Financial suggestions

land_shark3 · Post by **land_shark3** » January 13, 2007 10:30 am

I'm looking for some accounts or other financially minded people that could help me out with suggestions.

I recently sold two of my cars and just received my bonus check. A large portion of the bonus check went to pay off a majority of my wife's car. Now here is the dilemma; I have enough money left in my account to pay off the remainder of her car, but we are also looking at buying a house this Summer.

My credit rating is in the mid-700s so I'm not worried about interest rate. If I do NOT pay off the car right now, I can get pretty close to putting 20% down on a house. If I do pay off the car, I'll probably be around 10-15% down.

Is the PMI going to hurt me that much or should I pay off the car and save the $500 a month that is currently going to a car payment?

Sidew13 · Post by **Sidew13** » January 13, 2007 10:34 am

When we bought our house last year, we we're told we needed 10% or more down to avoid the PMI charge. So I'd say the 10-15% down should cover that and avoid the PMI. But you might want to double check with your mortgage company. Otherwise I was told it would take about 8 years to pay enough off of the loan to be able to drop the PMI charges.

land_shark3 · Post by **land_shark3** » January 13, 2007 10:52 am

Sidew13 wrote:Otherwise I was told it would take about 8 years to pay enough off of the loan to be able to drop the PMI charges.

On my last mortgage, it took less than 2 years to drop the PMI charges. Some of that was from extra payments and some of that was from inflation in the housing market.

MA_Buffett_Fan23 · Post by **MA_Buffett_Fan23** » January 13, 2007 11:03 am

Hey sweetie!!! Your friend Amy wrote me back.. I've had the week from h*ll so I haven't had a chance to respond to her. Thanks for getting us in touch with each other!!

Ok, on to your question.. I would really consider talking to your mortgage company first.. Think logically, will it work better financially to have PMI rather than a $500/mth car payment? How much longer do you have on your car? If you end up paying PMI, will you gain enough equity in your house to get rid of PMI quickly?

Skibo · Post by **Skibo** » January 13, 2007 11:35 am

Do whatever is necessary to avoid PMI. You do not build equitity very fast in the first 5 years of the mortgage payment, in addition, housing prices are not increasing like they were 2 years ago. PMI while sometimes necessary is an anchor you really don't want if you can avoid it.

Crazy Navy Flyer · Post by **Crazy Navy Flyer** » January 13, 2007 11:39 am

Avoid PMI and pay off the car or as much of it as you can.

Quiet and Shy · Post by **Quiet and Shy** » January 13, 2007 11:53 am

What's the rate on your car loan vs. the "rate" you'd be paying if you have to take on the PMI? Whichever is more expensive is what should be payed off first because that's the loan that is costing you more. You want your loans to cost you as little as possible (have the lowest interest rate).

I'm not familiar enough with current PMI charges or the type of downpayment you'll need (given your credit rating) to avoid the PMI charges, so you'll have to do a bit of exploring to find that out. As mortgage lending is very competitive these days, I'd think you could give some estimates to a lender and they'd be happy to provide the needed info to you. (Of course, this will be based on today's mortgage rates vs. this summer's mortgage rates, so it won't be exact but it will give you an idea.)

Good luck!

ragtopW · Post by **ragtopW** » January 13, 2007 3:58 pm

Avoid Borrowing..

Rob a bank..

saltshaker1 · Post by **saltshaker1** » January 13, 2007 6:38 pm

this is a great question. have you ever heard of a financial guy named dave ramsey? his web site is daveramsey.com. he is great! go there you'll find advise on financial stuff. i say pay off the car then do the house thing. he recommends to have 1000.00 as an emergency fund then have 3-6 months worth of bill money in a savings account. good luck!

bravedave · Post by **bravedave** » January 13, 2007 8:54 pm

Rich people always say, "Buy land, lease cars."
This make sense because you want your equity to be in an appreciating asset -- that is, a car will always be worth less tomorrow (liquidty-wise) than the same dollar-value in real estate.

So if you're not leasing your car (a brilliant idea, btw, because car leases have become predatory to naive consumers) the next best thing is to buy a car using a low-interest loan... and take your damn time paying it off.

Spend the money you would be using to pay off your car loan early to get some equity in real estate.

