What do you think about using a 0 interest credit cards to cover the missing down payment
Then use the cash flow to pay off the card?
Creative, but one of your loan application questions is "Is any part of the down payment borrowed?" Also the bank underwriter will look at bank statements and will need you to explain any large cash infusions. Subsequently putting living expenses on a zero percent interest credit card in order to increase the amount of your income that can stay in your bank account will negatively affect your credit score as your credit utilization rate will increase. Keep thinking outside of the box, but focusing that creativity on saving more every month will be more beneficial to your short term goal of acquiring your first property whether it be a house hack or an investment property.
Realtor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Laura Jimenez the 2% rule is a general guideline, not a rule, terrible misnomer. Same with 50% rule and the 1% rule. Those 'rules' are also highly market dependent, some markets get 2% easily and others its next to impossible.
With limited market data to compare if the numbers are good for the area, the property does cash flow. I would pay attention to a few data points:
Vacancy at 3% is low. Make sure that's on par for the area.
Cap ex and repairs are at 10% total. If the property has been well maintained and your big ticket items are not near the end of their useful and expected life then 10% is fine, if not, expect that percentage to go up.
Lastly, with the low down payment you do have PMI which will cut into monthly cash flow and simultaneously makes your cash on cash ROI go up. As a pure investment I would rather have the PMI be gone, but as a house hack you essentially are living rent/mortgage free.
I'm coming to the conclusion that I just need to save a little more money before I get started.
I may consider it for a house hack but like you said the PMI needs to go.
Chris
Solid conclusion, also having a little in the bank after closing is very much preferred. One big expense or one bad tenant turnover early can cause a lot of financial stress.
What do you think about using a 0 interest credit cards to cover the missing down payment
Then use the cash flow to pay off the card?
Creative, but one of your loan application questions is "Is any part of the down payment borrowed?" Also the bank underwriter will look at bank statements and will need you to explain any large cash infusions. Subsequently putting living expenses on a zero percent interest credit card in order to increase the amount of your income that can stay in your bank account will negatively affect your credit score as your credit utilization rate will increase. Keep thinking outside of the box, but focusing that creativity on saving more every month will be more beneficial to your short term goal of acquiring your first property whether it be a house hack or an investment property.
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y
I don't like the credit card idea, @Laura Jimenez. You're basically replacing low cost debt with high cost debt. Most 0% credit cards are just for balance transfers and purchases for a limited time. Not for cash advances.
The $2600 rent, I assume that's for both units? Was the idea to live here for a year then move and rent out the 2nd apartment?
@Laura Jimenez way underestimating expenses. Your total is only 31% of rents. Over the long term it will be closer to 50% of rents (hence why they put it in the calculator) It shows you are losing $43 per month. Long term mine have varied from 43% to 55% expenses. Either you have to increase rent or decrease the cost to buy.
@Laura Jimenez You are concerned about PMI but are willing to pay 10% penalty plus Count the income. So if that bumps you into the 22% income bracket You would need 1/3 more income to get your dp. Example to net 50k you would need 75k. I would pay the PMI
@Laura Jimenez if you are going to be on here long term you need to know how to tag people. Especially important if you want clarification or thank people that have helped you. Use the "@" and start typing there name. A Bunch of names will appear. Double click their name and it will pop into the comment box in blue. They are then notified about the post.