September 2009

Choosing the Best Loan For You

A home mortgage will probably be the largest financial commitment you will ever make. So shopping for a home loan means finding the right mortgage package – one that is the best for your financial needs. This can be a total nightmare, so make sure you are working with a lender you trust and can communicate openly with.

Overall, there are four main elements of your mortgage loan:

• The principle is the capital amount you are borrowing. This is the purchase price less your down payment.
• The interest is the fee that the lender charges the borrower, for using his money. This is computed as a percentage of the sum borrowed. The rate can be fixed or variable during the life of the loan.
• An escrow account may be used to keep your property taxes safe until it is time for payment.
• There are two types of insurance. Homeowners insurance in case the property is damaged accidentally, and private mortgage insurance, which may be required by some lenders if you do not have a twenty percent down payment.

Loan Types

As I mentioned above there are two major types of home mortgages: fixed and variable. But there are many diverse home mortgages, depending on the length of time you plan to live in your home.

If you are planning to live in your home for more than ten years, and want total constancy of payments, it is best to choose a fixed rate, this can be for 10, 15, or 30 years.

If you are planning to move within ten years, but want the loan to stay in force, just in case your plans change, or want to live in your home for ten years, but like the idea of payment stability to start with, but can accept changes later, you can choose a 10/1-year adjustable rate mortgage. This means the interest rate and monthly payment stay the same for ten years, and can be adjusted each year afterwards, for the term of the remainder of the loan.

If you are planning to live in your home for more than ten years, and can accept one change of payment, or you plan to move within seven years, but want the loan to stay in force, just in case your plans change you can choose a 7/23 or 30 due in 7 mortgage. This means your interest rate and monthly payment stays the same for seven years, but in the eighth year the rate is changed to reflect current interest rates. This will then be fixed for the remaining term of the loan.

There are many other options including one-year adjustable rate mortgages where your monthly payment is subject to modified every year, for the whole term of the mortgage. What ever you choose, make sure you are comfortable with the payments after considering what your future may hold.

Beware of Losing Your Home with a Failed Home Equity Consolidation

No one likes to deal with credit cards and the high interest rates that many of these cards yield, so you might be looking for other options to deal with excess debt. One of the best ways to do this is to take out a home equity bill consolidation loan since this type of loans come with a much lower interest rates than the credit cards.

Of course, that brings up the question, “Why do these loans have lower interest rates?” It’s pretty simple. It’s because you have to put up your home as collateral. Now, it should go without saying here that this could become a potentially dangerous position for you if you do not take proper fiscal responsibility once the loan is executed. After all, a disaster in this avenue could lead to losing your home.

If there was a sage piece of advice I could give about this particular decision, it would be that once the balances of your credit cards are at zero then the cards should never be touched again. Once the home equity loan option has taken care of the immediate financial needs, it should be enacted or else the results could be negative.

Keep in mind if debt skyrockets out of control once again and the inability to pay becomes a reality then your home may very well be foreclosed upon. Needless to say, this would be a disastrous situation. So the use of a home equity loan should be done to facilitate a new leaf as opposed to the support of bad habits.

Goals Toward Homeownership

Owning a home has long been a primary goal for most people. And the good news is that homeownership has become more available in the past twenty or thirty years. So if you dream of owning your own home, I’d like to share some smaller goals you can work on to achieve it:

Organize. Start right now setting money goals and devise a plan to reach them. First of all, you are going to need some cash for a down payment. Go to http://www.hud.gov/buying to learn more about how to buy a home. Use HUD’s Housing Counselors to help you manage your money, learn about credit, and answer any questions you will have. There is even a federal site that will provide tools and materials to help you have a better understanding of money and economics at http: http://www.federalreserveeducation.org.

Watch Spending and Savings. When I tell you to put a little money aside every month, I know it’s not easy and that you will have to make difficult choices. But you need to keep your eye on the prize. Educate yourself about compound interest. You can even educate your children to be savers by helping them understand that investing a little can bring them a lot. Http://www.mymoney.gov gives the basics of financial education.

Elevate Your Credit Score. If you want to buy a house or do much else in life, you need to be concerned about your credit. You’re not going to be able to get financing for the house you want if you have a bad credit record, so go to work on it right now. Go to http://www.annualcreditreport.com to obtain your credit score. Learn the ABCs of Homebuying on http://www.hud.gov/webcasts/archives/homeforall.cfm. For information about credit scores and reports, go to http://www.homeloanlearningcenter.com.

There are a lot of people who are willing to help you realize your dream of home ownership, but they can’t do this for you. Get yourself organized and go to work aiming for your dream home.

Recommendations for Rental Property Investors

There are many advantages to owning rental property, including the tax advantages you can enjoy while the mortgage on the property is being paid down. If you manage properly, you can take that rental income tax free all the years you are paying off the mortgage. Then when the mortgage is paid off, the property is yours free and clear.

You can also pull out tax-free money if you refinance after the property has appreciated and interest rates have fallen. If you sell the property and reinvest the money in another property, you may be able to avoid paying taxes on the sale.

But even with these advantages (as well as the many others) this kind of investment can turn into a disaster if you don’t take some precautions:

Expectations. Keep them reasonable. Positive cash flow is one thing; purchasing a new Mercedes by year’s end is another. If you don’t control your expectations, you may be tempted to push rents too high in which case, you’ll probably lose your tenants. Your rental rates must be realistically competitive.

Your Contribution. If you’re a handyman and are prepared to do a lot of work, you’ll probably get along fine. If you’re not, you’re going to have to consider hiring a property management firm, which has to be figured into your outgo-income ratio. For some people, the income may not be so attractive if they have to take on another full-time job to get it. Most property management firms will take this over for a percentage of the rental.

Rules and Regulations. You have legal responsibilities and liabilities, and ignorance does not qualify as an excuse for failing to abide by them. You need to do some reading. It’s better than spending that time (and more, probably) in the courtroom.

Property Inspection. Have this property inspected before you buy it. It will cost a little and very well may save a lot.

Leases. Make certain they are legal. It’s very difficult to sue a tenant for a violation if the requirement is not in the lease.

Check out Your Renters. Take your time to be sure your prospective renter is not a deadbeat. Check him out. Run references and credit checks. Go by the place he’s living now; you may find some valuable information about how he’ll treat your property.

Insurance. Make certain you have the right kind. Find an insurance professional you can trust to help you work out your package.

Emergency Fund. There will be unexpected expenses-you can count on it. An emergency fund of 20% of the value of the property is a good rule of thumb. If you can’t do that much, do something. Take the income from the property and get it invested in this fund before you spend any of it.

First Time Home Buying Credit Almost Over

If you are interested in buying your first home, you may not want to wait any longer. The end is in sight for the $8,000 first time home buyer’s credit offered by the Federal Government. It will officially end on December 1, 2009 and your home must be purchased and closed on or before that date.

Basically, now is the time is now to stop the the “wait and hope pricing gets lower” attitude as transactions are taking anywhere from 45 to 60 days to close.

If you have not already been pre qualified and pre approved, feel free to contact me and I’ll help you submit the necessary paper work, even if you don’t have a property that you have picked out. This credit is an extraordinary deal and not one that is likely to come around again.