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Author: chris26204 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127262  
Subject: Re: Pay Down Debt or Save Downpayment? Date: 5/8/2000 4:16 PM
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As a 10-yr mortgage vet I can give you the answer: IT DEPENDS! Coupla things to think about...1) PMI! One item misunderstood by many is the impact of a less than 20% downstroke. To REALLY crunch the numbers, someone should take what the monthly PMI charge is, multiply by 12, then divide by the mortgage balance (call this number 'X'). This is the 'effective' increase in mortgage cost that one should add to their interest rate for comparison purposes. But remember (and please contact an accountant) that PMI, unlike mortgage interest, is not tax deductible and to REALLY crunch the numbers you might take 'X', divide it by your tax bracket (.28?) and add this number to the interest rate to compare. PMI costs will vary, usually, in 5% loan-to-value increments meaning a 5% downpayment will have a higher PMI cost than a 10% downpayment, etc. 2) The payments you continue to make on your student loans COULD be improving your credit scores for application purposes. If you're recently out of school - this could be a factor. There IS a general cutoff for conforming loans BUT sometimes some more doors open as credit scores move higher and higher - especially on the low-to-no downpayment side. 3) Do you need more room in your 'debt ratio'? Underwriters will consider the ratio of JUST your mortgage payment into your monthly gross AND they'll consider the ratio of all your credit-type bills into your monthly gross. Whether or not the latter calculation requires reduction in your current outgo is something to consider 4) How important is homeownership to YOU? I've read more than one opinion about the possibilities (not my personal opinion) of 30-yr fixed's cresting 10% within 12-mos. Hindsight is easy but it would have been POOR advice one year ago today to advise knocking out some debt before buying a home when 30-yr fixed's were 7.125% and today are 8.625%! The best answer is to find a GOOD loan officer - don't make 50 phone calls to see who is 1/8% lower than whom - ask some questions of the loan officer - how long have they been in the biz? Which direction do they see rates going and why? You can get socked by an inexperienced loan officer with the best rates on the day you call 50-places if he's of no help on the pluses and minuses of locking your rate in on the right day. Mainly and Foolishly, I feel reduction and/or elimination of PMI to be your focal point. GOOD LUCK!!!! -Chris
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