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Home Owner Thread

Do Not Sell My Personal Information
Can someone explain cash out refi to me like I’m five?

Our loan is 266. We want to get a pool and pay off debt- we got rough estimates from some realator friends on appraisals ranging from 350-375. Id be the only person in the loan, so I’m worried that while it’s literally likely 200 more a month and we have two incomes, I’d never be considered enough for it to make sense.

FWIW, I expect, once the development is built out, as is, this house will be around 450. My credit score is around 700 while I pay off this debt, and my monthly income is like 6200 gross.
 
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Can someone explain cash out refi to me like I’m five?

Our loan is 266. We want to get a pool and pay off debt- we got rough estimates from some realator friends on appraisals ranging from 350-375. Id be the only person in the loan, so I’m worried that while it’s literally likely 200 more a month and we have two incomes, I’d never be considered enough for it to make sense.

FWIW, I expect, once the development is built out, as is, this house will be around 450. My credit score is around 700 while I pay off this debt, and my monthly income is like 6200 gross.
@Lee

But my guess is your probably better off doing a refinance with attached HELOC. But lee is better answering that question

Either way probably a cap of 80-85% equity of the house.
 
Can someone explain cash out refi to me like I’m five?

Our loan is 266. We want to get a pool and pay off debt- we got rough estimates from some realator friends on appraisals ranging from 350-375. Id be the only person in the loan, so I’m worried that while it’s literally likely 200 more a month and we have two incomes, I’d never be considered enough for it to make sense.

FWIW, I expect, once the development is built out, as is, this house will be around 450. My credit score is around 700 while I pay off this debt, and my monthly income is like 6200 gross.

Not enough info to really know if you qualify, but you can only go to 80 LTV on a cash out, and it would give you a much higher rate than what you would qualify with a no cash out.

Assuming the 350k because realtors are idiots and always inflate value...that is only about 10k cash out after if it appraises for 375k that is about 30k cash out.

Depending on your current rate if i was you, i would do a no cash out refi with a concurrent HELOC to 90LTV. that means close an equity line at the same time to 80% of the value, even at 350k that would give you access to 45k. pay off the the debt through the equity line at closing and you should qualify no problem if you have too.

But honestly I need a bit more info, but sounds to me if you have a good rate at 3.25 or lower, i wouldnt even refi (unless its a FHA loan), just try and find a local credit union or go to Navy Federal or PenFed for a HELOC.
 
Not enough info to really know if you qualify, but you can only go to 80 LTV on a cash out, and it would give you a much higher rate than what you would qualify with a no cash out.

Assuming the 350k because realtors are idiots and always inflate value...that is only about 10k cash out after if it appraises for 375k that is about 30k cash out.

Depending on your current rate if i was you, i would do a no cash out refi with a concurrent HELOC to 90LTV. that means close an equity line at the same time to 80% of the value, even at 350k that would give you access to 45k. pay off the the debt through the equity line at closing and you should qualify no problem if you have too.

But honestly I need a bit more info, but sounds to me if you have a good rate at 3.25 or lower, i wouldnt even refi (unless its a FHA loan), just try and find a local credit union or go to Navy Federal or PenFed for a HELOC.

Shoot me a message and I can give you an idea of where I’m at!
 
Shoot me a message and I can give you an idea of where I’m at!

What state do you live in? If you want help I can, but if you want specifics you can start a thread with me.
 
Here is my recommendation, take the monthly savings from a 30 to 15, assume a low return of 3%, a middle return of 5%, and the a high return of 8%. Run the model for 15 years. Figure out what you would owe at year 15 on a 30 year mortgage, and subtract what would be in your investment account. This would be the best way to compare the savings. ... With today’s cost of debt. I would take on as much as I can and for as long as possible, and keep my cash in hand.
I don't think it's quite that simple. Your analysis is correct from that specific point of view, but it is based on a number of assumptions:

1. A consistent sequence of returns. Higher average returns = more volatility. That 8% average return over 15 years would probably look something like 12% in year 1, 4% in year 2, 10% in year 3, -15% in year 4, 25% in year 5, etc. Of course, it could also be -25% in year 1. How well would you sleep at night if you took out a large mortgage, invested the proceeds in stocks, and then the market takes a dive? Sure, you'll probably recover it and then some over time -- but that would be quite a few chewed fingernails in the meantime.

