Which way is better to purchase a home? Downpayment size?

Question

Pay a large down payment and then quickly pay off the remainder (15 or less years) or Pay a smaller down payment and slowly pay off the remainder (30 years)? Also, are fixer up houses worth it?

Ok, how about a fixer upper, planning to stay there for a life time, and more than 20% down.

Answer 1

It depends on a few things. First, how long do you plan to stay in the home? If you're going to be moving in the next ten years, it doesn't make sense to put in a big down payment and try to pay off early. There is a huge tax break from a mortgage, especially in the early years of the loan when you pay mostly interest. On the other hand if this is your retirement home there is some sense to getting rid of the mortgage earlier.

Check out http://bankrate.com/ - they have lots of good information and also list lenders by state with their rates.

Fixer uppers also have a few angles to be considered. Is your purpose to save money and then live there forever, or buy it, fix it up, and then re-sell ("flipping")? You should do a little research on your market and find out things like how long homes take to sell - for example, Los Angeles 30-60 days, Terre Haute, Indiana one year plus. Is your area growing in population or not? A realtor will be able to help you sort this out.

As far as fixer uppers go, are you prepared to live in a construction site for some time? Also, is the sale price really going to be worth it when you consider the cost of repairs? How extensive are the repairs - paint and carpet aren't too bad, but if you start tearing up bathrooms and kitchens you can quickly run up some big costs so that the initial sale price will turn out not to be much of a money-saver in the end.

If you do find a fixer, have at least two but preferably three or more contractors take a look at the house and give you an estimate on what the work will likely cost. You should do this even if you plan on doing the work yourself as it will give you an idea on what things will really cost, both materials and labor. Contractors are happy to give estimates for free.

Good luck and happy home hunting!

Answer 2

You have alot of good answers here, but not everyone has the 20 percent, 20 percent to put down on a home. If you are worried about the PMI (PMI is added on any amount borrowed over 80 percent, on a conforming transaction). You could add .30 to the rate to avoid PMI, and go 30 yr (and figure up what your payments would be on a 15 yr, 20 yr) and pay the higher payment - but the 30 yr gives you a cushion of a lower payment if you get laid off, have medical problems etc after you buy your home. You CAN pay the mtg off early, by making the extra payment(s). There are also interest only propgrams, 40 yr and 50 yr programs too. Depends if you plan on staying in the home 5 yrs or less, or longer - Talk with a Mortgage Broker. Why talk with a broker?? A broker underwrites for many company's (I underwrite for 150 companies) so I only have to pull credit 1 time, and they look at my credit. A single lender (not a broker) has programs available, but they may not be able to help you and your situation, so you go elsewhere, and than that person pulls your credit (see what I mean.) FHA/VA approved too. If you shop, your credit is pulled and that is considered a soft pull, for a 30 day period. Just like shopping for a auto, it is good for 30 days. If you apply for a credit card, that is considered a "hard" pull and it drags down your credit score. When looking for a home, please do not apply for a credit card, Department Charge Card, Gasoline Card or make any major purchases, like a auto, etc. This will pull your credit down.

Answer 3

whatever down payment you can afford is the best down payment. don't put yourself in the hole to get 20% down, just to avoid PMI. You can borrow 100% and split it into 80% and 20% and avoid PMI that way too.
The larger the downpayment however, the nicer (more expensive) a house you can get for a reasonable monthly payment.
But on the other hand, the shorter term of your mortgage, the larger the payment. 30 years will give you the lowest payment and you can always make an extra payment a year OR you can get an amortization schedule and every month make your payment and then pay the next months principle.
my advice...down payment isn't the most important thing when buying a house. where you put yourself on a monthly basis is key. plan for the unexpected - especially with fixer uppers!!

Answer 4

(1) Larger down will help get better interest rates. 80% loan, 20% equity is enough to get best rates if your credit is strong. 15 or 30 year- you still want the best rates.

