Hi everyone, I'm finally to the point where I really want to buy a home - renting is becoming old to me at this point. Unfortunately I have a couple of issues to confront first. The first issue is the fact that i live in the Bay Area (CA) so as I'm sure you know, I can't get a shack for less then $375,000. The second issue is the down payment, I do not have $40,000 or so just sitting around to use for a down payment. This of course brings me to the 'interest only" mortgage question: I was told by a couple of realtors that an interst only loan might work for us because the payments would be quite a bit lower then a conventional 30 year - and these types are often times no down payment as well. I realize there is a drop dead period from 3 to 7 years, but I believe that still might work for us. Well if anyone has some info they would like to share with me (good or bad) please let me know. Thanks in advance, Sal
One thing to consider--in most markets, real estate prices do go down at some point. It's started some places, and if interest rates go back up who knows what happens. So, fast forward how ever many years. You need to make higher payments. Maybe you're having trouble finding the money. You can't sell the house for enough to pay the mortgage. You can't refinance because the value is lower than the mortgage. This does happen, and if it does, what is your back up plan? If you think you're going to get a big raise or bonus AND you can stash that away, or you can put away money each month, maybe it will work. But I always try to look at the down side as well as the up.
I absolutely agree with you - and believe me the housing market scares the hell out of me. I just so badly want to get out of the renting cycle, so much so that I'm starting to feel desperate. Sal
I just so badly want to get out of the renting cycle, so much so that I'm starting to feel desperate Please just be careful if you are feeling desperate to buy a home. There are other costs besides the mortgage payment associated with home ownership, like lawn maintenance, appliance maintenance, etc....and it can get expensive. I wouldn't advise buying a home if you have to stretch too much to get approved for the mortgage. My house payment is 15% of my monthly income and mine includes escrow (ins and taxes). But then again I live in Florida so my home is worth 95k here and it's a 3 bdr with a den. Homes in CA are much much higher! Maybe save as much of your income before buying...even if it means waiting another year. Just don't put yourself into a situation where you are money tight, etc... And with interest only it's only so many years of interest only, right? I'm not familiar with them at all as mine is a 20 yr fixed. Then with the interest only loan don't your payments really jump when the principal becomes due?? You have to make sure you can cover those higher payments when the time comes. And if you try to refinance or sell your home may not sell or be worth enough to cover what is owed on the note because you haven't paid any money towards principal. I would try for a fixed conventional or FHA mortgage first. There are so many programs out there for first time home buyers too...some even if you go thru financial counseling they will assist with a downpayment. I would ask about that too.
You do not obtain an interest only loan because you need to qualify for a loan. You only obtain an interest only loan if you: Are in a booming area (you are) where you have a high chance of moving/selling within a few years. or You are a savvy investor and can take the DIFFERENCE between your interest only payment and the normal P and I payment and invest to get a better than 10% return on a consistent basis.(if you haven't started investing already, there is a good chance that you won't be after you purchase a home) Interest only to qualify is a DANGEROUS move and remember that AFTER the initial 5 or 10 years of interest only payments the balance (which will be the original balance) will be re amortized over 20 or 25 years at full principal and interest payments which will be significantly HIGHER then what your original 30 year amortizing payments would be.
1. Interest only means you can pay principal at any time. Or pay down debt, or invest. It's not an interest only loan if you're putting 300/month towards principal, or diverting the MASSIVE tax return back into principal. Remember interest paid is cash back, and i imagine that 375K and the qualifying salary of 130-150K to get such a house with 0 down would give you a serious tax return. 2. Houses in some areas are just going to grow up. Gentrification (ghetto) areas that are bordering the primary city will go up. 3. Houses go up (the house itself), why? it costs more in labour, materials to build a house on the basis of cost of living (min) 4. Hopefully like most of us, we strive to be making more money in 5 years. Or have significantly less debt. 5. If you pre-pay principal and redirect tax returns on such house you'll have quite a dent in the principal in 5/7 years to refi and not have a gaping huge gain. 6. just research the area very well, make sure you're getting a steal or bargain on your house. Look for new houses, failed-contracts where builders must move fast. I just put in a contract,applied for mortgage, and closing is set on the 18th!! using this exact method. There are risks, but i'm paying over 1000/mo for rent and its tiny in here. paying another 500-600/month (including all new utils/fees) but getting back 5-6 grand a year in taxes kinda counters the increases in costs. Any extra cash we make by raises, side jobs,etc can be put to pay down debt (goal debt ratio to 0) and pay principal. so yeah it does make sense for up and coming folks and up and coming neighborhoods (or just plain hot neighborhoods). personally not having to drive but 10 minutes to work without traffic (me and wif) makes it all worthwhile. More expensive to live in the burbs? hell no. just a nicer neighborhood, houses are JUST as expensive. Taxes are just as expensive. so to each his own. Now to see these folks close on the 18th, lol, i'll be quite amazed