2. Investing the difference. It's one thing to choose the $700/mo 30yr payment over the $1,100/mo 15yr payment, and insist that you're going to invest that $400 difference every month. It's another to actually do it. In my experience, few people have that discipline. It's all too easy to find a dozen other uses for that $400 each month.

3. Committing to owning the mortgaged home for a number of years. (Granted, you shouldn't own a home in the first place if you aren't planning to stay there a while.) You've reduced your flexibility going forward. Following from point 1 above, let's say you take out a big mortgage ... then the market dips 10% (which is nothing in the long term) ... and that's when you/your spouse gets a dream job offer 500 miles away. If you take it, then you're probably looking at selling the home ... which means the mortgage must be paid off ... which means you have to sell your investments at the worst possible time (plus make up the loss from other assets). Or you could be forced into passing on the dream job because you're locked into your home.

I'm not disagreeing with you (we actually have done extremely well by using the equity in our home to buy additional real estate). My message is that it's OK to plan to overcome the odds -- just be sure you can survive if the odds overcome you.
 
I don't think it's quite that simple. Your analysis is correct from that specific point of view, but it is based on a number of assumptions:

1. A consistent sequence of returns. Higher average returns = more volatility. That 8% average return over 15 years would probably look something like 12% in year 1, 4% in year 2, 10% in year 3, -15% in year 4, 25% in year 5, etc. Of course, it could also be -25% in year 1. How well would you sleep at night if you took out a large mortgage, invested the proceeds in stocks, and then the market takes a dive? Sure, you'll probably recover it and then some over time -- but that would be quite a few chewed fingernails in the meantime.
I am not sure why the short term would matter in this case? If anything having the savings from your investment account, is better then having money tied up into a house you are not able to use. Even if you lost some in the first year, and an emergency came up you would have the money to use. Also, while there are always risks, the past 10 years, the S&P 500 has only had one year in the red. With the idea that you are always putting that money in when the market is up or down, you will take advantage of the market being down by buying at that time.

S&P 500 Index
2010 15.1%
2011 2.1%
2012 16%
2013 32.4%
2014 13.7%
2015 1.4%
2016 12%
2017 21.8%
2018 -4.4%
2019 31.5%
2020 15.76%
2. Investing the difference. It's one thing to choose the $700/mo 30yr payment over the $1,100/mo 15yr payment, and insist that you're going to invest that $400 difference every month. It's another to actually do it. In my experience, few people have that discipline. It's all too easy to find a dozen other uses for that $400 each month.

I am not sure what the point here is. Someone should not choose the smart option, because they would not be smart with the money? It is pretty easy to set up direct deposit payments from an employer into a separate investment account.

3. Committing to owning the mortgaged home for a number of years. (Granted, you shouldn't own a home in the first place if you aren't planning to stay there a while.) You've reduced your flexibility going forward. Following from point 1 above, let's say you take out a big mortgage ... then the market dips 10% (which is nothing in the long term) ... and that's when you/your spouse gets a dream job offer 500 miles away. If you take it, then you're probably looking at selling the home ... which means the mortgage must be paid off ... which means you have to sell your investments at the worst possible time (plus make up the loss from other assets). Or you could be forced into passing on the dream job because you're locked into your home.

I disagree. IMO you have increased your flexibility. For starters, if anything ever happened to your job, or you got tight on money, you have the flexibility to reduce your monthly spend by $400. Where if you sign up for a 15 year, the bank does not care what your situation is, they expect the payment every month. If anything, I would recommend people take the 30 year, and make a payment based on a 15 year. While you will pay a little more interest, the flexibility and security would be worth the risk.

I am not sure why you would have to sell off your investments if you sold your home. I would assume most people who are looking at a 15 year loan are putting down 10-20% on the house, or in the case of a refi have 20% equity in the house. Outside of the housing market collapsing, you should have no issues selling your home and keeping your investment. You are not paying that much more off in principle in the 1st 1-2 years of a 15 year loan vs 30 year loan.

I'm not disagreeing with you (we actually have done extremely well by using the equity in our home to buy additional real estate). My message is that it's OK to plan to overcome the odds -- just be sure you can survive if the odds overcome you.
I definitely understand what you are saying. Depending on where rates are, I would agree there are definitely times that choosing a 15 year mortgage is the way to go. I think the other thing you have to look at is what other debt do you have today. If that debt % is higher then the 30 year mortgage, take the 30 year vs the 15, and use the savings to pay down higher interest debt.

As I think about it, it does depend on the situation and lens of the buyer.

