Investor · Marquette, MI · Member since 2015 · 2 posts · 0 votes
Hello Bigger Pockets,
My husband and I are in the process of deciding between a 15 year vs. 30 year loan for a $48,000 house. Interest rates for 15 year are 3.0% and 3.75% for 30 year loan. We plan on fixing up the house and reselling within 5 years after I am done with graduate school.
The difference between mortgage payments is only $100/ month. In other forums it seems as though everyone is quick to suggest the 30 year loan, just wondering if anyone had any thoughts on our circumstance.
Real Estate Investor · Sioux Falls, SD · Member since 2013 · 415 posts · 84 votes
11y
So your personally going to live in it?
I have always preferred a 30 year. Here is why. It gives you options. What happens if you or your significant other becomes ill or loses a job. That extra $100 can be a lifesaver in a pinch. As long as everything is going fine you can easily pay an extra $100 a month as you like. You will however have a hard time going to a bank and saying hey can I refinance to a 30 once you get a hardship. So like I mentioned I always shoot for a longer term and give myself the option to pay it off as soon as I feel. Cash flow can be your friend or foe.
Also you may have a hard time getting a mortgage under 50k some banks don't mess with mortgages under 50k. Just an FYI.
Real Estate Investor · Sioux Falls, SD · Member since 2013 · 415 posts · 84 votes
11y
So your personally going to live in it?
I have always preferred a 30 year. Here is why. It gives you options. What happens if you or your significant other becomes ill or loses a job. That extra $100 can be a lifesaver in a pinch. As long as everything is going fine you can easily pay an extra $100 a month as you like. You will however have a hard time going to a bank and saying hey can I refinance to a 30 once you get a hardship. So like I mentioned I always shoot for a longer term and give myself the option to pay it off as soon as I feel. Cash flow can be your friend or foe.
Also you may have a hard time getting a mortgage under 50k some banks don't mess with mortgages under 50k. Just an FYI.
Real Estate Investor · Sioux Falls, SD · Member since 2013 · 415 posts · 84 votes
11y
But... on the same token your looking at a PI payment of $331 VS $222 so IMO its not a big issue either way.
I would just be curious on how much money your going to have to keep putting into a 48k house. Around here that won't get you much at all , other than a property that will need constant repairs and upkeep. You may want to consider a little more updated home that doesn't have any major updates needed (HVAC, Roof, Plumbing, Electrical etc). That is, if this one is in need of those major updates.
Herndon, VA · Member since 2014 · 1k+ posts · 324 votes
11y
I would go with an ARM. Probably with 7 years fixed to give you a little leeway even though it bumps up the interest rate. If possible you can pay it down like a 15 year loan.
Investor · Marquette, MI · Member since 2015 · 2 posts · 0 votes
11y
Thank you for your input. It is very much appreciated.
We are planing on living in the house while fixing it up. Homes are cheap in the area (Upper Peninsula of Michigan), and we feel like this house is a good investment because it is in a good neighborhood, close to downtown and a University. Most of the updates needed are cosmetic, new furnace and hot water heater. Roof is about 10 years old. Local bank will lend the money for under 50k mortgage.
Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes
11y
@Cory Howes Take the 30 year. You don't know what is going to happen in five years, you may end up keeping this as a rental for 30 years even though you plan to flip it. By taking the 30 year you will have locked in an interest rate until 2045. Besides with a fifteen year the higher payments are just going to equity and you can make extra payments on the equity anytime you want to with a 30 year whereas you have to with a 15.
Benton City, WA · Member since 2014 · 135 posts · 50 votes
11y
get the 30 yr, pay like mad till pmi is gone. Then amatoritze it out yourself to the original 15 years, or less. This way if you can have your cake and eat it, too. I think most people forget to pay extra on their mortgage.
Benton City, WA · Member since 2014 · 135 posts · 50 votes
11y
get the 30 yr, pay like mad till pmi is gone. Then amatoritze it out yourself to the original 15 years, or less. This way if you can have your cake and eat it, too. I think most people forget to pay extra on their mortgage.
I would go with the 30 year also as others have said. It can be the difference between the ability to or not to get approved for purchases on more investments in the future when they consider your DTI. I always like the least payments possible as well.
Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
11y
Are you "positive" you are going to flip it?
The reason I ask, is if you are going to want to keep it as a rental later. Having a 15 year loan "can" make it harder to requalify. In this case might not make a big difference but if for someone who wants to pick up multiple rentals it can be a negative. I would love to get 15 year loans as a buy and hold. That meets my "lives" desires perfectly. On the other hand, it can cause alot of problems for requalifying because of how they calculate affordability. Just food for thought from someone who got their first rental as a 15 year loan :)
Rehabber · Smyrna, GA · Member since 2013 · 864 posts · 510 votes
11y
Call it the math nerd in me, but I'd take as much 3.75% money for as long as I possibly could. I flat out hate debt, but why would you ever want to pay that back? Build up some cash and use it to do deals, or improve the property, or go somewhere warm to escape a Michigan winter for that matter (OK, maybe the last one isn't a good return on capital, but I'm afraid of the cold, so would be looking at how to fund my escape).
There are just SO many things you can do with investing that money that will pay a lot more than 3.75%. Different strokes for different folks, I'm a Dave Ramsey fan and like the no debt approach in life, but the math says keep the money and on that low amount and low rate and invest it somewhere. I'd def say go 30 yrs and have the additional options, like has been said, you may want to rent it later. The difference between 3 and 3.75 on $48k is pretty negligible, and 3.75% is just ridiculously low historically to begin with.