My wife & I are in our early 30's, and looking to buy our 1st house, $100k or less. Average home value here is $130-$150k. We have great credit and hardly any debt. My plan is to save enough for a 20% down payment on a house in the next 12 months. Our local credit union offers a rebate interest mortgage, currently 5.375% fixed rate, and 4.5% ARM. They give members 70-75% of their interest back each year. Is 20% down a good plan or should I do less and use the extra money for updates to the house? And do you have to pay PMI on FHA loans for the entire length of the loan?
@Brent Matthew everyone is different but one of the biggest advantages of an owner occuppied loan is the loan down payment. That's one of the strategies that some employ to build their portfolio....get into a property for 5% down and then move a year later and do it again while renting out the first. You could also do a combination of a live in flip/BRRRR if you buy a property that needs fixing and create some value then get your initial investment back out and keep rolling. It all depends on your goals.
My goals are to get more rentals so if it was me I would buy for low down, add value, refinance out my money and go buy more properties. Best financial decision I made was to purchase buy a house. 5% down and now I have a lot of equity and the ability to leverage some of that equity.
That sounds like a high interest rate. I would use a mortgage broker to get the best rate. I would also save up until you have a 20% down payment plus a three to six month emergency fund before buying. Depending on the condition of the house will depend on if you need to save up extra money to fix up the house before buying or if you could live it in and fix it up as you are able to financially.
@Brent Matthew There are so many ways around to avoid MI on PR. You don't need 20% down payment to avoid MI. You have option of single premium and 80/10 option and some other options to avoid MI. On 30 year fix FHA you have to pay MI for life of the loan.
Some good advice already. I agree with Amy that an emergency fund is critical - usually a guideline of 6 months of salary is what I hear. Shopping around for the best rate is also good advice.
I think it all comes down to your goals and your tolerance for risk and sweat equity. Like Brent stated, you could look to do a fix/flip and then if the market supports it, leverage this property to scale up into other properties.
I think the only thing that I can add is to identify your goals (short term and long term) and to research and educate yourself about interest rate trends, options, and about investing in real estate. Good luck to you!
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