My Personal Finance Journey

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Finances in My Home Buying

Contributed by mm | August 25, 2003 9:32 PM PST

I closed my house on August 19. I believe I got a good deal in this house purchase.

House

My new house locates in Sammamish, WA. The close price is $315,000, which is very close to several similar nearby houses closed in the last 6 months. This price should be a fair value of the price considering every electric appliance is included in the price. My seller is very kind leaving us a very clean house.

Working with Realtor

My realtor is a CRS and designated associate broker. I found her via web. She turns to be very knowledgeable and helpful. She can always go extra mile to help me improve the deal. What's more, she rebates me for 20% of the commission she received plus $200 cash back, a total benefit of $2,000 to me.

Mortgage

I closed by loan via lengingtree.com. My broker works for RBC Mortgage and mortgagee is ABN AMRO.

As a first time homebuyer, I used to think I should consider nothing but a 30-year fixed rate mortgage. I was wrong.

During the process working with my mortgage broker, I believe I'll only stay in this starter house for 5-7 years for sure. An in-depth financial analysis makes it clear that even with a significant interest rate hike, a 7-year ARM or 5-year ARM will be a better option than 30-year fixed rate mortgage for at least 10 years.

I'm fortunate to be able to come up with 20% down payment for close, which greatly improves the mortgage options available to me and earned me a decent rate. I finally closed with a 7-year balloon loan (more precisely, a two-step fixed rate loan). Details of the mortgage:

- 7-year balloon loan that needs to be repaid or refinanced to 23-year fixed rate loan by end of 7 year
- 20% down payment
- 4.25% interest rate
- no prepayment penalty

My monthly payment on the loan is $1557.68:

- $1,235.75 Principal and Interst
- $294.51 Property tax
- $27.42 Homeowner Hazard Insurance

As a side note, this loan will not yield tax benefits for me for tax year 2003. Starting 2004, I expect to receive around $1,000 worth of incremental tax benefits as a result of mortgage interest payments.

KEY LEARNINGS

- Do NOT buy a house just for investment.
- Do NOT buy a house if you know you will move out within 2-3 years -- remember you need to pay commission when you sell.
- Choose the right mortgage option depending on when you will move next time. ARMs may be a good option for people with financial descipline.
- Comparison shopping is important -- you can save $$ in lots of places in house purchase. For example, agent's commission is definitely negotiable.
- Financial-wise, it's better to close the loan in the first half of the year to ensure some tax benefits from mortgage interest.

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