Not another "what's the ideal utilization" thread!

[Anonymous]

Ah, good to know. The reason I ask is that the difference in payment between a 710 and 740 Fico on a $160k loan (200k house w/ 20% down) is about $13 per month on a conventional loan. Generally, a lender won't reward you for any further for a score over 740.

If you only plan on staying in the house for 48 months, that equates to about $624 over four years. That's not a huge difference. If you were to stay in the house for 30 years, that would be a different story.

What would matter more to me than rate is freeing up some flexibility in your monthly expenses. Since you only plan on living there a few years, I'd put a much smaller downpayment and pay off all of the CCs. Sure you will get hit with PMI, but it will be extraordinarily less than the combined payments on all of your CCs.

[Anonymous]

You could also go with an FHA loan with a low down payment (can go as low as 3.5%). You can even get cash towards closing costs by taking a higher interest rate.

I know this may be counterintutive, but two things will happen by paying off the CCs and going with a smaller home downpayment:

1. You will save more money in interest charges over the next 3-5 years by taking the slightly higher interest rate (if you choose to go FHA and get cash towards closing costs) and PMI on the mortgage, but avoiding all of those interest charges on the CCs for the next few years.

2. You will free up a lot of flexiblility in your monthly budget each month by spending a little more on your mortgage (lower downpayment + PMI), but now having NO monthly CC payment. You will be spending about $250 more on your mortgage, but I bet that is far less than all of your minimum CC payments combined - am I right?

Imagine how good it would feel to have no monthly CC payments due?

And remember, every situation is unique. If this were a home you were going to live in for 30 years, I would always recommend going with the best rate possible for your mortgage.

[Anonymous]

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@Anonymous wrote:
I'm currently in the process of researching all thing mortgage on the mortgage loans section. Good stuff! I'm looking for a $200k property give or take and only for 3-5 years tops. I've been told I would qualify for better rates so I should stick with conventional. But I am in the process of researching that advice now.

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Buying a house you plan to live in 3-5 years may not be worthwhile given the expenses, effort, and lack of flexibility verses renting. According to some articles I've read, 7-10 years is the breakpoint for buying, but every situation is different. Moreover, you'd be drawing from your 401K for a purchase that you'll likely lose money on. Between mortgage interest, closing costs on both ends of the transaction, maintenance, and property taxes (which can be significant in some locales), it could be a costly transaction. On the other-hand, home ownership does have advantages, but are those worth the tradeoffs you'd be making ... ultimately, that's your call.

[Anonymous]

Wow, thanks guys. That gives me a lot to mull over. The interest cost on credit card debt is only around 3% APR (effectively the balance transfer fees on the cards I use), which range from 1 to 5% BT fees and 0% promotional rate APR for 10-12 months. This way I thought I could extend myself for the mortgage a bit better.

I hear you on the losses I may incur for a 3-5 year ownership horizon but I don't think that'll be close to the rent money I'll burn. I think I need to spend some more time thinking through and calculating the options a bit better, given the enlightenment you guys have provided here, for which I'm very thankful!

Cheers!

[Anonymous]

I would check with your lender to see if that loan from a family member for your downpayment is allowed. I know if you get a "gift" from a family member the bank will require a letter verifying it is not intended to be paid back. I always thought that meant no loans for DPs, but I could be wrong. And don't assume you will sneak it past them. They will inquire about large one off deposits. I sold a boat prior to the house I just bought, and they wanted a letter from the buyer concerning the sale.

[Anonymous]

good call, I'll keep that in mind. I'll declare it as a "gift from parent" an if we need letters etc. I'll get 'em.