double house payments or save the money for a land payment?

[sfloggie]

DisplacedPA,

Before I answer:

1. Caution who you tell when you find land or even look!

You are in NC and I am near the NC line close to the Dismal Swamp.

Before we brought our VA land,we were going to buy timberland in NC just South of the NC/VA line. Commercial timber companies sell good land (and bad). One 100 acre site had a mix of 20-30 year timber, water and a 50 foot wide rock road. It was priced under $200,000. Before I could arrive to view it, it was sold to a local guy. Every time I found a good parcel, he would buy first. I later discovered the forester I was working with was telling this guy every time I called to let him (forester) know I found a place. I was talking to the forester only because I wanted a Land Management Plan due to the amount of timber, plus he knew the area.

2. Walk the entire land, check the courthouse , view from Google and Bing, count your neighbors.
- I have 113 acres with two neighbors on the East and two on the West. There is a river to my South and a hard top to my North. This is enough! I looked at one property that was 33 acres with 23 neighbors!! Wow..too many to be nice to.
- Our current land showed an old survey listing 126 acres. There was really only 113 acres because the old house and three acres had been sold plus there had been another sell of ten acres. None had been recorded property, but we got that straight. We also did a survey, but it was not completed until a year and a half after I brought. I paid extra for them to look at the current survey and other documents before I brought. Plus I talked to the guy who did the survey of record.
- Look for land that has some timber, water (water table, pond, creek, river), accept wetlands (not swamp) as it is beautiful, but ensure you have enough land that is high enough to perc. We have 113 acres of which we have six sites that will perc. They are all to the North with wetlands near the river which is 90 feet across since it is the head waters.

- Raw land and barn/tractor etc.
-Farm Credit does not even blink at the request to buy raw land; whereas the regular bank did. The Farm Credit loan officers are farmers or have farm knowledge.
-Farm Credit would finance farm equipment and buying more land if needed. I stay ion touch with our local Farm Credit to ask his advice and to let him know if I see a neighbor wants to sale and I would like to buy through them.

- Ensure you find a good farm and farmer to grow crops on your land if you are not. This allows you the Land Use Tax Reduction. Please farmers can teach you land management. I do not charge anything for the lease as he gives me more in land management (ditches, etc), help with neighbors etc than I could ever do. For taxes I estimate the value of their services to me and I put that down when I do taxes (with explanation). It increase my income, but not more than the value received.

Now to answers:
Five years or seven.
- I am 63 years old, four heart attacks, retired Army SF and working in D.C. and Blessed to be doing OK in finances. So I wanted the shorter time. It sounds as if you are doing well and are younger, so you could do the seven years. Do not put stress you can stand on your wife as she will support you, bu is it fair. If you are younger, you have time. I looked for three years this last time. However; if you have the ability and no stress (to wife)..go for the five.
- While I am working, I need the tax write offs. A dollar is not worth a dollar. But if I pay a dollar to lay some road, build a barn or plant trees that dollar is worth more than a dollar. (not really, but I get excited!) The tax deduction is about 25 cents per dollar spent on the farm (for deductible items)as I do not live on it. Also the dollars I spend for things on the farm help the farm increase in value thus why I say worth more than a dollar.
Percentage down.

Down Payment.
- They look at your loan to value ratio as any lender does. We put 30% down using our home equity line of credit and some cash savings because we could and wanted to keep an emergency fund, so not more. They wanted 20% down and did not mind that we were using home line of credit. They gave us a rate higher than a home mortgage rate, but I did not care due to deduction plus we drop by a quarter percent allowing them automatic deduction. Also we get quite a bit back at the end of the year because the Farm Credit shares profits.

Careful with questions as I am long winded!!!

Jim

 

[beppington]

Well ... here is my situation.

My mortgage is at 3.02 APR. Pretax rate.

I can buy AA rated and insured Missouri municipal bonds at a yield of 2.45%. At a 35% Federal and 6% Missouri tax rate that is equal to a 4.15% rate. Next year, the Federal tax rate will go to 39.6% and the Health Care tax of 3.8% on passive income will kick-in. That raises the combined tax rate to 49.4% on non-Muni interest. So, in 2013 the pretax equal rate rises from 4.15% to 4.84%.

Do I pay-off a motgage at 3.02% or put the money into a Muni at 4.84%? Hummmmm ....

I'm not as fluent with the specific numbers as say MossRoad or smstonypoint, so I'll let them opine.

I will say that for me to choose "next egg" over "paid-off house", the #'s would have to be very strongly in favor of "nest egg", & the small differences in your numbers don't look like it is.

Of course the "free lunch" choice here would be to diversify ("diversification is the only free lunch") by doing some of both ... as long as you're OK with owing your lender longer & the ongoing existence of possible foreclosure (however unlikely).

 

[MossRoad]

Ya!
You have to pay yourself first and foremost. A young kid should be putting away 15% of every dollar earned into some sort of retirement fund.

Disclaimer: I am not giving advice, just talking about what worked for us...

For example, if you employer offers 401k and matches you a % on the first 6%, the experts recommend you put in 6% of your income into the 401k, then put 9% into a ROTH IRA. (of course, if you can afford it, put the max allowed in the ROTH each year). 401k is pre tax, but you have to pay tax when you take it out. ROTH is after tax, so you get taxed on it before you put it in, but it is tax free when you take it out.

