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Buying and Selling Homes

Mortgage for small amount? Options?

9 years ago

If I had 240K to spend on a house but found my dream home for 285K, are there any better options than a mortgage? I'm not sure a personal loan is possible for 45K. I would want to avoid a mortgage to mostly avoid the closing cost and paperwork involved.

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Comments (20)

kirkhall
9 years ago
Any personal loan that might be available to you would have an interest rate 2-3 times a mortgage. Mortgage interest is SO low--lower than many options for investment, that there can be an argument FOR a mortgage, so you can earn more money by investing what cash you have.
sushipup1
9 years ago
And if you itemize deductions on your taxes, the mortgage interest is deductible.
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marys1000 - It sucks renting and it would be hard to find those things you want. Also since you don't know how long you'll be staying it might be hard to sell what you want in the future. One other option you have would be to buy a house, not your ideal house, but one that would be a compromise. For example something like the below. I'm sure people that get transferred often has some good suggestions too. 1. Buy something in an area that will always be popular so it will be easier to sell when you are ready to move. (good school district etc.) 2. Something that will allow you to put the vegetable garden and bird feeders, but would appeal the a majority of the people if it was just lawn and regular plantings if you needed to sell. 3. A reasonable price range where the majority of the buyers would be in the area you are looking for an easier sale later. One that also would allow you to save money and this could include your commute if you drive due to gas prices. This way you can have some of your most important things, but you may have to live with neighbors closer than you'd like for a while and a few other things, but still have what you can't with a rental and also enjoy it some with the gardening even though it wouldn't be your full wish list. BTW when it comes to closing costs it depends on who the lender is how much you'd have to pay for the loan. For example we used a local bank to buy the lot next to us and we only paid the same closing costs as a cash buyer except for an extra $100. If you have to pay a loan origination fee then it could add up. A bank should be able to tell you what their fees are for a closing, however they can't tell you the full closing costs due to things like title insurance etc. Only things related to the loan. I think it makes sense to invest your cash and use the bank to assume the risk. This way if you need the cash you have it available and if you have to sell for less than you owe and have to bring cash to closing at least you made money off your own cash until that point. Even though you will pay mostly interest to start it isn't much different than throwing the money away on rent except you have a tax deduction and you get to put the bird feeders and the vegetable garden you want.
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I didn't want to bore everyone with all the details, but the only way to get this house will be an all cash offer. This is an off-market sale; the seller is a licensed Realtor in my Realtor's office and is in a difficult personal situation that requires her to sell fast and quietly. The seller is already in contract with another buyer. The buyer has missed his date to remove his financing contingency. The seller is going to give the buyer Notice to Perform as soon as we have a signed backup contract. The lender has told the seller that the buyer's loan will come through by the end of this month (3 weeks) but the seller can't wait that long. If we have a financing contingency, even a 15-day one which my mortgage broker says is possible, we won't give the seller enough incentive to sell to us. Instead, she will put her house on the MLS and have an all-cash buyer within 3 or 4 days. That's how hot the market is where I live. She seems to be willing to do this. We'd lose the sale or have to come up with a higher price due to the bidding war that's likely to occur. Just for background on this zipcode, there have been 3 houses on the MLS in our target area of 20 square blocks in the past 2 months. We bid on the first one and lost out to a higher bidder - there were 5 bids. The 2nd one we didn't bid on - it also had 5 bids. The 3rd one we didn't bid on - it had 2 bids. All 3 houses sold at 3-8.5% over asking. Since this house is a lower price than the one we bid on last month, we're confident that the loan won't be a problem. We were pre-approved for the higher loan, and my mortgage broker has been working through the process since then to make sure everything's in place for a fast turnaround on a new loan.
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weedyacres
9 years ago
How fast could you pay off the $45K? If pretty darn fast, then you could cobble together a string of loans, like a personal loan for $30K (if that's the limit) and a few credit cards for the other $15K. Pay off the credit cards ASAP with your discretionary income, and then hack at the personal loan.

