How To Not Get Taken Advantage Of When Buying a Home

Understanding everything about buying a home can be a lot of knowledge to gather. Don’t you wish you could just trust everyone you work with to find the perfect home for you, give you the best mortgage and prepare all the paperwork at a fair price?

I’d say every mortgage lenders commercial says that, but really trusting them comes down to working with them and figuring it out on your own. Even though you don’t want to go to real estate school before buying a home, the more knowledge you have about mortgages and loans will allow you to approve or disapprove someone much quicker.

Think about the standard “line of bull” in your type of work. I’m sure you could pick up on anyone in your line of business when they try to pull the wool over you eyes. Why? Because you have more knowledge on the subject and understand when something is or isn’t a lie. Real estate agents, mortgage lenders and the soon to be contractors for your new home all have these lines of bull. The more research you do before hand, the less likely you are to be taken advantage of by someone.

Even someone who doesn’t know anything about real estate would be able to weed out a few agents by consulting with 5 to start. Getting to know the second agent might make you say “hey that first agent tried to mess with me!”. Getting to know 5 different agents will give you a good idea of who you want to work with.

Understanding the different loan types can be much more difficult if you’re just starting to learn about mortgages. There are different interest rates, payment types, PMI and much more to consider. If this is the case, please get a fixed rate mortgage over 30 years. Check around for the best interest rate based on that loan type and don’t let anyone talk you into anything else!

Interest rates are at an all time low right now, so you should get your rate fixed for all 30 years. Adjusting your rate every year with the current interest rates will be very stressful and there’s no way to know what you’ll be doing in 15 years from now. So the best idea is to keep it fixed to have the same monthly mortgage payment every month for the life of the loan.

If you happen to be a house flipper then find a loan with the lowest possible monthly payment. You’ll own it for less than a year and even though you get an ARM rate, or adjustable rate mortgage, your monthly payment still stays fixed for at least a year.

So when you go see your first real estate agent I want you to have a list of 10 questions that you can ask them. They can be anything at all. I want you to get them talking and hear the knowledge, or crap, that comes out of their mouth. Then when you go see your second agent you’ll probably have 5 different questions and a little more confidence about what you’re looking for.

Knowledge Is Power – Knowledge Will Save You Thousands
The Free Mortgage Calculator

The Free Mortgage Calculator – 3rd Party Perspective

The information I provide on my blog is directed towards helping people from a 3rd party perspective. Much of the information people think they have comes from infomercials, TV Ads and radio commercials that are hard to believe because you’re not sure if they’re just trying to sell you something or if they really mean what they say.

Everyone’s in Debt!

I’m sure 98% of people have a loan of some sort whether it’s a credit card, personal loan, mortgage or a retail store line of credit. As a society we’ve learned to buy something before we have the money and pay it off with a portion of our personal profit each month. Each person is like a small business with income, expenses and a net profit at the end of each month. Then you use the net profit to pay off the credit cards and personal loans you got before you could afford them on your own.

Part of the problem with all the different types of loans and lines of credit are that people don’t understand them and that finance companies trick the consumer into loans they didn’t know they had in the first place.

Common Advertisements

“5% cash back on all purchases”
“0% financing for 12 months”
“Low 2% interest rate”
“Settle all credit card debt and only pay half of what you owe”

We all know everyone who is running a business wants the most possible business to make the most money. So we figure out that a few companies try to trick us and all of them get a bad name for it. We could read the fine print with a lawyer everytime we open a credit card but we all know that’s not going to happen.

If you don’t understand a certain type of loan then don’t get it. If you’re in financial trouble already, don’t get another credit card. Also, don’t go to some other lender who wants to consolidate all of your credit cards for a lower interest rate. You took the time to run yourself into debt now take the time to get yourself out. Just like if you ate McDonalds for all of your meals for the last 3 years you’ll have some work to do to lose that weight. There’s no magical cure to losing weight even though we fall for these ridiculous infomercials every day.

The great thing about my website is that I’m not selling anything! I’m just giving out simple advice about each type of loan, loans to avoid, getting approved for a mortgage and which mortgage loans to avoid. If I ended every blog post and web page with “buy my book” I’m sure I’d be able to sucker a lot of you into buying it but my information would lose it’s power.

I want people making the right decisions, getting the right loans that they understand and staying out of debt! Look around on my website to see the different types of loans available and which ones to avoid. Everything is up to date in 2011 with current interest rates and current economic states. By that I mean you should avoid interest only loans and ARM rates because interest rates are so low they can almost only go up from here. If I wrote these pages in 2000 I’d say it might be a good idea to get an adjustable rate mortgage because it’s a 50/50 gamble rather than a 80/20 gamble. An 80% possibility of an interest rate increase that is..

The fact is, you need to learn about any mortgage loan before you get one so that you don’t get foreclosed on later on due to knowledge of the loan. Then you’ll just blame the mortgage lenders like everyone else. Use a mortgage calculator to figure out what you can afford each month and stick to that or even less so that you give yourself some room to play with.

Knowledge Will Save You Thousands
The Free Mortgage Calculator

Should I Wait To Buy A Home Until Real Estate Drops Lower?

This is a funny question because people will just listen to anyone about whether real estate is still going down or if it’s coming back up. The truth is I could probably give you 10 good reasons why it’s turning around and possibly change your mind into buying a home very soon. I could also write a second article about how horrible the economy is and get you to wait another year before buying a home.

So Who’s Right? Is there even a right answer?

