Mortgage Question.?

Question

I have excellent credit, been employed 2 years plus same job, make $100k, and am getting married shortly (I expect to be making $110k by March). I would like to be able to buy a house in the $500,000 range. I have little downpayment funds. I could swing $20,000 selling an investment. I also have $10,000 in debt (credit card). Should I pay down the credit card debt or accumulate more cash for a downpayment? Also, would my salary support a mortgage of about $480,000? (If unaffordable, how much does my wife need to make also for us to be able to swing this?) The house will most likely be in Suffolk County Long Island where the taxes are high. I see taxes of $6k min to $10k prior to STAR, a gov't giveback program that reduces the rate.

Answer 1

You asked for my opinion, so here it is. Let me first say that I can be a litle blunt, and that my wife and I are tight with a buck.

Short answer is you cannot afford it.

Do yourself a favor and pay off the $10M in credit cards as soon as possible. I assume these credit cards are charging you roughly 15% interest. I do not know what return you are earning on the investment, but I guess it is less than 15%. It does not make sense to borrow at 15% and then invest it at a lower rate.

This leaves you with a downpayment of $10M, or 2% of $500M. Someone will probably make you a loan with 2% down, but you will have to pay PMI (insurance to protect the lender if you default) and you will probably pay higher interest and fees. Today 10% downpayment is pretty common, if you can put down 20% you can avoid PMI (yes I realize that is $100M in cash).

Conservative bankers recommend spending 28% of your income on housing, less conservative lenders say 33%. I did some quick number crunching: Assuming a mortgage of $490M at 7% fixed for thirty years, your monthly payment is $3,260. Assume another $667 per month in taxes (middle range of your estimate is $8M per year). At $100M per year, monthly income is $8,333. Your ratio comes to 47%. This does not include PMI (never had it, do not know what it costs) and property insurance. Again, do not know what insurance on a $500M house on Long Island costs.

To bring your debt/income ratio down to 33% you need annual income $142,800. Again, this does not include PMI or property insurance. You still have not addressed the 2% down payment condition.

With annual income of $110M, as you expect shortly, your housing ratio declines to 43%.

Assuming $110M in annual income and 33% housing ratio, you are looking at purchase price of $360M. Down payment is still under 3%. Still have to pay PMI and property insurance. No, I do not know where to buy a decent house on Long Island for $360M.

Sorry if this is bad news.

Answer 2

Well, first think of this, If you have had the same job for 2 years and assuming you've made the same amount of pay in those 2 years---you still have $10,000 in debt that you haven't been able to pay on your salary, and no money saved. What makes you think that anything will change now that you will be married ? You will just accumulate more debt and charges.

Either buy a cheaper house and pay off your debt and start saving, or keep renting for awhile while you both save.

Don't rush into debt so quickly!

Answer 3

i wish i had your problem.....

first off that much money you you make should not need anything down don't sell the investment for this whatever it is (that was my mistake) if you and your wife to be are co holders on the mortgage then if something happens between you two the assets are divided up and split (usually in the ladies favor) which in turn damages yoru credit rating (and hers). If you are the breadwinner pay for the house yourself and get a prenup.

second DO NOT GET AN ARM or any variences of one including an interest only rip off if you pay only a part of the interest the interest STILL generates interest and the principal gets interest on it as well.. 30 year fixed and go for it. and paying down your debt ALWAYS helps.

PMI's are also a huge scam as well as are escrow accounts. Advoid these two at all costs if possible.
Good luck

Answer 4

You're looking at about $2,900/month, before taxes and PMI (assuming 6% int, 30 years). You definitely want to clean up that debt first and another thing, houses are coming down so there's no sense in rushing into a house right now. Put it off a few months (while paying the debt) and you'll be in better shape. Also do a lot of homework on the location of prisons, sewer plants and other value-lowering cites before you buy.

Avoid the "Option ARM" at all costs. If you are offered and option ARM, leave the speaker immediately. Such bad mortgages allow you to underpay on your payments, sending your PRINCIPAL upwards. That's right, you'll owe more money.

Answer 5

#1 buy a cheaper house.

#2 to all you who bash the option arm... Why? its not in my eyes for the person whos just buying a house to live in.. its more aimed at investments to me. Also, you end up w/a higher balance because you have ridiciously low payments... its a OPTION to make those payments. Kinda like taking out a small "loan" on your property each month. Remember everything you dont pay the bank (below interest only) does go on the top of your loan but it also does NOT come out of your pocket! There is a time and a place for them! There are also hybrid versions now that have a fixed rate and dont adjust for 5 years!.. Obviously I'm in the industry and there are MANY ways to look at things, I personally think 30yr fixed isn't the best loan out there. I personally like the idea of the 1st position heloc (whole other conversation) if you have money skills... Unfortunatly I dont think you have enough yet.

Good luck,
God Bless!

PS. Think about spending less, I guarantee you will come out way ahead if you buy a cheap house and invest the rest.

Answer 6

Bill,
If you were in the state of California I could help you out a little more, but I know nothing about Long Island and the types of loans that they have. I do know that if your looking to by soon, it is important to get your credit cards down to 20 percent of their balance and make sure you have no lates on any payments. Sounds like you are on the right course. Good Luck to you and your future wife.

Answer 7

If you have to ask all those questions on here you should not be spending that much money on a house. Get rid of the credit card debt. It will reflect on your credit report causing you to pay a higher interest rate.

Answer 8

You should talk to a banker. You are close to the limit. It is never good to have credit card debt--many times the interest on credit cards is extremely high.

Answer 9

Countrywide Home Loans offers mortgages with NO money down or with as little as 5%. You may need to prove your assets of maybe 3% of your principal and interest payment but would not need to be used. Most companies do offer no money down programs. Any mortgage website will also give you a "what you can afford" calculator.

Answer 10

If you make $100k a year and you have $10,000 in credit card debt, this tells me that you don't manage your money well.