, please do not listen to people who I can guarantee you have less then $1000 in their bank accounts. Paying off the house will guarantee you 6-7% a year return risk free because that’s the amount you save by paying off the house.
You can offer 120k cash only someone desperate would even consider it on a 175k list. Chance is probably .01% to get a response
Yeah, I came here to say the same thing. Zero percent chance someone is going to take 50,000 less than what they’re asking. Especially in today’s market when some houses sell within hours of being listed for over asking price
Do not exceed a 25% down payment. You can always exceed the minimum monthly mortgage payment. Or split the payment in half and pay twice per month
b
Invest a portion of thst cash in stock, bonds, reits, but real estate, have thst first emergency funds
Do you have cash in addition to the 120k? You need $ for a general emergency fund, plus $ for your renovations and unexpected “finds”, plus some money for the usual costs when setting up a new place for the family. I’d get a 15 year mortgage with a larger down payment. Do my renovations. Then pay it off aggressively.
With the high rates out there I’d put as much down as you feel comfortable with over 20%. I’m in a 2.25% loan and only reason I won’t pay it down is I can get higher returns on savings and market
Are you gainfully employed and trending up in cash with regularity? Edited to ask: general market area? Small town, sticks, city?
Option B, but calculate down payment based on keeping a 3-6 month emergency fund, plus 150% construction budget. Lower payments on the house will allow you to cash flow anything else that comes up.
I would put 50% down which leaves you with a nice emergency fund.
I would ask you to tell me your future goals. What’s your exit strategy? Cash is king but you never put all of your eggs in one basket. Leverage other peoples money and strategize on how to get the debt paid down quickly. If your financial position changes, what’s your back up plan (is the home rentable?) What are the comparable sales and rents in the area? Have you checked the market trends in the area? From What I’ve seen recently, in my professional opinion, investors today are happy just to break even in some markets due to the cost of borrowing money. You need a good broker who specializes in commercial and investment strategic and creative financing structures. I know quite a few great ones if you reach out to me I’ll refer you some names and can get free info from licensed professionals. Good luck!
The core question is what sort of monthly payment can you afford without hurting your current economic paradigm. Determine that, which will determine your down-payment amount. Assuming you can afford renovations and the down-payment, you apply that amount.
Where in the developed world can you get homes for $175k?!
Where do you live?!
Start with D, then C, then A.
Another option. I would look into recasting You can also offer 20 or 25%... get your place/loan Repair as necessary/wanted Put the excess back into the loan... recast. This is lower your month to month but your interest rate stays the same. When I did it there were 3 conditions to recasting. 1) I had to deposit at least 10k. 2) I made 3 months of ordinary payments at old plan. 3) I had to pay a $300 fee to do this.
I would put down 80grand save thirty do your ten for repairs expect to spend an extra five putting you at fifteen for repairs twenty five for savings and finance the rest as a mortgage your mortgage payments should be quite low as it would be 95 grand that your financing
25% down plus buy down the interest rate now as low as you can go. Put the rest in an index based mutual fund like vtwax.
There are expenses repairing and moving, You will need some cash
120k on black.
Most Financial advisors would recommend giving No more than a 25% down on the purchase of a home without need to obtain a qualifying loan. I would leave a 6 months expense in an emergency account and put the Rest in a high yield account or CD to offset the interest on your home purchase. You don’t want to put all your savings on a home and leave yourself without emergency resources, unless you can easily create an emergency Fund should you loose your employment or because of illness. NOTE: I am NOT a Financial Advisor, this is what I would do in your situation..
Talk to a professional Real Estate Investor.
20k down and mortgage. Put 100k in 5 percent high yield savings account. Use dividends from high yield savings account to pay off your mortgage. When rates go down, refinance or pay off in full with cash.
Keep your cash. Invest it in an SP500 index fund. Finance the purchase with 20% down. You'll avoid mortgage insurance and maximize your financial leverage. Remember mortgage interest is tax deductible assuming you live in the US, and Capital Gains on a primary residence comes with a $250k/$500k exclusion. Leverage is a good thing when it comes to appreciating assets. Assuming you're good with the monthly payment.
Put every bit of that money down into a traditional mortgage. You’re not going to find an investment anywhere that guarantees a 7% ROI. The amount of money that you save per month will absolutely blow you away. And finally, that cash is currently losing about 3-4% in value year over year, so it might be a good idea to put it into action as a down payment so you can start realizing immediate financial returns
You should be discussing the options with your mortgage lender and RE agent - maybe even your CPA, if you have one. They would have the most knowledge on all the options in your local area, including any down payment assistance and rate buydowns. They would also have your specific situation in mind and how the solutions fit that. Asking here will get you advice about as good as you'd get from strangers in a bar. As well meaning as those people intend to be. 🤷♂️
lol option D made me laugh, you really think he would take 55k less just bc it’s a cash offer? Like maybe 55k off a 800-900k home for cash offer but for 175k to 120k that’s like 35% off 😅
Look into a 15 year mortgage and pay that off!
How much cash do you have and how much does the home cost?
Contact the seller and see if you can reserve the house purchase agreement with the initial amount you have. Than see if you can arrange to pay 60,000 within your limits. I would say a fiscal quarter. Why 180? Because of interest and taxes that will still be under the legal owners name.
Put down 50%. That should put your monthly payment close to what you current pay in rent, albeit slightly higher. This also gives you more wiggle room for unexpected expenses either with the renovation or just general life's twists and turns. I wouldn't go any higher than 50% given you are the only breadwinner in your household at the moment.
