pay off student loan or put more down on condo?

[osu1steve]

Private Mortgage Insurance... you typically have to pay that if you finance more that 80% of the purchase price

This is absolutely true ... but there are ways around paying PMI if you can't put down 20%. They'll do what they call 80/20 loans ... or if you can put down 5%, an 80/15/5 loan, or if you can put down 10%, and 80/10/10 loan .... you get the point. But what they are doing is financing 80% of the price on a primary mortgage at a competitive rate. The 2nd mortgage is the remaining amount ... 20% if you put nothing down. The rate on this loan is a higher rate because it is considered an unsecured loan, and a higher risk for the lender. That's the bad news, and you can think of the higher rate as effectively paying PMI. The good news is that there is no PMI to get rid of ... you simply pay that loan off.

There's lots of good info that people are throwing out there for you ... but you need to run the numbers for yourself and see what makes the most sense to do. A house is a poor investment relative to your 401k, stocks, etc. That being said, you still need a place to live, and if you want your own place, that might be worth more to you than a return on investing money that could potentially be applied toward a house.

There's a school of thought that by borrowing against your 401k, that you're being taxed on your income twice ... once to pay it back, and a second time to withdrawl when you retire. I can see that, but I borrowed against my 401k anyway. They allow this because if you default, then they turn your loan into a withdrawl, but I'll bet you'd be forced to pay some 10% penalty.

Use the PMT function in excel to estimate loans ... it's quick and easy to get numbers for comparison.

 

[Hughes412]

A few things.

2. You do not want PMI. Getting rid of PMI is near impossible as that is extra money into the mortgage companies hands every month.

I don't know about where you're at, but unless you are putting 20% down you'll have to pay PMI. Most mortgage holders will make that a requirement if the amount financed is more then 80% of the loan value. It does kind of suck but it helps keep them from going under. While it's true that a lot of mortgage companies have put people into homes they can't afford and with some crazy arm rates, it all falls back onto the buyer. You have to look at you money and figure out what you can pay. NEVER listen to the mortgage guys!!! The more you buy the more they make. They will try to do what ever it takes to get you into the most expensive home.

3. DO NOT USE CITIBANK or anything CITIfinicial related for a loan. THEY SUCK HARD. They applied my mortgage payment to my parents mortgage and it took me 6 month of dealing with dipshits in India to straighten it out.

Sorry to hear this. But I have to disagree here. Citi bank is one of our main mortgage service companies along with Countrywide and First Nationwide. Citi handles the majority of our loans and with over 1.5 Billion in loans (we only do loans for Texas Veterans in Texas, so that's a lot) we have had less then 8% of the owners calling with problems. And that 8% includes all 3 companies.


My personal opinion is if you have to barrow to get it then you can't afford it. Yes barrowing out of you 401k is ok, but you still have to pay that back. That is just another expense you don't need. When buying a condo will you still have to pay to get things fixed when they break? Do you like living in apartments? They are the same thing, but you own it. I personally hate the idea of having to worry about people bitching when I have a party, or if they have one.

Are you a veteran?

 

[jred321]

how much does PMI cost? more than the interest on a separate loan? i'm sure i could come up with a way to put 20% down if i needed to

i'm no veteran

 

[daisygrl]

Student Loan

in ~6 months i am thinking of buying a condo, nothing too expensive or anything, probably around $100k. let's say i have $15k in the bank to spend and owe $10k in student loans still. would it be better to pay off the entire student loan and have a lower downpayment or would it be better to put more down on the house and keep paying off the student loan over time?

I suggest you pay off your student loan in full and have a lower down payment. Less debt will boost your credit score and give you a better interest rate on your home loan overall.

 

[Hughes412]

how much does PMI cost? more than the interest on a separate loan? i'm sure i could come up with a way to put 20% down if i needed to

i'm no veteran

It depends on the amount of your loan. But its normally like 10-50 a month. It really isn't that big a deal. You don't pay intrest on it. The 10/10/80s and so on are ok IF you can pay them off early! Some lenders will not let you pay off the first note. And the second note (the 10%) will be at a higher rate then the other part. Most times a good bit higher.
Oh and you need to watch out for these First Time Buyer programs. Most of them will put some kind of requierments that you have to stay in the home for a sertin time or you have to pay them back. So if you get the down payment help that will come out of your end of the sale price. And if you have to sale at a time where you just break even on your loan, you end up in the hole becuase you have to pay back the part they helped you with!!!!!

