Mohtalim

I guess that's two of you.

I know the standard is 20%, but how much do you put for down payment? In % of loan. I am thinking about how much money I need to save up before I leave this hell hole if I were to get a house, when I move, without my parents help.

In this climate of fiscal irresponsibility, you can put next to nothing down. The key issue is how screwed do you want to be. If you can't put down 20% you have to effectively get two loans. One for the entire property and another loan to cover the 20% to put down on that first mortgage.

This is just my very inexperienced opinion, but if you're aiming to leave AK and buy a house your going to probably need to save at least 60k. You have to consider that unless you're Sharad (or working for a bank) your closing costs are going to be at least 5-7k (also moving costs can run up to 2k). If you're planning on moving to DC, NY, or anywhere in CA you're going to need more than that.

I would highly suggest that if you are moving to a completely new area you don't buy right away. Rent for at least six months and probably a year would be better. You don't want to get stuck living somewhere you don't want to be or that just doesn't fit you. I made the logical decision on where I should live and it is still the most efficient and practical: minimal commute to anywhere in the metro DC area, rapidly growing area, fairly close to standrad stores/conveniences, they're building the metro out this way in three years, etc. , but now all my friends are moving in closer to DC. There it's a highly impractical place to live, but the amount of 20-somethings and things to do after work are great. I had the slim opportunity of finding a place around there two years ago for around 330k. Now even a one bedroom condo (600 sq. ft.) there is at least 450k and if I were to get a place as large as my current one it would be closer to 500-650k and that doesn't include the fees and parking costs. I don't think I necessarily made the wrong decision, but you always maintain doubts when you throw around that kind of money.

60k is 20% on 300k, which is actually pretty expensive. Portland is one of the most overpriced housing markets out there, and our two bedroom downtown condo (~1000sq ft) had a asking price in the 260-275k range. If you don't live in DC, NY, or certain swaths of CA, I think it is perfectly standard to buy for a lot less.

We're saving up our pennies and dimes. I figure it'd be good if we had 30k or 40k, since we will want to stay downtown and condos are damn costly. It probably won't amount to 20%, but the second loan should be pretty small. Or maybe the stock price will continue to rise 13 out of every 14 days and we will have 20%.

Also, we've used the same movers twice now. $85/hour plus $25 diesel fee. They moved our two bedroom apartment (which is certainly a full one-bedroom apartment's worth of furniture) for under $300. We only went about a mile away each time, but still.

Essentially all the acquaintances I have who recently bought a house have a second loan. (The ones who bought a while ago sold stock.) In my cousin's case, they put nothing down, but the house is in a small Tennessee town. Makes it more palatable.

Of you home-owners, do you have fixed rate mortgages?

Dwindlehop wrote:Of you home-owners, do you have fixed rate mortgages?

With the current interest rate it's a bad idea not to have fixed rate mortgage.

Wow, I completely forgot about this thread. Time for bullets

• 20% is the standard since it's the minimum to avoid mortgage insurance without a second loan
• Mortgage insurance simply sucks (ie. paying extra solely because you're a risk)
• Paying more than 20% down is simply for equity, and was not worth it in my case.
• The above may change, since I'm too lazy to figure out investments beyond 401k and company stock
• The alternative, if you don't have 20%, is to take a second trust (loan)
• The most common plan is 80-15-5, one loan for 80%, one loan for 15%, a downpayment of 5%
• Typically, the interest rate on one of them is very painful (the 15% iirc)
• I have a 30 year fixed-rate loan

Peijen wrote:

Dwindlehop wrote:Of you home-owners, do you have fixed rate mortgages?

With the current interest rate it's a bad idea not to have fixed rate mortgage.

What if you know you want to move in the next five years? It seems to me that by paying less, you're saving more money than whatever small additional amount you'd pay off your principal with a fixed rate mortgage. Am I wrong?

Here's the real question. Do you shop for a mortgage first, or the property? I heard you need some kinda bona fides to see many properties...

We haven't talked much about it, but I think we'd like to get 10-15% for the down payment. Hell, we got 5% now. 20% would be a stretch goal.

As a bonus fact, in Korea the common situation is you give the landlord 50-75% of the price of the property, stay there for a year or two, and then you can get your money back. Of course, you can keep doing that more or less indefinitely. Mortgages are relatively rare.

Dwindlehop wrote:What if you know you want to move in the next five years? It seems to me that by paying less, you're saving more money than whatever small additional amount you'd pay off your principal with a fixed rate mortgage. Am I wrong?

I thought about this. The question is what happends when you can't move after your planned 5 years? Also variable interest, after the initial period, means variable payment which makes it much harder to plan your budget.

Also because how the interest payment is calculated you actually pay less interest in the first few years than what you actually owe in a fix payment plan. Vinny questioned about this in his student loan posts and I never got around to answer it.