Any private sources (like family members) that you could go to for the difference? Be very careful if you do this, and only do so with proper paperwork and if you and your family members have healthy relationships and boundaries.

I think you could also take out your temporary, cobbled-together financing, and then once you own the home open a HELOC (just a few hundred dollars closing costs) and pay off the cobbled-together stuff.
polyd
9 years ago
I've got to say- and please don't take offense- but taking out 15k of credit card debt to buy a home is a terrible idea! The interest rates on credit cards are around 11-29% depending on your credit. Think about how much you will be paying in interest per month. You say you don't want a mortgage because of closing costs and paperwork. Personal loans, without collateral, in that amount will be impossible to come buy and even if you did get one they have a much higher interest rate than a mortgage. You will have to do the math of closing costs vs credit card interest rates and don't forget to factor in the what ifs. In a perfect world you would pay off the credit cards as planned in your time frame. The reality is you could get sick with a serious illness, loose your job, your new home may need some repairs you didn't know about, the list is endless. You'd soon be wishing you had the freedom a a few hundred dollars a month mortgage payment- which that mortgage payment might be pretty close to what you would soon be paying in INTEREST alone on a credit card cash loan.

Your best options are- find a home that is a little lower in price and loose the need for a loan.

Get a small 15 year mortgage and pay it off in 5 years.

Our mortgage was 65K, and we got a great rate.
Linda
9 years ago
Can the owner of the house hold a small mortgage for this 45k? I'm not sure if it's legal where you are but purchase the house cash, and have them hold a small loan for 45k.
hollynla
Original Author
9 years ago
We would pay it off quick, hopefully within two to three years. I wanted to avoid a mortgage as to avoid the origination fees, and the other loan fees that would come along with it, not to mention my dh is a contractor so the paperwork is a pain at times. I'm not sure that we will want to spend more than we have in cash, I'm just thinking ahead. When I'm looking at properties on realtor . com, I see much more options if I look just 45-60K over our limit, however I've also seen many under the 240K budget.
polyd
9 years ago
My house cost 65k :-) You probably don't want to live in 800 sq feet tho.

In my state it is illegal to use credit cards to buy things like houses and cars or anything that is debt. So you might want to research that, too. Honestly it sounds simplest and lowest risk to buy what you have cash for. I have fallen for the realtor.com thing, too. Set it a little above your maximum, most prices are not sticker price anyways. But ask yourself if those houses are really going to make you that much happier to justify the debt. Most people get more than they think they need, or they just really want, and soon after moving in they and the new house smell wears off they wish they would have stayed in their budget.
ncrealestateguy
9 years ago
In these financially uncertain times, I would rather take out a mortgage,rather than to lose my cash. Unless you are very wealthy and have more reserves than the cash you plan on using in place of the mortgage. If the financial times get better you can always pay off the loan early.
pamghatten
9 years ago
holly, there are a lot of home equity line of credit products out there that don't have fees as long as you keep the line open for a certain amount of time.

HELOC's don't have to be second mortgages only, many places will do a 1st lien HELOC or HeLoan.
lafdr
9 years ago
What do you mean you have 240k to buy a home? Cash? Or you have been preapproved for a 240k loan?

Closing costs are a % of the loan amount so a loan for 45k from a bank when you are putting down 240k cash would not cost much at all. And payments would be quite small over 10-30 years. It could be a HELOC or a personal line of credit.

If you are buying a house on a loan, no way can you get a second loan or use credit card without the main loan finding out. They not only wanted our bank statements and credit card statements several months before, they also wanted a current one as closing approached. They would not have been ok with a big new debt. The closing costs of a 240k loan are about the same as a 285k loan.

If you are buying a home on a loan, I would try to get them to increase the amount they will give you if possible.

How much of a deposit are you putting down?

If you love a 285k home and all you have access to is 240k, they just might take a lower offer. Especially if it is cash with no contingencies.

