Personal Mortgage Articles

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.

Lock in an interest rate for a home loan

It is important to lock in your interest rate at the correct time. Good timing on an interest rate lock can save you thousands of dollars. Interest rates change daily so the longer a lender locks in a rate, the more risk that they have the market will move against them. Therefore you will have to pay extra to have a lender lock in a rate for a longer period of time.

Still wondering what it means to lock in an interest rate? When you lock an interest rate you are guaranteed to get that rate no matter how the market performs. If you lock an interest rate in today that’s good for 45 days then no matter how much interest rates rise you are still guaranteed the lower rate.

It would be a good idea to lock in interest rates if the trend in interest rates is rising. This will give the lender time to close the loan without worrying about rising rates. If the trend is down you would want to float your interest rate to take advantage of falling interest rates.

Finding the right time to lock a rate is a game. Even in a stable market it’s a risk to not lock a rate. Because of the highly volitle market interest rates can rise drastically even in the course of a day. Paying the lock fee will ensure you have ample time to close the loan and not have to worry about a drastic rise in interest rates.

Streamline FHA refinance

So about two weeks ago I got a letter in the mail from a finance company offering a new low interest rate on my home FHA home loan. I should hurry and take advantage of the new low rates and drop my interest rate from 6% to 5% with no out of pocket money. Because of the recent Obama stimulus package many new options are now available to help save money with home loans, including a streamline FHA refinance.

At first I was very skeptical. I have never heard the term streamline FHA refinance before so I had to do a little research. After just a few minutes and several website articles I realize streamline loans are a totally legit way to refinance your home loan.

Your loan must meet a few guidelines before it’s eligible for the refinance.

1. The loan must already be insured by the FHA.
2. You have to be current on your mortgage payments with no late notice.
3. The refinance must lower your interest rate and monthly payment
4. No money can be received back to the borrower as a result of the refinance.

I contacted the company and started the process. The entire process was very simple and only required verification of employment, copy of our drivers license, social security numbers, and home owners insurance. We closed the streamline loan in less than 10 days. The underwriter even came to our house to sign the loan papers.

The only negative thing to say about the whole process was about $1,500 in closing costs due to the lender which wasn’t ever disclosed during the process. However, this is much lower than any other home loan I have every closed. Our escrow account even transferred over so that money wasn’t due at closing. The $1,500 was rolled into our loan so there was no out of pocket money due at closing. We lowered our interest rate 1% and our monthly payment decreased by $135. We should recover the closing costs in less than one year. Best thing about the streamline loan is that if the interest rate dropw another percent we can do the process again!

Stimulus package provides $8,000 tax credit for first time home buyers

The final version of the new stimulus package for 2009 includes an $8,000 tax credit for first time home buyers. Although many believe this tax credit won’t provide any immediate stimulus to the economy or fix the housing situation it’s still something to consider.

The original stimulus package proposed a $15,000 tax credit for anyone who purchased a home this year. Last year a $7,500 tax  credit was allowed for first time home buyers, but the money has to be paid back interest free eventually. This new tax credit is completely free to first time home buyers.

If you have been thinking about buying a home this is definitely the time to buy. Home mortgage interest rates are close to an all time low, home prices have plummeted over the past year, and now an $8,000 tax credit. It makes me wish I hadn’t purchased a home until now! Take advantage of this wonderful offer and consider purchasing a home this year that you can afford!

Should you be paying less property taxes?

Can there actually be a bright spot in the current housing market? Home values in many areas have plummeted in recent months leaving many families with little or no equity in their homes. There is also no end in sight from this recent disaster. It appears that we may still be in the beginning phase of the housing crisis.

With all this said there may be a small advantage of the crisis for some people. Property taxes are based on the accessed value of your home and if the value of your home is decreasing then so should your property taxes. Now, the PVA or property valuation administrator isn’t just going to give you a discount on your property taxes, you are going to have to do a little work.

First, you have to be sure that the value of your home has actually declined. We realized this when we tried to refinance our home for a second mortgage to pay a down payment on some land we intended to purchase. After getting the appraisal back we realized that our home wasn’t worth as much as the PVA had it valued. It may not be worth paying for an appraisal because this can cost several hundreds of dollars, but with a little market research you can get a good idea of how much your house is worth.

You may want to consider doing your own detailed appraisal on a spreadsheet to help sway the PVA’s opinion. Include other home values that are comparable to yours, take detailed photos of your home and other surroundings. Try to find recent home sale prices in your neighborhood and compare them to your home based on the square footage, age, etc.

