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Need a little help here with financial planning. The wife and I are planning on purchasing a home and we could afford to pay for it in cash. However, this would leave us with no cash reserves other than the $8000 first time home buyer's tax credit. We also will need money for IVF since we would like to start a family and we may also want to get a new car. Here are the 3 options I have come up with and I'd like to get some feedback/guidance from everyone since I am a newbie to all of this. One option would be to not use all our cash for the house, but put aside between $15k - $20K for the IVF and car and take a mortgage out for this dollar amount. Another option would be to pay for the house in cash and then take out a home equity loan to finance the IVF and car. Which option is best and if you guys have any other better options/strategies I'd love to hear them! Thanks!
Need a little help here with financial planning. The wife and I are planning on purchasing a home and we could afford to pay for it in cash. However, this would leave us with no cash reserves other than the $8000 first time home buyer's tax credit. We also will need money for IVF since we would like to start a family and we may also want to get a new car. Here are the 3 options I have come up with and I'd like to get some feedback/guidance from everyone since I am a newbie to all of this. One option would be to not use all our cash for the house, but put aside between $15k - $20K for the IVF and car and take a mortgage out for this dollar amount. Another option would be to pay for the house in cash and then take out a home equity loan to finance the IVF and car. Which option is best and if you guys have any other better options/strategies I'd love to hear them! Thanks!
Gary & Cathy
I think it is a very bad idea to dump all your liquid fund into a home. The idea of no mortgage may sound good but you are left with no emergency fund at all.
Check the rate between a Heloc and an ARM. ARM rate are about 4% at this time with almost no fees or points. Not sure you can get that rate with heloc. Just make sure the ARM doesn't have a penalty if you pay off early. Not paying the home 100% cash now will give you better options with regards to how you want to pay for IVF or car later.
I would suggest that you take out small traditional fixed rate mortgage. Then there are no surprises 2-10 years down the road.
Keep the funds you would have put towards paying the house off in cash. When your baby is born and you have the funds, you can always pay off the mortgage in full.
Traditional mortgages help build and maintain credit scores. The higher the better. Credit scores count in almost everything you do, getting better pricing on insurance etc.
Is it even possible to get a small mortgage like that in a traditional loan? For some reason I thought I had heard that lenders won't do small loans like that as a 1st conventional fixed.
Maybe I'm wrong and they just won't lend on houses that are extremely inexpensive.
Now that I think about it, I'm not sure why they wouldn't do it, as their risk would be very low. I just had it in my head that they wouldn't.
Now I have confused myself. Can someone clear that up for me? Will banks do conventional style loans for small amounts (like under $50k) if it is a small percentage of the house value?
Note: I am not an agent or a mortgage broker. I work in a real estate office, and haven't seen this come up before.
For loans under 50K, I would suggest that a borrower contact the local credit unions and smaller savings and loans.
Some banks will fund <75K loans, but typically 50K is about the smallest that they will go.
The average mortgage broker won't do loans that small because the amount of effort involved is the same for a 50k loan as there is for a 100K loan. Also there is a chance that the broker will not be able to make any money. WHY? because most states have a rule to protect their consumers that says that the maximum closing costs that can be charged on a loan have to be less than 5% of the sales price/refinance amount. When you take into consideration the fact that so many closing costs are fixed amounts (Appraisals, processing, title signing fees etc) the 5% rule eliminates any profit that the broker can make.
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