Rates May Be Rising. Mortgage And Refinancing Preparation Made Simple For You – Mortgage
Rates May Be Rising. Mortgage And Refinancing Preparation Made Simple For You
Jeffrey Broobin
Buying a home is probably the single largest investment most people make in a lifetime. By preparing yourself and your credit before a home purchase or refinance, you can ensure a smooth finance process and can potentially save thousands on your loan. Improve your financial profile now so you can take advantage of the low interest rates before they disappear.
Start by checking your credit
To get the best possible mortgage rate, make sure your credit history is healthy and accurate. Aim to raise your credit score above 650 in order to qualify for most prime loans.
If your credit score is not quite 650, focus your efforts on paying bills on time, reducing your debt balances, avoiding new inquiries and clearing negative inaccuracies from your credit report.
Make sure the information on your report is correct and fix any problems you discover. Give yourself 30-90 days for correcting inaccuracies. You can learn more online in the Credit Learning Center http://www.legalhelper.ws/credit-reports-online.aspx .
Found an error while reviewing your credit with the lender Ask about the "rapid rescoring" process where you can submit a dispute and potentially improve your credit in 72 hours.
Figure out how much you can afford
The rule of thumb is that most borrowers can afford a home that runs about two-and-one-half times their annual salary.
Calculate your loan-to-value ratio to see how much you can afford to borrow by dividing the loan amount by the propertys value. If your loan-to-value ratio is above 80 percent your rates may increase significantly. Find a less expensive home or save up for a down payment to lower this percentage.
Calculate your debt-to-income ratio by adding up your monthly debts and dividing by your monthly income. A debt-to-income ratio under 20-39 percent is usually considered good and will help you be perceived as financially stable.
Dont be afraid to start small. Just because you may qualify for a large loan doesnt mean that it is a smart financial decision to buy as large a home as possible. Take a careful look at your family budget and your housing needs before you decide how much you can really afford.
Be a smart borrower this summer and save thousands by preparing your credit before you apply for a loan. Find out the loan rate you deserve at Legalhelper.ws! - www.legalhelper.ws/credit-reports-online-service7.aspx.
About The Author
Jeffrey Broobin is a financial security specialist that helps people to solve their financial issues and be happy and successful within their life.
Website - www.legalhelper.ws
Email: jeffreyb@legalhelper.ws
Private Mortgage Insurance PMI – Mortgage
Private Mortgage Insurance PMI
Martin Lukac
If your down payment on a home is less than 20 percent of the appraised value or sale price, you must obtain private mortgage insurance, known as PMI, with your lender. This will enable you to obtain a mortgage with a lower down payment because your lender is now protected against any default on the loan.
PMI charges vary depending on the size of the down payment and the loan, but they typically amount to about one-half of one percent of the loan, according to the Mortgage Bankers Association of America. Mortgage insurance premiums are not tax deductible.
Example
Lets say you put down 10 percent or $10,000 on a $100,000 house. The lender multiplies the 90 percent loan, or $90,000, by .005 percent. The result is an annual PMI of $450, which is divided into monthly payments of $37.50.
Most homebuyers need PMI because 20 percent of the sale price on a home is a lot of money; for instance, thats $20,000 on a $100,000 home. Homebuyers must maintain the PMI premiums until they cross that one-fifth-of-principal threshold, a process that can take years in longer-term mortgages.
Tip
Keep track of your payments on the principal of the mortgage. When you reach 80 percent equity, notify the lender that it is time to discontinue the PMI premiums. A new law that takes effect in the summer of 1999 will require lenders to tell the buyer at closing how many years and months it will take for them to pay 20 percent of the principal to cancel PMI.
Note: The law does allow lenders to continue requiring PMI all the way down to 50 percent equity for so-called high-risk borrowers. Traditionally, those loans that are considered riskier include reduced documentation loans, in which customers provide less proof of income and other information during the approval process. Loans for people with spotty credit histories and higher debt-to-income ratios also fall into this category. Additionally, some FHA loans require payment of PMI throughout the entire life of the loan.
Ways to avoid PMI
In todays market, there are some new ways to avoid mortgage insurance even when you dont have the standard 20 percent down payment.
Pay more interest: Some lenders will waive the mortgage insurance requirement if the buyer accepts a higher interest rate on the mortgage loan. The rate increases generally range from .75 percent to 1 percent, depending on the down payment. The advantage is that mortgage interest is tax deductible.
Using an "80-10-10" loan: This program involves two loans and a 10 percent down payment. The 90 percent loan is financed with a first mortgage equal to 80 percent of the sale price, and a second mortgage for the remaining 10 percent of the sale price. The second mortgage has a higher interest rate but since it applies to only 10 percent of the total loan, the monthly payments on the two mortgages are still lower than paying one mortgage with mortgage insurance. Plus, again, there is the advantage of mortgage interest being tax deductible.
