All Forum Posts by: Peter Chan

You might be right - I actually have no personal experience with PMI - I have always avoided it like the plague.

Personally, I'm not a big fan of Mortgage Insurance. It's basically the lender protecting themselves against a high LTV loan going bad.

If you plan to live here long term, calculate how much the interest rates will change between 3.5% DP and 20% DP. You might be surprised at how much aggregate interest you save over the life of the loan if you put down 20%. PMI is no longer required once you get to 80% LTV, so you'll save that amount every month.

If you plan to flip the property in the near term, do the 3.5% down payment, include the PMI in your monthly holding cost calculations.

Of course you'll need to crunch your numbers to make sure this works with your financial sitatuation/plans, but maybe you can:

1. Get the 3.5% Down Payment FHA loan
2. Use the free capital to make your renovations
3. Build up a cash reserve after increased rents/increased appraisal value
4. Apply rents to your loan (making accelerated payments) to get to 80% LTV as quickly as possible

You might also consider (if the numbers work for you) refinancing after your renovations, at which point your Property Value will be higher.

This means with the same loan-size, your LTV number will be lower than the 96.5% that you originally started-with.

Example:

Initial Property Value = $400,000

Initial Loan Amount = $386,000

LTV = 96.500%

After Renovation Value = $480,000

Refinance Loan Amount = ~$386,000

LTV = 80.417%

The $480,000 ARV assumes you use the 20% Down Payment and you get 100% return on your renovation budget.

I read that article last night - it contains a lot of words but doesn't actually say anything new or insightful.

The current environment is different than the 2004-2007 adventures because the lending requirements are (theoretically) more strict and appraisals are more reliable.

When I refinanced last year, the bank sent an appraiser who actually stepped-foot inside my house to look around, take notes, take pictures, etc. I was pleasantly surprised. It's the first time that I have met with an appraiser whom I didn't hire myself. In previous purchases/refinances, I would just get an e-mail or a phone call from an appraiser who did a drive-by (if that).

Though somewhat driven by investor-demand, I believe the current price increases are more-sustainable because there are more factors that make it difficult for buyers to take out a loan on a property they really can't afford, or take out a loan with an LTV greater than 100%.

In essence I believe the people who are driving the current price increases have a better idea of what's going-on and are actually creating the surge, rather than just riding it.

Hi Steven,

Welcome to BP!

I don't like the word "fantasy" as that implies a certain amount of implausibility - so I'll call it a long-term goal:

Develop/Renovate a "mixed" Senior/Caretaker facility where Family/Friends can Move-In with special needs seniors who would otherwise be living out their final years in specialized care facilities.

This facility would provide all the equipment and specialized medical care but without the isolation and callousness of traditional long-term care facilities.

@Nikolay Voronovich

Based on the numbers you provided, you may be looking at something that will be a very tight squeeze financially. While an extra $200 a month above your current rent+car payments is certainly achievable for a financially-disciplined person, your actual monthly expenses may be far greater than $2,155.

When calculating your monthly housing expense, you also need to account for some of the following items that, as a renter, you do not budget-for, in addition to the $2,155 "base" loan payment:

• HOA (these can sometimes be several 100's per month, especially in condos)
• Homeowners' Insurance (this will be several 100's per year)
• Utilities (some may be covered by your condo HOA)
• Property Tax (if you don't save for this, you'll be scrambling for cash when the bill arrives)
• Mortgage Insurance (might be required depending on the size of your down payment)

The above factors may be why your bank/lender is only qualifying you for a $1500 per month loan; though you can afford $2200 per month in aggregate, the bank does not want the HOA or County of LA to lien the property due to delinquent HOA payments or Property Tax payments, both of which are senior to the Bank's Paper.

Did you have a licensed architect involved, or did the contractor just sketch some stuff and put it on construction plans?

If there was an architect involved, the zoning laws and other items such as ADA Compliance, Title 24, and other design-related items usually fall under their purview. If the zoning restrictions were not "designed" into your construction plans, then you may have some recourse against the Architect.

If you didn't have an architect, then the responsibility would fall to whomever the contract says is responsible.

Did you use a standard AIA contract?

@Patrick Hayes for spending some time with me, providing validation that I can do this, and affirming that I was not off my rocker.

Thanks for sharing your inspirational story, Grant!

Your plan to pay off your student loans faster is sound.

Alternatively, if you don't want to take the additional hits to your monthly cashflow, you could consider refinancing the loan to make the loan "cheaper". To me, that 6.5% sounds unreasonably high.

With the recent Real Estate rebound, your existing property may have some equity in it. Consider getting a HELOC and using the proceeds to pay off the student loan.

You could also refinance with a different bank. There are companies out there that specialize in refinancing student loans. My wife refinanced her student loans and we saved several hundred dollars a month, just from a simple interest rate reduction. Do some rate shopping, it will be worth your time.

Also consider 0% introductory rates on credit cards... you will just need to pay attention to the expiration dates for the introductory rate and make sure you have a plan before that happens.

Good Luck!