Down Payment For Your Home – The Free Mortgage Calculator

For a majority of homeowners, down payment for a home would mean at least 20 percent of the house’s purchase price as required by their mortgage.  However, with the recent changes in the housing market, lenders have modified the rules and have made it more enticing for people planning to have their own homes but do not exactly have the budget for one.  Thus, there are promotions or deals that allow as low as zero down payment for a house.  But then, these deals usually mean ‘hidden’ charges and fine print stipulations that homeowners should be wary of.  In order for them to get the best deals with current interest rates and mortgage insurance, a significant down payment should still be present in their mortgage. 

As mentioned earlier, there is what is commonly referred to as PMI, which stands for private mortgage insurance.  PMI is a cost that the prospective homeowner has to pay with the mortgage that aims to protect the lender in case the homeowner defaults on a payment.  For people who have taken advantage of a scheme with a very low down payment for a home mortgage, the lender does not have any assurance, since very little or no down payment has been given.  Thus, lenders charge PMI.  But for people who have given at least a 20 percent down payment or equity for their homes, lenders do not feel the need to charge the PMI, since they have a form of assurance in the down payment.

The issue with down payments is that even a 20 percent down payment can be a challenge for some people who dream of having a home.  For example, even for a house that has a $200,000 price tag, 20 percent of that will be $40,000, which is still a lofty sum for some people.  But then, as mentioned earlier as well, paying a down payment should be considered an investment as it will significantly lower interest rates and do away with other charges such as PMI. 

For people who are challenged to amass funds for a down payment for a home, there are some funding sources that may help.  For example, state housing authorities and the Federal Housing Administration have programs that assist families with low to moderate incomes, as well as those who are planning on buying a home for the first time.  There are also 401k and 403b plans that are usually for retirement that allow people to borrow funds from their account in case they want to purchase a home.  An account with IRA also entitles holders to some provisions that allow them to withdraw for home purchases if done for the first time.

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Comparing Buying to Renting – Getting a Mortgage Loan

Contrary to the beliefs of most people, buying a home does not necessarily mean making the right investment decision. This is something that should be undertaken with much concern so before making the decision to buy. Indeed, being able to buy a home is dream come true provided that the purchase will not be made through a mortgage. However, if buying entails having to apply for a loan, then a person may have to think twice if indeed he is making the right decision to own his dream home.

When making this one big leap to achieve the dream of finally getting a loan through a home mortgage, it is best to make comparison between the finances incurred in home rental versus the finances that will be acquired in buying a home through house financing. When doing the comparison, it will be noticeable immediately that a higher monthly amortization expense can be expected for home mortgage than in rental. Usually, the difference is about 75% to 80%. It can be thought that this is just acceptable since the monthly amortization is for the payment of the house that is already bought and not just being rented. However, when interest payment will be considered, it may be found out that the monthly amortization is not really reasonable for owning a house. This is because bulk of the monthly amortization is applied to the interest first during the early years of the mortgage.

There is also no connection between savings and owning a home. If getting a home is being considered as a form of forced savings, there may be a need to restructure this kind of thinking. This is because the interest being applied into owning a house through a mortgage is not justified to take it as a form of savings. At the same time, the property is not even liquid to begin with. It means that it cannot be sold easily. As such, when money is needed, the property will not even give the owner the means to get the money easily.

It is not wrong to desire buying a home especially if the person can afford purchasing one. However, if the income will not allow the person and will just put that person to more debt, the dream can be set aside first. It will be good to save any amount that can be put aside first and be contented with what the budget can allow for the meantime.

3 Rules for Buying a Home

There are tons of things to think about when buying a home. It’s hard to decipher which are most important. Before you begin, keep these 3 rules for buying a home in mind.

1. Seek professional help. A good place to begin is Realtor.com. It’s the official site of the National Association of Realtors (NAR). Not every real estate professional is a Realtor. Only members of the NAR can call themselves Realtors. They’re expected to be more knowledgeable and are held to a strict code of ethics. If you’re not ready to work with a Realtor yet, you can also use the site for its wealth of information. You can find homes for sale, the value of homes in your area and much, much more.

2. Determine what you can afford before you go shopping. It’s easier than you think. Just look for borrowing power and mortgage calculators online. Borrowing power compares your debt, income and other financial obligations to determine whether you’re a good credit risk by estimating how much you can borrow. Mortgage calculators can give you an estimate of you mortgage payment. The calculators can vary by site. Most allow you to input home value, loan term, down payment and interest rate. Some will show he amortization schedule as well.

