Mortgage and Home Equity on a new house

parkejoMarch 11, 2008

My husband and I are getting ready to buy a house. We have an amount for our mortgage that we don't want to go over but we are coming up short for the total down payment. This year we had to pay taxes and usually we get back about 10-12K each year. We were thinking about getting our mortgage and paying the total amount we what to pay but using our emergency savings. Then after we move in getting a home equity line of credit for the remainder that we took out of savings. I don't know if that makes sense but we want a mortgage around 150,000 but we are 30,000 short. We can take that money out of savings and replace it after we get the line of credit. We are normally good with money and save. We would take what ever extra money we had and whittle down the balance of the home equity. That way we would have that paid off at least within a couple years and have the mortgage payment we want. Or should we just get a higher mortgage and not touch our savings? Then we could pay down the mortgage with extra payments or refinance down the road. What would you do?

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Are we getting the horse a bit back of the cart, here, possibly?

Have you bought your house yet? I assume not, in that you don't have mortgage set up, it appears.

I'm not familiar with the housing situation generally, and certainly not with what's going on in your area, but the housing situation in many parts of the U.S. is in a real mess.

Many bought several years ago, with small equity, and paying something like 1.5% interest directly at the time, but the actual amount being charged was much higher, say, 6% ...with the extra being added to the principal owing! The contract specifying that the rates were to be renegotiated after a certain number of years.

When the amount that the mortgagees actually needed to pay became apparent on renegotiation ... the people couldn't pay it.

So the house went on the market.

Along with thousands of others in the same boat.

Those (what many of us would call "spurious") mortgages were peddled over wide areas.

Including to a Canadian bank in which I've held shares for 41 years, during which time share price advanced from $4.20 to about $106. and change, last May.

Unfortunately, it seems that my bank had also backed an insurance company that had underwritten many of those lousy mortgages.

As you know, North American stock markets are down a substantial amount during the last few months - but nothing like more than 40%!

You can understand my feeling that I'd more or less like to use those guys who dreamed up that shady way of doing business as targets at a shooting range?

The speed at which the Fed began freeing up money when this problem surfaced a while ago, and has moved on it again since, including today, in concert with the Canadian central bank, and some European ones the same, leads me to think that there's a lot more trouble yet to appear in the housing crisis in the U.S.

Remember the Savings and Loan crisis of something like 30 years ago? Some are opining that this may turn out to be worse.

If I were you, and it's at all convenient, I think that I'd be sitting on my money for a while.

By the time house prices get down about as low as they may be about to go ...

... perhaps you'll have had the opportunity to have saved most of that $30,000. shortage, especially if you go into fairly heavy-duty savings mode in the meantime ...

... in which case - perhaps your problem may well have disappeared.

Maybe more than disappeared ... for possibly the house you want may have had its price dropped by that $30,000. ... possibly more?

And you may well have more than the "extra" $30,000. on hand ...

... Hey! maybe you can have enough extra down payment to be able to avoid mortgage insurance!

The loss in value of that stock of mine since last May is about half of the amount that you're short.

But I've held it for 41 years, so I guess I'm more or less too much attached to it to sell it now (and this is not the time to sell it, in any case - might be time to buy more).

Just some food for thought.

My daughter's wanting to buy housing in the Phoenix area.

I've been suggesting to her for months that she keep her money in her jeans for a while.

She made an offer last year, there was $5,000. difference, with neither stubbornly willing to spring for the diff.

Within a few months, after she returned to her former location in Toronto ...

... she told me that a re-valuation of the premises had come in ...

... at $20,000. lower.

Now she's back in Scottsdale, keeping her eye on the situation.

Maybe even both eyes, on occasion?

Sitting on her money ... still (I hope).

I hope that you're having a great old week, at your "house" - (wherever that may be, at the moment!).

ole joyful

P.S. I'm not as upset as it sounds - when dealing with much of business in general, and the stock market, in particular, if one were to sweat the small stuff (or take a short-term view) ...

... one would have one's fingernails chewed down to bleeding, a good share of the time.

Closing on age 80, very thankful to be enjoying good health, with only a small portion of needed health care payable directly, and fairly sure that I have sufficient assets to carry me through the remaining days of life ...

... with some residue for charities and offspring ...

... I'm a happy man!

o j

P.P.S. For many families, buying their home is the largest contract that they ever make.

I strongly suggest that you make it your business to investigate the current housing crisis in the U.S. thoroughly, up, down and sideways, during the coming months, including prospects in your area.

There may be a hurricane approaching.

o j

    Bookmark   March 12, 2008 at 1:12AM
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I would ask your questions on the Buying and Selling Homes (GW) forum, but in any case, I think you're going to end up in trouble, borrowing from Peter to pay Paul. You are NOT ready to buy a house unless your financing is in good order and you don't have to do acrobatics to do it. And as Joyfulguy says, the market right now in the U.S. is a disaster area, with too many pitfalls to go into without a lot more advice from pros. Wanting is not enough!

    Bookmark   March 12, 2008 at 6:40AM
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This is our third house we would be buying. We are putting down about 50% of the sale of the house and financing the rest. We would not have any PMI to worry with. I know the real estate market is a mess right now. I just don't want to tie our emergency savings into our first mortgage that's all. Just wondering what others have done in a temporary situation.

    Bookmark   March 12, 2008 at 7:54AM
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Hi Parkejo,
Got you answered over on Buying & Selling a Home board;

Mortgage and Home Equity on New House

Dave Donhoff
Strategic Equity & Leverage Planner

Here is a link that might be useful: Mortgage and Home Equity on New House

    Bookmark   March 12, 2008 at 12:19PM
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