Flipping Houses – Easy as it is on TV?

I’m sure you’ve seen a few programs on TV about flipping houses and making big profits because there’s quite a few now. Is it as easy as it looks? Can anyone do it? What’s the process they go through to buy it and sell homes for such big profits?

It’s definitely not as easy as it looks. They put a lot of work into making as much money as they do on each and every flip.

Finding the Home

Even before buying a home it takes time to find the “right” home to flip. They like to find homes that have a lot of damage to the inside but NOT the structure of the home. The structure will cost big money to fix and it’s not very noticeable to other buyers. Things like holes in the walls, paint, floors or rugs, ceilings and landscaping are good things to find wrong with a home. 

If it’s your first time flipping a home you should walk through it with a contractor or home inspector to make sure you don’t make the wrong decision. It would obviously help to have some carpenter experience yourself but it’s not needed.

Buying The Home

Once you found one that you want you need to negotiate the price and try to get the best deal possible. Every $1,000 off will increase you profits in the end by $1,000. The seller knows there’s a lot of work needed so they’ve probably priced it accordingly. You’ll need to do some research to figure out what the home is selling for in good condition. If it sells for $250,000 in good condition and you can get it for $170,000 then you have plenty of room to work with.

While you’re going through the home write down EVERYTHING you want to fix before selling it on the market. Then make a few phone calls to get an idea of the costs you’re going to have after buying it so you know if you can make money on this flip or not. Then you can try to cut costs later when you own it.

Home Improvements

If you’re borrowing power is high enough you can get a personal loan for the home improvements you want to do. Use a mortgage calculator to figure out the monthly payment for the amount you need and see if you can afford it.

Then you want to get at least 3 quotes for each project so that you can figure out the best price and the contractor that you trust the most for future projects. Find the cheapest price but be sure they do the best job and get all the legal permits that are needed with the city.

Finding A Real Estate Agent

You’ll want to check the real estate percentage that’s being taken out of the final price because if you can negotiate 1% off then you’ll save $2,500 on a $250,000 home. All numbers dealing with real estate are very big so the final profit can be anywhere from $10,000 to $100,000 depending on negotiation in buying the home, selling the home and all renovations that need to be done. Save anywhere you can!

Selling Your Home

Make sure you keep an excel sheet of EVERY cost you have during this process to see what the final profit will be. The cost of the home, interest payments along the way, taxes, insurance, closing costs, renovations and real estate fees when you sell it. That way you know the number you can’t go be low in order to make a profit.

Also keep track of ALL your hours spent on flipping this home from beginning to end so that you can see your rate per hour. If you end up making $20,000 profit and you spent 50 hours of your time on it then you got a massive $400 per hour! Sounds worth it to me!

The great thing about flipping a house is that you can do it while you still have your day job. It might take slightly longer because you work during the day but you can still make the phone calls and appointments after work if needed.

Make sure you look at your debt to income ratio, borrowing power and different types of mortgage loans available. I offer plenty of advise on each and every loan on my blog and website, show you how to figure out your borrowing power and debt to income ratio and show you how a mortgage calculator can help you save money on your mortgage.

Knowledge Will Save You Thousands
The Free Mortgage Calculator

Should I Get A 40 Year Fixed Rate Mortgage If That’s All I Can Afford?

If you’re unaware, there is a 40 year fixed rate mortgage nowadays in case you can’t afford the monthly mortgage payment over 3o years which is just crazy to me. If you cannot afford a home over a standard 30 year mortgage keep looking for something you CAN afford. Keyword… AFFORD.

This society is starting to make me sick! People just blame mortgage companies for the debt crisis when WE are taking on credit cards we can’t afford, homes we can’t afford and of course cars that we can’t afford. Why? So that we can say to our friends “look at this car” and brag about it. When it comes down to the monthly payment you’re about to take on whether it’s a credit card, mortgage or car YOU are the one who knows if YOU can afford it.

Why do banks even need an approval process? So you can sneak into a bigger home that you can’t afford and then blame them later on when you get foreclosed on? Suit yourself…

Now, a 40 year mortgage loan is one that last 10 years longer than the 30 year fixed rate mortgage so that your homes value is spread out for a longer term that creates a smaller monthly mortgage payment. Great right? Well, I say that NO ONE over the age of 25 should be able to get this loan beacuse they will be retired in exactly 40 years. So if you’re 35 and want a 40 year mortgage do you plan on working until you’re 75 years old to pay it off? Are you planning on paying down the mortgage with extra principal payments each month? Are you planning on getting another job to pay it off in 30 years rather than 40? I don’t understand the concept?!?

