Filed under: Mortgage Question
Question: My situation – $170,000 asking price for a 5 unit that is valued at $190,000 (both net income valuation and market sales analysis). Seller wants ~$30,000 at close to buy a residence (currently lives in one unit of property), and will take the remaining $140,000 in a note.
My thought is to go to close with the following:
Obtain conventional mortgage for $30,000 and have the seller take back a mortgage for $140,000.
My dilemma is that I question how many lenders are willing to take a second without me having any track record in the property. Have any of you heard of this before? I am trying to create a nothing down deal, but wanted some opinions as to whether or not I am just wasting time.
Any info is much appreciated
Answer: Have you given him some deposit money so he’ll “hold” the deal til you decide, if he is not obligated to you, he might sell it to someone else.
January 1, 1970
Question: I bought a condo in Hawaii, and plan to use it for about 2-3 months of the year, and rent it out for the remainder 9-10 months of the year.
My question is about which type of mortgage to get: Second-Home mortgage, or Investment Property mortgage?
Currently, I’m going through the lending process with this property as a second home mortgage. The stipulation by the lender is that I stay in the home for at least 2 weeks per year. This will be easy for me to do as I will be using it 2-3 months of the year.
As I am 5,000 miles away from Hawaii, in Virginia, I will be incurring sizable travel expenses. I also have a $250/month condo fee and about $110/month for property taxes. The cost of furnishings is expected to be about $6,000.
My intention is to deduct not only the mortgage interest, but also all the travel expenses, condo fees, property taxes, insurance, cost of furnishings, and all the other costs associated with renting out the condo 10 months of the year.
Which type of mortgage should I get, if I want to be able to take these expenses deductions? Can I take all these deductions if the mortgage is a Second Home mortgage?
This has got to be a common-knowledge question for anyone who is doing this already, and there must be some very definitive answers. As I’ve never done this before, I’m at a loss and hope someone here has the answers.
Thanks very much,
Answer: I’m no accountant. Your rental expenses will be reduced by (12 – 2 or 3)/12. Your personal use doesn’t count as rental. An Investment Property mortgage should be a slam dunk. I think either will actually work. Use the cheapest. I believe it is the use of the money the IRS is more concerned with. People use home equity for all kinds of business startup expenses. I think you are treading on thin ice with the travel expenses (airline tickets). My Earnest and Young Tax Guide states “If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is non-deductible personal expense.” This is a pisser. If you actually went to maintain your condo for 3 days and did nothing else, the travel would be deductible.
January 1, 1970
Question: My question is about paying off a fixed mortgage [..........] >Some people shorten the life of the mortgage by adding an exrta amount to >their regular payment, or pay the bank an occassional lump sum. >The extra amounts go to increase the equity, [.................] >My question is for the case when the payment is not re-adjusted and >stays the same. In this case, the bank tells me that the interest part As it turns out I got the wrong information. After checking with a reliable bank official, it turns out that the interest part is calculated by them according to the current balance. Their formula is
next_payment_interest_part = current_balance X rate / 12
TWO bank OFFFICERS at TWO differnt branches gave this wrong information, which caused me much confusion (I asked the second officer in different branch, because I did not believe the first one).
The lesson learned is to check with the right people.
The issue if it worth to prepay/accelarate the mortgage life is a separte issue.
Thanks for all of you who answered, and sorry for wasting your time.
Answer: According to some of the things I’ve read, there *is* such a thing as ‘back-end’ prepayment credit, under which you pay both principal and interest according to the original schedule, with principal being reduced for prepayment from the back to the front, e.g., pay off enough principal to cancel payment 360, pay off enough to cancel payment 359, etc. Thus, an advance-paid loan ‘falls off the end’ sooner than if the prepayments were not made, but nowhere near as fast as if prepayments were credited up front. Apparently this isn’t very common, and may not be legal for mortgages in some (or most) places, but some of the schlock ‘Instant $5000′ loan stuff that shows up in the mail seems to be structured this way–you owe all scheduled interest instantly, no matter how fast you pay it back.
So it’s possible that some of the bankers were telling you the truth, while also screwing their customers….
January 1, 1970
Question: My question is about paying off a fixed mortgage. I hope it is not a stupid question (if it is stupid, blame me, not my organization, they have enough trouble already…).
Some people shorten the life of the mortgage by adding an exrta amount to their regular payment, or pay the bank an occassional lump sum. The extra amounts go to increase the equity, and therefore the life of the loan is shortened, resulting saving in the total interest paid.
Sometimes the bank will re-adjust the payments (specially if a large lump sum was paid) – in this case there is no problem.
My question is for the case when the payment is not re-adjusted and stays the same. In this case, the bank tells me that the interest part of the payments does not change (although the equity has increase above what it would be according to the original payment schedule).
The questions are then: (1) Is the bank correct ??? (2) Isn’t it better to keep the extra amount and put it in savings or in an investment and earn some interest on it. Down the road, when the loan balance will reach the accumulated amount, pay off the whole loan. If there was profit on the money, which can be assured by putting it in a CD or treasuries, the loan will be payed off sooner this way rather then paying it as the money is available. In addition there is acess to the money in case of need. ??? (3) If (2) is true how come that the usual recommendation is to make extra paymants to shorten the life of a mortgage???
Answeres will be greatly appreciated.
Answer: Some people shorten the life of the mortgage by adding an exrta amount to their regular payment, or pay the bank an occassional lump sum. The extra amounts go to increase the equity, and therefore the life of the loan is shortened, resulting saving in the total interest paid….
…when the payment is not re-adjusted and stays the same…., the bank tells me that the interest part of the payments does not change…
The questions are then: (1) Is the bank correct ???
No. You pay interest only on the remaining balance.
(2) Isn’t it better to keep the extra amount and put it in savings or in an investment and earn some interest on it.
This has been discussed in some detail on this list. The answer is: it is best to put your money where it has the most return. This typically means that you should start by paying off high-interest loans (e.g. credit cards, car loans). Then, look at possible investments. Pre-paying your mortgage is an investment at the rate of the mortgage interest. Put the money where the ROI is greater. Note also that you have more liquidity if you DO NOT pre-pay the mortgage.
Several people on the net have arguments that say that pre-paying the mortgage is generally better based on (what I and many others consider) fallacious arguments.
how come that the usual recommendation is to make extra paymants to shorten the life of a mortgage???
Because many people don’t understand the principle of calculating the present value of money. They make meaningless calculations involving (e.g.) adding up all the interest you pay over the period of the loan, without taking into account WHEN the interest is paid.
January 1, 1970
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