Mortgages

[bone collector 13]

School me on mortgages.
First time home buyer and trying to figure out what my options truly are. I know I know. Now’s not the time to buy. But realistically I’m tired of spending 1900 a month to rent, a new sub development is breaking ground just down the street and I think jumping on it is the best option for me right now. Homes will probably be in the 4-500 range. I guess my questions are

-conventional loan? Do I go with that and muster the 20-ish %?
- look into a FHA with 0 down and pay PMI? Making bigger principal payments? Is that even a thing?
-yesterday I went down the rabbit hole of ARM loans. Is that really a good gamble in this market? Basically betting the interest rate is going to go down in the next 5,7,10 years?

Thoughts comments advice all welcome!

 

[MuleyFever]

School me on mortgages.
First time home buyer and trying to figure out what my options truly are. I know I know. Now’s not the time to buy. But realistically I’m tired of spending 1900 a month to rent, a new sub development is breaking ground just down the street and I think jumping on it is the best option for me right now. Homes will probably be in the 4-500 range. I guess my questions are

-conventional loan? Do I go with that and muster the 20-ish %?
- look into a FHA with 0 down and pay PMI? Making bigger principal payments? Is that even a thing?
-yesterday I went down the rabbit hole of ARM loans. Is that really a good gamble in this market? Basically betting the interest rate is going to go down in the next 5,7,10 years?

Thoughts comments advice all welcome!

My wife and I were in the biz for about 5 years. Stay away from an ARM. I saw lots of people end up in a bad place with ARMs when they came due. Your best bet is almost always to put the 20% down. You should just go talk to a professional. Your credit and income will have an effect on what the best option for you is.

 

[maxx075]

My wife and I were in the biz for about 5 years. Stay away from an ARM. I saw lots of people end up in a bad place with ARMs when they came due. Your best bet is almost always to put the 20% down. You should just go talk to a professional. Your credit and income will have an effect on what the best option for you is.

As a first time home buyer, that 20% down is basically impossible with the prices of today's market. Basically looking at like 80-120k down. Can't save that much when I'm spending 2500/month on rent

 

[Yoder]

I've bought and sold 4 houses. First was a minimum money down FHA loan. It wound up costing almost as much down as a conventional loan but the money didn't go towards the principal. Next house they talked me into putting down 5%, then taking out a second mortgage for 15% for a total of 20% to avoid PMI. This is a ripoff. The increased interest rate on the second even factoring in for the tax credit for the interest was way more than just paying PMI. I personally believe the best deal is to put 20% down, then take out a 15 year conventional mortgage. It's only a few hundred a month more, the interest rate is lower and you'll own your home in half the time. Many people just say they will pay extra on a 30 year. Dave Ramsey says a 15 yr loan always gets paid off in 15 years.

 

[wapitibob]

30 year conventional, then refi and do a 15 year when rates drop, then pay it off early.
And don't max out with vehicle and toy loans which will prohibit the ability to move to a 15 year mtg when the time comes. Or as stated above, straight to 15 year if you can swing it.

 

[MuleyFever]

As a first time home buyer, that 20% down is basically impossible with the prices of today's market. Basically looking at like 80-120k down. Can't save that much when I'm spending 2500/month on rent

For sure. There are usually good lower down payment programs for first time buyers like the FHA loans. Just saying that depending on your situation the terms of the loan with 20% down may be the best option. The OP mentioned putting the 20% down so maybe its an option for him. If you dont have it you dont have it.

 

[2531usmc]

30 year biweekly loan pays off in about 22 years. Nice compromise between a 15 year loan and a 30 year loan

 

[CorbLand]

Get with a lender and run the numbers to see what you are looking at.

 

[TheLastFrontier]

I think 3.5% down is the minimum down payment on an FHA loan but either way you'll have PMI which isn't the worst thing- really just depends on your financial situation. We're on our second house now and have had PMI on both mortgages and it has been about $100/mo which is worth it to us to not have to tie up as much cash into the house up front while also making sure the monthly payment was well within our budget. Back when rates were around 3% it probably made more sense to put as little down as possible and invest the rest but not sure that makes as much sense now with current rates. Again it really depends on your financial situation and what you want to do with your money.