No one even thinks about the possibility of paying off their home anymore. It’s just whether they can afford the montly payment or not. So why not spread it out over 60 years? Is that so crazy? I’m basically saying you cannot afford a home if you need to get a 40 year fixed rate mortgage.

Use these numbers on my mortgage calculator to see the different in a monthly payment and the amount of interest paid in 40 years VS 30 years.

$150,000 at 6%

30 year monthly payment – $900 ($173,000 in interest)
40 year monthly payment – $825 ($246,000 in interest)

Is that even worth it? Save only $75 per month to pay an extra $73,000 in interest payments?

This is a very small cost that you could make up in other ways. If you can get approved for a 40 year mortgage and not a 30 year mortgage somethings wrong and people can help you with this situation. If you found a home with $900 less in taxes per year that’s $75 per month that you just saved and you can get the home at that price.

You could also refinance your car loan, before going through the process, over 5 years and save some monthly cash that way. If you got a car loan 1 1/2 years ago for $15,000 at 5% your payment should be $283 per month. That means you’ve paid down $4,100 so far. If you refinance the $10,900 over 5 years it will be $205 per month with a savings of $78 per month.

Like I said, there’s ways to finagle your monthly borrowing power to afford the home that you want. However, I’m skepticle giving out this information because if it’s that close then you probably shouldn’t be getting that loan at all.

I’m assuming banks created the 40 year fixed rate mortgage to “get more sales” from customers that can’t afford the 30 year mortgage. It’s almost as bad as the interest only loan that was created and made available to all people who probably didn’t know what they were getting into.

So to directly answer the title question of this blog post, NO. Do not get a 40 year fixed rate mortgage for any reason at all. Get less of a home, pay off a credit card or find a home with less taxes per year to afford the 30 year fixed rate mortgage payment per month. When you eliminate your credit card minimum payment of $100 then you have an extra $100 to get a loan. That’s called your borrowing power.

Knowledge Will Save You Thousands
The Free Mortgage Calculator

Planning For Retirement In Different Ways

When someone mentions planning for retirement most people think of a 401K or an IRA of some sort because that’s what we know best. Although we don’t really know much about them do we? A standard retirement fund is just a savings account that you put money into and try your best to collect interest throughout the years of your life.

Collecting interest means you’re either in a Cirtificate of Deposit at NO risk at all collecting about 1% in this 2011 economy. The other options would be investing in mutual funds or trading stocks yourself in hope to make money. However, most of us don’t know enough about stocks and mutual funds to effectively make money.

Think of real estate as a stock because it’s DOWN right now. In fact, it’s crashing. It’s crashing because so many people are losing their jobs which makes them unable to afford their monthly mortgage payment. Most likely because we all live to the maximum we possibly can without any room for error.

In 1920 the average 2 bedroom home sold for about $11,000.
In 1950 the average 2 bedroom home sold for about $25,000.
In 1980 the average 2 bedroom home sold for about $60,000.
In 2005 the average 2 bedroom home sold for about $150,000.

There was another big crash in there as well around 1980 or so that people thought we’d never recover from because IT WAS SO BAD. Blah blah blah, people need jobs and people need homes, simple as that. It WILL come back but NO ONE can predit when.

Here’s where retirement plans come in

The average 2 bedroom home already hit $150,000 in 2005 so in 30 years from then, based on the last 90 years, it should hit about $375,000 in 2035. The best part about it is the foreclosures out there right now!

I just bought a 2 bedroom condo in SC area for $35,000, NO JOKE. Take a look in the Hilton Head area to find some very good foreclosures. Talk to a few real estate agents in your home town to see if you have any cheap homes or condos available.

Now, I bought this 2 bedroom condo and a mortgage calculator says the mortgage payment is only $219 per month for a 15 year mortgage. I’ll be renting it as long as I have it for about $700 per month which means I’ll be making a few hundred per month for the next 25 years just to sell it for about $300,000 profit!

