[USER]

Looking for advice. I am buying my first house and I’m being presented with two options.

5.5% interest rate but wipes out 80% of my savings for downpayment and closing.

6.1% interest rate with $10k down payment assistance and $10k less for a downpayment.

Monthly mortgage is $100 more than the 5.5% but the monthly payment makes me nervous.

[Lucy]

I’d take the lower rate. Keep something for savings for any issues. Home warranties suck and not worth the cost.

[Jackie]

Well whatever you decide, when interest rates go lower you can refinance for lower rate but don’t use the equity

[Francess]

take the lower amount of interest..always. id be concerned about this wiping out the better part of your savings…houses always have something that needs to be fixed.

do you have the capabilities to save to build back up your savings account?

for a heads up. on a 30 year amortization schedule you ll be almost into year 18 before you pay the same amount in interest as principal. the first 17.11 years are mostly interest payments.

two things I can give you as pointers:

1. mortgage payments are paid in arrears. ie so if you close on your house in june, your first payment is due in july.

on the day you close, make your first months payment. dont wait until july. you ll save lots in interest.

2. just like a credit card has an interest closing date and a due date, so does your mortgage. insist on knowing what day per month your interest accrual closing date is.

then pay half of your mortgage the day after the interest accrual date closes. you ll save as the daily interest rate accrual between the date it closes and the first of the month.

I then pay the rest of the mortgage at the halfway point. pay the bill yourself. dont allow the bank to do an auto withdrawal.

they take their time taking it while you re being forced into paying more interest because you pay on the balance owed.

the sooner you can pay on the balanced owed, the more you re saving because you would have lowered the amount owed.

[Debra]

You may want to also consider how much your mortgage will go up each year.

Every year you get increases for property taxes and homeowners insurance, that could make your payments increase anywhere from $50 to $300 each year, it really depends on the cost of your assessments, are housing prices increasing every year, and natural disasters.

I have been a homeowner for the last 25 years and it’s something that I can guarantee keeps happening, it has never decreased for me, but I live in a high cost of living area.

[Mary]

the lower interest rate is the best plan. the sooner you can pay offf the mortgage is important –

[Cely]

I would look at FHA home loan. Also, look for first time home buyer programs. You must shop around for loan carefully as the savings in interest could be 100K.

Make sure no prepayment penalty, and fixed rate. Compare the APR from different mortgages.

Home owners insurance is quite high where I live. Went up over three times in a year. The insurance is also mandating new roofs and not respecting the 15 or 20 year roof warrenty.

We also are told must change septic system every five years, and that is very costly.

Be careful with the home owners insurance, as they can change it by alot and require certain items in a house or your are not covered.

[Alyssa]

If the higher interest rate comes with $10k down payment assistance, you won’t have paid more for that option (at 10k divided by 100$) until more than 8 years have passed.

If it’s possible you will sell or refinance before then, this option quite likely makes more financial sense (even more so if you will invest the other 10k you mentioned won’t have to go towards the down payment).

[Jason]

Cash is king. Whatever you think you’ll spend on a house, double it. Escrow for insurance and taxes increases yearly. Take a 30 year and pay it like a 15 if you can.

Also, furnishing a house is expensive.

If I was to do it again for the first time with the knowledge I have now, I would have bought second hand for what I could and not gone overboard with the new stuff.

Buy it right, buy it once. Buy once, cry once. Best of luck!

[Mindy]

I’d stay where you are and save a little bit more money until you feel secure in your house purchase.

But maybe you can’t or there are other factors that have not been revealed. JMHO.

[Tovi]

Is the $10k assistance and the $10k saving one and the same (making it equal $20k or still just only the one sum of $10k)?

If so the extra $100 a month will eat up that $10k assistance you are receiving, in less than 8 years (due to the extra interest vs the first deal).

Can you refinance, does contract/mortgage let you w/out penalties & having to pay fees, if so how soon, is repayment of the assistance required?

If you do pay fees then it eats up even more of the $10k you thought you saved by accepting that deal.

Gotta compare every aspect.

[Heather]

Id take the higher interest to keep more in the bank. You can usually pay more towards the principle or make extra payments (check your loan t&c).

Houses can be very expensive if things break and it’s better to have a backup to fall on than need to take a loan out because you didn’t have the money.

[Casey]

Take the 5.5. If you refinance later, before X amount of years, you will lose the down payment assistance if it’s a grant.

And if the housing market goes down and your house is worth less than you owe then you will have zero or no equity and you won’t be able to refinance.

[Chelsea]

If $100/mo is enough to break you, you either aren’t in the right financial space to purchase or you need to re-evaluate how much house you can afford.

There are many expenses in addition to mortgage that go with owning a home.

Is there a property you have in mind or is this what the bank approved you for? Try to get your mortgage as close to a weeks pay.

If not, 33% of your monthly income. Also, take other debt payments into account.

[Kimberley]

To a mortgage comparison calculator! Seeing it side by side will be most helpful of anything. I work at Regions Bank and we use it all the time.

There is one on our website and you don’t have to be a customer to use it! You can also Google to find one.

But that’s going to be the most helpful.

[Ashley]

If $100 is a huge deal breaker for you, may not want to buy… Increases in property taxes and homeowners insurance can cause this increase easily.

[Kelsey]

I would do the 5.5 for sure. Look at what you will pay for the life of the loan for each one and you will be shocked how much money 6.1 will really cost you long term.

For example a $400,000 mortgage for 30 years – the 5.5% will pay over $70,000 Less than 6.1% for the life of the loan not including additional payments to the principal.

Put the $100 a month back into savings.

Also, your payment will go up and up every year because your taxes and home insurance go up so that $100 higher payment may really impact you down the road.

There are side jobs and extras you can go to replenish your savings faster, or pay down your loan fast.

[Lynne]

If you were my kid. 6.1 and have a couple months cushion for what if’s in life.

Your home owners, and taxes will go up.
Stuff in house will break and die.

Possible pmi (private mortgage insurance) if you don’t put 20% down
You need to get surgery, car accident, have a kid yourself you will want a cushion

In todays age people do not a cushion

[Nicole]

So, your rent was $1,200 and new mortgage go on high end of what you said $1,700 so instead of $2k a month going into saving you will have $1,500 only and each year property tax and insurance can flex $300-$1000 in most areas.

So, this could mean your mortgage going up each year also. Can you afford a $2,000 mortgage in 3 yrs potentially and the o shits moments of owning a home.

This is what you need to look at the longer term.

[Becca]

If $100/mo makes you nervous, you may need to rethink buying a house. Property taxes and insurance and known to raise every year, making your monthly payment more.

Our mortgage payment started at $1200 and is now at $1900.

Your mortgage price stays the same, but your escrow account changes to reflect raising costs.

[Darla]

I have never regretted paying a larger down payment. The house will be paid off in 2 years.

If something happened to where you couldn’t work 2 jobs and continue to save the extra dollars, you’d be happy to have a smaller payment.

[Sparkle]

I would do the 5.5% – as others have mentioned – look at the cost over the life of the loan. Also, does the 6.1 mean you have to pay PMI?

You will still have 20% of your savings left.

there are options if things get too uncomfortable: roommate, part time job…Whatever you decide, congratulations on qualifying and saving for a home! Good luck!

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