Mortgage Details

Mortgage Details

We are interested in buying 539 Pine Street in Lockport, NY. Our plan would be to move in with Zuz’s parents (they would have a separate apartment inside the house), and raise our family there. As you can see from the photos and videos below, it’s a pretty special house. Our real estate agent took us on a Zoom walk-through and said it’s one of the best-kept old houses he has seen. It was built in the 1860’s by a congressman and mayor of Lockport who had the most prominent plant nursery in Western New York.

The current owners have a substantial precast concrete company, and spent a ton of money renovating it. All the mechanicals are in good shape. Three probable reasons it has not sold are high taxes, being located in a less-desirable city, and an old-fashioned floor plan. The location is close to my work and likely also convenient for Zuz. And the floor plan would actually be a plus for us because it would let us make an apartment for Zuz’s parents and a home office for each of us.

The house was originally listed at $525k. It has been on the market for over a year, and the last price reduction to $419k was on February 4. Given the current period of uncertainty and the ongoing expenses and risk of ownership, we feel the owners may be willing to accept a lower offer. We plan to make an initial offer of $360k, but will go ahead assuming a $400k sale price.

We plan to make a 20% down payment (the minimum to avoid mortgage insurance), so the mortgage would be $320k. We have this cash on hand, as well as $25k for closing costs (hopefully it will be less). Assuming a 30-year fixed rate mortgage at 4% (hopefully lower), principal, interest, taxes, and insurance would come to $3000/month.

Because Zuz has student loans, I will be on the mortage on my own. Mortgage brokers want to see that monthly costs are not more than 50% of monthly income. $3000/month will be fine with my salary starting this fall, but not at present. If you were to co-sign, your income (and also debt) would also be considered.

By co-signing, you would be on the hook if I were to default and if not enough money were raised through foreclosure. You would not have to put up any money however.

I asked the mortgage broker how this would affect your ability to borrow (for example to buy a home), and he told me that co-signed debt is considered for 12 months from closing, but not afterwards. So this could be an issue if you were planning to buy a house soon.

Going forward, there are several possible scenarios. The simplest would be that we just leave the mortgage as-is until we sold the house or decided to refinance. If you wanted your name off the mortgage sooner, we could refinance this fall, take a home equity loan and use it to pay off the mortgage (home equity loans have lower interest rates, around 2.5%, but have prepayment penalties), or sell the Austin house to pay off this mortgage. Our preference would be to leave the mortage alone, as interest rates are currently excellent and the other options have substantial transaction costs. But it’s quite understandable if you would prefer to do things another way.