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Mortgage / Investment ?

Old 01-08-2017, 08:50 AM
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Default Mortgage / Investment ?

Here is our situation. My parents approached us yesterday and offered for us to buy their waterfront home for 80% appraisal value (~500k). This the home I grew up in and is probably the only way we can afford waterfront, so we are pretty much in. Iím 47 and was set to be totally debt free in 2 years, however with this new endeavor I will be entering into a new mortgage. I want to continue doing the things we do such as camping, trips, and separate girl and guy vacations, so I donít want to strap my self with a huge mortgage. So I am weighing my options.
1) Iím a vet, so a VA loan is an option, I donít know much about them. A buddy has done it and says itís no or very little money down and no PMI. We have ~250k equity in our house, so I was thinking going VA and paying the new mortgage from the our ~250k which I put in a safe money market or like account. Can anyone shed more light on VA loans.
2) Traditional route. Take all of our equity and put towards new house and finance for 30 years (accelerate payments when possible) and have a lower monthly mortgage. I am lucky enough to have a defined pension, and I max my 457b Roth (18k /yr) and my wife puts about 6k a year in to a 401k. So Iím fairly confident we could handle this mortgage into retirement (56 yo for me).
3) A hybrid of the two. Finance with VA, put our ~250 k into an account and pay most of the mortgage with that account, but subsidize the mortgage payment with some of our everyday money (like a regular mortgage), therefore making the 250 k last longer.

Any suggestions are helpful, donuts on me at the coffee shop tomorrow morning.
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Old 01-08-2017, 09:42 AM
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Ok, first off, where is this $250k in equity you are talking about coming from and how will you get it? If your house has appreciated or you paid down the mortgage and now you think you have $250k equity in your house, that money is not free to you. Sure, a bank will give you the money, but they are going to give it to you in the form of a home equity line and charge you interest until you pay it back. Only true way to take equity out of a house for free is to sell the house, pay off the remaining mortgage and then what is left over is your free and clear equity.

With that being said and you are thinking the bank will give you an equity line to get your $250k, then putting it in a safe money market or like act is silly. You are going to be paying interest on money that is sitting in an account to pay interest on another mortgage....not sound financial thinking.

On another note, interest on a 2nd home, vacation property or investment property is going to be higher than on your primary residence. Smart thing to do would be get a mortgage for your parents house and tell them it's going to be your primary residence, they cannot go back and raise the interest on your current home when they find out it is no longer your primary home.
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Old 01-08-2017, 09:42 AM
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Put 50% down and go with a 15 year conventional mortgage.
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Old 01-08-2017, 09:48 AM
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The first thing that I would do is to get some actual comp values. Just because somebody says something is valued at a particular price, it does not mean that the market will support it. How are the kitchen and baths, just like you remember from childhood? They can cost real money to redo.

The problem is that there are conflicting issues. There may be some emotional attachment, on top of the financial decision.

Also, you need to look at your finances. Is this loan going to put you out, or is it just another check to write? Are you going to die there, or would you want to sell at retirement time? There are a lot of issues.

Personally, at this point (mid 50s), if I don't have the money, I can't afford it.
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Old 01-08-2017, 09:50 AM
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Originally Posted by Diverboy View Post
Ok, first off, where is this $250k in equity you are talking about coming from and how will you get it? If your house has appreciated or you paid down the mortgage and now you think you have $250k equity in your house, that money is not free to you. Sure, a bank will give you the money, but they are going to give it to you in the form of a home equity line and charge you interest until you pay it back. Only true way to take equity out of a house for free is to sell the house, pay off the remaining mortgage and then what is left over is your free and clear equity.

With that being said and you are thinking the bank will give you an equity line to get your $250k, then putting it in a safe money market or like act is silly. You are going to be paying interest on money that is sitting in an account to pay interest on another mortgage....not sound financial thinking.

On another note, interest on a 2nd home, vacation property or investment property is going to be higher than on your primary residence. Smart thing to do would be get a mortgage for your parents house and tell them it's going to be your primary residence, they cannot go back and raise the interest on your current home when they find out it is no longer your primary home.
Sorry, should have been more clear, we would sell our current home.
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Old 01-08-2017, 09:58 AM
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Originally Posted by Time Machine View Post
The first thing that I would do is to get some actual comp values. Just because somebody says something is valued at a particular price, it does not mean that the market will support it. How are the kitchen and baths, just like you remember from childhood? They can cost real money to redo.

Everything is updated and move in ready. Only thing wife would want is to change outside color, but I can drag my feet with the best of them.

The problem is that there are conflicting issues. There may be some emotional attachment, on top of the financial decision.

Also, you need to look at your finances. Is this loan going to put you out, or is it just another check to write? Are you going to die there, or would you want to sell at retirement time? There are a lot of issues.

It wont put us out, but it will require some financial prioritizing, such as eating out a lot and things we can do without. I plan on retiring at 56, then start my pension, ~66% of my highest 5 years. Not sure I want to die there, could see us staying there for 20 years. .


Personally, at this point (mid 50s), if I don't have the money, I can't afford it.
Thanks for the response
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Old 01-08-2017, 09:58 AM
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First make sure you truly know the market value. Appraisals are typically on the high side.

Sell your house, put as much down as you feel comfortable with but at least 20% and finance into a 15 yr mortgage for whoever gives you to best rate, VA or otherwise.

Do your parents need the money? Any siblings? Any way to make this part of your inheritance? Any way you can finance directly from your parents paying them the same rate as you would be paying the bank, therefore keeping the interest in the family rather than to the bank?
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Old 01-08-2017, 10:00 AM
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Va will only loan the sales price of the house not the value. So you can't capture the equity in a first.