I suggest you pay off your student loan in full and have a lower down payment. Less debt will boost your credit score and give you a better interest rate on your home loan overall.

I agree. Pay off loans first..... Wait a month so it shows up on the CC report.

The other thing I was going to say is don't wait to long. While prices are going down rates are going up. Right now it's still middle of the road. Rates are still decent and prices aren't that bad. If you wait too long the price will drop but your rate will be higher and next thing you know you'll still have the same payment as you would if you paid the higher price. And you can NEVER tell when the rates will go back down.

We are doing loans for 6.28 fixed for 30 yrs. VA is sitting at about 7% for prime and Conventional loans are around 7.5% for prime. Prime meaning that You make great money a low debt to income rartio and a great CC score. Any thing else you'll be looking at a higher rate.

 

[Mr. Win]

yes it will be my first home purchase. i've heard that there are different things out there to help first time buyers and when it comes time to purchase i will investigate


do you mean why a condo as opposed to a home or as opposed to an apartment? a home is too much work for me, all of the exterior stuff i don't have the time or desire to do. an apartment i don't particularly like the idea of paying someone else's mortgage for them. apartments around here go for pretty much the same as a mortgage would cost. i plan on living in the condo for probably ~5 years but then there is the thought of turning it into a rental after that.

I agree that the exterior up keep can be too much but some condos (depending on the type) can require you take of your own lawn anyways and other charge condo fees which have no cap and fluctuate based on the occupancy of the condo. I would weigh that into you consideration because the $1000 a year they might charge you could afford a lawn service that will care for the exterior of your home.

When I said apartment I meant be weary of apartment turned condo. They can have a lot of hidden problems and are generally built with every corner cut so they can turn a bigger profit. Also be careful of condos that are older because like I said before you share the walls with people and their not always well insulated.

Just some things to think about.

 

[jred321]

another thing to consider: would it look better when applying for a mortgage to have my car fully paid off so my only debt is student loans? i've been paying 3.5 times my min payment on my student loan because the interest is like 8.5% where my car is at 0% so i've been paying minimums. in the end my overall total debt would be roughly the same in 6 months but where it is would be different

 

[girth]

For the studen loan vs car loan, at first the bank would look at your car loan as a better thing because it's a newer car and offers easily liquidated value if you happen to default. If it was an older car or if the loan is large, then the student loan would be better....it just depends on your exact situation.

For car loans, your best bet is to avoid PMI if at all possible - even if it means taking a 401k loan to do it. The main thing to watch out for with a 401k loan is the exact terms of the loan, which are decided on by the company you work for, not the feds or the state. Many people are surprised to find out that a lot of companies still require you to pay off your 401k loan IN FULL within 30 to 90 days of leaving the company, so just be careful there. My company just recently switched so the loan carries over just like a normal loan if you leave the company, which obviously makes it a much more viable option.

 

[Hughes412]

You know, I'm in the middle of buying my first home. I've been doing home loans for almost 5yrs. I was talking to my leander this afternoon about down payments. In short he told me this.

Say you take out that money (a loan) and you use it for a down payment. All is good. But what if (and we all know IFs happen) you get hurt, loose your job, or what ever and you loose your house? Not only did you loose that house, you also lost you money! It happens all the time. He said it goes back to the old saying, never put all your eggs in one basket.....

Leave the 401k alone. If you don't have cash saved up for the down payment then don't us any. Use the 1st time buys programs or nothing at all.

 

[1sty]

I don't know about where you're at, but unless you are putting 20% down you'll have to pay PMI. Most mortgage holders will make that a requirement if the amount financed is more then 80% of the loan value. It does kind of suck but it helps keep them from going under. While it's true that a lot of mortgage companies have put people into homes they can't afford and with some crazy arm rates, it all falls back onto the buyer. You have to look at you money and figure out what you can pay. NEVER listen to the mortgage guys!!! The more you buy the more they make. They will try to do what ever it takes to get you into the most expensive home.

