Mortgage advice- how big a down payment

Discussion in 'Homesteading Questions' started by Jenn, Apr 23, 2006.

  1. Jenn

    Jenn Well-Known Member Supporter

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    We can go 100% on a VA loan and I'm always afraid we'll have 'too much' money tied into a house if we have to move- it might leave us a bit cash poor to buy another house if we had to move before selling or make canny buyers think we can 'afford' a lower price.

    But I feel that the stock market may not give as good a return on any extra money we have to invest for retirement as saving the mortgage interest and funding fees (2-5% at the start) would do.

    A longterm issue is mortgage payment for 100% may be too high for us to pay in retirement but the conservative thing is to then pay it down as we retire or as we are certain we won't move again. That would cost us the startup fees on whatever we choose to keep as cash instead of downpayment though.

    Your thoughts? opinions? what did you do?
     
  2. mpillow

    mpillow Well-Known Member Supporter

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    I think if you put less than 20% down you will have to carry PMI (mortgage insurance). Our mortgage in 1991 was a mere $46k....the PMI was nearly $50 a month!!! because we only put 5% down....wasted money in my opinion....
     

  3. Dutchie

    Dutchie Well-Known Member Supporter

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    Before we start discussing the benefits of downpayments, let's determine the market first.

    Where are you buying property?
     
  4. BarbH

    BarbH Well-Known Member

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    If you're going with a VA loan, there is something else to consider. The VA loans money for houses, not farms. We had a 40 acre place for sale, with a nice house, two barns, ponds, fruit trees, etc.......three different potential buyers had to back out because the VA wouldn't loan money for a farm.
     
  5. Freeholder

    Freeholder Well-Known Member

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    This is NOT the time to be thinking about taking on a mortgage! Ouch! If you have a little cash, put it into something solid that you can USE over the next few years -- a little bit of land if you have enough for that, otherwise put it into food, tools, seeds, stuff you are going to need.

    If you want to see why, go spend some time reading the economic posts over at TB2K http://www.timebomb2000.com/upload/forumdisplay.php?s=&daysprune=&f=9

    Folks who have any kind of debt are going to be in a world of hurt in the next few years.

    Kathleen
     
  6. Dutchie

    Dutchie Well-Known Member Supporter

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    Real estate is still one of the most solid investments you can make, provided you are smart as to where and how you buy.
     
  7. Citiot

    Citiot Well-Known Member

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    Inflation will destroy the debt. Take out all the fixed rate loans you can get and invest in commodities; land and precious metals are my favorite. Once Bernanke takes us into hyperinflation and a loaf of bread is $100, a $200k home loan will be a piece of cake to payoff.
     
  8. Alice In TX/MO

    Alice In TX/MO More dharma, less drama. Supporter

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    Step One: Ignore doom and gloom predictions.

    Step Two: Assess your assets to determine how much you can comfortably put down.

    Step Three: Assess your cash flow to determine a COMFORTABLE mortgage payment.

    Step Four: Shop for loans.

    Step Five: Read Dave Ramsey's website, listen to his radio show, and get one of his books from the library.
     
  9. homebirtha

    homebirtha Well-Known Member

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    End-of-the-world fear aside :rolleyes: , there are a lot of factors to consider. How old are you? How much land are you buying? Is your income steady or are you counting on income from your farm? How likely is it that you will need to sell and move in the next 10 years? Where is the property?

    Going 100% is pretty scary, particularly in a market that isn't growing quickly. A few years ago, 100% would have been smart where we live. Things were going up at least 15% a year. But things have cooled off here and while things are still going up, it's not as fast, and houses are sitting on the market for awhile before they sell.

    So my initial reaction would be to put down as much as you can afford to. If you can swing 20% and avoid PMI, that's definitely the way to go.

    However, another factor to consider (if this is a farm/homestead) is start-up costs. Make sure you leave some money for animals, feed, vet supplies, garden supplies, equipment you may need, materials for the house if it's a fixer-upper. And after figuring out what you think you'll need, double it. lol. Seriously though, you'll need more then you think you will.

    So don't put down so much money that you don't have any cash left. How's that for a non-answer.
     