The next step is to contact the PVA and let them know your concern. They still aren’t going to automatically adjust the value of your home based on your findings. They will review the information you give them and then reevaluate the value of your home based on their own apprasials.

If you still disagree with their findings then you can probably take legal actions and have the situation accessed by an independent review board. This however can start costing a lot of money, but if you are overpaying taxes by a large amount it may be worth the extra cash.

Tax deductions from mortgage interest

Every year millions of Americans buy a home for different reasons. Home ownership creates a sense of accomplishment and pride. The IRS also offers another benefit of buying a house. Home owners can deduct the interest paid and points paid on the home mortgage each year from their income, in return reducing their tax bill at the end of the year.

Every payment you make on your home mortgage reduces the amount of interest you pay and increases the amount of principal you pay. So each year the deduction gets a little smaller but it’s still WELL worth the deduction. According to the IRS all interest you pay toward your home is tax deductible up to 1 million dollars.

You also get to deduct any points you pay toward closing of a home loan. Sometimes home buyers pay a fee at closing called points. This is basically paying a percentage of the home loan up front in order to get a lower interest rate. These fees are fully tax deductable when you file your taxes. You may also include points paid toward a refinance and home equity loans.

If you are thinking about buying a home now is a great time to invest. Interest rates are very low and the values of homes have greatly decreased. You will also enjoy a great tax break from the government over the life of your loan.

Is a biweekly mortgage right for me?

A biweekly mortgage is a payment system setup through your lender or another third party company. Mortgage payments are made every two weeks instead of once per month. The end result is that you pay one extra payment per year saving you thousands of dollars in interest per year. Many of the third party companies will charge you a setup fee as well as a monthly maintenance fee to use a biweekly payment system. You can do the same thing yourself, but it requires a little discipline. So is a biweekly mortgage right for you?

If you have a loan for $200,000 on a 30 year fixed rate of 6.5% then you will pay out $255,085.82 in interest if you pay only the minimum payment. By setting up a biweekly payment plan you will pay out $194,430.48 a savings of $60,655.34. You will also pay off the loan almost 7 years early. This assumes that you don’t have to pay a setup fee and you are not paying a monthly service charge for setting up biweekly payments as I mentioned earlier.

It’s still true that you will save money and pay off your mortgage quicker even if you use a third party company to setup biweekly payments and pay a fee, but remember you can do this yourself. Just pay 1/12 of your payment extra each month or an extra payment at the end of the year and you’ll get basically the same result. So to answer the question I think paying off a mortgage quicker and savings thousands of dollars is for everyone!

Pros of a conventional mortgage loan

A conventional mortgage loan is a type of home loan that meets certain standards set by the United States government. These type of home loans however are not guaranteed or insured by the government. conventional loans are basically any loan that is not an FHA loan or a VA loan. About 35% to 50% of mortgages each year are conventional mortgages.

Conventional mortgages allow for more financing options over VA and FHA loans. Fore example not only do they offer fixed rate mortgages but there are also various adjustable rate mortgages (ARM) and biweekly payment options available.

Because conventional loans have less strict guidelines they offer many other advantages such as underwriting flexibility, cheaper loan fees, less collateral, more lenient appraisal guidelines, and possible lower closing costs.

If a lender decides to keep the loan in their own portfolio they can offer more underwriting flexibility. Since the loan won’t be sold in a secondary market those guidelines won’t have to be met. This makes getting a loan easier with less than perfect credit.

Lenders may also discount certain loan fees or even waive them in certain cases. Since the lender will be keeping your loan they may discount loan fees in order to get your business.

Conventional loan lenders will sometimes let you use other items in the house as collateral. For example including appliances and furniture may be an option.

FHA and VA loans require strict appraisal guidelines. Conventional loan appraisals are much more flexible and only have to meet the lenders restrictions.

Finally, sometimes lenders will pay a portion or all of the closing costs of a conventional loan in exchange for a slightly higher interest rate. This allows someone who doesn’t have a lot of cash on hand to still purchase a home with less out of pocket money.

As you can see there are many advantages to conventional mortgage loans. Before you decide which type of loan to choose review all of your options. Everyone has a different financial situation so a conventional loan may not be your best option. Research other types of loans before making the final decision.

Be smart when you refinance your home

It may sound tempting to refinance your home loan now that rates are low, but is it really the smart thing to do? Before you make the final decision to refinance your home be sure to do all the calculations carefully. You could actually end up losing money on a home refinance.

