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Harold Said:

Can I afford this home?

We Answered:

As long as you are not leasing a Ferrari you should be fine. The bank will take all of your current payments that are showing on your credit report (credit card, cars, boats, recreational vehicle, timeshares) and add the new housing payment (principle interest taxes and insurance). The total is divided into your monthly income. As long as the total comes to right around $3k per month or less you should be fine. That based on 43% back end DTI on a monthly income of $7,083.

Something else I want to bring to your attention. You can obtain a loan as a "gift equity transaction". You don't have to make that big of a down payment.......if the home is worth much more, you can skip the down payment all together........and you won't have to pay PMI. Not every loan agent is familiar with this type of loan structure so you may have to make a few calls. It's slightly complicated but a veteran loan agent will know how to set it up. Be aware that this will increase the purchase price so your property taxes will be a little higher.

Jon Said:

What is the fastest/most economical way for me to pay of my mortgage?I can afford to prepay, but I don’t know

We Answered:

Pay off the highest rate first by paying some extra each month. Right now that's #2. If #3 becomes the highest due to a rate change then start adding some extra to #3's monthly payment. If you get rid of #2 and #3 you will have positive cash flow (monthly income exceeding monthly payments).

You should always have a mortgage on a rental property. If you don't, all of the income is taxed as regular income just like your paycheck. The mortgage payments will offset some (or all) of the rental income and can be used to create tax free income through refinancing.

Tracey Said:

Can someone give me REAL advice as to how much mortgage I'd qualify for?

We Answered:

I just applied for a mortgage months ago and got approved for a house 3 times my annual income. I think you can expect 150K or better. You certainly appear more than able to accomodate that given you've paid off a lot of debt and have a solid savings in place. You are in a good position to get approved. Remember this. Just because you get approved doesn't mean you're prequalified...a realtor wants to know if you're prequalified so you know a real number (house price) that you can afford given your debt load. I hope this helps and hats off to you for paying off debt and saving for the future.

Armando Said:

Can someone explain a gift equity loan to me?

We Answered:

Didn't you ask this last week? If a bank is involved, the 1099-S will NOT be for $310K. It will be for $380K. If a bank is not involved and they sell you the property for $310K, they still have to show the gift of $70K and cannot take any losses.

Let's see, your parents have rental property. They paid $370K for it and have probably depreciated it $30K so far. That means their cost basis is $340K. If it's worth $380K and you end up being the one to buy it, they will have to show $40K in gain ($30K repaid at 25% tax and $10K at 15%). Your basis would then be $380K.

From the banks point of view, you are buying a property worth $380K. You appear to qualify for a loan of $250K, so you need a down payment of $130K which is $70K more than you have at the moment. Your parents can "gift" you the money. This can be done by them accepting less in cash for the house, but they will still have to file 2 gift tax forms (one by dad and one by mom) *and* pay the income tax on the gain of $40K. The fact they didn't get the cash is a non-issue. A bank is involved, the 1099-S *will* show $380K.

If you get a loan of $250K at, say, 5%, for 30 years, the mortgage part will be $1342 plus escrow for property tax and insurance.

If mom and dad give you even more equity and the loan is, say, $200,000, the payment drops to $1075 or $270 less a month.

Crystal Said:

Should I try to buy a house now in a different state to use as a rental?

We Answered:

Mortgage rates are dirt cheap right now and buyers still own the market.... Having family members that understand construction and renting certainly helps...As long as the rent covers the expenses--you are gaining equity in the long term....Talk to your Dad more----I think he will support your decision to dive into your first investment---and probably offer up some very practical advice and help.... Your situation is nice----Go for it ! Every investor starts with one property... GOOD LUCK !