You can figure out your monthly borrowing power on my website very easily to see the monthly amount you can afford. If that number is about $800-$1,000 then you can do the same thing! It will take a little research to find the home you want to buy and then you can start renting it out right away.

I personally like to stick to condo’s even though there’s an extra condo per month because worrying about the structure of a home and lawn care becomes very difficult. Especially when it’s vaccant.

I also like to get a property management company to fill the lease and collect the payments so that I don’t have to worry about it. They usually charge about $300 to find a renter and about 10% of the months rent to take care of all the phone calls and problems that arise. They also worry about collecting the rent on time and evicting them if they don’t pay. So it’s well worth the small cost so that you can worry about buying another home!

If you can buy 2 homes right now for under $50,000 then you’ll be able to pay them off in 15-20 years and rent them out along the way spending very little of your own money. Then in 25 years from now you could have 2 condos worth over $300,000 for your retirement.

This obviously isn’t a guarantee but history usually repeats itself and more and more people are getting into real estate investing. That means when it does start to pick up again and all those people still saying “it’s still not rock bottom” will miss the action while everyone else jumps on board to push it up even faster than the last time.

Remember – NO ONE knows when rock bottom is for ANYTHING. Experts in real estate argue every day about it so it’s obvious no ones knows. Howevever, how much cheaper could a 2 bedroom condo get than $35,000? Maybe $20,000? Either way I’m extatic with my newest investment for retirement!

Knowledge Will Save You Thousands!
The Free Mortgage Calculator

Why Are You Thinking About Buying a Home?

Most people have agreed at this point that buying a home is a good idea rather than renting but do you know why? Why do you have the dream of buying a home when you don’t know why you’re doing it? Are you doing it because society tells you to?

Buying a home costs A LOT of money. There’s a down payment, closing costs, repair costs, mortgage payment, taxes and monthly bills that exceed those of an apartment.

One of the main reasons to buy a home are due to restrictions placed upon you by the apartment complex you’re in. If you owned your own home “you could do whatever you want” right? Other people wouldn’t be living down the hallway from you either.

The second reason that people buy a home is because they say it’s an investment. The problem with that is this: If you buy a 2 bedroom home at $200,000 and 4 years later your home is worth $300,000 then you’d be able to sell it for a profit, but you still need a place to live and all other 2 bedroom homes went up to $300,000 as well. So your primary residence is not really an investment.

The investment would be a second home bought for $200,000 that goes up to $300,000 and you sell it to pocket $100,000 and continue living in your first home. Buying a home is a great financial decision but not an investment.

Your reasons for buying a home should be:

1) To relieve yourself of a monthly mortgage payment or rental payment completely. That means you’ll put all of your extra money towards your home to eventually pay it off. Although most people pay down $20,000 and then realize what they’ve done and get a home equity loan for $20,000 and now they’ve gone back to square one.

I GET SO FRUSTRATED WITH PEOPLE AND BANKS!

People get sucked into these home equity loans and interest only loans and then go blow $20,000 on nothing. All because they can’t save on their own for what they want.

Remember, banks are in business to loan YOU money and a “sale” for them is your home equity loan. The longer the term the more money they make. Hence the invention of the 40 year fixed rate mortgage…

2) The second reason I’d buy a home is to buy a second home as an investment and rent it out. Then it’s just an investment and I’ll use the profits to pay down my first mortgage. If you’re thinking about buying a second home to rent then take a look at my real estate investing section to figure out how. You’ll need to figure out your borrowing power with the bank first to be sure you can be approved for a second loan. My free mortgage calculator will help you with that calculation.

If you’re taking out a home equity loan for $20,000 then just be sure to use it wisely. Use it for a down payment for your second home, use it to start a business or even use it to pay off credit cards so that you have a lower interest rate.

Remember to buy a home for a reason. There are a lot of people out there right now being foreclosed on because they lost their job and can’t afford the monthly mortgage payment. So be sure about what you want and then it will be a good financial decision that you understand and want to accomplish.

Knowledge Will Save You Thousands! The Free Mortgage Calculator

Is Real Estate Investing Possible Without Down Payments?

There are infomercials on TV a lot about real estate investing without any down payment. Of course they talk about how rich you’ll get with minimal effort buying and selling homes. This is possible, however there’s a lot of knowledge you need to complete the task.

