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Mortgage Question

deacphan

deacphan

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My wife and I are buying an investment/vacation property. As such we're looking at rates in the 4.25 - 4.5%. The lender mentioned a loan where we only pay 5% down and the PMI is paid by the lender that results in the 4.5% rate instead of the 4.25% on the normal 20% down. We itemize as Cali state taxes are silly high. I ran an analysis assuming we keep the other 15% in the market and it returns 8% annually, and it seems like a slam dunk to keep the extra 15% to earn a higher interest rate than the loan amount. It also frees up more liquidity in the case of emergencies or potentially buying a house here in the city if I get hit by a truck or find a suitcase full of money. Is there something I'm missing?
 
meh... i can't afford to buy in the city.
 
I was just out there for the first time. I don't understand how any first time home owners save enough to buy a house in that market.
 
what's the San Fran market like compared to DC, just generically. Like will a similar property sell for roughly 1.5x the price in San Fran? 2x?
 
depends on where. from when i was looking in dc to looking now it's at least like 2x as high. redfin has the avg sale price per sqft in sf at 842 and 490 in dc. so i guess it's just under 2x. id guess comparing marin/south bay to monty/fairfax/etc is about the same breakdown as well.
 
it's feasible if you live in a cheap market and can qualify for an FHA loan
 
I don't think you're missing anything regarding the opportunity cost of the 15%. If the market performs you should beat the alternative of reducing low-rate tax-deductible debt. Obviously chasing that extra return brings additional risk.
 
thanks. i'll be interested to see the final packages to see if there are some hidden fees or something that might influence it the other way, but it seems like a slamdunk if you can afford the slightly higher payment and dont need the 15% immediately and can stand market swings.
 
deacphan said:
depends on where. from when i was looking in dc to looking now it's at least like 2x as high. redfin has the avg sale price per sqft in sf at 842 and 490 in dc. so i guess it's just under 2x. id guess comparing marin/south bay to monty/fairfax/etc is about the same breakdown as well.
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From what I understand the worst part is that those prices extend throughout the bay area. At least there are affordable suburbs to DC.
 
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LA market has finally slowed down. I think it was up 25%+ in 2013.
 
Well if you are paying a higher rate, then that is less equity you are establishing in the property. If you are doing this on a property that is only a few hundred grand though, the savings is minimal.

I would be skeptical of a lender paying PMI. It is likely built in somewhere else besides the rate. Take a good look at the fees on the GFE.
 
TheTwinAndreBen said:
Well if you are paying a higher rate, then that is less equity you are establishing in the property. If you are doing this on a property that is only a few hundred grand though, the savings is minimal.

I would be skeptical of a lender paying PMI. It is likely built in somewhere else besides the rate. Take a good look at the fees on the GFE.
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yeah the purchase price isnt very high. it's a short-sale we actually put an offer on in feb and the bank finally accepted.

that's what i was wondering about. i'm assuming the broker's documentation will detail this and will play a big role in what i choose. good advice on looking in to the gfe.
 
Seems like you would be better off financially by not buying a house, investing those mortgage payments, and using some of that money to pay to go on vacation. Are you thinking you're going to clear more than 8% in rental income?
 
DistrictDeacon said:
Seems like you would be better off financially by not buying a house, investing those mortgage payments, and using some of that money to pay to go on vacation. Are you thinking you're going to clear more than 8% in rental income?
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well the tax gains are an incentive. additionally, we're expecting rental gains plus appreciation to be greater than 8% annually. in large part, this is due to the distressed nature of the sale and the distressed nature of the property. my dad, who just retired, was a contractor and is going to live there off and on doing work on the house.
 
i'm including costs of repairs and such in my analysis.
 
I assume you're going to establish an LLC for the purposes of holding the property and limit your liability.
 
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