No. of Recommendations: 1
Hi JBJarv,

Is VA loan the way to go with our renting out plan ans situation? 30 yr, 15 yr, ARM?
Not sure... your prior statement suggests you've used your VA loan benefit on the existing home. You won't be able to qualify for a 2nd until the 1st is paid off. If the 1st is not VA, then sure, a fresh VA loan is a decent deal.

The choice of loan type depends on your comfort with math. The 5 year ARM will cost you less in both the short run *and* the long run... but it requires all responsible parties capacity to 'sleep at night' emotionally, which generally requires a fairly sophisticated understanding of how it works. (We've gone into it at depth here before, but if you haven't seen it & want it freshly explained just say so.)

Would you recommend getting a house that we plan to rent later at all?
Depends... do you *WANT* to be in the landlording business?

Should we put down the 5% to save on funding fee and have smaller mortgage?
Again, its a math question...
'X' = the up front cost of money on your 5% down payment

The cost of keeping 5% of the purchase price in your own control is 80 basis points on the entire balance (2.3% minus 1.5%.)
Solve for X;
0.80% of 'P' [purchase price] = '__X__' times 5% of 'P' [purchase price]

> "of 'P' [purchase price]" cancels out on both sides of the equation,
0.80% = '__X__' times 5%

> Isolate '__X__' by dividing both sides by the 5%
0.80% / 5% = '__X__'

'X' = 16%, up front cost of your 5% down payment money, if borrowed on a VA loan (plus the ongoing interest costs over time, of course.)

If you have alternative means to bring that 5% down to the table that cost you loss than 16%, including the risk costs of illiquidity... then finding the cash from that cheaper source, and financing 95% on the VA loan, is probably the better route.

Any tips on FL real estate in Pensacola/ Ft Walton Beach area?
None from me on this.

Should we hire a mortgage broker to help us find the best loan for us?
I'm assuming you know the difference between a mortgage broker versus a retail loan officer, yes? Mortgage brokers have a fiduciary responsibility to represent your best interests, and retail bank loan officers have the opposite; fiduciary responsibility to their employer's best interest.

Having said that; the questions of trustworthiness, respectability, and competence reign supreme over any fiduciary oversight. A trustworthy retail loan officer with a character of sincerity is still better than an incompetent broker, regardless of the system.

The onus is on you, however, to interview to determine character, trustworthiness, competence, and respect.

Should I buy points to lower my rate?
If you use a 5 yr ARM, no.

If you use a 30 FRM, the answer is; It depends on how long you *realistically* expect to keep that 1st round of mortgage financing in place (without reselling or refinancing for various reasons.)

Discount points (as Ray explained) are up front prepaid interest... but they buy you a permanently lower interest rate going forward. When you run the math on the up front costs of the points (including the lost opportunity costs of returns you would have made on the cash value of those points,) versus the accumulating savings from the lower interest rate (and the accruing returns on those savings,) the break even point is typically around 3-5 years.

If you *strongly* expect to hold ownership, and not refinance for longer than 3-5 years, *AND* if you can *AFFORD* the up front cost of permanently buying down the rate (without starving your emergency reserves,) then it can make good financial sense.

I can't afford too many without selling a bunch of stock.
Again; math. Weigh out the real rate of return guaranteed over time by buying down the interest rate permanently over a projected period of time (the savings over the entire balance of the loan,) versus the lost opportunity returns on the stocks sold to raise the cash.

Points seem like a bit of a scam to me, I have a basic understanding of the math involved, but with the future value of my month taken into account I don't think the points for a lower rate is a great deal, but please let me know if I'm wrong.
Don't trust feelings or guts... do the math. Or have it done for you by someone who understands how it all works and can lay it out, as above.

Regarding money; Feeling lie, and cost a lot of life.

What APR should a be expecting? my normal bank is quoteing a 4.5 - 4.8 APR, depending on points, but found one advertising 3.75 APR. Is that a scam?
The devil's in the details!
The 3.75% advert, for a VA loan, was a 5 yr ARM.

Here's a snapshot of a large national mortgage wholesaler's ratesheet this morning;

Rates are the left column,
Buydown(-rebate) Points, per lock period, are mid & right columns.

Dave Donhoff
Leverage Planner
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