Down Payment Options

There are a few options for down payments that you can look into. In order of the lowest interest rate there are home equity loans, retirement plan loans, personal loans, credit card loans and possibly a loan from a family member. You’ll need at least 20% for a down payment on a condo or single family home and it goes up to at least 25% for a 2 or 3 family home.

Before explaining each option you need to see what your borrowing power can handle. Take 40% of your gross income per month and subtract current loans you already have. Don’t subtract insurance or house bills. The amount left over is the amount you can afford per month in new loans assuming your credit score is up to par.

Let’s assume you have $1,400 left over to spend. If you have $500 or less left over I’m sorry but investing in real estate will probably not work for you, but read on to see why. So, with $1,400 you’ll need one of the loans above for a down payment of 20% and then your new mortgage payment and monthly taxes need to fit into it as well.

The first attempt to get a down payment should be something with collateral because the interest rate will be the lowest. If you have anough equity in your home or you have a paid off car then you can pull a loan against those to start. A home equity loan is the current worth of your home minus what you owe on the home.

Your home is worth $210,000
You owe $150,000
Home Equity = $60,000

However, banks in this 2011 economy are only offering 80% home to value equity loans. This means 80% of 210,000 = $168,000 is the starting point, not $200,000. So in this equation you can only pull $18,000 from your home. Even if you’re looking for $30,000 for a down payment you still want to get the $18,000 from your home because the interest rate is lower.

The next thing to do is pull from a retirment plan you have such as a 401K. Worst comes to worst get a personal loan for the next $12,000.

Available Spending = $1,400

Home Equity Loan – $190
          18,000 over 10 years at 5% interest
Personal Loan  -  $273
          12,000 over 5 years at 13% interest

New Available Spending = $937

Now you can afford up to a $150,000 with a 20% down payment of $30,000 and you still have $937 available for your new mortgage payment and monthly taxes. A mortgage calculator will show you that a $150,000 home with a 20% down payment will be a mortgage payment of $644 per month. That means the taxes need to be less than $3,500 per year or $293 per month and you’ll be approved for the mortgage pending your credit score.

Available Spending = $1,400

Home Equity – $190
Personal Loan – $273
Mortgage Payment – $644
Monthly Taxes – $220

Available Spending Left – $73

Now you lost all of your borrowing power in this one investment so how do people continue investing?

Let’s assume it takes you 2 months to rent out the property you bought and you get $1,500 per month and a signed lease for one year. These tenants will need to be there for about 7-8 months and you’ll be able to count 75% of the rent as income.

1500 x .75 = $1,125 per month plus the $73 left over giving you $1,198 to start again.

You just saw that it took $1,400 to afford a $150,000 home so now you should look at something closer to $100,000 to $120,000 in order to get approved for the mortgage.

Start from ground zero and get your down payment. Then use my free mortgage calculator to figure out how much of a mortgage payment you can get again. Math always works and you’ll get approved as long as the bank continues to trust you’ll pay back the loans you get.

Banks DO NOT allow you to take a home equity loan on an investment property. So if you want to pay extra principal make sure it goes towards your primary residance so that you can get a loan for the money if you ever need to.

Also, if you have any construction skills and you buy a property that needs TLC you could fix it up and sell it for a profit. Then you have extra cash and a fresh borrowing power amount to start from again.

Knowledge Will Save You Thousands!  The Free Mortgage Calculator

The Free Mortgage Calculator – What I’m all About

I’m fully encouraging everyone to get a loan! The only catch to my scenario is that you have to pay it off. Who care’s what the interest rate is. You should be able to make money with $10,000 when you only have to pay $300 per month to pay it at a 25% interest rate over 5 years. It helps your credit as well. The banks will trust you with more money next time.

Invest in real estate slowly and calmly. Look for a good deal and buy it to rent it out because you’ll probably be able to triple your money in 4-5 years. Meanwhile you’re breaking even or making money each month. What’s your talent? Invest in a website to promote whatever small business idea you have. Don’t start full force, just sell a few things on Ebay and get a website up and running.

Don’t go hiring an employee or something like that. Make a process work and hire someone later when you’re doing everything you already can AND you’re going to devote that new time bigger things. Otherwise stay comforable doing it all yourself. Sell t-shirts at a flea market on the weekend and make more than $300 a month. As long as you continue to make more than $300 you can pay that monthly bill and make take a little extra cash each month for yourself.