3. Research your potential new home, find all the information you can. This rules goes hand-in-hand with Rule 1. A professional will be able to tell you, not only when the roof or the plumbing was updated but can also help you determine your new home’s value, potential problems, history, neighborhood and even area schools and job markets.

As the old saying goes: Knowledge is power. It may save you time and money in the long run if you stick to these 3 rules.

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Current Real Estate News and Trends

The real estate market isn’t as hot as it once was, but there is still some money to be saved and made. If you’re thinking of buying home, a residence or as an investment, keep these ideas in mind.

Everyone’s talking about foreclosures, for better or worse, they’re abundant and cheap. Interest rates are low, making foreclosures really attractive. Be careful. There’s more to a foreclosure than just a great deal on a house that’ll need a little work. There are some institutions out there that are very quick on the draw when it came to foreclosing, in some cases unnecessarily forcing some families out of their homes.  Make sure you research the title carefully to make sure no one can claim ownership of the property you’re about to buy. This may take the help of a professional. But a seasoned pro can help you navigate the process and make sure the property OK to buy.

The commercial real estate market is seeing a trend of buying moving away from trophy assets toward well-located and tenanted properties. In other words, investors don’t want the biggest, most shiny rental on the block, if no one can afford the lease. Those less-expensive properties, while not the best looking can generate dependable cash flow for strapped investors. So instead of the shiny office building, check out the laundry mat, for example. You may be surprised at how an unglamorous business like washing clothes can make you some serious cash.

It’s still a buyers market and rates are still low. There are great deals to be had. Just like with any investment or large purchase, seek professional help, even if you’re not buying a foreclosure. Know what you’re getting into, it could save you time and money in the long run.

Buying a Home That Needs Work

Buying a home that needs work isn’t actually that hard to buy and fix up, but you should do your homework before starting the process. You’ll want to talk to your bank or mortgage lender, real estate agent and some sort of interior designer so that you can figure out all of the costs before getting into a project you can’t handle.

Talking to your Mortgage Lender

Your mortgage lender tells you how much you can afford based on your income and current debt with a number such as $170,000. That budget includes the monthly taxes you’re going to pay for the home as well. Instead of getting a home that costs $170,000 you can get a home that needs work for $120,000 and get another loan for $50,000 to finish the work on the home.

Usually a bank will appraise a home to make sure it’s worth what you’re buying it for so that they don’t loan you $170,000 for a $150,000 home. If they did that and had to foreclose on you then they’d lose a lot of money trying to sell it. So in this case the mortgage lender would appraise the home as if it were finished to make sure they can sell it and get their money back.

Talking to your Real Estate Agent

Have a long conversation with your real estate agent that you chose after talking to at least 5 or 6 different ones. Tell them exactly what you’re looking for and what you want to do. Tell them you want a home with a lot of “cosmetic” work which means paint, rugs and sheet rock problems. DO NOT get a home with an structure damage such as the roof, foundation or floors because you’ll pay a lot to fix it and it won’t increase the value of your home as much.

Your real estate agent should be able to show you some homes that need basic TLC work which will lead you into talking to an interior designer.

Interior Designer

Talking to 3-4 designers will give you a lot of ideas even if you don’t hire them at all. They will come to your home and you can walk them through one at a time so that you can discuss what you want to do. Give them your $50,000 budget and see what they’d be able to do with it.

Be specific with them too. Tell them you’d like a pool table, fire place or berber carpets so that they can squeeze in your favorites first. They aren’t going to just do what they like, they want to hear your interests so that they can put a big smile on your face when everythings done.

All of that should be done before actually buying a home because you want to make sure everything can fit into the budget you have. It’s a lot of work to do before making an offer, but when you do make the offer you’ll be very confident that you can do what you set out to do.

The saying is “make sure all of your ducks are in a row” because if you don’t then something could go wrong much easier. Also remember to use a mortgage calculator to figure out if you can actually afford the $170,000 the bank is approving you for.

Don’t treat your “maximum” approval like the speed limit by calling it the minumum instead. Your max is your max, plain and simple, so don’t go over it and make sure you can actually afford it with your own spending habits.

