Profile picture for lion98

Which mortgage type is best for me?

Single, first Time homebuyer, Credit score 780, zero dept, annual income 100K
I have stockpiled 325K in cash
I am looking to buy a 300K townhouse in central NJ
Two questions:
Should I put down as much as possible?  I was thinking only about 30-35% at most.
What type of mortgage should I get?  I was thinking a 7/1 ARM with no prepayment penalty. 

No clue if I will be staying in the place for more then 7 years.  If I am still there after 7 years I figure can may most if not the entire remaining mortgage balance or refinance.  I also would probably be making at least a couple extra payments years 3-7 of the mortgage

  • March 31 2012 - US
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Answers (2)

Your plan sounds very good, use the 7 or 10 year Arm. While there is no doubt rates will go up in the future a 10 Yr Arm gives you a large window of time, maybe enough for rates to climb and come back down, not necessarily to today's level but at that point your loan balance will be much lower with additional principal payments in years 3-7 or 10. You will use a conforming loan since FHA would require 5 years of MI even with a 30-35% down payment. The 7 or 10 Yr arm requires you to qualify at a higher rate/payment than the note rate but you will not have any problem with that. Using the 7 or 10 Yr Arm gives you about the same rate ( maybe lower ) as the 15 Year without qualifying at a 15 Year payment, then you are able to prepay and get an even lower effective rate.      

"I have stockpiled 325K in cash"

"Credit score 780, zero dept, annual income 100K"

Very nice.

  • April 01 2012
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Profile picture for the_country_hick
Normally I would say to get a fixed rate mortgage. The reason is that interest rates will rise in time. I would bet real money that in 7 years rates will be much higher than today. When interest rates rise monthly payments will go much higher for the same purchase price.

In your case the 7 or 10 year arm (Did you know you can get a 10 year ARM?) might make sense. The interest rate is lower on those. If you are absolutely positive that you can pay off the mortgage completely at the end of the 7 or 10 year time frame as the adjustable mortgage resets it may make sense for you. If you are not sure you can do that definitely go with a fixed rate mortgage.

Most mortgages go through FHA. That is only 3.5% down. Normal old fashioned mortgages were (and are) often 20% down. What you choose to put down is up to you and your CPA.

The one thing to consider is perhaps a townhouse is not the best thing to buy. You can have a loud neighbor just 6" away from where you live and sleep. Perhaps a real house would make more sense. That has nothing to do with finances and everything to do with quality of life in your new abode.

Perhaps the information in the links below can be of help to you.
"Does it make more sense to buy, or to rent? Here is the way to find out for sure."

"Why rent if you could buy for less money? Valid reasons inside."

"Do low interest rates really make it a good time to buy a house?"
  • March 31 2012
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