(2) Payoff benefits depends on your age, and current times. Get a loan now at 5.25% but if interest jumps to 10% in a year or so- you might be glad you have a 30 year loan. You can also get a 30 year, and by making about 1 extra payment per year to principle, the loan will pay out in about 15. That makes it your option as opposed to a requirement and gives you flexibility.

(3) Fixer-uppers can be profitable for resale, but if unless you are a very good handyman capable of a wide range of work it's unlikely you would do well. In addition, you must be very good at appraisal of condition, repair costs and final value. This is not amateur territory.

(4) Fixer-uppers to live in- may be better because the time factor doesn't you hurt as much. Still, knowing what's wrong and the cost to fix it is critical. What you want is property that is priced down by appearances, such as trash, dirt, poor paint, etc. because these really thin out the buyers but are readily fixed at reasonable cost. Structural problems are different; they are usually unrecognized by many buyers, underestimated in cost by others- and can be very expensive to fix.

Answer 5

Which is better depends a lot on what you plan to do...stay put or move as most people do...every 5 years. Also depends on how much capital you wish to tie up in the property.
Fixer uppers can be worth it, especially if you are handy and can do a lot of the work yourself. Over time its been a way for people to make big money. You need a good idea of property values (economic outlooks) in the areas you may buy fixer uppers.

Answer 6

If you have 20% down payment, you definitely will be better off, as you are avoiding having to either get Private Mortgage Insurance ( which insures the lender against default - and does not protect you in any way) or having to pay a high interest rate on a second mortgage (oftentimes in the double digits). With that said, the least amount of years you can amortize the loan over the lesser amount of interest payments will go to the bank. You certainly will be better off going with a 10 or 15 year mortgage - if you can afford the payments. If those payments are not feasible, go with a 30 year mortgage and make either bi-weekly payments on your mortgage or pay one extra month a year to the bank. When you send that extra payment in, endorse it "apply to principle only". If you do that early on, one payment can reduce your 30 year mortgage to a 23 year mortgage!
Good Luck!

Answer 7

A lot of the information here is great. There were a few things I wanted to address though.

PMI is no longer the evil it was.It has recently been ruled (December 9th 2006 by Congress) that PMI is now tax deductible, just like the interest on your mortgage and the fees associated with a mortgage. So if you can't afford to put down the 20%, you're still in for a tax break.

The 80/20's are a horrible option, and if you can, avoid them. If it's the deciding factor for your home purchase, though, you may have to opt in. With a second mortgage, you're paying a higher interest rate that is more than likely adjustable, because the rates on fixed seconds are ridiculous compared to firsts. PMI will eventually fall off, once your loan amount reaches 80% of the value of your home (this can be a predetermined date, or you can have your home appraised again when you believe the value has gone up enough. A good loan officer will keep in contact with you in regards to this).

The higher interest rate to avoid the PMI is called TAMI, Tax Advantage Mortgage Insurance, and since the ruling on December 9th, is probably going to be phased out. There is no longer a benefit for adding a higher interest rate to your loan for tax purposes. And why pay 30 years for something that you can get out of sooner?

By shortening your term, you will be saving yourself tens of thousands of dollars. If you can afford a 15 year term, or a 20, go for it.

As for flipping houses, if you don't have the experience, or aren't partnered with someone who does, I advise doing a LOT of research on it. More than just asking on Yahoo! Answers.

If you're interested in speaking with someone about mortgage questions, or to apply, email me or visit the website.

[e-mail]

http://aapexfund.com

Answer 8

If you could afford a large down payment and a 15 years term, you should definitely go for it. With a small down payment and a 30 years term, you could ended up paying a lot of money in interest.

Banks in Canada now allow weekly and bi-weekly mortgage payment. The more frequent you make payment on your mortgage, the less it would cost you on interest.

Answer 9

down payment size should depend on how long your see yourself staying in that property and the appreciation rate of your locality.

putting down a large down payment and knowing that you are going to move in 5 years is not a good financial choice. those monies could be working for you in other investments

Answer 10

Pay it off as fast as you can, as far as the tax break goes, do it make sense to spend 1200 per month to wright off 120. Once it is payed off cash is king.