Knowledge Will Save You Thousands
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A 30 Year Fixed Rate Mortgage Is Too Long For Most Buyers

The standard length of time to pay back a mortgage loan is over 30 years time which has become far too long for most people buying a home. There are all different types of people, couples and partners buying homes to live in, flip or hold for the long term to sell for a profit. So is the same type of mortgage loan good for each of these possible scenarios?

First, if you’re over the age of 35 getting into a 30 year mortgage then what’s your plan to make the monthly payment after you retire at the age of 65? You can use a mortgage calculator to see how much money you have to add to the mortgage to pay it off 5 years earlier. The problem is that when you’re 35 years old the last thing you want to think about is retirement because it’s so far down the road. Well that’s how far it will be when you finally make the last mortgage payment of your 30 year term as well. So maybe it’s something to consider.

Second, what’s wrong with a 15 or 20 year mortgage? Only the rich can afford to pay off their mortgage in 15 years right? Well if you start looking at homes in your price range based on a 30 year mortgage it’s obvious you can’t afford the same priced home over 15 years and niether can the rich.

Everyone makes a certain amount of money per month and can afford to use a certain portion of it on a home. A certain portion will also go to a car payment, household bills and much more. So if the bank says you can afford $180,000 for a mortgage then use a mortgage calculator to figure out the monthly payment that you can afford and see how much home that is over 15 years instead.

Getting a 15 year mortgage is like doubling the amount you add into your retirement fund each month. You’ll pay a lower interest rate, you’ll pay more principal and you could buy and pay off 2 homes in the time that it took you to pay off one home over 30 years. Then you can also collect rent on the second 15 year mortgage to help add even more money into your retirement fund.

Let’s look at the math and see how much more you get for your money with a 15 year mortgage. You can afford $1,500 per month for a mortgage and monthly taxes.

Option 1

30 Year Mortgage – $220,000 ($1,100/mo) Taxes – $400 = $1,500

Interest Rate – 4.50% Interest rate
Total Interest paid in 30 years – $181,000
Total Taxes Paid – $144,000

Total Cost – $545,000 to get a $220,000 home

Option 2

15 Year Mortgage – $170,000 ($1,250/mo) Taxes – $250 = $1,500

Interest Rate – 3.75%
Lower taxes for lower priced homes
Total Interest Paid – $52,000
Total Taxes Paid – $45,000

Total Cost – $257,000 to get a $170,000 home

Buy a second home the day it’s paid off for all the same costs.

First home – $257,000
Second home – $257,000

Rent out second home for 10 months per year for half the cost of the monthly fees ($750). You’ll have months without a renter so 10 months per year is a good number to use.

$750 x 10 = $7500 x 15 years = $112,000

First home – $257,000
Second home – $257,000
Minus Rent – $112,000

Total cost of 2 homes over 15 years – $402,000
          – Got 2 at $170,000
Total cost of 1 home over 30 years – $545,000
          - Got 1 at $220,000

If only people liked math as much as I do! Everyone would be able to learn and understand this simple formula to have $340,000 in your retirement at a cost of $402,000. Instead everyone’s paying $545,000 to only have $220,000 in their retirement.

By the way, I’m not just preaching, I actually just bought my 3rd condo. I personally like condos better than homes, even with the condo fee, because you don’t have to live near it to take care of the lawn, outside paint and structure issues. I hire a property management group to find a renter, write up the lease, collect the money and take care of all problems that arise with the tenant.

A 30 year mortgage is a mistake all around. There are so many other options to take into consideration that will make you more money than “investing” in a home over 30 years. People buy a home because it’s a good investment compared to renting. So look into investing slightly more and you’ll find better options.

Knowledge is Power – Knowledge Will Save You Thousands
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Real Estate Buying Tips In This Bad 2011 Economy

The housing market, though very uncertain, still may yield some exciting opportunities for a few well-informed and patient buyers. Real estate tips during this economy are abundant, be careful, advice and tips should be taken with a grain of salt and researched well before acting. Here are a few time-tested tips to help you get started.

Work with a pro. This is good advice no matter the economy. There are a lot of people out there who call themselves real estate professionals. Try a Realtor. Realtors are professionals who hold themselves to a high ethical standard. They also work with other pros like inspectors and contractors who do the same. Realtors also are knowledgeable about market trends in your area.

