December 2009

What is Preapproval for a Mortgage?

So, you have decided to buy a house. You have been renting for long enough, and you want to have a place to call your own. You have been saving for years for the down payment, your credit is in good shape, and you have enough income to comfortably make the payments on a mortgage.

So, you go out and start house hunting. You see a bunch of homes, and finally, find one that you love. You put in an offer, but wait a minute – you haven’t been approved for a mortgage yet. The buyer gets a competing offer, and the other person is preapproved. Everything else being equal, the home owner is going to pick the other offer, every time.

Preapproval is simply a mortgage company agreeing, in principle, to approve you for a mortgage, up to a certain amount. What that amount is will depend on a few factors, but the important thing is, it will give you some idea of what your budget should be, and show a prospective seller that you are serious about your offer. And the next time you place a bid on a house, you will be the one whose offer looks better for doing that little bit of pre-planning.

How Much Down Payment?

In the old days, the question of how much you should put down for a down payment on a home was simple – ten percent. But these days, ten percent of a home’s value is a lot of money, and many homebuyers searching for their new home simply do not have that kind of money lying around. So if they can’t do ten percent, can they still get a mortgage?

The answer is yes. There are all sorts of programs out there to help first time home buyers, but they vary from state to state. Do your homework, and find out what sort of incentives are available to you. There may be programs that allow you to borrow some of your down payment from other sources, or a lower limit in place for new home buyers, possibly as low as five per cent.

There are downsides to these programs – usually financial ones. Lower down payments mean higher home costs, which mean higher mortgage payments over longer periods of time. Do your research, and balance the savings available in down payments against future costs very carefully.

Fixed or Adjustable?

If you are looking for your first new home and are reviewing mortgage materials, you might be wondering if you should sign up for a fixed rate mortgage or an adjustable rate mortgage. Which one makes the most sense?

A fixed rate mortgage means that your rates are fixed in place for the length of the mortgage. So, if you think that the rates that are being offered now are likely to be the best possible rates over the next few years, you would want to lock in at a fixed rate to take advantage of those lower percentages. Of course, if the interest rates drop drastically, there is nothing you can do, and you will be stuck paying the higher rates.

However, if you feel that the current rates are too high, and you have reason to believe that the interest rates will go down some time in the near future, then you might consider an adjustable rate mortgage, which lets you move with the market. But remember, if the market moves the other direction, the holder of an adjustable rate mortgage could find their rates and monthly payments skyrocketing out of control.

So which one is best? Call me today and I’ll help you decide based on your situation.

Don’t Miss Out On Extended Tax Credit

I’ve mentioned this before, but I want to make sure that anyone interested is aware in time to take advantage of this great opportunity.

Basically, as part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that…

• Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
• Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.

So here are the basics on how this Extended Home Buyer Tax Credit can help you become part of the American dream:

1. To qualify as a first-time buyer you must not have owned a home during the past 3 years (this includes your spouse as well). To qualify as a current homeowner you must have lived in your home for 5 consecutive years within the last 8 years.
2. The price of the home cannot exceed $800,000.
3. As a single buyer your income cannot be over $125,000, and as a married couple your income cannot be over $225,000.
4. As long as a written binding contract is in effect on April 30, 2010, you will have until July 1, 2010 to close.
5. You don’t have to repay the tax credit as long as you live in the home for 3 or more years.

If you have additional questions feel free to contact me, or visit the IRS website at the following link:

http://www.irs.gov/newsroom/article/0,,id=204671,00.html

Time to Expose and Debunk Refinance Myths

Many times, what we know about refinancing (and mortgages in general) comes from what our family, friends, and coworkers are continually telling us. While it’s a good idea to seek advice from people you trust, be careful to avoid outdated information and, more importantly, information that is wrong altogether. The housing market is always changing, increasing the need to find the most accurate information as possible. Here are some of the most common misconceptions to look out for:

1. You should refinance if rates drop 2%

For one thing, you could end up paying more in fees and closing costs than you would have spent by sticking with your original loan. Some mortgage companies will offer to “fold in” the closing costs so you owe nothing up front, but keep in mind that you’ll be paying interest on the folded amount during your loan term.

If you are already 10 or 20 years into your 30-year mortgage, refinancing to another 30-year loan will obviously only increase your costs. On the other hand, if you plan on being in your home for a long time and need more flexibility in your budget, then sometimes you don’t even have to wait for a 2% drop in order to save money.

2. Refinancing always saves you money

The typical reason for refinancing is actually to lower your monthly payments, which involved stretching out your loan term. While this does save you money in your monthly budget, sometimes you can end up owing more in the long run.

3. You don’t need to refinance if you just double up on your current payments

This can sometimes be a smart move, but only if you understand the conditions of your current loan. For instance, some loans carry a prepayment penalty, meaning you will be charged for paying off the loan faster. In this case, you would want to refinance to a shorter term and hopefully save a little extra money on interest in the process.

4. Refinancing to consolidate debt is always a good idea

While consolidating debt can make it easier by making one low monthly payment, it can also mean freeing up credit so you can rack up even more debt. Many consumers are looking for the simple way out by creating one big pile of debt. However, if you are not ready to change your lifestyle by backing off spending and focusing on eliminating current debt, you could end up with way more debt than you originally started with.

5. If you can afford it, a 15-year loan is always better

Before you refinance into a 15-year mortgage in hopes of saving money over the long run, remember that you can’t always predict unexpected expenses in the future. For example, having a major medical emergency has been know to bankrupt savings accounts across America. So it might be smarter to take out a 30-year mortgage (making sure there are no prepayment penalties) and then pay it off in 15 years.