Attn: Flip & Fillip

[WhoSayWho? 5,000+ posts]

Flip and Who i have a question and you two are the most qualified to inform me, although other advice is appreciated.
Following Who's advice to only go in debt for school or a house i'm thinking about buying a house in Richmond when i move there.

Ya? or Nay?

If i bought one in the next year, would i be able to turn it around for a profit in say 2-5 years?

I tend to go against the convential wisdom that would suggest that buying is always better than renting. That is especially true in this housing market. My opinion is that if you think that you may be selling in two to three years you are better off renting unless you can get a lot of equity in the house up front.

Kinda odd for me to say that, since I have always made money when I have bought/sold and I have never owned a house for more than 4 years. However, the equity that I earned was not due to principal reduction, but a rise in house values. You can't depend on that today. In fact, home values are expected to decline over the next couple of years.

What you can depend on is having to pay a real estate commission of 6 percent when you want to unload this thing in the next couple of years.

 

[WhoSayWho? 5,000+ posts]

Aren't interest rates outrageous right now because of the foreclosures going on right now?
I think it wouldn't be worth buying a house if you're gonna flip it in 2 years. 5 ... maybe but probably still a gamble. Think of all the interest you pay on a mortgage in the beginning. Unless you're just buying the house outright, which I doubt you're doing.

Actually, interest rates are very good now.

 

[Flipx99 5,000+ posts]

The rates may be headed for a slight increase. If mortgage origantors begin having trouble packing the loans up into structured securties, they may increase the rates so they become more attractive to investors. This hasn't exactly happened yet, but is becoming a real issue 9-10 months out.

 

[Flipx99 5,000+ posts]

To back up Whos? claim: look at any mortgage amortization table: The first payment is mostly interest. I hd to explain it to the gf last night. She didn't understand why I am so insistant on saving enough down payment to avoid PMI. On the properties we are looking at, over 10 years the interest difference is about $5,000 and a $80 increase in mortgage payments.

 

[tsenfw 10+ year member]

Actually, interest rates are very good now.

Whoops, my bad. Yeah, I just looked that up. Saw what Flip said they are forecasting though.

 

[Flipx99 5,000+ posts]

Indeed. I lol when I see the people on the news say that mortgage rates are directly tied to the federal funds rate. They wouldn't know wouldn't know what a psa rate was if it walked up to the and said howdy.

 

[Eugenics 5,000+ posts]

What is PMI? Why is it important?

 

[Flipx99 5,000+ posts]

What is PMI? Why is it important?

Private Mortgage Insurance. It is something you pay if you don't have 20% downpayment. But that varies; my credit union only requires 5% before no PMI.

The rule of thumb is PMI increases your interest rate you pay by .5%...which is big bucks in later years. You also don't want to finance the closing costs.

 

[Flipx99 5,000+ posts]

I can go into greater detail but I am on a laptop and I keep hitting the touchpad and screwing up what I type.

 

[Eugenics 5,000+ posts]

Please do when you have a chance.

 

[Flipx99 5,000+ posts]

See, when you borrow money for housing, the lender wants some assurance you will pay. If you do not have 20% down with FHA housing, you have to pay private mortage insurance until you have 50% equity in the home. This insurance comes in the form of a slighly higher interest rate.

I can afford a house in the $120,000 range. My lender will loan me 95% of the appraised value of the home before I pay PMI. I am thinking that under current market conditions I can buy a house below it's appraised value; thus, my down payment would be less. If they appraised said house at $150,000, I wouldn't need a down payment.

A way around the PMI is an 80/20 loan. Where you borrow the downpayment at a slightly higher interest rate than the remainder of the mortage. This is generally cheaper than paying PMI.

Knowing more about your financial situation would allow me to provide better advice.

 

[Flipx99 5,000+ posts]

Have you even talked to a lender?

 

[Flipx99 5,000+ posts]

If you want, PM me your number and we can discuss.

 

[Eugenics 5,000+ posts]

dont have a phone right now otherwise i would

 

[WhoSayWho? 5,000+ posts]

Please do when you have a chance.

PMI. Roughly --

Once it was difficult to get a loan if you did not have 20 percent down payment. PMI is one way of overcoming that. It is insurance on the loan (for the lender's benefit -- not yours) that insures the difference of the amount borrowed between 80-100 percent of the purchase price.

And Flip is right -- it is money right down the drain, but it does allow people to buy a home when they otherwise could not.