The point is you’ll start to get motivated because you found something you’re good at on your own making money. You’ll get more clever and start a new project or your website will start getting more hits. Do what I’m doing, blog about a random knowledge you have and wait for people to respond. You’ll learn more about websites by blogging as well. Don’t get discouraged, visitors will come.

Learn my 50/50 rule – Simple and it Works

1. Write down all your bills and spending. Write down your income. Your income should be higher or you’re just letting yourself get more into debt while you don’t pay attention to it. It doesn’t matter what you make or position you’re in, ALWAYS save half. If your bills and spending add up to $800 per month and your income is $1,000 after taxes you can spend $100 and you have to save $100. It is IMPOSSIBLE to get more in debt if you follow this plan. It’s important, so write it all down and figure it out.

Now, you have $5000 on 2 credit cards and “It would take for ever to pay off so whatever”. NO! $10,000 worth of credit card debt will just grow if you don’t start paying it down. So 10,000 is $200 per month to pay the minimum payment over 30 years. Or you could add that $100 you have left over as 50% of your monthly savings and pay it off in 4.5 years and save about $60,000 which you can plug into my free mortgage calculator. Who knows, when you start playing the game you might like it and try paying it down sooner.

BTW that 50/50 rule goes for all holiday money, birthday money and bonuses at work. Remember just get it your mind right away that you get to spend half on whatever you want. Then there’s no guilt because you’re saving half as well.

So to answer the initial question “What am I all about”?

I guess making money. The more I blog the more I get paid so I might as well give it my all. Now that I’m doing it the comments are another reason. It’s nice to see people complimenting my efforts, it’s appreciated.

Take a look at my 30 second video on the homepage and you’ll get a good idea.

Make Your Real Estate Agent Work Hard For You

I’ve heard time and time again that people feel bad “dragging” their real estate agent to another home after they’ve already looked at 7 and weren’t happy yet. I’m going to go over how much they get paid and how you can get the most out of your real estate agent.

Real estate commissions are broken up into 4 payouts:

1. Your Agent
2. Your Agent’s Company
3. Sellers Agent
4. Sellers Agent Company

It will get split evenly between each of the 4 above. So if you buy a home for $150,000 and the commission is 4% then your agent will be getting 1% which is $1500. That’s 75 hours of work at $20/hr so DON’T feel bad, make the most of it!

Listen to their advise with caution

Have you ever worked in sales? Bigger sale, bigger commission. Or as a waiter or waitress? Bigger bill, bigger tip! Well if you bought a $160,000 house your agent would get $1600 instead of $1500 which we all know they’re watching closely.

So if you hear your agent say, “You might insult the seller with that low offer” or “There’s already 2 offers in right now so bid fast and high”, then you may be getting pushed for their commission reasons rather than for your own benefit. I’m not saying that’s always the case but beware before they talk you into something you don’t want to do. It’s a buyers market and there will be plenty of deals to come. Take your time.

How to make the most of your agent

What random knowledge do you have from your job? I’ve personally worked for a wire and cable company for over 5 years and know a lot about gauges and insulation types for different environments which I doubt anyone reading this blog knows about.

The point is that your real estate agent works with real estate all day every day! I know the price of copper because of copper wire, they know the real estate market. Drill them for information everytime you talk with them. Have 5 questions written down ready ask them each time you discuss something over the phone. Say why? Then say why again? Get them talking and you’ll learn a lot. Make them work for 75 hours if you’re buying a $150,000 home and make them work for 150 hours if you’re buying a $300,000 home. That’s a generous $20 per hour in this tough economy.

The next thing to do is ask them for 2-3 different MLS websites to search in your area. Most likely you’ll get their company website but it may not be your favorite to browse through. Look through and figure out what a good deal is and who is asking too much. The seller always thinks their home is better than the rest so it’s usually priced high. Be sure to always look at the amount of taxes per month because it’s different for each home.

Each time you search through the MLS listing pick 3-4 that you like and ask your agent to send you the listing date of each one. If it’s the first week listed you won’t be able to negotiate much, but if it’s the 6th month on the market they’re pretty fed up and just want to get rid of it! Sounds like a low offer to me.

