First- Are you sure that your wife is going to be the sole leinholder? She would normally have to qulify as an individual and refinance to do that. A quit claim deed wouldn’t release you from the mortgage. I assume that your lawyer is handling that but, wanted to make sure. As for the 15-30 question- after 7 years you would have .6421 of principal remaining with a 15 (assuming a 6% interest; yes I know the 15 would be slightly lower rate) and .8964 with a 30. All other things being equal, I would lean towards a 30 because of the cashflow issue I stated earlier. You can always take a 30 and pay it down quickly while you live there and then go back to base payments when its a rental. Scott
I am an admitted newbie but alas I am going to dive in to real estate having listened to Carleton Sheets and Kiyosaki I think I have learned a little about real estate so I am thinking I’m dangerous. my question is: I have scoured for about two weeks and found a nice prefab, not very well taken care of though, home on a small lot in a great community. It lists for 78k and I am planning an offer of between 68 and 72. It seems like a steal. I have good credit and have pre qualified for 130,000 at a decent rate for a first time home buyer. I plan on living in for a year fixing up and renting or selling. Should I opt for a 30yr with a 10% down or maybe a 15 with about 5k down I am unsure of which option will help me most, low payments or short term loan? any first time advice would be helpful
that you have found a “nice prefab, not very well taken care of though”. Are you sure you can get convetional financing on this house? It’s my understanding that a house has to be in a certain condition (i.e. able to obtain a certificate of occupancy (CO) from city/township hall) in order to get conventional financing on it.
I’d suggest the 30-year loan. You seem to be indicating that you will resell in 5-7 years anyway. You will have lower payments.
When you convert to a rental, your cash flow will be better with the 30-year loan.
You might decide later to keep if for a long time. Or you might decide to live in it for two years and then resell if and pay no federal taxes on the capital gains because of the $250K/person exclusion of capital gains from your income taxes.
I do not recommend planning to hold properties for 5-7 years when they are rental properties. For you own home, sure, stay the term that seems right to you. But for investment properties plan to hold until you’re 94, then sell. Or, do quick turn-over buying and reselling for a profit. There are no tax benefits for properties like that.
If you are going to live there for a year, you might want to consider going zero down and conserving your cash. See what the seasoning requirements are for the various loans, to convert to a rental. The slightly higher interest rate you would pay for zero down would probably be insignificant over the first year. As for your other question- it is obviously much more dificult to have a positive cash flow with a 15 year loan. We primarly make money by cash flow, appreciation, & improvments. Paydown isn’t very significant for the first 4 years or so. best, Scott
so If I were only planning on keeping the property for 5 to 7 max I would be better for a 30 fixed or 15 vari and pull my equity minus rehab on a resell. I am only interested in this because I am going through a divorce with a child and I need a interm home then a base of equity to buy more properties. some of these ideas I read are so confusing I fear making the wrong move. I am leaving my current home to wife with her as sole lien holder on our house now. so I walk away with nothing except good credit and a son. I wil be alone in my new venture but hope I can provide myself with a good base of income in the next 2 years