When you refinance your home there are many fees involved that must be considered along with the lower rate. There are many fees that are mandatory before you can close the refinance loan and these little fees can add up to a large chunk of money at the end. Typical refinance fees include: application fee, title search and title insurance, appraisal fee, survey costs, hazard insurance, attorney’s fees, home inspection fees, loan origination fees, mortgage insurance, prepayment fees, flood certification, interim interest, and discount points.

An application fee is charged by the lender which covers their cost to process the loan. Usually this fee is paid up front and ranges from $75 to $300. Most lenders apply this cost to the final loan. Usually this fee is non refundable even if you are not approved for the loan.

A title search is required even though one has already been performed on the home. A title search is a review of the historical record associated with the property. This includes items such as property and name indexes, deeds, court records, etc. The lender does a title search to ensure that the buyer is purchasing a house from a legal owner and there are no liens against the home. In the case of a refinance loan they want to make sure you own the home and they are aware of any outstanding liens or loans on the home. 

The lender needs to perform an appraisal fee to make sure the value of the home will stand good for the loan amount. Today many lenders will only loan an amount equal to 80% and 90% of the home value. About a year ago many lenders would loan over 100% of the home value, but times have changed. For example if your home is appraised for $200,000 then a lender who lends 90% of the value would only loan $180,000 toward the home. This means if you owe more than $180,000 then you could not refinance the home. Typical appraisal fees range from $150 to $400 and vary based on the value of the home.

Sometimes lenders require a survey on the property before you can refinance a loan. This is to make sure you have not crossed any boundaries of the property while you have lived there. This cost can range from $200 to $400 depending on the size of the property.

Hazard insurance costs are included in closing costs. It’s mandatory to have hazard insurance on the property before a loan can be acquired. Most lenders requrie these to be prepaid thus they are included in closing costs.

Attorney’s fees must be paid at closing to cover any work the attorney does for the loan. Usually these fees range from $50 – $200.

Sometimes lenders a new home inspection before you can refinance the loan. This is to make sure the home is still in good shape in case you were to default on the loan. Home inspection fees usually range from $150 to $400.

A loan origination fee is a fee charged by the lender for preparing, evaluating and submitting a proposed mortgage loan. Most of the time these fees are expressed as a percentage of the loan amount.  A typical loan origination fee is about 1% of the loan amount.

Mortgage insurance or PMI is usually required by lenders if you need a loan for more than 80% of the homes value. This can be charged on a monthly basis or as a lump sum at closing. If it’s paid in closing it’s typically 1/2% to 1% of the loan amount.

A tricky fee that is often overlooked is a prepayment fee. If you pay off the loan before the end of the term you will be charged a fee. This fee can vary by states but should always be presented to you at closing.

A flood certification fee is a small fee, usually less than $50. It’s required by most insurance companies to ensure the home is not in a flood plain.

Interim interest is the amount of interest that has accrued from closing date until the end of the month. This can be a large sum if you close at the first of the month.

Finally, discount points is a percentage amount that is typically 1/2% to 1% of the loan amount. This fee is used to reduce the interest rate of the loan. This varies by bank but an example would be paying 1 point (1% of the loan amount) to reduce the interest rate 1/4%.

As you can see there many fees associated with closing a loan. Be sure that these fees don’t add up to more than you will save over the time you expect to keep the loan. Just because you are getting a smaller monthly payment doesn’t mean you are actually saving money!

Now best time to buy a home

Thinking about buying a home? Now is the best time to purchase a home. Home values have plummeted in the past few months, forcing millions of Americans out of their homes. Some have lost their homes because of poor financing mistakes other because they have lost their jobs. Many families now owe more on their homes than they are actually worth. Some can’t even sell their homes because they wouldn’t make enough money on the home to cover the mortgage balance.It’s a sad case for millions, but if you are one of the lucky ones whose financial situation hasn’t changed because of the struggling economy, then now is probably the best time ever to buy a house.

Over the past few months home values have took a major decline, bad for home owners, but very good for someone looking to purchase a home who doesn’t already have one. Not only do you have your choice of home, but you also have a lot of power when it comes to buying a home. Many homes are for sale by banks and mortgage companies who are looking to liquidate their assets as soon a possible and are willing to take pennies on the dollar to get rid of the homes. Other families are faced with foreclosure and are willing to take a loss on their home in order to save their credit. Others may have already purchase another home in hopes of selling their current home only to find the demand for housing has greatly decreased, leaving them stuck with two mortgages. No matter the case now is a great time to find a deal on a home.

Before you make any offers, shop around for the best deal. Also make sure you can afford the house you are looking to purchase so you don’t end up in the same situation as the person you are buying the home from. Take advantage of a down market and make a smart investment!