As far as owners financing a small amount, that will only work if it is a cash purchase in my experience.

lafdr
User
9 years ago
holly,
Buy within your price limit.
DONT LOOK at homes over your limit.
Do not get a mortgage, you shouldn't have to.
You could have that attitude with any price limit.
Can you imagine what the 325k homes look like?
If your hubby is a contractor, you should definately
buy within your budget.
Then make him fix it the way you want it.
nosoccermom
9 years ago
The loan origination fees, etc. are based on the mortgage amount, so with 45K they won't be that much and most likely will amount to less than what the higher interest rate for a personal loan will cost you.
And paper work with such a large down payment won't be that big a deal.
hollynla
Original Author
9 years ago
Thanks everyone.

We will have about 240K cash to spend. I do agree, I'd rather have no mortgage at all so I'm just going to stay within my limits. I've been watching a lot of buying and selling on hgtv and I'm open to taking on a house that could use some work if I needed to. I will not look at anything over 250K and hoping I can get a deal at or under 240K since it's a cash deal. Our only contingency will be inspection.
ncrealestateguy
9 years ago
Do not think that just because you are paying cash, that you will get a home for less money than if you were buying with financing. The seller is getting cash at the end of closing no matter if the buyer is a cash buyer or a financing buyer. Being a cash buyer may, however, make you look like the better choice if you end up in a multiple offer situation.
IMO, I would still not want to spend my nest egg on a home... I would mortgage the home, and invest the money to have a net gain.
Another option is to get a loan for the full, higher amount, and turn around and pay off the loan except that amount that will take an additional two years.
ryseryse_2004
9 years ago
Quicken Loans will give financing for under $50,000. We had to look hard to find someone who did but found them. However, I also would recommend a line of credit instead and plan to pay it off fast.
hollynla
Original Author
9 years ago
ncrealestate, I do understand your point about the mortgage but we will be using the equity from our current house sale to purchase the next home (considerably downsizing) and living almost completely debt free. That is important to me and we will start being able to put away and invest a lot of income after this move and enjoy life more with traveling and play time, which is something we have little of right now.
ltlfromgardenweb
9 years ago
Oh Holly, this is a wonderful problem to have! I think whatever it is you've been doing sounds really good and I'd like to know your secrets. :-) I agree with NC Real Estate that you could probably get more in interest on investing the money than you'd be paying in mortgage interest. BUT that would involve self discipline on your part not to touch it. And anyway that's not the question you asked.

Is your husband willing to put a bunch of time into fixing up your house if you buy something that needs work, or does he have the mindset that he does that all day for other people and does not want to come home and deal with the same problems? Either way I think I agree with everyone who said to first try to make sure there's nothing you might like within your cash price.
hollynla
Original Author
9 years ago
My husband isn't a contractor as in builder, lol. In fact, he is the exact opposite. I would have to hire out for any work on a house I would need with the exception of paint and roofing work.

There are some properties within the 240K limit so I think we can make due. When we are ready to buy (possibly in the spring), there will probably be more inventory than now too.
nosoccermom
9 years ago
I have found that a cash offer may result in a lower purchase price because closing can happen faster because of fewer potential hang-ups. The fewer contingencies, the more likely a buyer will accept an offer.
Also, a 5% percent return on investment (or whatever the current mortgage rate is) at this point in time isn't too bad.
User
9 years ago
holly,
You have to tell the realtor exactly what your budget is.
Don't look at more expensive properties.
Use some vision, just make sure the home has good bones.
We bought new. Brand new. Cash.
No mortgage.
The freedom of not having a mortgage is priceless.
I can't even explain how free we feel now.
You can do whatever you want, because you don't have
a mortgage.
Just think about it, if you have never experienced it,
you will love the options you experience, and never have
a mortgage on your own home ever again.
No matter what anyone says, Cash is King.
Trust me on this one.

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