Housing guru's/ Math guru's

[Guest TennesseeTurkey]

I need some help, Ive came across a deal I dont think I could pass up.... a 2-3 acre lot with a 3 bedroom 1 1/2 bath house with a shop and a side shed for 65,000. The guy is wanting to do a land contract? I believe its where me draw up papers and make an agreement on how much a month and ect ect for so many years. well he's wanting 10,000 down. ok so that makes it 55,000 and adding the 9% he wants maks it about 60,000 financed over 15 years making the monthly payments between 300-350 a month. Well my mother in law has came up with some crazy thing that the 9% interest is monthly? and our payments would be $600 a month... if the man says 65,000 with 10,000 down financed for 15 years at 9% am I right or am I missing something? Pics of the property

[Tominator]

Land contract is pretty risky. You'd better get a fee simple absolute and a warranty deed because when you sign the papers, if you miss one payment or are late on one payment, in a lot of land contracts, you just forfeited the land.

9%! Are you kidding me? I wouldn't touch a mortgage percentage over 5.5%.

[texastrophies]

First I agree with Chris. No more than 5.5%

$55,000 @ 9% for 15 years = $554/month

$55,000 @ 9% for 30 years = $439/month

$55,000 @ 5.5% for 15 years = $447/month

$55,000 @ 5.5% for 30 years = $311/month

Don't forget about your insurance and taxes that will be added to it also.

[popgun]

Your Mother-in-law's estimate is pretty close.

She is not figuring the interest at 9% per month as you suspect, but you are just wrong in the way you are figuring it.

This chart also does not show Insurance, Property Taxes, and all the etc.'s that are usually combined into the monthly payment.

Right now you should not even think of a loan that large at 9% interest. A couple of points above the prime is as far as you should go.

Hope this helps.

....popgun

[Guest TennesseeTurkey]

The problem here is poor credit decisions when I was 18-20, now Im 23 and know better but Im paying for it. I knew 9% was high and Im planning on getting a lawyer involved if we do a land contract, but Im not sure what else I can do a this point but to do this. Im thinking this is the best opprotunity I can get at this point in my life. if 5 years down the road I get my credit score up to where it need to be we can refinance through a bank and have a sub 5.5 interest rate at over 20 or so years to lower payments. I took my monthly bills and with the house payment being 600 plus utilities car payment and insurnace we still come out with half of our take home pay left over for that month. example if all utilities, bills, house ect, not considering gas and groceries and play money cost us 1300 a month we have 1300 left over for gas groceries savings, and what not. is having 50% of your monthly income left over after bills a good/bad thing? or is that where it needs to be? I havent had to live on a budget for a while because right now we have no rent/house payment a month but its time to get out of this place Im in.

[popgun]

Usually if you allow a mortgage to take more than 30-33% of your take home pay you will be asking for trouble.

You can't correct bad financial decisions of the past by making bad decisions again.

....popgun

[Guest TennesseeTurkey]

Usually if you allow a mortgage to take more than 30-33% of your take home pay you will be asking for trouble.

You can't correct bad financial decisions of the past by making bad decisions again.

....popgun

the mortgage itself is less than 25% of the take home pay

[redkneck]

Best of luck with the new place Will. Good advice above. Not sure in KY, but in MS you can't close on real estate without an attorney... I would strongly suggest you get one to help before you sign anything if and when you do agree with the owner on the terms.

[Guest TennesseeTurkey]

Best of luck with the new place Will. Good advice above. Not sure in KY, but in MS you can't close on real estate without an attorney... I would strongly suggest you get one to help before you sign anything if and when you do agree with the owner on the terms.

This property is in Tennessee.... I might have to have a name change thread/contest.... that will liven the board up for an hour or two :hammer1:

[Guest TennesseeTurkey]

what doee loan to value % mean?

[popgun]

The LTV is the loan-to-value ratio of a mortgage or other type of high loan. What does it mean? Well if you buy a house worth $200,000 and put a down payment of 10% ($20,000), your LTV is 90%. That is 100% - 10$ down = 90% leveraged. Another way to calculate it is $200,000 - $20,000 = $180,000 loan value. Take the $180,000 loan value (i.e. the "L") and divide it by the appraised Value of the home (i.e. the "V"). Thus you get the "L" to "V" ratio of 90%. The problem with the current subprime housing market crash was that many people were getting approved for high LTV loans including those over 100%. That is to say, they owed $220,000 when the house only was worth $200,00 (= 110% LTV).

....popgun

[Guest TennesseeTurkey]

Ok well that makes me feel better our LTV is under 65%...