Example: If we compare the purchase of a $100,000 home under the "80-10-10" plan with a standard fixed mortgage including PMI, we find that the former is $17.45 cheaper each month.
Heres how it works. Under the "80-10-10" plan, the 10 percent down payment on a $100,000 house is $10,000. The first mortgage is $80,000 at 7.50 percent, which comes to a monthly payment of $559. The second mortgage for $10,000 has a 9.50 percent interest rate, making a monthly payment of $84. Total monthly payments of the two loans: $643.
With a $10,000 down payment, one mortgage of $90,000 at 7.50 percent has a monthly payment of $629, plus PMI of $31.45, making a total payment of $660.45.
About The Author
Martin Lukac, represents, #1 Loans USA, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more.
info@1LoansUSA.com
Wealth Creation and Mortgage Planning – Two Great Tastes that Taste Great Together – Mortgage
Wealth Creation and Mortgage Planning - Two Great Tastes that Taste Great Together
Jeff Blovits
What if I were to tell you that almost everything you have been told about what to do with your home has been absolutely wrong and that one of the worst ways to build wealth is through your home And what if I further went on to show you that anyone who perpetuates this myth probably is not your best source for accurate financial information
Most of you right now are looking at the byline a couple of times to see if this article is REALLY being written by a mortgage person. Some of you have taken this as final, unequivocal proof that all mortgage people really do sit around a big table of tea cups wearing hats with fractions on them! No you are not in Wonderland but if you keep reading you might find many of you have been for a long time now.
One of the buzzwords or catch phrases floating around the financial circles is "wealth creation." This has gained prominence due to the ability of the planner or agent to broaden their focus on overall wealth with their clients instead of just return on a particular investment. While a holistic approach is a very good one, what wealth creation strategies often lack are a defined strategy for accomplishing well, wealth creation! These plans often fail or vastly under perform because they dont properly account for one of the biggest parts of the wealth picture and thats the home!
WHAT DID HE SAY
Now thats not a typo and I didnt contradict myself from the first paragraph. You see, most people believe their home is something completely separate from the rest of their financial planning. Its this sacred cow thats over in the green grass munching away while everything else in their financial life is trying to figure out how to grow without the food it needs. The sooner people realize that EVERYTHING they do is an investment decision , the better off they will be. The implication of your decision is not simply what you obtain by your action but what opportunity you give up.
So, back to wealth creation and mortgage planning. In borrowing some thoughts from a great financial partner of mine, Brent Gilmore, we can summarize what we typically look for as far as characteristics of a good investment as:
something that earns us a good return based on our risk
is liquid if we need it
is not subject to additional restriction to access it once we have it
is not at risk of loss.
The reality is your home is absolutely not the definition of a good investment. The reasons are fairly clear if we break them down. What if I told you the MAXIMUM return you could make on the purchase of your home was 0%
Heres where we hit the rabbit hole.
First we must explain the difference between return of investment and return on investment. Return OF investment is simply getting back the money that you put in. Return ON investment is difference between the end value of your investment and the amount you invested.
Whether you pay cash for your home or pay nothing down, your home mortgage will be worth the exact same in 1 year, 5 years, 10 years or 30 years. It is true that if values keep going up you will make a positive return ON investment but that is independent of the return OF your investment. Even that fact has some doubt clouding it, but thats another article.
PAGING CHICKEN LITTLE
Now lets step back from all of the sky is falling stuff and clear some things up. Your house may well continue to appreciate in value, especially in a strong local economy like Columbus . But appreciation as I showed you above has absolutely nothing to do with return OF capital . Remember that if you bought a $300,000 house today, paid cash for it and turned around in 1 year and sold it for $350,000 you would have experienced the same appreciation as if you had put $0 down to buy the house. Your $300,000 was invested in an asset that yielded 0% during its use.
The key to this is that when you pay your mortgage you "choose" to invest the money in your home instead of in other options that could return you more . Lets Consider the consequences of not being able to pay that mortgage one day:
Will the bank give you back the money you paid on the mortgage and all of the appreciation when they sell your house in foreclosure
Will they lend you more to help you get back on your feet at terms as good or better then you have now
And will they do it without asking you to prove your ability to repay the new loan when you couldnt pay the old one
Sounds silly, but this is what happens all the time.
Now wait, you say, I have a paper that shows me that if I pay twice per month I will pay off my mortgage 8 years sooner and save $84,000 in interest! You are right, you will. BUT is it a good choice if that money that you borrowed at 4% After factoring in tax savings on the interest could be returning you more, guaranteed , elsewhere Consider other factors as well:
Are you making those payments and carrying "bad" debt like credit cards at 15%
Are you finding it hard to put in enough in your 401k to even get the match your employer offers
Are you funding the Roth IRA or the kids 529 college savings plan
We arent even touching on the implications of eliminating or reducing your tax deduction and increasing your overall tax burden.