  10. Gordon-Schumway

    Gordon-Schumway Well-Known Member

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    I also have banked my retirement by buying up land. They now offer homes with land at 0 down. Basically you have 2 loans --one is 80% of the value for 30 years at 6.5% The second loan is for 20% of the value for 2 years at 12%. It sounds high but with homes inflating at 15% a year in VA it is a money maker. My broker was trying to get me interested in buying these multi-million dollar residences at Virginia beach. It was just to risky for me.
     
  11. Jenn

    Jenn Well-Known Member Supporter

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    Thanks Barb- might have to go nonVA (if we can- think so) if we have that choice to make- wonder if your place could've been called 'home on 2 acres' plus 38 acres for sale that could be paid for separately- a strategy we might try if the issue arises. Might've had to survey and divide it- PIT*.

    Dutch- Army town Fort Rucker, AL. Not a boom town but steady turnover (unlikely for Army to move out but never say never), just not so frequent a turnover of the 5 acre with farm stuff on it I plan to build, + modern home DH will demand- so will have to find another homesteading enthusiast with as much money to spend as we do if we ever have to sell it... Last place we sold at a slight loss to a retired soldier able to wait around for similar properties if we wouldn't come down in price a bit (we wanted to stop the mtge payment, and the deterioration of an empty house, so cut our losses). Don't want to sell at a big loss if we have to this time around- first strategy don't pay too much, is keeping a big mortgage a realistic second strategy? And worth it given we might never resell and the cost to do this (have a bigger mortgage than we need otherwise)? However another wrinkle is that this time DH will be retired (we think) when we might next want to move so he points out we can outwait a buyer sitting in the house and just not moving until we find a buyer at our price if ever.

    mp- VA has no PMI if the place we want qualifies for VA loan.

    Citiot- I don't know if we'll see that inflation in the next 5-10 years which is when I might want to sell this farm/have the money back anyway. I understand the principles of inflation making a big mortgage a good idea, I just don't trust any crystal ball promising me we're going to GET that high an inflation rate. Unsure if I need to be as worried as BJF but I think we could actually use a little deflation and it might even be permitted to occur (after all it's good for bidness).
     
  12. Wolf mom

    Wolf mom Well-Known Member

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    PMI information is right on!

    The larger down payment, the smaller the monthly payment.

    Figure what's comfortable for you, especially if the main breadwinner wasn't able to work for 6 months, etc. what kind of a payment (supplemented by savings) could someone else in the house make??

    Never ever get a short term loan. You can always double up on your payments, but if you have a 15 year loan with high payments, it's difficult to make them if you're caught short.

    :cowboy:
     
  13. Jenn

    Jenn Well-Known Member Supporter

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    Thanks Rose and HB- words to live by. So HB aside from have enough cash to start the homestead, put enough in so you actually pay off the mortgage when you sell the house instead of have to pay out of pocket when you move... Is that what you meant?

    Also looking at monthly payment is a good idea- but to get the low payment we want after we retire we'd need a huge downpayment tying up a lot of our retirement in the house- prefer to cash out retirement funds in the future to pay the mortgage then or maybe refinance/pay off a lump sum somehow. I do actually plan to go for a 15 year just to save a bit on interest/ end our mgte payments early in retirement but will do the math and see if really a good idea....

    Wm supposedly we have retirement covered but nothing is certain- and we count on DH finishing his Army career in that equation again nothing is certain... guess a few what if brainstorms are in order- thanks!
     
  14. Dutchie

    Dutchie Well-Known Member Supporter

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    OK ... let's start at the beginning.

    I am not familiar with the area you are describing and I assume you are and know the economic base there. So if that is pretty sound and solid, there is no reason for the property values to tank. There is every reason to believe they will increase over time.

    Second .... who cares about the interest etc? They are all tax deductable. Use it to your advantage. In fact, make sure you use all tax advantages to your advantage. Let your money/investments work for you.

    Third .... while equity is nice, cashflow is even nicer and more important. Equity is your house is only available to you when you sell it and you still have to live somewhere. In other words .... having 20% equity in your house doesn't buy you groceries. And if you can and equity is that important to you, double up on the payments for a year or two.

    Last but certainly not least ..... have an appraisal done by a licensed real estate appraiser before you buy. Not a BPO by a real estate broker .... an appraisal by an appraiser.