- If you have no other debt, healthy savings / strong 401k / investment account, then maybe a 15 year could be a smart choice if you are trying to limit additional exposure the the market. But also, if you are in the group, I would tend to think your appetite for risk would be a little higher and you would take the potential higher return.

- if you someone who has limited debt, some savings, not much invested in a 401k or investment accounts, I would totally do the 30 year, it opens up your cash flow to pay down other debts, and or, starting to invest in a 401k or open more investment accounts.

- If you someone who has higher debt, lives closer to pay check to pay check, you definitely would want to take the 30 year, and avoid the financial strain the additional $400 would cause month over month.
 
Not enough info to really know if you qualify, but you can only go to 80 LTV on a cash out, and it would give you a much higher rate than what you would qualify with a no cash out.

Assuming the 350k because realtors are idiots and always inflate value...that is only about 10k cash out after if it appraises for 375k that is about 30k cash out.

Depending on your current rate if i was you, i would do a no cash out refi with a concurrent HELOC to 90LTV. that means close an equity line at the same time to 80% of the value, even at 350k that would give you access to 45k. pay off the the debt through the equity line at closing and you should qualify no problem if you have too.

But honestly I need a bit more info, but sounds to me if you have a good rate at 3.25 or lower, i wouldnt even refi (unless its a FHA loan), just try and find a local credit union or go to Navy Federal or PenFed for a HELOC.
I agree. I just got a great deal on HELOC from the local credit unit. Prime - .50% - As of today it is at 2.75%. For me the main reason to open was to have the equity available in case of emergency. The line is guaranteed for 5 years, no matter my future income or job status.
 
I agree. I just got a great deal on HELOC from the local credit unit. Prime - .50% - As of today it is at 2.75%. For me the main reason to open was to have the equity available in case of emergency. The line is guaranteed for 5 years, no matter my future income or job status.

Not sure what you mean guaranteed for 5 years, but HELOCs are based on prime, they have a 10 or 15 year draw period, then a 10 or 15 year pay back period depending on the terms. Once you qualify for the loan they dont change the terms or take it back with one time exception of the crash where they did close a bunch of credit lines. This was not done of requalifying people, just many 2nd mortgage lenders wanted out and closed them all.
 
Not sure what you mean guaranteed for 5 years, but HELOCs are based on prime, they have a 10 or 15 year draw period, then a 10 or 15 year pay back period depending on the terms. Once you qualify for the loan they dont change the terms or take it back with one time exception of the crash where they did close a bunch of credit lines. This was not done of requalifying people, just many 2nd mortgage lenders wanted out and closed them all.
Yeah I used the wrong term, they offered an initial 5 year draw and the option to extend it to 10 years. The payment plan is based on 15 year payback at the end of the 5 years. During the draw period I only have to pay interest on the balance. My point, was the 5 year draw period is guaranteed, in that if I lost my job/ or income goes down, I can still access the money during that time.
 
Yeah I used the wrong term, they offered an initial 5 year draw and the option to extend it to 10 years. The payment plan is based on 15 year payback at the end of the 5 years. During the draw period I only have to pay interest on the balance. My point, was the 5 year draw period is guaranteed, in that if I lost my job/ or income goes down, I can still access the money during that time.

That is a very short draw period, and they are all like that on the guaranteed, its like selling you car with 4 tires, not just 2. My industry is famous for pointing out loan features that are nothing special.

The rate you got, below prime is excellent, the draw period is awful, until now, thousands of closed loans, never heard of a less than 10 year initial draw period. But the rate is great.
 
I am not sure why the short term would matter in this case? If anything having the savings from your investment account, is better then having money tied up into a house you are not able to use. Even if you lost some in the first year, and an emergency came up you would have the money to use. Also, while there are always risks, the past 10 years, the S&P 500 has only had one year in the red. With the idea that you are always putting that money in when the market is up or down, you will take advantage of the market being down by buying at that time.

S&P 500 Index
2010 15.1%
2011 2.1%
2012 16%
2013 32.4%
2014 13.7%
2015 1.4%
2016 12%
2017 21.8%
2018 -4.4%
2019 31.5%
2020 15.76%


I am not sure what the point here is. Someone should not choose the smart option, because they would not be smart with the money? It is pretty easy to set up direct deposit payments from an employer into a separate investment account.



