Home Loan Focus

Archive for the ‘financing’ Category

If you are looking to buy a house this year, think about buying a house that you can afford.  Here’s a simple will rule to follow when considering just how much you can afford.

Do not go by what the bank tells you that you can afford — the bank makes more money if you buy a bigger house, so you simply can’t trust them.  Be your own advocate.

If the bank tells you that you can buy a $300,000 house, buy a $200,000 house.  As a general rule of thumb, shoot for a value that’s about 65% to 80% of what the bank tells you that you can afford.  Alternatively, if the bank tells you that you can afford a house over $400,000 in value, consider spending less just so that you don’t have to spend money on something you do not really need.  Warren Buffett, one of the richest men in the world, lived in the plain House in the suburbs driving a 20-year-old car for many years without having to go out and purchase a house that he could “afford”.

It is definitely tempting to go out and purchase as big of a house as you can afford, and who wouldn’t want to live in a mansion or at least a Mc-mansion.  But remember, you have to pay the bill, the entire bill and not just a single monthly payment from time to time, so consider what you are really getting into here. 

• Do you really need to spend a half million dollars on a house? 
• Duty to spend $300,000 on a house? 
• Could you be perfectly happy living in a house that cost $200,000, $100,000, or $80,000?
• Would you be happier living in an apartment, not a condominium but an apartment at someone else owns?

The great American dream is to own a home.  The great American dream is not to purchase a home.  Purchasing a home is not owning a home there is a distinct difference.  When you finance a home and purchase it, you do not yet own that home.  Making the purchase of a massive McMansion, is not achieving the American dream, and it might just lead you into the American nightmare of foreclosure.

So be careful with your money and your finances and don’t just go purchase a home because you can, because a bank allows you to make that purchase, like a dealer in Vegas would allow you to place a bet.  Because that’s what you’re doing when you purchase a house, you were betting on the value of that house and you are betting on the ability of your self and your wife to pay for that house every month until you finally do Own that house.

Car donations

as a side note I like to mention a charitable organization that accepts a car donation, so that they can use the money and the proceeds from selling those cars to make videos for kids.  The organization has some admirable goals, and for some people it’s just too difficult to get rid of that old clunker in the front yard.  This could be one way that you could do it and you could be helping some other kids when you get that eyesore out of your front yard and make your home a little more appealing for sale.  If you have the time, I recommend that you sell the car yourself and just donate cash if you feel like donating the cash.  However, the donation of a car could save you some time and effort and might be a little less hassle when you have other things to take care of. 

The history of renting property may possibly go back as far as the history of buying or owning.  Over the last few years, many many more people that would historically rent a home have been purchasing homes or condos.  For some of these people this has been a great opportunity.

Credit was easier, sub prime mortgages were easier to qualify for and some of these people had the resources financially to make the purchase work.  For some buyers, easy credit was a trap and the easy credit may have set them back more in time and credit ratings than if they had followed a traditional route working their way up through rentals first  until their finances were strong enough to buy.

During the credit boom and real estate bull market, many people completely forgot about renting as an option unless they lived in Manhattan or were looking for nyc apartments for rent with New York’s notoriously high property prices and rent control pricing opportunities.

So now Sub prime and the mortgage companies that offered them are at some of their lowest points ever.  Credit has dried up considerably and people are looking to rent again, not by choice but by necessity.  Along the way they might even learn that renting can be the right financial choice for their future as well.

Quicken Loans offers up a short and somewhat useful article detailing how the recent Federal Reserve’s Rate Cut might impact your mortgage.

Now, I personally do not trust Quicken Loans as they once promised me a rate on my own home refinance.  I locked in at the rate and 2 weeks before the close they called to tell me that it was no longer possible unless I paid a higher interest rate.  They offered up excuses that were unprovable, but the reality was that it was either their way or the highway. 

I chose the highway and refinanced with Wells Fargo instead!

Regardless, their short article Does the Fed rate cut affect your mortgage rate? offers up the examples necessary to understand how the Federal Reserve Rate Cut a can impact your finances ( a little ) both positively and negatively.  The article is not likely to save you a fortune this year or even save your house from foreclosure if you are in trouble, but understand the situation might save you enough money to buy a truck rack on clearance from an after christmas sale.

The key concept to understand is that the Federal Reserve has the ability to impact short term interest rates.  Here are some loans that may be impacted in the short term:

Credit Cards
Adjustable Rate Mortgages (ARMs) – under 7 years, even more if 3 or under
Home Equity Lines
Some (but not all) Student Loans
Your Savings Account rates
New Vehicle Loans – Ergo new loans that you take out as opposed to the loans that you already have.
Other Lines of Credit – such as Overdraft Protection

Can you live in a diamond ring?  Can a diamond ring keep you or your kids warm and dry?

The answer is no.  So why would you waste money on a Christmas gift this year that does you no good?

I’d suggest that instead of wasting money on diamond rings, you should consider doing one of the following things that will actually help you protect your biggest investment, your home.

Quite simply, make an extra house payment this month.  Save the money on presents you do not need and drop a grand or two on your house.  This is good for your own finances as it increases your equity, reduces your total interest expense and helps the US economy by putting money in the sector of the economy that needs it the most right now.

If you are not sure about your own finances as you look 3-9 months into the future, then take that same couple thousand dollars that you might spend on Christmas and park that money into a 3 month CD.  Renew that CD every 3 months, and if by chance you come up short for your house payment, this becomes your financial reserve for a rainy day.  It might just save you from foreclosure.

Similarly, if you want to help your finances tremendously, pay that money towards your credit card debt, do not spend any money on your credit cards and reap the rewards.

Here’s another great video in the series from Money Talks News offering ways to reduce your mortgage fees by pitting them against each other.

The key here is to stop and take time to go over the paperwork, one page at a time.

We are kicking off a new site to to focus on home loans. The real estate market in the mortgage market are in a slight state of turmoil, and it’s even more important now to pay extra attention to that market, what’s going on in the industry, and what is right for you when you purchase a home and take out a loan or mortgage.

We are going to walk through this process, a look at best practices and new trends and figure out the best way to navigate the real estate and mortgage markets today. I will be walking you through my attempts to finance a home and sell my current home. In addition to my firsthand experience, I have a double major in finance and accounting and a Masters in international tax law. I have also completed required courses to sit for the real estate exam in multiple states even though I don’t work in that industry and have not sat for the exams.

My family has worked in real estate for close to a 60 years and through indirect experience from the family business I have additional perspective. I sold my first home was 10 years old, and I financed my first home I was 24. neither of those achievements are extra impressive today in the age of the Internet and the real estate booms, however the industry is tightening and starting to revert back to controls and mechanisms that have been ignored for the last 10 to 15 years. Current homebuyers need to be aware of the change in the industry, and the practices and policies of the industry if they are to navigate their way through the markets and make the best deals on their own behalf and avoid the pitfalls that come with being overextended and a mortgage or a home in a market where credit is contracting.

We’re hoping to gather your insights and questions and share our experiences along the way!