But you can get a second (equity line of credit) after you purchase if you wish.

Whether or not the equity will count to your pmi obligation I'm not sure. Seems doubtful

I've used va home loan benifits twice and this is how it went down.
Va no no. No money down no cost to me.
Pmi is figured as a lump sum and added to the price of the house and becomes part of your mortgage. Mine was 13k. My house was 400k plus 13k total loan amount 413k.

If I would of put 20% down I would not of had the pmi tacked on.
My house appraised at 460. Equity was not considered in the loan figures at all.

The full pmi up front sucks because you can't refi out of it when you gain enough equity.

All in all va loans are pretty easy to get and rates are good.

Good luck
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Old 01-08-2017, 10:27 AM
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Originally Posted by mikefloyd View Post
Put 50% down and go with a 15 year conventional mortgage.
Agreed. I have a VA loan but above makes the most sense when balancing risk/reward.
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Old 01-08-2017, 10:42 AM
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Agree w bone-a-fide. Sell your house and put down an amount you think appropriate. Get your parents to take back paper on the % you don't put down (50% for example) at a rate and term that makes both happy. If they need the cash down the road before the end of the term, you could always refi it or get a HELOC and take them out. Depending on your sibling situation, they could leave the balance of the note you you when they both pass.
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Old 01-08-2017, 10:49 AM
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Originally Posted by mikefloyd View Post
Put 50% down and go with a 15 year conventional mortgage.
Or better yet, a 10 if you can swing the note that way it will be paid of at age 57.

I'm old school when it comes to not gambling your home equity.
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Old 01-08-2017, 10:50 AM
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Sounds like the parents want cash and not give a mortgage ...
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Old 01-08-2017, 10:51 AM
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Go with a 30 year loan, pay a 15yr payment. If something happens, you can always pay the lower if you get in a bind. Kind of a safety net. I'm a vet, I always go conventional. Finance the longest and pay off the fastest. Must be nice to have parents with water front. How about adopting a brother that can come visit from time to time. JK. Good luck, Mark
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Old 01-08-2017, 11:07 AM
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Thanks for all of the reply's guys.
More info : No siblings, parents need their next home, would love to finance with ten year note like we have now, but that's a big nut. I agree with auto paint, I learned my lesson when buying properties with our HELOC. I took it in the daddy parts for 40k when the market crashed, not a ton of money, but it's a lot for us. I'll most likely do what Mark said.
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Old 01-08-2017, 02:39 PM
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You know what they say: "They're not making any more water front property." Good quality land on water is a great investment.

My grandmother paid $4500 for 400' of Tennessee River front property in 1945. The same land today is worth over $1 million. Too bad we had to split it with a great uncle and my father's 2 brothers.

I would tell anyone wanting to go into Early Retirement to have the real estate paid for at that point in time. I was going through my checkbook (tax purposes), and living in retirement is often very expensive--especially in healthcare. Paid homes is your ace in the hole.
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Old 01-08-2017, 02:51 PM
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Originally Posted by fishknut View Post
Thanks for all of the reply's guys.
More info : No siblings, parents need their next home, would love to finance with ten year note like we have now, but that's a big nut. I agree with auto paint, I learned my lesson when buying properties with our HELOC. I took it in the daddy parts for 40k when the market crashed, not a ton of money, but it's a lot for us. I'll most likely do what Mark said.
I took a lot more in the shorts, don't feel bad.

What's your track record of moving? I know lots of people who think they'll be in a spot for a while for X years and never make it. Myself included (once I said "I'm living here forever" and spent a crap on a remodel I wouldn't do that way as an investment) and some times you learn from it, other times you don't.

Just keep that in mind.
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Old 01-09-2017, 04:53 AM
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Parents are selling you the property at 80% of value but they are also saving 30k on commission they would pay a realtor for this transaction. So this is a wash for them. It sounds like a good deal to me but make sure that you can cover not only the mortgage expense but the insurance and maintenance costs as well. I don't know if this is sound/bay/ or oceanfront property but if it is there will always be moisture issues which can be very costly.
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Old 01-09-2017, 05:08 AM
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Originally Posted by NewMoon View Post
Parents are selling you the property at 80% of value but they are also saving 30k on commission they would pay a realtor for this transaction. So this is a wash for them. It sounds like a good deal to me but make sure that you can cover not only the mortgage expense but the insurance and maintenance costs as well. I don't know if this is sound/bay/ or oceanfront property but if it is there will always be moisture issues which can be very costly.
+1 And don't downplay insurance costs. Flood insurance on waterfront property isn't cheap. We have our boat in dry stack storage for less per year than it was going to cost us for flood insurance on a 250k house on a canal.
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Old 01-09-2017, 05:11 AM
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Originally Posted by crazybeard View Post
I took a lot more in the shorts, don't feel bad.

What's your track record of moving? I know lots of people who think they'll be in a spot for a while for X years and never make it. Myself included (once I said "I'm living here forever" and spent a crap on a remodel I wouldn't do that way as an investment) and some times you learn from it, other times you don't.

Just keep that in mind.
We have lived in our current house since '01, and would stay here if not given this opportunity. We would be mortgage free in ~2 years, but as my friends keep telling me, "you cant take it with you".
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Old 01-09-2017, 05:14 AM
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Originally Posted by Swguy View Post
+1 And don't downplay insurance costs. Flood insurance on waterfront property isn't cheap. We have our boat in dry stack storage for less per year than it was going to cost us for flood insurance on a 250k house on a canal.
Property is on a side canal with minimal flow, but leads to wide river in five minutes, then 30 minutes to inlet. Seawall is new and should last my lifetime. Home owners insurance is the same as ours and flood is half of our current rate. Thanks for all of the replies guys...
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