15 vs 30 yr Primary residence

9 Replies

HI

I am getting ready to buy my first home.  I plan on having roommates.  Was wondering how much an extra bedroom is worth in terms of resale value?  For example, there is a 3bed house for 245k vs a 4 bed for 310k.  Which is better?

Not sure what the future will bring...my plan is to rent this house out after I purchase my next home..but I might end up selling this house within 5-10 years.  If I sell it within 5 years, does it make more sense to get a 30 yr mortgage (lower payment) or get a 15 yr (more toward principal).

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I obviously love the roommate idea....as that's all that I do as an investor.  I think most of us would go 30 not just for the lower payment but that money is so cheap.  I would be more interested in the 3rd bath over the 4th bedroom.  You'll get better rents....per room which I prefer or the whole house someday.  You're in a young rocking town, very young and very mobile so roommates is a great and steady plan....just DONT rent to your friends.....it's business.  I'm looking at austin right now along with nashville as markets I want to get into.  I do believe that there is a major correction coming...probably sometime after the election so if I were you, I'd get a deal done.  If you haven't looked at it....take a peek into the 203 loan.....good way to go for financing and you'll be able to get a fixer with it...and pay more for it than someone like me would.  LUCK!

I think you will be happy w/30 yr fixed.  Rates are headed up so lock in now at these great historically low rates.  You will get better cash flow, if things get dicey, you can cover the 30yr easier than 15yr.  Roomates come and go so that's something to consider.  Save your money and re-invest in more property.  I have mostly 30yrs and have one at 15. It's great to see the principal on the 15 go down in chunks but it doesn't put money in my pocket if times get tough.  

If you think you might hold onto it after you move out, it's probably better to get a 30 yr vs the 15 yr because your payments will be lower and it'll be easier to qualify for the mortgage on your next house.  Plus, you could always make extra payments on the 30 yr mortgage if you decide you really want to pay your principle down faster, but you don't have the option to make lower payments on the 15 yr if you need the extra money. 

Another thing to think about is that if you really think you might move out and sell it in only 5 years, you might be better off just renting as opposed to buying right now.  You're not going to build much equity up in only 5 years, and you'll have to pay a Realtor when you decide to sell.  Not to mention that you'll be paying all the maintenance, property taxes, insurance, etc during that timeframe that you wouldn't have to pay if you were renting.  Just something to think about.

Good luck with whatever you decide.

@Daniella Ortiz , I would suggest you run the numbers.  What will you be able to rent out each room for and how much more rent will you get for the extra cost of a bigger house when you do a cash flow analysis?  I have always been a huge advocate for 15 year mortgages but that is not the right choice for you right now.  Go with a 30 year loan.  I will also advocate to put 20% down.  I know that you can keep some of your cash to try to buy another property but truth is you will probably not qualify.  Also if you have less than 80% equity you will probably have to pay mortgage insurance payments every month that will eat up your profit margin, your mortgage payments will also be lower making you more cash flow.  Lets a fast analysis with made up numbers.

Buy house $245K on 30 year loan with 20% down at 4% interest.

Monthly payment $936 per month.

Add $250 per month taxes, $150 insurance, $120 per month for maintenance and $60 for Cap ex costs, and utilities are $400, you 5% vacancy for 90$.

Total cost per month is $2,006 per month

You rent 3 rooms for $600 each for $1,800 total income.  You lose $206 per month

I have no idea if these numbers are close but get your own and plug them in.  Now lets try a 5% down payment on a 15 year note at 4% interest.

Monthly payment $1722

All of your other costs are going to be the same except you have $150 per month for mortgage insurance until you have 80% equity.  Total monthly payment with all expenses is now $2942.  You now lose $1142 per month.

Maybe you can $800 per room maybe only $500.  You need to study the market and sit down and run real numbers.  Look up what the taxes are on this place, call for a quote on insurance, ask your banker how much mortgage insurance is on a $233,000 loan.  Look online and in the paper for how much rooms are running per month in the area you want to invest in.  Your ideas are neat, but without the math you are going to have HUGE problems.  I have not thrown in other things like the cost of getting the house ready to rent, legal fees, accountant fees for filing taxes, advertising fees, costs of furnishing the house with beds, TV, maybe even cook ware or appliances, and regular furniture.  Think and plan accordingly.  Good luck, you are in a great place to invest but do it wisely.

Always go with a 30 over a 15 year. If you want to pay it off in 15 years, no one is going to stop you. However none of us can predict the future.  A future job loss, and you might be crushed under that 15 year note, but survive under a 30 year note.

I would start with asking yourself what you goals and financial position is? If your goal is to quit you job and eventually live off the cash flow go 30yr if this is just a long term savings plan consider a 15 year. If you can comfortably afford the 15yr alone without roommates and they are just an added bonus why not put 20% down and pay all the expenses out of pocket then use any rental to pay that sucker off faster so when you move out in 5-10 years you have a free and clear asset that will generate long term stable/safe cash flow. It really boils down to what your goal is.