I disagree. IMO you have increased your flexibility. For starters, if anything ever happened to your job, or you got tight on money, you have the flexibility to reduce your monthly spend by $400. Where if you sign up for a 15 year, the bank does not care what your situation is, they expect the payment every month. If anything, I would recommend people take the 30 year, and make a payment based on a 15 year. While you will pay a little more interest, the flexibility and security would be worth the risk.

I am not sure why you would have to sell off your investments if you sold your home. I would assume most people who are looking at a 15 year loan are putting down 10-20% on the house, or in the case of a refi have 20% equity in the house. Outside of the housing market collapsing, you should have no issues selling your home and keeping your investment. You are not paying that much more off in principle in the 1st 1-2 years of a 15 year loan vs 30 year loan.


I definitely understand what you are saying. Depending on where rates are, I would agree there are definitely times that choosing a 15 year mortgage is the way to go. I think the other thing you have to look at is what other debt do you have today. If that debt % is higher then the 30 year mortgage, take the 30 year vs the 15, and use the savings to pay down higher interest debt.

As I think about it, it does depend on the situation and lens of the buyer.

- If you have no other debt, healthy savings / strong 401k / investment account, then maybe a 15 year could be a smart choice if you are trying to limit additional exposure the the market. But also, if you are in the group, I would tend to think your appetite for risk would be a little higher and you would take the potential higher return.

- if you someone who has limited debt, some savings, not much invested in a 401k or investment accounts, I would totally do the 30 year, it opens up your cash flow to pay down other debts, and or, starting to invest in a 401k or open more investment accounts.

- If you someone who has higher debt, lives closer to pay check to pay check, you definitely would want to take the 30 year, and avoid the financial strain the additional $400 would cause month over month.
1. shows you haven't been at this very long. Go back a couple more years and pull in that -40% for 2008. Or go back to the three consecutive negative years in 2000-2002. The stock market isn't an ATM that pays off every year, even though it's trended towards that during your investing career.

2. is very straightforward. Advice that most people cannot/will not be able to implement isn't terribly good advice, and can actually be very harmful. Most people don't have that dedication to take a longer mortgage with a lower payment and then invest the difference. It's no different than most people knowing that sugar and fried foods are bad for them, yet they pound them down anyway.

3. shows you misread what I wrote. The lack of flexibility comes from you being locked into owning the home that is the subject of the mortgage. If you sell the home, all mortgages have to be paid off by closing. You are locked into owning that home, especially if there is that downturn in the market (and it's just a matter of when, not if).

4. brings in some more advice that seems mathematically correct on its surface, yet can be very harmful. Yes, it makes mathematical sense to take out more debt on your home at a lower (and potentially tax-advantaged) rate to pay off higher-rate debt. You know what most people in that situation will do? They'll run up those other debts. So they once again have a ton of non-mortgage debt ... and now have mortgaged their home to the hilt, so they don't have that option available (and are that much closer to going under).

Yes, you can claim (as I am sure you are already typing) that "it doesn't mean the theory is bad! you just have to follow it!" That's not wrong ... and yet it's not what the vast majority of people will do. This isn't economics class ... it's psychology class. Economics is down the hall.

It's pretty clear that you come to this discussion with theory, whereas I come to it with experience. Nothing wrong with that. Just be open to the idea that life might not go according to your plans ... and that when that happens, it doesn't mean life is wrong, but rather that your model didn't capture everything it should have captured.
 
I have a very simple question - is it insane to buy a house in this market? I've been looking for some time but it's so hard to rationalize buying now when comparing to prices from just 5 years ago, hell even 2 years. I just feel like I'm going to finally take the plunge and then the bottom is going to fall out.
 
I have a very simple question - is it insane to buy a house in this market? I've been looking for some time but it's so hard to rationalize buying now when comparing to prices from just 5 years ago, hell even 2 years. I just feel like I'm going to finally take the plunge and then the bottom is going to fall out.
Nobody knows.

On the one hand, it could very well come back down in value to pre-COVID numbers. The bubble could even burst and housing values plummet.

Or, this could be the last time when individuals have the ability to purchase homes at a reasonable price. If things continue in the way they are without any oversight or restrictions, then the ability to generate revenue starts to approach infinite value. It's taking off, and has been for a while--and we're too happy to celebrate it in the stock market, but in the housing market it starts to really hurt people. There are more investment companies buying up property than ever before and turning them into rentals. There are more foreign firms buying property all over the world for the same reasons.

The truth is, I don't know. It could go either way. If the payments make sense for you and your family, and it's what you want, go for it. If renting looks more appealing, there's nothing wrong with that.
 

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