As far as the ARM loan I wouldn't recommend it unless you know you're going to have to move in 5 years for whatever reason. We did one with our first house on a physician loan but we also knew we most likely were going to move once my wife finished residency. Thankfully we bought before COVID and made a good chunk of money selling which isn't always the case. I also would highly recommend that when you start looking for a mortgage lender to treat them like a car dealership in the sense that you can make them work against each other. For our current house I reached out to three different banks and was up front with them that I was talking to other lenders and was able to save quite a bit of money by getting a much lower rate than we were originally quoted.

 

[TSAMP]

When I bought in 2013 I did not have the 20% to put down and opted to do 5% FHA loan and had an option to do a buy out on the PMI. I had the cash to do it(under 5k if memory serves). That may still be an option.

Edit to add onto the above comment. I somehow was convinced I had to pay $500 in fees to get my mortgage broker in this process. Which I now realize was BS. There are plenty of banks willing to do this loan for nothing.

 

[Pro953]

30 year conventional, then refi and do a 15 year when rates drop, then pay it off early.
And don't max out with vehicle and toy loans which will prohibit the ability to move to a 15 year mtg when the time comes. Or as stated above, straight to 15 year if you can swing it.

If you can swing the down payment, this is the best plan for sure. Especially with the current interest rates.

Once you get in a normal payment cycle the cost between a 30 and 15 is surprisingly minimal vs the benefit.

Psychologically I am more motivated to payoff a 15yr as it’s in a timeframe I can better imagine vs a 30yr. If you have a young family the house of pretty much paid off before the kids move out or you have to start shelling out thousands for college.


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[30338]

Housing here is crazy high. I'd still shoot for 10-20% down on a 30. Then take every bonus, every tax refund, every wow I found money moment and toss it on the principal. If rates ever drop, do as suggested and change to a 15 or 10 year loan.

These rates aren't great but they can get much worse if the government keeps spending twice what they bring in.

 

[Ucsdryder]

30 year conventional, then refi and do a 15 year when rates drop, then pay it off early.
And don't max out with vehicle and toy loans which will prohibit the ability to move to a 15 year mtg when the time comes. Or as stated above, straight to 15 year if you can swing it.

That’s not necessarily true. I’ll take my 2.95% fixed 30 year and pay that as long as possible, while putting the extra money in t bills paying me 5.40% and state tax deductible.

 

[bozeman]

20% down, if you cant, I wouldnt buy it, just my .02. Then as someone stated above, 30yr on bi-weekly payments. Make each payment just enough to equal one extra payment per year.......pay off in 20 years.....

 

[Weldor]

VA if your eligible.

 

[ben h]

I'd put as much down as you can, unless you have someplace safer to invest the difference at the same rate you're paying someone else. I would NOT do an ARM and bet the rate goes down. Buy now and re-finance later isn't a penny-ante, safe bet either; it's expensive and if your home decreases in value it can't be done without another infusion of cash.

 

[CorbLand]

20% down, if you cant, I wouldnt buy it, just my .02. Then as someone stated above, 30yr on bi-weekly payments. Make each payment just enough to equal one extra payment per year.......pay off in 20 years.....

I wouldnt let not being able to swing 20% stop you from buying.

I followed the Dave Ramsay approach...that dude cost me 200K. If you have truly, honestly ran the numbers and you can swing it, buy as soon as you can. Time in the market beats timing it.

 

[Yellowknife]

I’ll just say… if you haven’t bought a house before, the closing costs and subsequent moving costs are shocking the first time. And furnishing and stocking it can suck up any extra income for a long time. And in today’s market, the banks usually want you to have cash reserves. They may not let you zero out your savings. Just because you have $100,000 in the bank doesn’t mean it is all available for a down payment.

That said, it’s pretty rare for a first time buyer to put down 20%. Great if you can do it though.

 

[jzeblaz]

I wouldnt let not being able to swing 20% stop you from buying.

I followed the Dave Ramsay approach...that dude cost me 200K. If you have truly, honestly ran the numbers and you can swing it, buy as soon as you can. Time in the market beats timing it.

Can you elaborate on how DR cost you $200k? Genuinely curious.

 

[CorbLand]

Can you elaborate on how DR cost you $200k? Genuinely curious.

Followed his advice and couldn't meet it to buy in 2018/2019. Instead of putting 5% down and doing 30 year, I thought I had to do a 20% down 15 year to "be smart with my money." Housing went ballistic and I ended up paying 180K more for a house than if I would have bought when I could have swung it. In the end, I basically ended up putting 10% and doing a 30 year anyways.

I dont think Daves advice is all bad, and he is great for people that have little to no self control but I think his advice on houses is out of whack.