Here is how interest payment is calculated. Assume you always pay off your interest veery month, and you pay a fix amount of principle every month as well. We can project your interest payment for each month since net interest owed is 0 at the end of month and take interest rate * remaining principle is your new interest payment.

Now average your interest payments, add monthly principle payments, that's your mortgage payment. So you are actually paying less interest than you owe in the first half of your mortgage or 15 years in vinny's case.

Actual interest for the first month is interest rate * 100% of principle and actual intererst for the last month is interest rate * 1/360 of principle. After averaging it you are only paying 50.1% of actual interest the first month and increase at the rate of .28% per month.

So no, you are not getting a better deal with variable interest loan, even if you only live there for 5 years.

Base on Jason and Vinny's repsonse I assume both of you put 20% down?

Peijen wrote:I thought about this. The question is what happends when you can't move after your planned 5 years? Also variable interest, after the initial period, means variable payment which makes it much harder to plan your budget.

That's a separate issue. Let us stipulate that I'll move in 5 years and get a 5 year ARM. The interest rate will not vary during those five years and it will be lower than the 30 year fixed rate mortgage.

Peijen wrote:Also because how the interest payment is calculated you actually pay less interest in the first few years than what you actually owe in a fix payment plan. Vinny questioned about this in his student loan posts and I never got around to answer it.

Here is how interest payment is calculated. Assume you always pay off your interest veery month, and you pay a fix amount of principle every month as well. We can project your interest payment for each month since net interest owed is 0 at the end of month and take interest rate * remaining principle is your new interest payment.

Now average your interest payments, add monthly principle payments, that's your mortgage payment. So you are actually paying less interest than you owe in the first half of your mortgage or 15 years in vinny's case.

Actual interest for the first month is interest rate * 100% of principle and actual intererst for the last month is interest rate * 1/360 of principle. After averaging it you are only paying 50.1% of actual interest the first month and increase at the rate of .28% per month.

So no, you are not getting a better deal with variable interest loan, even if you only live there for 5 years.

I fail to see the downside for the ARM. Are you saying that you pay off 100% of actual interest for the first month for a ARM but 50.1% of actual interest for the first month for a fixed rate mortgage? The numbers I've seen for ARM vs. fixed rate seem to say that the 5-year ARM saves you money over the first 7-8 years, then there's a crossover point, and over the long haul the ARM is ridiculously more expensive.

Peijen wrote:Base on Jason and Vinny's repsonse I assume both of you put 20% down?

I put down 20% and I'll fairly sure Jason did too.

Just for clarification, where did you get the 20%?

I know down here in florida, houses that now cost 250k or so only cost 150kish two years ago - ie before my superuseful masters. Market sucks, buying at the peak without good reason isnt worth it.

Dwindlehop wrote:I fail to see the downside for the ARM. Are you saying that you pay off 100% of actual interest for the first month for a ARM but 50.1% of actual interest for the first month for a fixed rate mortgage? The numbers I've seen for ARM vs. fixed rate seem to say that the 5-year ARM saves you money over the first 7-8 years, then there's a crossover point, and over the long haul the ARM is ridiculously more expensive.

I am not saying there is a down side, I am just saying it's not that much cheaper and you have to consider the risk invovled.

The difference in the first year interest payment, using the same assumption I made between the two is:
interest rate * ((1 + 1/360) / 2) * principle for fixed
interest rate * ((1 + 300/360) / 2) * principle for ARM assumpe 5 years fixed

Do some manipulation the interest rate ratio comes out to 361 / 660 or 55%. So if your ARM interest rate is less than 55% fixed interest rate than yes you save some money otherwise no.

dude.

Peijen wrote:The difference in the first year interest payment, using the same assumption I made between the two is:
interest rate * ((1 + 1/360) / 2) * principle for fixed
interest rate * ((1 + 300/360) / 2) * principle for ARM assumpe 5 years fixed

Do some manipulation the interest rate ratio comes out to 361 / 660 or 55%. So if your ARM interest rate is less than 55% fixed interest rate than yes you save some money otherwise no.

Huh? Is that 55% number based on the full 30 year life of the mortgage only and not the move/refinance after 5 years assumption? I don't understand what those equations mean.

The assumption is that you pay off full interest amount every month, and the actual interest payment is averaged out, which means you actually pay less interest in the beginning with respect the the principle.

Let's say if your loan is 10000 for ten month at 10%, and 1000 monthly principle payment. Your interest payment looks something like this
1000
900
800
700
...
100
Average that out you get 550 / month.

Now if your ARM is 2 months at 5% you get
500
450
which averages to 475, and the next 8 months you will be paying insane interest rate. Increase risk with little saving!!

I don't think I can explain any better than that

quantus wrote:the move/refinance after 5 years assumption

With the current low long-term interest rates, assuming that you'll be able to refinance at a better rate in five years doesn't make much sense.