If you’re looking at condos be sure to ask them which complex’s have the lowest condo fees because they range from $100 to $400 per month. If you can afford $900 per month of borrowing power and spend an extra $200 on a condo fee that’s $40,000 worth of home you could’ve had instead. Look for condo fees in the $100-150 range only.

Your home is like buying 10 cars on the same day. That’s a lot of work which means you need to do some research and make sure you get the best possible deal. If you’re watching the market for 2-3 months you’ll see prices dropping and when they drop it’s a good time to jump in with an offer. If they’re lowering the price apparently they haven’t gotten much action and they want to sell it pretty quick which makes them more vulnerable.

You can also ask your real estate agent about the recently sold properties similar to the type you’re looking for. They can access that information and email it to you so that you stay updated about the price range of the home you’re looking for.

Remember, $150,000 at 1% commission is 75 hours of work at $20 per hour.  

Anyone looking for advertising space on my website or blog can contact me here. Thanks to all my readers!

Only 2 Reasons for an Interest Only Mortgage Loan

If you’ve been keeping up with my blog and website then you know I’m very much against interest only loans because they’re used for the wrong reasons. However, they were created for 2 reasons which are actually quite beneficial.

First, the reason I don’t like these loans being available to everyone is because they’re used to get people approved for a mortgage that couldn’t get approved for a standard fixed rate mortgage.

If you’re a couple looking at buying a home and the bank figures out your borrowing power to be $1000 per month and your fixed rate amount and taxes end up being $1100 you’ll be denied for that particular mortgage. However, an interest only loan is an adjustable rate mortgage and doesn’t include any principal in the payment which makes it much lower to start. That would get you approved for the mortgage in that case.

As you can see it’s a tricky move to get someone approved for the loan and for the banker to “write another mortgage”. Well chances are the couple will be very happy because they get to buy their home, but do they really know what they got themselves into?

That 4.5% interest rate will be fixed for 5 years and then continue adjusting each year with the current interest rate. With rates as low as they are now I don’t see how they could get any lower in 5 years so it will probably go up. After the 5 years are up the principal also gets added back into the mortgage which increases the monthly payment as well.

If your interest rate went up to 6% and the principal was added into the mortgage your payment would go from $800 to $1150. Now, if it was too high at $1000 to get approved for the mortgage how are you going to afford $1150 down the road? People seem to just say “Ehhh I’ll worry about it later, right now I’m getting a home!” 5 years later we have the biggest real estate crash the country has ever seen. 

That puts blame on mortgage lenders for giving the loans to these people just “to write another mortgage” and blame on the people taking these mortgages without knowing enough about them.

Why Interest Only Loans were Created

I can see 2 reasons why these loans are in exsistance and the first is for a person who flips houses for a living. Someone like this needs to keep all monthly costs as low as possible and an interest only loan is the way to go.

Assume this person has $1700/mo available borrowing power and finds his first home for $150,000 just like the example above. The fixed rate 30 year loan will cost $1100 including taxes which limits this house flipper to one home at a time.

If they got an interest only loan it would be a monthly payment of $800 and they’d be able to buy and flip 2 homes at a time to double profits. They aren’t worried about paying down principal like a home owner because they’ll be selling it within a few months anyways.

As a homeowner if you have an interest only loan you won’t pay down a dime of your home during the first 5 years then face an increased interest rate and added principal.

The second reason I can only KIND OF agree with is if a couple only has one income at the time due to this 2011 economy and the spouse plans on getting a job in the next year or two to support the increased payment that will be coming. Or similarly, a promotion in the near future for one or both people buying the home.

I know I’ve bashed this type of mortgage loan in many of my blog posts but it’s mostly because it’s been so abused by lenders in order to write new business with no care to what might happen to these singles, couples and families in 5 years.. Also, if people are living to their complete max then they leave no room for error.

Make sure you get the loan that best fits your scenario and usually if you’re buying a home to live in then it will be a 30 year fixed rate mortgage. Even ARM rates aren’t a great idea right now because interest rates can only go up at this point.

How to get Approved for a Mortgage when You’ve been Denied

There are so many reasons for getting approved and denied for a mortgage loan, but the banks are in business to loan money and would be bankrupt if they denied everyone. They’re on your side and obviously have reason to deny your application if they have in the past. However you can’t give up!

First figure out why they denied your mortgage application with a specific answer. Maybe it was your debt to income ratio, your credit score, down payment amount or something else. Don’t get discouraged, figure out what went wrong and fix it.

