The past several days have been filled with crunching numbers. Not exactly what you would expect from the one who forgot how to divide, but I had the help of an Excel spreadsheet with an abundance of equations. I was trying to ease my mind into the world of loans after our traditional FHA was denied due to my income not being kosher (I’m “self-employed”*).
I guess I failed to mention that Jamie and I are in the house market. Planning on looking in a year or so, a zealous friend hooked us up with his realtor. Less than a month later, we find ourselves on the last free-fall of a roller coaster ride that is home buying. We close on the house next Friday if everything falls into place with “the Js”: Joel, Jason, Justen, John, Joe and Jerry all taking some integral role in our future. Because I am self-employed, we have had to go off of Jamie’s income which has made for an interesting and educational time getting a loan.
The solution: an 80/20 loan which means that we’re getting two loans, one for 80% of our home’s value and the other for, you guessed it, 20%. After some extensive thinking, I figured it would be better to add an “interest only” option to the first loan (80%) meaning that for the “term” (ten years in this case), I would only be required to pay interest, not principle. The loan then amortizes for the remaining 20 years, making the payment higher. It provides increased flexibility which, in our case, means we are able to pay off the second loan (20%) with a higher interest rate off quicker. This essentially lowers our interest mean interest rate and by the time our payments jump in price, we’ll have the second loan payed off. This will essentially save us $8,000 over a traditional loan at the same mean rate!
*Word to the wise: If you plan on buying a house soon, don’t start that business venture of yours quite yet. FHA requires a small business to have two years of tax returns to prove income.