TO PAY OFF OR NOT TO PAY OFF , THAT IS THE QUESTION
Lets look at the positive outcomes of paying off your mortgage versus keeping it.
You no longer have to make a mortgage payment to the bank every month.
You might have less to pay at retirement.
And thats about it. Now, notice I didnt say anything about the myth that you finally "own" your home. In truth you never do, you always have to pay taxes on it and it is always at risk of loss through various means including but not limited to:
Taxes
Creditors
Casualty Loss
In just about any analysis where someone is using the money that they would otherwise use to pay down the principal of their mortgage for other means of wealth creation, the other means come out ahead every time. The requirement here is to spurn our human instinct to consume and to use this money effectively.
Notice that this is the key to wealth creation. If you cant conquer that human instinct nothing else matters. What this allows you to do is to use dollars you are already spending and inject them into the system to your advantage.
The simple truth is that paying off your mortgage is purely an emotional decision that we have been trained to believe is what we are supposed to do, but if you understand the implications of the decision and can act accordingly, that choice is usually incorrect.
DONT PAY ATTENTION TO THE MAN BEHIND THE CURTAIN
Now you say, this is just a clever trick by another mortgage guy trying to make money off of me. Well, typically consumers refinance every 3 years and many times that is because they need money . But clients who have invested that money into the other elements of their financial plan are much less likely to refinance for need reasons.
People borrow for car expenditures, home improvements, college expenses, trips or to pay off that credit card debt they said they would never run up again. People who are planning for these expenses and finding tax preferred or tax free ways to fund them with the money tied up in their home have little need to make decisions based on these "needs".
OK, GREAT . NOW WHAT
There are all kinds of different mortgage products and programs that can make a consumers head spin. The important thing to keep in mind is that most of them are wrong on almost all levels. If you are looking for wealth creation a home is a great part of that plan if used correctly. That does NOT mean you go out a get an interest only ARM so you can buy a $400,000 house when you otherwise could only afford a $200,000 house.
For many families they want to invest in the college savings. They want to have more than $50,000 in life insurance that their employer gives them. They want to protect against disability or job loss. They want so many things but dont know how to find it in the pool of money that they currently have available. Does it mean they give up Often, that is the case but it doesnt have to be.
It means that you look at opportunities in the equity that isnt doing anything for you now and put it to use along with reallocating dollars you are already spending. The mortgage vehicle you use is independent of this choice and only your situation will determine which one is best for you. For most this is all that is necessary to see a million dollar or more difference at retirement. For others who are closer to an age where you will cease to earn income it is necessary to change current spending habits along with these measures.
These ideas that I have very briefly touched on are ones that need to be explored on an individual and ongoing basis with a team of financial professionals who understand how to help make this work for you. This is not one of those "plans" with steps that you can follow from a book on your own and in 20 years a golden goose lays you some precious eggs. Coordinating 401k, Roth IRA, investments, permanent life insurance, wills and trusts is something that needs much more discussion than is prudent here and frankly with people who are much more qualified to tell you than me.
It is time to think of your mortgage and your home as more than the place where you and your family make great memories. If you allow it to work as part of a total responsible financial philosophy it can be an incredible wealth booster. With so many choices in all areas of finance it is imperative that you find a group of professionals that hold those same beliefs and values. Easier said than done, I know. I know because that is exactly what we have been doing for over a year in Columbus exclusively for our clients.
This, admittedly, is not for everyone and some of you might have even stopped reading by now because you think I am obviously out of my mind. Thats ok, because changing that human instinct to hurry up and pay down a mortgage is difficult. But for those of you who have had their eyes opened, hopefully I have provided you with enough food for thought that youre starting to reconsider how your mortgage is working for you.
For more on home financing and personal financial information go to: http://www.RightWayunlimited.com. Articles, calculators, newsletters, glossaries and more for your personal financial information needs.
by Jeff Blovits , Franklin Bank SSB
p. 898-5656
Http://www.Rightwayunlimited.com - Personal Financial Information resource for consumers.
About The Author
Copyright RightWay Unlimited LLC, 2004.
This article may be redistributed provided that the author and RightWayunlimited are given full accredition.
RightWay Unlimited LLC is a personal financial information resource for Ohio consumers.
Jeff Blovits is the Branch owner of Franklin Bank Mortgage in Westerville, Ohio. Jeff is a contributing author and network partner of RightWay Unlimited. He is a financial services industry veteran with experience in banking, underwriting, and mortgage lending.
Jeff@Columbusmortgageloans.com