Author Topic: Mortgage hijinks  (Read 654 times)

Abe

  • Handlebar Stache
  • *****
  • Posts: 1446
Mortgage hijinks
« on: April 20, 2020, 08:05:24 PM »
Hey everyone, I have a question. My training job is ending soon and I will be moving to Texas for a permanent job that pays very well and is very secure assuming we have a functional society after COVID. My wife and I are looking at buying a house as we will be living there for at least a decade, probably until we retire in ~15 years.

Right now we have enough savings in stock/bond funds to cover a 20% down payment on the house. The mortgage brokers (a local credit union that works with staff hired at University of Texas branches) are offering me the option of having two loans:
The first is a normal mortgage for 80% of the house's cost for 30 years, 3%, some negligible fees.
The second is a loan for 10-15% of the house's cost (my choice) for 20 years, 3%, no fees - balance due at 21 years.
This would leave a 5% down payment + the closing costs.

I think this plan is reasonable, especially with the hit the stock market has taken. My initial plan was to cover the down payment by withdrawing our bond funds (which haven't dropped), but this option seems a better idea given how low the interest rates are.

Regardless of how we do things, housing costs + property taxes would be ~25% of my total salary, or 40% after federal taxes & maximizing retirement/pension contributions.

Any reason this would be a bad idea? I'm not planning on any purchase until we have a better idea of how the pandemic will affect Texas, but either way it'll have either been controlled or burnt through by the time we would be buying (September).

Kayad

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Mortgage hijinks
« Reply #1 on: April 20, 2020, 10:28:03 PM »
Seems like a great deal.  Just be sure there is no catch. (PMI on the mortgage?  Exorbitant fees?  Problematic penalties/restrictions on prepaying or refinancing?)

affordablehousing

  • Bristles
  • ***
  • Posts: 470
Re: Mortgage hijinks
« Reply #2 on: April 21, 2020, 09:49:59 AM »
Sounds like a good deal to me as well. Are you sure the 2nd loan isn't tied to your employment and wouldn't have the repayment accelerated if you left/retired? Just double check. Also, I would double check there aren't any university loan programs that are better than the 2nd loan. A lot of employers give zero interest second loans that are tied to how long you work there. If you know you'll stay awhile might be worth getting one of those.

Abe

  • Handlebar Stache
  • *****
  • Posts: 1446
Re: Mortgage hijinks
« Reply #3 on: April 21, 2020, 02:57:06 PM »
Thanks for your allís advice. The employer doesnít offer a zero-cost loan due to my income. They say the 2nd loan requires I stay a member of the credit union, but not that Iím employed by UT still. Former employees can remain credit union members. Neither mortgage has prepayment or refinancing penalties!

I think weíll go ahead with it, now have to wait for a few months to go look at houses. Most of just way too big and there arenít any normal sized houses for sale in the neighborhood.

secondcor521

  • Magnum Stache
  • ******
  • Posts: 2892
  • Age: 51
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Mortgage hijinks
« Reply #4 on: April 21, 2020, 03:20:30 PM »
It's a plan that works well as long as house prices are stable or rising.  We did essentially that and things turned out very well when we sold our house three years later for 33% more, although it was a mixed bag as the sale was related to our divorce.

There is a risk to be aware of - one that became apparent back in 2008/2009 to many people:  Buy a house for $200K (say), put down $10K, mortgage(s) balance of $190K.  House drops in value to $150K and owners want to move, either due to divorce, job loss, job change, whatever.  In order to sell the house and move, owners need to come to escrow with a check for $40K ($190K - $150K) plus closing costs.  Or walk away and do a voluntary foreclosure, lose their equity, and wreck their credit.

Not saying it would happen to you, or that you wouldn't be able to find a good solution.  But I have learned over the years that it is smart practice to figure out the ways in which financial arrangements would not work out well so that I have a balanced perspective.

Congratulations on the new job and house (in advance).