    It will cost you about $300-$400 but it may save you thousands. And, if you talk to the appraiser first, ask him/her if you can have your lender, when you are ready, order the mortgage appraisal from him/her at a reduced price.

    Many appraisers will do that .... while they cannot re-assign the appraisal (besides ... a pre-purchase appraisal is different from an appraisal done for lending purposes), many of them (myself included) will do a new one with a new effective date at a reduced fee. All it takes for the new one is a new inspection (making sure the property is still intact) and updated comparables. So many appraisers will do that.

    If you need assistance finding a reputable appraiser in that area, please PM me with the name of the town/county and your email address.

    Good luck!
     
  15. jnap31

    jnap31 garden guy

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    That is a travesty I knew thei rwas a reason I did not bother with the VA even though I am eligible. why would the VA feel like they could not help veterans who want to farm? heck after many wars in our history they use to give the veterans free land for farms as a reward my how times have changed.Another thing you cant get bank loans on a house unless it has a "termite policy" at least in AR. Unless you put a lot of $ down.
     
  16. jnap31

    jnap31 garden guy

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    What makes you think peoples salary will increase with the inflation?
     
  17. BarbH

    BarbH Well-Known Member

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    It makes no sense, does it? We're VA loan eligible too, but got a regular bank loan to buy land and built a house on it.

    I've never heard about the termite policy rule, but will really need to check into that. We don't have a termite contract....we treat the house ourselves every spring. But what if we want to sell the house one of these days.....maybe no one would be able to get a loan to buy our place.
     
  18. Siryet

    Siryet In Remembrance

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    We out 20% down and had the mortgage in less than one hour on the phone. No PMI,no tons of paper to fill out. just a credit check and we were on our way. :)

    Plus we had 20% equity going into this place so for us it was and is a win win situation as we don't plan on moving.

    We are retired so we will probably die here.
     
  19. Pigeon Lady

    Pigeon Lady Well-Known Member Supporter

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    Same here. We were VA eligable but couldn't use it for this place: old farmhouse on 34 acres.

    We used Dh's VA loan for our old place though. That was a newer ranch home in a neighborhood but it was tucked in a corner on 2.10 acres. They seem to like only newer homes and I think they have to be a certain distance from a fire hydrant too if I remember correctly.

    My advice is don't just think in terms of your on post bank or whoever you are banking with right now. Go to the little country bank in the town closest to the area you want to settle in. Explain what you are looking for. They will be used to loaning money for farms /houses on acreage. Let them know you want to be a part of the community and support the local economy. That's what we did. The guy took all of the pertinant info re income, bills ect. Our credit score was up in the 800's and we had a nice little nest egg saved up so he had no qualms about giving us a loan. We told him how much we would be comfortable paying each month and he told us how much we could afford to borrow at 20% down.

    A couple of hours at the bank and we could go out looking at properties without wondering if we could afford this place or that. It all went extremely smooth. We didn't want to stretch ourselves to the very limit so we set ourselves a price range lower than what the bank said we could "afford" and just looked at farms withing that range.

    I know some people have had great success with Lending Tree and got very low interest loans but it's my understanding that for farms and acreage you need what's called an 'in - house' loan. Sort of that particular bank's own creation. If you can get an extra low interest rate that's great but don't be surprised if you don't. I think ours is 7.5%. We plan to live here for the rest of our life so will probably re-finance at some point if the rate's come down.

    We could have saved a bunch if we'd re-financed our last home but with the possibility that the army could have moved us at any time it wasn't worth the risk. As it turned out we were there 8 years. But you know the army. You've just got to suck it up.

    Pauline
     
  20. KindredSpirit

    KindredSpirit Well-Known Member

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    I would only put down 20 percent if I already had an "emergency" fund. Sewer lines will break, plumbing fall apart and roof leak all when you least expect them. The last house we owned the sewer line collapsed the week we listed the house (drought combined with clay soil shifted the line). That was $4,000.00 to go under the city street to access the main on the other side. If you don't have any money set aside that expense would go on credit and might make things difficult for you. If you don't have an emergency fund I would set aside some of the 20% for that. Just a thought. :)