Your debt to income ratio shows your income and subtracts all of your bills and expenses to show the bank a clear amount per month that you can afford for a new mortgage payment. Just like all businesses are different, banks have different guidelines to approve each mortgage. Some have a 40% debt to income ratio, some 35% and some as much as 45% so make sure you check around.

The next reason could be your credit score which makes you just think it’s impossible to ever get mortgage. Well I’ve seen plenty of people literally claim bankruptcy to clear all their debt and then buy a home within a year. If you have this problem read up on how to increase your credit score and start doing some of those things.

Think about what your credit score actually is. It’s a list of the loans you’ve had in the past and how well you’ve paid them. So if your score is low then I’m sure you know a few big reasons why it’s that low. The idea is to show that you’re able to pay back the loans that lenders give you.

Start using and paying off a credit card. That doesn’t mean you should go buy things you don’t have the money for, just use it for common things like your groceries and then pay it off each month instead of leaving the balance on it. It shows that you have control of your spending and the mortgage company will trust you with THEIR money.

If you looked at my credit history and saw that I had stopped paying one of my credit cards and been late on my car payment 9 times on a 5 year loan would you lend me $150,000 of your money and trust that I’ll pay it back? I can’t even handle a few thousand dollars on a credit card or a few hundred a month on a car payment so how could I really handle an entire mortgage payment.

Give them reason to trust you and they will.

A down payment is a different ball game but there’s ways around everything. Like I already said, every mortgage lender is different so the down payment amount will be different as well.

If you’re planning on living in the house you’re buying then the down payment should be very low in the 3-5% range. Again, imagine you’re the bank lending YOU money. Would you? 3% of $150,000 is only $4,500 which is a lot of money but not that difficult to save up for.

If you can’t come up with 3% of the house value then you must have pretty bad spending habbits OR you really can’t save the money and shouldn’t be looking at buying a home anyways.

Another way around the down payment issue is to get a personal loan for the amount you need. The only thing that does is lower the amount you can borrow by the monthly payment amount.

Example: You need 40% Debt to Income Ratio

You make $50,000 per yer before taxes – $4,166/mo

40% is 4,166 x .40 = $1,666

Now subtract all “loans” ( NO bills, insurance, expenses or taxes)

Car loan – 250
Student Loans – 150
New personal Loan – 180  ($8,000 at 13% over 5 years)

So You can afford $1,666 minus $580 in loans = $1086 available for your new home monthly payment and monthly taxes.

Some people say “WOAH! I would never pay 13% interest for a personal loan!”. Well that 13% interest only equates to $2,900 in interest over the 5 years of payments. Your new mortgage of $150,000 will include $174,000 in interest at 5% over a 30 year mortgage. An interest rate of 13% isn’t that bad when your loan is only for 5 years.

Use my free mortgage calculator at the bottom of this blog or on my home page to see what different options you have to stay within your borrowing power.

How a Mortgage Calculator Can Help You Understand The Buying Process

So you’re dreaming of buying a home. Are you ready? Do you have any idea where to start? If you’re unfamiliar with the steps involved in buying home, then the Internet is a great place to begin.

Search for mortgage and borrowing power calculators, they’re the perfect tool to help you understand the lending process.

          Nearly all financial institutions making home loans will have calculators on their sites. Before you apply for a loan you can figure out how much you can borrow with a borrowing power calculator. It allows you to compute how much you can borrow based on your income and debts. It allows you some insight into the difference between good and bad debt and how that debt affects your credit rating and how much you can borrow. You’ll see in the results how credit card debt, available credit and your debt-to-income ratio can make you look like a risk to lenders. 

          A mortgage calculator can help greatly in understanding how mortgage loans work.  You input the principal (the amount the borrowing power calculator estimated you could borrow), rate, term and down payment. You can compare all these variables to get a picture as to what you can afford to pay each month. To get a truer picture, look to see whether the calculator considers property tax or insurance.

Most will include an amortization schedule that breaks down over time how much of your payment goes to the principal and interest.

          Using these online calculators is a great way to gain some understanding about how lenders gauge risk. They can help you in setting goals to make yourself and your finances look attractive as possible to lenders. What you learn and apply will make your finances shine, showing that you’re a responsible borrower, worthy of great mortgage terms.