Do a combo loan to avoid PMI with out having the 20% up front. I did a 10/10/80 for example and atleast that extra interest is tax deductable.

Sorry to hear this. But I have to disagree here. Citi bank is one of our main mortgage service companies along with Countrywide and First Nationwide. Citi handles the majority of our loans and with over 1.5 Billion in loans (we only do loans for Texas Veterans in Texas, so that's a lot) we have had less then 8% of the owners calling with problems. And that 8% includes all 3 companies.

This took all of 2 seconds to find this one.
There are a bajesus of them out there. The largest problem with them is getting someone who speaks english and is not a comlete dipshit is near impossible. God I hate India.
http://alexking.org/blog/2004/10/26/citimortgage-frustrations
I originaly had principal and they were great. Citi bought them out and made my life a REAL big pain in the ass for a year until I sold the house to get away from them.

I thought as a 1st time buyer you can deduct from a 401K and not pay it back?

 

[osu1steve]

You know, I'm in the middle of buying my first home. I've been doing home loans for almost 5yrs. I was talking to my leander this afternoon about down payments. In short he told me this.

Say you take out that money (a loan) and you use it for a down payment. All is good. But what if (and we all know IFs happen) you get hurt, loose your job, or what ever and you loose your house? Not only did you loose that house, you also lost you money! It happens all the time. He said it goes back to the old saying, never put all your eggs in one basket.....

Leave the 401k alone. If you don't have cash saved up for the down payment then don't us any. Use the 1st time buys programs or nothing at all.

I'll have to disagree with you on this ... while it is a good idea to leave your 401k alone, you are also not allowed to borrow money which you are required to pay back for a downpayment on a home. As I mentioned earlier, you can get away with borrowing 401k money because it's yours. If you were to default on your loan, the company would just charge it off as something along the lines of a hardship withdrawl, and you lose your investment plus a 10% penalty.

That being said, I know people who have lost part of their 401k investment after being laid off ... because they weren't fully vested in the company or something along those lines, they had to pay back the company matchings. Technically, you should not be allowed to borrow against that money if that were the case. But all companies' policies are different.

 

[girth]

I thought as a 1st time buyer you can deduct from a 401K and not pay it back?

Nope

 

[osu1steve]

You should be able to do that ... it's typically called a hardship withdrawl. Under IRS rules, you should be able to take from your 401k without paying it back. It's a one time deal, and you are required to prove you have a heavy financial burden. The purchase of a home as your primary residence meets that requirement. You'll pay a 10% pentaly for touching it though.

 

[girth]

You should be able to do that ... it's typically called a hardship withdrawl. Under IRS rules, you should be able to take from your 401k without paying it back. It's a one time deal, and you are required to prove you have a heavy financial burden. The purchase of a home as your primary residence meets that requirement. You'll pay a 10% pentaly for touching it though.

Oh, well yes in that case you CAN get at it without paying it back - I mean in reality you can get at it any time you want for any reason and not pay it back but you will pay 10% penalty plus taxes on the amount you withdraw. But that'd be a very stupid move for sure.

 

[Hughes412]

I don't know guys; taking out money from your 401k is just not a good thing in my eyes. This is your retirement that you're playing with. Now if you have it like I do were you have a state pension and a 401k I guess it would be ok. When I retire I'll have the state pension, 401k, and if SS is still around that too. At that point you can play with some. But if all you have is the 401k I'd say leave it. If anything messes up it takes way to long to fix it.

Just make sure that if you do the split loans make sure can pay off the small loans with no penalties. I my self will be going through my job and VA for a fixed 30 loan. It kind of sucks, so many ways to do it and so many ways to mess up.

 

[Hughes412]

Oh, well yes in that case you CAN get at it without paying it back - I mean in reality you can get at it any time you want for any reason and not pay it back but you will pay 10% penalty plus taxes on the amount you withdraw. But that'd be a very stupid move for sure.

Thats right, you'll have to claim that on your taxs at the end of the yr.