Make sure you look good to the banks. Banks have raised their lending standards in the wake of rising mortgage defaults. They want borrowers to have great credit, a down payment and verifiable income. You can check on your credit worthiness before you go to the bank by using a borrowing power and a mortgage calculator. You assess your borrowing power by inputting your income and financial obligations. If your debts are minimal and you have a lot of extra money available, then you could be viewed as a better risk. A mortgage calculator allows you to input mortgage terms for you to gauge what your monthly payment may be.

Don’t be afraid of foreclosures. Bad things are happening to good people because of the housing collapse. You may find a real gem and help a family out of a sticky situation. A local real estate pro could help you in finding decent prospects. You could save thousands or get a little more home for your buck by considering foreclosures.

Lending may be stricter, but this is still a buyers market. Be careful and research all tips carefully.

Knowledge Will Save You Thousands
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Buying a Home With Only $5,000 and a Mortgage Calculator

If you’re looking at buying a home and you only have $5,000 it’s possible for you to still be able to accomplish it. Buying a home mostly comes down to the amount of borrowing power you have rather than the amount of a down payment.

Most mortgage lenders will let you buy a home in 2011 with a mere 3-5% down payment if you plan on living in the home. So the first thing to do is figure out your borrowing power and go from there.

1. Write down your gross income
2. Divide by 12
3. Multiply by .40 (40%) to see total monthly borrowing power
4. Write down all of your loans (credit card minimum payments, student loans, car loans and personal loans)
5. Don’t include household bills or taxes from your income. The bank figures that in already. Only loans.
6. Subtract the loans from 40% of your gross income and come up with the amount you can still borrow per month.

Example:

1. Gross income per year – $50,000
2. 50000 / 12 = $4,166 per month
3. 4166 * .40 = $1,666
4. Car – $200 – student loan $150 – credit card min – $50
       Total bills – $400
5. 1666 – 400 = $1,266

Total Monthly borrowing power is $1,266

Now, how much can you afford with that amount of money? Well that depends on a few things. Do you already have a down payment? Are you paying the closing costs or rolling them into the mortgage? If you’re buying a condo is there a condo fee per month?

If you only have $5,000 and you want to buy a home with $1,266 per month borrowing power you’ll have to work it out to see how much you can afford. First, you’ll need a personal loan for a down payment which will subtract from your monthly amount first. Let’s guess an amount of $150,000 or so that you can afford with that amount of money. That means you’ll need about 5% of that for a down payment and probably another $2,500 for closing costs.

Personal Loan – 5 years at 13% interest = $227
Mortgage Payment – 30 years 5% $150,000 – $800
Monthly Taxes – $200

Total – $1,227
Total Monthly Borrowing Power – $1,266

Pending a credit approval this loan would get approved with most mortgage lenders. 

Learning about the monthly amount you can afford and playing with that number rather than just knowing you can afford “X” is much easier because you can finagle it a bit. Getting a personal loan to use as your down payment will work as long as the bank says you can afford all of the monthly payments based on your income.

It actually looks like you didn’t even need the $5,000 you had in your bank with the formula we just did. You could get a personal loan for only $5,000 and use the $5,000 you already had in the bank to pay even less per month. Using a mortgage calculator will be a big help in this situation.

Make sure when using the calculators that you increase the personal loan interest rate to about 12-13% and only push it out over 5 years. Usually a bank won’t give any better terms than that because there’s nothing attached to the loan as a means of getting their money back.

Also be careful about using this formula and getting into financial trouble. This is the MAXIMUM you can afford which means it could limit you to buying a house and sitting in it as your only form of entertainment. You may not have money for anything else if you want to borrow the absolute maximum you can.

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Why Are So Many People Getting Foreclosed On By Mortgage Companies?

There are a lot of people out there in the USA getting foreclosed on by the mortgage companies because they can’t make their monthly mortgage payments. Many things can happen that would cause the bank to foreclose upon a home but it mostly comes down to the mortgage payment.

Once you miss a few monthly payments to your mortgage lender they will start the process of foreclosure. It doesn’t take a year or two because by then the mortgage lender has already lost a lot of money, and losing even more by not making interest on your money elsewhere.

In most situations, for the average home owners, a person or couple will go to the bank clueless about mortgage loans and ask “How much can I afford“. At that point they’re leaving their finances up to the bank and accept whatever they get. The banks figure out the most you can afford and the average home owner will go out and start looking for a home at the peak of what they can afford.

