First Time Homeowners Loan & Figuring this ish out

[Karsen Kelsey]

Hey my name is Karsen and I’m 22, I recently moved to Homestead Florida. I’ve been think of using rental properties as a form of income for a while now and I’m very blessed to have moved to a growing market due to the rebuild of hurricane Andrew. I have a nice job as an up and coming biotech and I have been saving money and I have plus 720 credit. My plan is to save 200 a week for the time being until I can get a 20% down payment get a 3+ bedroom live in it rent the two extra out and obtain as much cash flow as possible so I would be able to get another property and so and so on. I’ve researched a lot on first time home owner loans and I’m very confused. I’d like to have an idea of how much I would be able to obtain as it would help me plan for the future can anyone help me plz :).

[Chris Mason]

Originally posted by @Karsen Kelsey:

Hey my name is Karsen and I’m 22, I recently moved to Homestead Florida. I’ve been think of using rental properties as a form of income for a while now and I’m very blessed to have moved to a growing market due to the rebuild of hurricane Andrew. I have a nice job as an up and coming biotech and I have been saving money and I have plus 720 credit. My plan is to save 200 a week for the time being until I can get a 20% down payment get a 3+ bedroom live in it rent the two extra out and obtain as much cash flow as possible so I would be able to get another property and so and so on. I’ve researched a lot on first time home owner loans and I’m very confused. I’d like to have an idea of how much I would be able to obtain as it would help me plan for the future can anyone help me plz :).

 Hi Karsen,

There's virtually no reason to save up 20% down for a SFR you will owner occupy.

Let's suppose the choice is 5% down today with a 720 FICO, versus 20% down in 4 years after you've saved up 20%. Let's also assume that (somehow, magically) rates aren't higher in 4 years. Let's suppose a $400k home.

The PMI with 5% down and a 720 FICO would be, very conservatively, 0.6% (that's actually higher than what I'm showing, but lets assume your local LO isn't me, since I'm not licensed in Florida). 0.6% * $380k / 12 = $190 per month. $2280 / yr.

Let's suppose that hypothetical $400k home appreciates at only 4% per year, because you're in Florida and not the Bay Area or Oakland where I'm at. So you're picking up ballpark $16k/yr in appreciation. 

How is paying out $2280 per year not worth it if you're picking up, conservatively, $16k per year in equity / resale value? Also, by the way, that means the $400k home is now a ($400k * 1.04 * 1.04 * 1.04 * 1.04) $468k home, making that 20% down a bit more of a reach so that someone else can pick up on that appreciation at your expense. Rather than paying $68k more for the home, you'd be out $9120 in PMI. In terms of sacrifices to the real estate gods, $9120 is a smaller number than $67,943.

Now. On top of that, assume there's some global pandemic and recession going on, and congress is determined to effect "2008: NEVER AGAIN," and as a result they knee-jerk overreact and decide to print several trillion dollars per year, just throwing that money at mortgage backed securities to keep rates low, and thus keep real estate appreciation/inflation high. Just hypothetically suppose. That would tend to drive real estate appreciation, and/or currency devaluation relative to real estate (inflation) up. So as you are being a good saver over that 4 years to get 20% down, the value of your cash savings is constantly being devalued and wiped out by inflation due to the money printing out of DC. That of course is all hypothetical, since it would obviously be fiscally imprudent to print trillions of dollars to prop up a single asset class at the expense of the rest of the economy. I mean, if you could hypothetically know what winners/losers our gov't would pick, it would be a no brainer wouldn't it? So, obviously, it's not that easy, because our trusted government would NEVER do that, would they?