Archive for September, 2009

Don’t forget the closing costs

Often first time home buyers are caught off guard when the go to close their first mortgage. Even your realtor may forget to tell you about the closing costs of a home mortgage. It’s something they assume you know about or just forget to mention. Unlike a $100 fee a car dealer may try to throw in a the last minute, mortgage closing costs will be several thousand dollars.

How much can you expect to pay for closing costs? It can vary several thousands but typical fees include items such as Discount Points, origination points, appraisal fee, application fee, credit report, title search and title insurance, survey fee, flood certification recording, and transfer charges, attorney fees, interim interest and finally an escrow account must be setup. These closing costs can reach up to $10,000 or more!

Now you can see why closing costs could actually be a deal breaker for some eager first time buyers. Many times buyers don’t even have a down payment large enough to cover closing costs. Imagine how disappointing it would be to walk into a lenders office with $10,000 ready to close a mortgage loan, only to realize your entire down payment is going to be eaten up in fees. Not a single dime will be applied to the principal amount of the loan.

So, before you get too excited about closing your mortgage loan, be aware of all the fees you will have to pay. It may sound depressing, but if you are prepared for these fees going into the mortgage it won’t be so bad. Owning your own home is a big step so do your homework and you’ll be happy with your decision.

Home buying tip – Buy a house you can afford

So you’re ready to purchase you own home? Maybe you’re tired of living with mom and dad or just ready to stop paying rent. No matter what reason you have you are ready to be a proud owner of your own home.

Unfortunately, a very small percentage of Americans actually own their home, most of us finance our home over the course of several years. Popular finance terms are 30 and 15 year loan terms. However, even if you are financing your home you are still considered a home owner in most peoples eyes.

Many people who think they are ready to buy their first home have no clue how much house they really can afford. A little over a year ago banks were pre approving home buyers for thousands of dollars over what they could really afford. The way banks calculate how much house you can afford doesn’t take into account all the activities not reported in their formulas.

So how much house can you really afford? To find the solution to this equation you first need to create a simple budget. You need to realize how much money you make and how much money you spend in a month. Be very realistic in your budget amounts. If you know you can’t live without the $400 entertainment budget then include it, you don’t want to buy the house and the realize you don’t want to give up your daily coffee habit for a house.

The nationally syndicated radio personality Dave Ramsey will tell you not to spend more than 25% of your income on your house paymnet based on a 15 year fixed mortgage.  Others will argue you can afford more but all of these numbers are based on opinion and averages. Your personal situation may be completely different.

When you are calculating how much house you can afford don’t forget some mandatory items that come with a house. Items such as home owners insurance, property tax, maintenance and repairs, increased energy bills may skew your numbers quite a bit

This in turn means that just because you can make a rent payment of $800 per month doesn’t mean you can make a house payment of $800 per month. As I just mentioned there are many other expenses that come with home ownership be sure to include these in your budget.

Don’t stretch yourself too thin just to buy the house. Some people may try to tell you to buy the most expensive house you can afford even if it means some sacrifice. Your salary will soon increase and the payment stay the same so it will get easier with time. This just doesn’t prove to be true. Don’t try to predict the future, only buy what you can afford.

Before you purchase your new home carefully consider all these tips. Forclosuer is a very nasty process so don’t take a risk you really can’t afford. Know your finances inside and out before you sign the lines on the home mortgage!

Could renting be a better option than a mortgage?

About a year ago my wife and I decided to purchase an acre of land to build a home. We currently live in a three bedroom 2 and 1/2 bathroom home with an almost finished basement. It’s plenty of room for our family of four, but we wanted to have more land than .125 acres.

My best friend also decided to build a new home too, and is currently renting a 3 bedroom 2 bathroom house. They too have a family of four and he tells me it’s plenty of room to accommodate all their needs. They only have a one car garage, but we most people use their garage for storage anyway.

Their rent is about $600 less than our house payment. Our new house payment will probably be several hundred dollars more than our current payment. Do we really need a house that nice, do we need a house that big? The obvious answer is no, and it would even be more financially smart for us to rent a house for $900 – $1000 per month.

We always hear it’s better to own a home than waste money paying someone else’s house payment, but is this really true? I’m sure there are certain circumstances where buying is better than renting but before you make a final decision you may want to check out all your options. There are many incentives to owning a home such as major tax breaks, but make sure the good outweighs the bad.

Another alternative is to rent a home for several years, saving the extra money to pay down on a home. The shorter term you finance the home for the more money you will save on interest. If we were to save $1,000 a month for 5 years we could pay over $60,000 down on our home, greatly reducing the amount of money we “throw away” in interest.

We are planning on putting our house on the market in the next year or so and finding a house to rent. Hopefully we can stay in the rental house long enough to save a decent down payment. We probably won’t wait the 5 years, but hopefully we will have several thousand dollars to pay down.