I'd be sure to pay myself first, then pay the mortgage, then pay extra on the mortgage principle as much as I could. Pay the house off before you buy land.

I'd look into a blanket mortgage to cover both the hosue and the land. Let's say your house is worth 100K. You find land for 100K. The bank wants 25% down. You have to come up with 25K. By putting the house and the land on one blanket mortgage, you now have one item worth 200K that you already have 100K in equity, or 50% already paid for. You won't need any money down, just mortgage costs. (we've done this twice). The only stipulation is when you finally sell your house, you only have the land left on the mortgage. You now have one item worth 100K and no equity. You have to sign some papers that say if you sell the house, the bank gets paid 25K at the closing of the house so that the equity never drops below the 25%. Get it? At closing on the sale of your house, you have to give the bank 25K. But you could give them 50K and keep 50K for yourself and buy a nice trailer, or make that a downpayment on a construction loan, etc... works good. :thumbsup:

 

[deezler]

I am in a similar situation. Only 28 years old and stuck with a condo that I can't sell (long story, not quite underwater, but close). My wife and I wanted a nice piece of land in the area to eventually build our dream home on, but figured that wouldn't happen for at least a couple years.

Well wouldn't you know it, the dream parcel of land that I have had my eye on for years now comes back on the market at just 15% of the original asking price, and the buyer (it was now bank owned) accepts our even lower offer! I have a pretty good job but was still surprised to find out that I qualified for the additional financing, as is, from my local farm credit bureau.

So did we want to own 2 properties and have two mortgages? Heck no! But this land was everything we ever wanted (rolling, wooded, 19 ac, a nice stream, very close to town), so we had to jump on it.

While I would much rather spend the money to dig out of my condo loan, or be able to sell it and move on cleanly, we couldn't pass up the opportunity. So if you find that just right piece of land, and it feels good, don't hesitate.

On the other hand, if you can be patient, it would certainly be wiser to limit your liability and financial risk.

 

[LD1]

Ya!
You have to pay yourself first and foremost. A young kid should be putting away 15% of every dollar earned into some sort of retirement fund.

Agreed:thumbsup: If one can afford it, put away all you can and still live comfortably.

Because I am afraid us "youngins" aint gonna have any SS to fall back on.

I am currently stashing 8% in 401k with a 50 cent match up to 5% from the company. And then another 10% into a ESPP (employee stock purchase program) where they match @ 20%. And the wife is putting back 5% with a full 100% match from the company.

I dont want to have to rely on SS when I retire, even though I would have paid in for years and it is owed to me, I dont think I'll ever see that money.

I saw TOO many co-workers bail out when the market crashed in 08. NOT me. I dumped all I could in knowing I had a ways to go before retirement, that it would eventually bounce back. The addage is "buy low...sell high" and by bailing out, they sold low and bought back in high:confused2: Bad move IMO.

 

[MarkV]

I agree that there are valid arguments for both paying off and saving for land. We already have the land and are old enough that retirement is coming soon. Having your house paid for is a big plus if you are retiring so we pay off aggressively.

I think you also have to look at your local mortgage market. You can't assume you can get a loan even with great credit. In my area you will have a hard time finding a lender for raw land. I hear people say "Farm Credit" for raw land but not around here. I am sure it varies by region.

MarkV

 

[MarkV]

I agree that there are valid arguments for both paying off and saving for land. We already have the land and are old enough that retirement is coming soon. Having your house paid for is a big plus if you are retiring so we pay off aggressively.

I think you also have to look at your local mortgage market. You can't assume you can get a loan even with great credit. In my area you will have a hard time finding a lender for raw land. I hear people say "Farm Credit" for raw land but not around here. I am sure it varies by region.

MarkV

 

[MossRoad]

One more thought. Some folks are suggesting that you shouldn't make extra payments on your mortgage principle because you are giving your money to the bank. That's not the way it works...

Its the interest payment that you are giving to the bank. The principle payment is returned to you in the form of equity in your home. When you sell the house, you don't give that equiity to the bank. It's yours! (just watch out for capital gains).

 

[smstonypoint]

When you sell the house, you don't give that equiity to the bank. It's yours! (just watch out for capital gains).

Unless the tax code has changed recently, the OP and his wife can exclude a total of $500k from Federal cap. gains taxes as long as they have been living in the house for at least 2 of the last 5 years.

Steve

 

[displacedPA]

I just played on the spreadsheet for a few minutes and something just isnt jiving here:confused2:

I/We need a little more info:thumbsup:


Based on this^^^ (unless you refinanced) The 164k to get an $839 payment would have to be a 30 year loan @ 4.59% and started 9-1-2000 to have a current balance of ~126k







But based on the above 30yr@4.59, and a payment with no additional principal of $839, I am showing you would only owe 102k in 5 years. NOT 115K.

So what are the terms of your loan??? Because Unless we are missing something, your normal payment of $839 for the next 5 years (50k total) is only going to knock off 11k off the balance:confused2:

So you can see my confusion. What is your current interest rate? Did you re-finance? if so...when, how much, and for how long? Being able to plug these #'s in myself would make it a lot easier to give advise


here

I missed this post before!!!
I bought the house and put 30k down as a down payment. The loan started in may of 2010.

rate is 5%

it seems as though I should maybe diversify and save some and pay a little more on the house. thoughts?