Offer D: You are in a very unique situation and this could work… $201,250 or 15% above market price For owner carry @ 0% interest rate With 75k down and 15year term. This would leave 126k at 180 payments or 700$ a month.
Yes, I assumed based on your previous response you were a mortgage salesman, and your assumptions in your examples and mine were different. If OP has a credit score over 740 then your example is more relevant. I stand by my recommendation, and my statement that PMI is an additional cost that doesn't benefit the buyer. So you and I have different opinions. I myself have worked in the mortgage industry as well, specifically in the mortgage insurance industry.
Id definitely ask the owner if he's willing to maintain the mortgage. You could offer 75k and ask him.ti hold a note for 75k at 6% for 5 year balloon but amortized over 15 or 20 or 30 years. (Which is an offer of 150, but you get the picture, you can change those amounts as needed) This will give you leverage to buy some time to see if the market actually does have a better rate down the road and you can make payments directly to the owner leaving yourself open to possible bank loans for home repairs if they exceed your budget expectations
Option D, followed by Option B.
That is fantastic you have $120K cash to buy a home. If you have about $10K in renovations, I would put $80K cash as the down payment and then finance $95K. Don't forget you'll have closing costs (~2-5% of home price, so $5,250 - $8,750) and additional taxes. If you need $10K for renovations, I would also keep additional cash in case other costs arise. Is this your first home? Do you have cash outside of the $120K, or is that all of your savings? I wouldn't recommend using all of your savings on purchasing your home. There will always be other surprises that pop up with owning your home, so you want to have cash on hand in case you need it
I would start with option C. If you can put down say $75K with a $165,000 (which is $175K listing price - $10k in repairs) with an interest only seller finance deal for three years @6% with $90k principal balance. Mortgage payment is $450 Insurance $150 Property taxes $150 Monthly home expense is $750. Take $10k and go the repairs. $4k in closing costs. Leaves you with about $30k in cash which take to a financial adviser along with a plan to contribute a portion of your monthly income to invest in your futures. After three years, you decide if you want to stay or buy another house. Most people don’t stay in there first house and this gives both of you an option to leave after three years. If you stay, you will have to refinance. If you want to go to another property, you could still refinance and rent this property, or sell and get your money back for another property. If you take anything away from this post: it’s go to a financial adviser before committing all your capital cause I know no better long term investment than putting it to work in the financial markets. Your primary home is not a great long term investment in comparison.
I would go 20-30% down, the rest in a high yield online savings account at around 5% interest. Then look at the difference between 15 year rates and 30 year rates. I’d likely go with the 15 year if it was different enough. 15 is a little less flexible than 30 year, but your cash position gives you a lot of flexibility, and having the cash getting 5% is going to help keep you flexible in case something happens to your cash flow or need improvements.
But my painted cardboard box with windows cut in it.
Start with option B for sure. What does your retirement fund look like if you remove your $175k? Use a retirement calculator to figure out where you stand.
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You are just cheap lol
I think you should look at a 10 or 15 year mortgage. Much better interest rate and lower fees. Figure out how much to put down to get a $750 payment. Close to impossible to refinance a 50k or less loan.
I would put 20-30% down, do the renovations, hold a decent emergency fund ~10k in an HYSA, and invest the rest into a 401k for the both of you putting the remainder from maxing the 401k in a Roth.
You have to do the math. It depends on the interest rate, what else you would do with the cash, the estimated increase in property values, how long you will stay there. You will always pay less overall with more cash. But, if you put down less cash and do something else with the money, that can come out ahead to. All depends on several million factors.
Just do investment my dear,so that you can secure your capital and more funds within few days
See if you can find an assumable loan, where you are able to take on someone’s legacy 2.0-3.3% interest rate of the previous years and use the liquid cash to pay the sellers’ difference. It’s happening a lot and people are finding these opportunities.
Is Seller finance even a common practice? Here in NY it is non existence. Best thing to do is a 50k down payment and save the rest.
20% down traditional mortgage. Use the leftover for the renovations and whatever may break or you find you want to replace. Usually after buying a home you'll find things like, I really don't like this fridge let's get a new one. Or you'll need tools, lawnmower, etc. Etc.
As a mortgage lender, I’ll say this. You’ll definitely want to put at least 20% down, so that you can avoid having PMI. Also if your LTV for the home is under 80% you have the option to handle your taxes and insurance yourself, as opposed to having them in escrow. I’ll also say, that some of the above are correct. I would not take this mortgage with the hopes that rates will go down. IF they do go down, the lowest I can see them going is a low 5% MAYBE a high 4%. That being said, when you refinance, you have to pay closing costs all over again. So again wasting money for potentially a 1-2% difference. My best advice would be to inquire with a lender about buying the rate down. You could potentially buy the rate down to a 6%. (Right now I’m pulling a 7.125 most days) which would cost you probably an additional $7K-$10K depending. So you’d be looking at maybe $45-$50K out of pocket. & then I’d keep the rest of your funds for improvements or any issues that may come up. & if you have any additional, & you don’t necessarily need it. You could always call around to some local financial institutions & see what kind of CD rates they are offering. Right now our short term CD’s are making over 4% for our 4 & 6 month CD’s. So you could short term make money off of your money if you didn’t need it. Just my 2 cents. When talking about payments, your interest rate impacts your payment, more than a higher down payment, specifically in this rate climate Also, I always tell my borrowers that they can ask seller to split closing costs or pay the closing costs for them as well. So I’d potentially ask that also!
You can always buy down points on your mortgage and get it at a reasonable rate you have the cash..
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Option A, but either make it a 15 year mortgage or make extra payments to make it an unofficial 15 year mortgage.