You should start another "Should I keep this house as a rental?" thread with all the details about this house to see if keeping it as a rental property makes senses. There are lots of other factors to consider but if you could clear $400K if you sold it then if that money was just put into a 5% CD then you would make $20K a year.- I already own a home in another state with a 2.75% interest rate, which is being rented out, and we make about $1k a month from it after all expenses are paid.
You also need to consider things like lumpy large expenses(roof, HVAC, etc), vacancies and refurbishing between tenants, and income taxes and it was not clear if you included those in your calculations.
You may still be able to sell the house and qualify for the homeowners capital gains exemption which can also be important.
One thing I would look at is if you would buy this same house if it did not have a VA loan that you could assume.My question is, is it wise to use such a considerable portion of my portfolio to buy this house?
You also did not mention how many years are left on the VA loan which is important.
I had a hard time following your numbers but it sounds like you would be paying $75K to assume a $500K mortgage which is 15% of the loan amount. If you got a conventional mortgage mortgage you can pay "points"(1% of the loan amount) to buy down the loan interest rate. I am pretty sure that you can also deduct the "points" to buy down interest rate on your income taxes but you would want to check on that.
As I recall each point you pay would reduce the mortgage rate by about 0.25% so if you can pay 15 points(there might be a limit) that could reduce your mortgage rate by 3.75% and you might be able to deduct the points on your taxes. That would reduce a 7% mortgage rate to 3.25%.
You would need to really crunch the numbers including taxes but it sounds like "VA entitlement charge" (which I was not familiar with.) is pretty similar to paying points to buy down a conventional mortgage.
It would be good to get some quotes for a conventional mortgage with paying $75K in points, if you can, to see how it compares. You could also get a quote for a $425K loan with no points instead of a $500K loan with points.
I suspect that taking over the VA loan may not be a fantastic deal especially since it would be a financial stretch to do that and the house might not be the house you would pick as your first choice without the loan.
Statistics: Posted by Watty — Tue May 07, 2024 8:59 am — Replies 8 — Views 1120