A few things can happen from there. First the bank figures out, based on your income and monthly bills, that you can afford “X” which we’ll say is $1,300 per month. Then they use a mortgage calculator to see how much a mortgage payment will be over 30 years at the current interest rate until they get a number around $900-1000. Finally, the bank gets an average amount of taxes in the surrounding towns on that worth of home and add it to the $900-1000 getting a number very close to $1,300.

Then they simply tell the future home owner that they can afford that amount of home. I’m not sure I understand why everyone wants to get a mortgage payment that meets their absolute maximum monthly spending, but it seems people want even more than that.

If a car dealer said you could afford up to $65,000 for a car loan would you start looking at exactly $65,000 cars? Or would you think reasonably about it and get a $30,000 loan so you can have a little monthly spending money? Usually people are reasonable about a car loan but for some reason complete morons about a mortgage loan. Not the best idea when you’re buying 5-10 times as much as you spend on your car…

Anyways, all frustration aside, any minor thing that happens to you or your spouse could possibly put your monthly bills higher than your income. If one of you loses your job forget it, consider the home as good as gone. Assume your car all the sudden has an extra problem once a month that costs you $200 each time. I could go on for days about additional bills, loss of hours, loss of commission or even pregnancy that would cause a foreclosure.

What You SHOULD Do If You’re Looking To Buy a Home 

Act as if you’re buying a car. Know and understand ALL of the monthly bills you’ll have, then back off about $500 so that you can either save money in the bank for possible problems or spend some extra money each month on things you like to do. Having a bigger home isn’t the best thing in the world, trust me. Buy a smaller home and use the extra monthly money to spice the place up a bit. Get new rugs, new paint and nice things to hang up.

That’s where you’ll get the compliments from your friends and family. They’ll say, “Wow this place is SO nice!” instead of “It’s really big, but the inside needs som work“. Do you judge people when you walk into your friends and families homes? Do you really care if their home is that big or beautiful? Wouldn’t you rather afford it will ease, maybe add extra principal payments sometimes, go to the amusement park when you want and not freak out if your wife gets pregnant?

I actually bought well within my range and 3 years later I was able to afford another mortgage loan because it was only $35,000 for a 2 bedroom condo. My mortgage payment, taxes and condo fee added up to $550 and I just rented it using a property management company for $750. I can only imagine what I’ll make when I sell it in 5-10 years. I’m already making $200 per month anyways so I’m happy as can be about this investment.

Think before you act people. I’m sure your parents said that to you when you were little and it’s a cliche saying, but read it again and think about it. You’ll be much happier without living check to check trying to make every monthly payment you have with your last dollar.

Knowledge Will Save You Thousands
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Renting Costs More Per Month Than Buying A Home in 2011

I’ve been wondering why rental prices haven’t been coming down as fast as the price of real estate, so I researched it and started to understand very quickly. Real estate pricing has come down because there are a lot of people selling their home and very little amount of people buying homes.

That’s simple supply and demand. If you have a product that everyone else has it will be very hard to sell because everyone’s trying to get rid of their extra stock already. People are trying to sell their home in 4-5 months and it doesn’t happen, so they lower the price and it still doesn’t sell. Then prices continue to drop until it’s a great deal and a real estate invester picks it up.

The rental market is doing the opposite right now. Once all of these people finally sell their homes for a cheap price they need to rent an apartment in order to live. Well rentals are actually going up because investers are able to rent out each of their homes very quickly.

I’m assuming people are doubling up and sharing the rent of an appartment or else I don’t understand how they couldn’t afford their home but can afford more expensive rent.

You’re better off waiting and looking around for the next 4-5 months for a great deal on a home even if it’s a foreclosure or short sale. You can use a mortgage calculator to figure out the monthly mortgage payment, add in the monthly taxes and condo fee to get your total costs for the home. Then list it for for rent at $200-300 higher than that to make money. It’s actually a pretty simple formula now that this has happened.

Buying a home right now can be very hard especially if you’re not living in it because the banks need at least 20-25% for a down payment on an investment property. If you plan on living there you’ll only need about 5% at the most depending on your credit score.

It’s not as hard as you think to get a mortgage loan on a $35,000 mortgage for a 2 bedroom condo that rents out for $300 more than your monthly expenses. You can be buying a condo and taking the $300 extra monthly money and adding it to your first mortgage payment as principal. Then your renter is paying for one home and saving you thousands in interest on your primary home. Sounds like a good deal to me!

Knowledge Will Save You Thousands
The Free Mortgage Calculator