I have a cash contract to buy a two family home (duplex). Is it good to take a loan for $70000 or pay cash? Does it justify taking a loan for 80%?

Asked by Kam, Brunswick, MD Tue Oct 6, 2009

with points and closing cost?

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Cathy Chapman’s answer
Cathy Chapman, Agent, Frederick, MD
Mon Oct 12, 2009
Hi Kam,

If you have cash, you should use your cash to make an investment purchase. Rates are higher for investors. It's a cleaner and less costly purchase paying cash. If you need rehab money, you can easily get funding for that with a home completely paid for.

Cathy Chapman, Broker
Signature Home Sales, LLC
301-514-6839 Cell
0 votes
Kam, Home Buyer, Brunswick, MD
Wed Oct 7, 2009
Benito,

Thanks for your info. and advise. Talk with Accountant will be interesting for tax purpose.

This is more than one rental property.

Thanks,

Kam
0 votes
CCC, Home Owner, San Diego, CA
Wed Oct 7, 2009
ok, that is more information.
Go cash, fix and rent it... good idea.
It seesm risky to go with a mortgage. Refinance an investment property will have issues, so, maybe as a last resource.
I had owed several rental properties and it is, at least for me, a lot of fun to talk to my accountant about the impact of rental income on my taxes. As well as fixing them up.
if this is not your first rental, welcome to the landlord world.
0 votes
Kam, Home Buyer, Brunswick, MD
Wed Oct 7, 2009
Benito,

Thanks for your response.

I can pay off this amount now and even if I do not refinance later on, it will be okay.

I can qualify for the mortgage amount.

I have this contract through real auction and some banks are telling me that in order to get the loan you need to fix items prior to the settlement.

In auction property, you do not get the possession of the property until you settle. You do not settle until you have the financing. Many banks requirements are stringent and impractical.

Worst case, I can pay and make TLC changes.
Then rent it out.

Let me know your thought.

Thanks,

Kam
0 votes
CCC, Home Owner, San Diego, CA
Wed Oct 7, 2009
Hi Kam, mortgage guidelines rules had change a lot in the last year.

I will say that if you have the idea of refinancing in 6 to 7 months to cash out, then you could be better to get a mortgage now. There is no way to know that you will be approved in 6 to 7 months neither that your property will increase or decrese its value and this will have an impact on getting a mortgage.
Please, again, consultat with a ortgage consultant about future refinancing since you might not be able to do it, until 6 months.
I think an easy way to do it will be get a mortgage 30% downpayment and 15 years. If you decied to pay it off later, you just pay it, if not, no problem, but the money is in your hands and not "in" the house.
I hope you can get quilifed for a 15 years or maybe 10 years. That way, in 10 years you could rent it or sell it and buy another. Of course, it will cost you to use other people money.
The 1098 will be a small amount. Look for an amortization schedule on line, you need mortgage, interest rate and term (years).

Here in Minnesota most of the both units of the duplex are owned by the same person.

I am not a Realtor in your area so I do not know about home prices.
0 votes
Kam, Home Buyer, Brunswick, MD
Wed Oct 7, 2009
Benito,

Thanks for your response. I will have only one of the two unit duplex. Other unit is owned by someone else.

I have checked with 3 to 4 banks and they are all charging me 3 points plus I will have to pay the closing cost and other costs during settlement.

I was advised that even if I make 20% down, 80% amount will not make sense to pay 3 points and it would not be cost effective.

Can I pay the full amount now and later on after 6 -7 months, I can do cash out refinance and get my principal back?

You are right that once I pay full amount, there will not be any mortgage payment and interest will not be useful for tax purpose.

Please provide an additional information to proceed with this process.

Thanks,

Kam
0 votes
CCC, Home Owner, San Diego, CA
Tue Oct 6, 2009
In addition, you need to contact your accountant for the differences on tax implications of not having a 1098 Mortgage Interest paid per year or having one of those forms.
0 votes
CCC, Home Owner, San Diego, CA
Tue Oct 6, 2009
Hi Kam,
Are you still on time to get a mortgage approved for closing date?
If you are considering to remodel or do some improvements on the property you are buying, it could be a good idea to get a mortgage and keep some savings. Also, I think it could a good idea to look for 10 or 15 years instead of 30 years. Your payments will be higher but if you want to pay it you have the money, if you have issues, you do your mortgage payment and the home is still yours.

If you are going to rent the other side, that could be the income to pay for the mortgage.
Go with 20% or more to avoid Mortgage insurance.

If I had excess money, I will just pay it cash and forget about monthly payments. It does not make sense to pay interest but you have to see the difference. A bank will pay interest on your deposit and you will pay interest on your mortgage.

Also, a mortgage will involve some closing costs which you have to see with a mortgage consultant. Such as credit report, appraisal, processing fee, for example.
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