my wife and i paid off our primary residence house (las vegas) and want to buy a condo in salt lake city utah. we want to rent it out but to help us pay off the property (condo in slc) as fast as possible (6-9 years) we know it WILL NOT make us POSITIVE cash flow. we have no other debt so we plan to use our own money we make to pay down every month as well.
we are looking to spend around 300-320k and have 10% down
we have been approved for a conventional loan (will have pmi insurance till 80% equity left) but it looking around 3.5 to 3.8% interest
we have not applied for any type of heloc, but we do know interest is higher.
but would it be cheaper in the long run to get a heloc knowing no pmi and i am assuming less closing cost if we can pay off heloc in less then 10 years or
just the the conventional loan?
The details matter here, @Jeffrey Kim . Interest rates (you don't define for HELOC), total fees, PMI amount, HELOC term. This can all be planned out pretty accurately in a few minute with a spreadsheet and on-line calculator. The only real hiccup here is that the HELOC will probably have a variable rate, so you have to make some assumptions.
Another option is a 10- or 15-year mortgage. They'll have lower rates than the other options. The downside is that you lose flexibility. Utah First has some pretty attractive rates.
I have a great lender at Uah first who has run well over a million worth of loans for me in the last year, both multifamily and SF, let me know if you need a name.
With rates being as low as they are I would put the 20% down to negate the PMI. Which should average around an additional .85%, so roughly an additional $2500 a year based of of your loan amount. Lets assume rates go back up to %4.25 in a few years, about when I would assume you're ready to refi. If you're locking in right now at %3.5 even in a few years it doesn't make sense to refi, and you're stuck in your condo with over 20% equity but unable to do a refi because it just make sens mathematically. Thats just a small corection. If rates go even higher then you're really SOL. Lets just say in a few years, par on your loan would be 4.5 and you can lock today at 3.5(prob a pretty real number). That coupled with PMI would be almost 2% higher than your 3.5 rate you could get today. That pencils out to be 4k-6k more a year in unnecessary interest and PMI. Once again, if rates go higher that number would be even worse for you.
My thought. An extra 10% now saves an immense amount of money and lots of uncertainty in the future. If you're goal isn't to keep your DTI as low as possible to bankroll more investments then shoot for the 20% down.
Of course none of this matters if your condo is non-warrantable, which in turn would need 20% down regardless.
Lets us know what you decide.
i dont have 20% down right now, i do have 10% should i just wait and save for the 20% then or would a heloc to get the rest be a good idea?
i would do the Heloc now. ALWAYS do a Heloc when you can. You don't have to use it, but if you lose your job or employment changes you may not be able to qualify for it in the future.
Take into consideration that in order to qualify you for your condo loan, if you have a heloc, they are going to calculate that payment at full draw, so just make sure you can still qualify.
I would buy NOW. With UTAH's outlook on job growth, economy, and lack of housing, I truly believe theres not a better state to be investing in for long term gain.
Where are you looking to buy? SLC proper, or Sandy, South Jordan, West Jordan etc? Are you planning to use it yourselves eventually, or just keep it as a rental and look for equity gains?
@Jeffrey Kim - You should be having this conversation with some lenders. They can run all the numbers for you and do it accurately since they'll be able to apply the most accurate interest rate and closing cost numbers into the equation
@Andy Jenkins salt lake city downtown or sugarhouse, we would eventually just want it payed off and have a 2nd house for us to live. we just wanted extra help to pay for the mortgage. but man even with these great rates, everyone is just increasing pricing, i am reconsidering because being in debt sucks, but we will see.
thank you again for everyone's help.
Free eBook from BiggerPockets!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you