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Does applying property as collateral to a mortgage reduce your payment?
Posted on 7/6/12 at 11:23 am
Posted on 7/6/12 at 11:23 am
I'm using acreage I own along with cash as collateral to build a house. My question is: Does the cash value of my property reduce my monthly note? In other words, if my land is worth $50,000 and I put down another $50,000 on a $400,000 loan, do I immediately have $100,000 of equity in the mortgage reducing my monthly payment?
3
Posted on 7/6/12 at 11:28 am to BoudinJoe
No. But you may get a better rate since the mortgage company has a better fallback position should you default on the mortgage.
Posted on 7/6/12 at 11:31 am to BoudinJoe
quote:
do I immediately have $100,000 of equity
Yes
quote:
reducing my monthly payment
It reduces it compared to if you would have taken out a loan to buy the land and the house and still only put down $50k.
At the end of the day, a 350k loan on the same amortization and the same rate is going to require the same amount of principle and interest payments, no matter how much equity you have.
To the positive, you shouldn't have to pay PMI, which will reduce your overall cash outflow for the house.
Posted on 7/6/12 at 11:45 am to TheHiddenFlask
PMI--help me understand this. Am I looking at significant savings?
Posted on 7/6/12 at 12:01 pm to BoudinJoe
quote:
PMI--help me understand this.
I'm by no means a real estate expert, but I'll give you the basics.
PMI is mortgage insurance that is required when you finance 80% or more of a home.
As far as significant, that's qualitative. Try out this site to see what the effects will be.
LINK /
I would encourage you to read up on the basics of buying a home. You can probably find a lot of great material on the internet. This is going to be the biggest single purchase of your life. You want to make sure you know and understand everything that is going on.
Posted on 7/6/12 at 12:30 pm to BoudinJoe
are you building the house on the land you already own? if you are building a house on land you have owned for at least 6 months then once you finish building the house you can refinance the construction loan and the value of the house will be determined by appraisal. what that means to you is if you put 50k down and the land is worth 50k then you are going to have 100k worth of equity and avoid PMI. if you havent owned the land for 6 months its a whole differnt loan.
Posted on 7/6/12 at 12:46 pm to hawkeye007
I will have owned the lot for six months by the time the house will be complete. So I will have the equity from the lot and and the additional collateral from another 20 acres I own elsewhere. I'm thinking a sub-3 percent interest rate on my mortgage by that point. Am I right?
Posted on 7/7/12 at 3:16 am to BoudinJoe
Personally I'd never put 20 acres of land up for collateral in addition to the lot that my house will be built. I'm sure your mortgage company won't turn it down. Have you tried to get the loan without using the acreage? If it's a requirement, why not survey out a lot to be used for additional collateral rather than the whole 20 acres?
Posted on 7/7/12 at 6:09 am to frb1951
You could possibly get sub 3% on a 15 yr mortgage, but not a 30 yr.
Posted on 7/7/12 at 9:12 am to BoudinJoe
quote:I'm paying close to $100/month in PMI on a $200,000 mortgage
PMI--help me understand this. Am I looking at significant savings?
Posted on 7/7/12 at 9:13 am to Quidam65
quote:so wouldn't having a lower rate effectively lower his monthly payment?
No. But you may get a better rate since the mortgage company has a better fallback position should you default on the mortgage.
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