[popgun]

I'm having a little trouble following your math, unless you are using a value you have not mentioned.

If you are paying $65000 I am assuming the value of the property is $65000.

$65000.-10000 down payment = $55000

$55000 divided by the appraised value of $65000 comes to

0.8461%.

Maybe you are using a different value for the appraised value or maybe my math skills are whacked, but at least it does not make the loan underwater either way.

Still not a really great deal unless the property in question is worth a lot more than the asking price. The reason he is willing to carry the note is because he will realize a total return of over $108000 on the $65000. or $53000 in interest over 15 years. And of course, if you should default he gets the land and house back, you get nothing except the opportunity to have paid over $600 per month in rent.

....popgun

Edited May 29, 2010 by popgun

[Guest TennesseeTurkey]

The Appriased value is over 85,000 Im using www.mortgagecalculator.com as a guide. Financing 55,000 for 15 years at 9% and guessing taxes at about 600 a year and insurance at 750 a year.

[Tominator]

:pop:

I'm having a little trouble following your math, unless you are using a value you have not mentioned.

If you are paying $65000 I am assuming the value of the property is $65000.

$65000.-10000 down payment = $55000

$55000 divided by the appraised value of $65000 comes to

0.8461%.

Maybe you are using a different value for the appraised value or maybe my math skills are whacked, but at least it does not make the loan underwater either way.

Still not a really great deal unless the property in question is worth a lot more than the asking price. The reason he is willing to carry the note is because he will realize a total return of over $108000 on the $65000. or $53000 in interest over 15 years. And of course, if you should default he gets the land and house back, you get nothing except the opportunity to have paid over $600 per month in rent.

....popgun

Jeff's got it pretty good here Will. Those land contracts are really risky.

The Appriased value is over 85,000 Im using www.mortgagecalculator.com as a guide. Financing 55,000 for 15 years at 9% and guessing taxes at about 600 a year and insurance at 750 a year.

I played this game extensively last year; on both ends. Buying and selling. What a website tells you it's worth vs. what an actual appraiser says it's worth might be worlds apart. Don't forget about the inspections and brokerage fees that will come too. You might be looking at close to $500 for an inspection and potentially thousands in closing costs, surveys, etc. when it comes to buying this place.

Don't mean to be a wet blanket here, but there's really a lot to consider when buying real estate.

[The_Kat]

Sounds like your hearts set Will. Things I'd ask myself is how steady is your job. If you get laid off tomorrow where does this leave you and your family? I came really close to buying that cabin a year or so ago with 2-3 acres and the shed and I'm so glad I didn't. Start saving your money now, and build you some good credit up and get a place in a few years. 9 percent interest is ridiculous!

[Guest TennesseeTurkey]

Well the contract has been drawn up for a lawyer to look at for all the legal jargun (spelling?)..... One thing yall dont underdstand is the house we ar eliving in dosent belong to us after my wifes grandmother passed away last year, weve needed to move on because it fell to my wife's uncle and he wants the house for himself. He's not pressuring us to get out but it is his house. We have to move and I believe that that contract which is drawn up for 8% not 9% (still I agree 8% isnt great) is still our best bet vs renting because we wont be wasting the $500 a month to rent a house when our house payment is going to be $430 a month with this. The thing is we CANT miss a payment and I dont forsee us doing that. If things get bad what would we be doing if we were just renting too? If I lost my job we'd be just as out in the street if we were renting or were on a land contract.

[popgun]

You are right, there are some things we don't understand.

Why in the world do I try to give advice when I don't have the facts?

You are also not telling us that you have either decided to go for 20 years instead of 15, or you have increased the down payment, or you have a balloon payment that will be due, or the seller has lowered his price.

Your numbers do not compute for 8% loan at 15 years for $55000. Without taxes or other cost, the monthly payment still comes out to $525.+

Good luck, and next time you ask for advice, please give us all the facts.

....popgun

[Guest TennesseeTurkey]

You are right, there are some things we don't understand.

Why in the world do I try to give advice when I don't have the facts?

You are also not telling us that you have either decided to go for 20 years instead of 15, or you have increased the down payment, or you have a balloon payment that will be due, or the seller has lowered his price.

Your numbers do not compute for 8% loan at 15 years for $55000. Without taxes or other cost, the monthly payment still comes out to $525.+

Good luck, and next time you ask for advice, please give us all the facts.

....popgun

I didnt not give all the facts on purpose, the facts have been changing what seems like daily.... the down payment was increased to 20,000. 45,000 over 15 years at 8%.