That being said, any accountant worth his salt would want to see (and crunch) the numbers before recommending a course of action in your case. They would be able to predict the outcome (within a degree of certainty) for either alternative you have put forward.

You don't need a crystal ball or tea leaves if you can use interest tables. (But don't forget about inflation.)

Coconuts · Post by **Coconuts** » January 13, 2007 9:00 pm

And be careful choosing a mortgage broker. No matter what they tell you, make sure your homeowner's insurance is paid through the renewal.

jimsig · Post by **jimsig** » January 14, 2007 10:42 am

I just read in the paper this week that for at least this year (2007) PMI will be deductible on you taxes. Be sure to check to an accountant and or mortgage person for more information. It will be up to Washington to make it effective for 2008 and beyond.

One way to avoid PMI is to take a piggyback loan. You take one loan out for 80% of the value of you house and a second for 20%. By doing so you have satisfied the needing 20% for PMI. You also will be able to write off the interest on both loans The thought it that when you house builds equity you can refinance into one loan. That should be quicker then the time it take to pay off PMI. Again as mentioned before check with a broker for more information. The article ended by saying that you will need to compare between taking the PMI and taking a piggyback to see what is best for you.

Also remember that if you do pay PMI it is up to you to know when you have built up enough equity to stop paying PMI. Your lender will not necessarily tell you. That means you may be paying it longer then you need to.

Dezdmona · Post by **Dezdmona** » January 14, 2007 11:10 am

I asked my husband, who is a mortgage broker, and this is what he said.
(Similar to jimsig above, except that he suggests going ahead and making a down payment, because if you don't make an initial down payment your interest rate will be higher.)

If your COMBINED income is less than $100K then PMI is deductible in 2007.

He would recommend putting down 10% and getting an 80% fixed 30 year first mortgage and...
a 10% 30 year fixed second mortgage.

Decide later if you want to pay off the car or the 2nd mortgage with the money you currently have to keep your options open.

Remember that interest on a mortgage loan is tax deductable and interest on a car loan isn't.

land_shark3 · Post by **land_shark3** » January 14, 2007 2:02 pm

Thanks for all the thoughts and suggestions. I'm going to talk to my bank on Tuesday and see if they have any suggestions.

There will be a down payment either way; its just the difference of about $10k.

I try to stick with 15 year mortgages, so there is a bit of equity built up to get rid of the PMI. Unfortunately, if there is a PMI we won't be able to deduct it on taxes.

As for leasing cars, its not really a great option for either my wife or I. I drive too many miles and get tired of cars quickly so I buy used and pay cash. My wife doesn't drive enough miles and had her last car for 12 years. We looked at leasing her current car, but because she doesn't drive enough it would have cost over $1 per mile.

jimsig · Post by **jimsig** » January 14, 2007 7:26 pm

Thanks for update on PMI being deductible Dezdmona. I didn't read the article all that closely as it did not really pertain to my situation.

blackjacks wife · Post by **blackjacks wife** » January 14, 2007 9:05 pm

The PMI deduction is new for '07. Please check with your tax accountant for suggestions on that.

I've been a mortgage processor for 9 years now and the most popular thing to do is to keep the car (from a processing standpoint, it's a pain to verify the loan has been paid off for at least 3 months), and put the 10% down, with a 80% primary loan and the 10% secondary loan.

Keep in mind that PMI - or a similar alternative - is required by federal law for any investor putting less than 20% down on a property.

Many lenders are offering loans without doing an appraisal on the home....get one anyway....with home prices dumping accross the US right now, you want to make sure the neighborhood is sustaining value and your 90% loan to value will not increase simply because the home values are not steady or increasing.

My company offers something called a low down payment add on. It's a add-on to your rate instead of paying PMI. This way - no matter what your accountant says - you can deduct the interest you are paying on the loan if you need to finance more that 80% of the sales price of the home. The nice thing with this program is that the LDPA automatically drops off when your loan to value hits 80%. With PMI you have to request that the lender remove the PMI and the lender has the "right" to request that you pay for an appraisal on the property.

Good Luck - PM me if you need any more information..

Sidew13 · Post by **Sidew13** » January 15, 2007 5:11 am

BTW, I got my house with no money down and no PMI through a state program Rural Housing Loan.