Let me ask you something: Is gold still going up or is it coming down? Will Google’s stock go over $600 in the next year? If you actually knew the answer to those questiong you’d probably buy them, but you don’t know the answer and neither does anyone else. Just like NO ONE knows if real estate will go up or down in the next year. They just don’t know..

However, I will discuss why I think it’s a GREAT time to buy a home whether real estate continues to drop or not. Even if you buy now, while it’s down 40%, and it goes down another 10% before making an upward move you still made a great deal. You also won’t have to try and join the massive crowd that starts to buy when things do turn around.

Gold keeps going up because people keep buying it. Right now people aren’t buying homes so owners are dropping their price lower and lower to sell it faster. Until people start buying the market will continue to lower. That’s YOU included.

If you have the time to sit around and wait for real estate to pick up again then keep a very close eye on the real estate market every day. Starting now! Look for foreclosures so that you can get a very good deal and trust me, you’ll find one. Be patient and just wait for the deal and the home that you want.

FACTS

1. Real estate on average is down over 30%
2. If you find a foreclosure you buy into a down market of 50%
3. Current interest rates are at an all time low. Fixed rate mortgage 4.75%
4. Yearly taxes are much lower due to lower values of homes
5. Owner occupied homes only need a 4% down payment  

Assume a stock was $3.00 per share and it’s down to $1.50 now and you think it’s a good buy so you buy it. Would you be mad if it went down to $1.20 before it went back up over $2.00 again?

That’s the point I’m trying to make with real estate. No ones asking the question: Will real estate ever go back up? They’re asking when? Well look at the facts above and tell me it’s not a great time to buy right now. It may go slightly lower but it will come back up in a hurry and you could miss it all together because you wanted to wait a little longer.

Right now the power is in your hands completely because you aren’t the one possibly in foreclosure or about to be if you can’t sell your home in the next month. A lot of people are in trouble and NEED to get rid of their homes. That’s where you come in and make low offers just to see what happens.

Don’t listen to your real estate agent when they say “You could insult the seller with that low offer”. WHO CARES! You have the power, not them. You can offer whatever you want and the worst they could say is “no thanks”. Do whatever you feel comfortable doing and that’s it.

Make sure you use my free mortgage calculator to help you figure out how much of a mortgage payment you can afford. I also have the current interest rates listed for the different types of loans available.

Knowledge Will Save You Thousands
The Free Mortgage Calculator

Current Interest Rates on Adjustable Rate Mortgages – ARM Rates

The current interest rates on an adjustable rate mortgage vary between the few options available. You can get a 1 year ARM, 3 year ARM, 5 year ARM and possible a 7 or 10 year ARM as well. An adjustable rate flucuates your mortgage payment after the fixed period.

If you got a 3 year ARM (adjustable rate mortgage) then you’d get a solid interest rate for 3 years at your closing. You’d then have to keep an eye on the interest rates as they go up or down because your rate will adjust accordingly.

Right now in August of 2011 a 3 year arm rate is currently 3.625% and the standard fixed rate mortgage is at 4.75%. That gap stays very close together when interest rates go up or down. So if your ARM rate went to 4.625% after 3 years the new fixed rate would be about 5.75% as well.

The reason I bring that up is because after 3 years of having your ARM rate and you notice it’s about to go up you’ll immedietely start thinking about refinancing to a fixed rate. The problem is that you’ll go even higher which, again, makes it look unattractive.

$150,000 over 30 years

3 year arm 3.625% – $684/mo
30 year fixed 4.75% – $782/mo

So why is the adjustable rate mortgage more attractive? You’ll save $100 per month for the first 36 months which is about $3600. Your hope is for it to adjust down after 3 years which we all know is very unlikely. If interest rates were up around 15% I’d fully agree but right now there isn’t much room to move down.

About 4-5 years ago interest rates were over 7% and I would’ve loved to get into a 4.75% fixed rate mortgage. Maybe that’s why it looks so attractive to me, but I still love the fact of getting into a monthly payment and knowing what it will be throughout the life of the loan.

Are you a gambler? What are the odds of a 3.625% interest rate going down 2% in the next 3 years to 1.625%? What are the odds of it going up 2% to 5.625% in the next 3 years?

If your rate goes up 2% to 5.625% your monthly payment moves from $684 to $863. Then it changes after one year for the life of the loan, going up or down each year. To be honest I’m stressed out just discussing it in a blog post nevermind being involved in the actual mortgage.

A BIG problem with ARM Rates

If you look at the example above it shows that you can save $100 per month right now by getting a 3 year arm rate rather than a fixed rate mortgage. The BIG problem is that people will use that extra $100 to buy more of a home. Assume you get approved to spend $700 per month on just your mortgage payment. Well it looks like if you try to get approved for the 30 year fixed rate with a payment of $782 you’ll get denied. However, the 3 year arm will get you approved for the home that you’re currently in love with.

This is like putting all the money you have on black or red at the casino! If interest rates go up AT ALL you won’t be able to afford the home and probably get foreclosed on. Why do people do this to themselves? Why do banks allow this to happen? I’m not sure, but I know I won’t be one of them.

Be more careful with the money you have and worked so hard for because if you go down you’ll go down HARD. First you’ll sell your car for extra money, then have a yard sale for a bunch of household items, then have to sell you house and move to who knows where. Then you’ll have horrible credit for the next 2-3 years. I hope that’s depressing enough for you to avoid any ARM Rates right now!

Knowledge Will Save You Thousands
The Free Mortgage Calculator

Interest is Calculated the Same on All Loans

Don’t get different types of loans confused. Car loans, mortgages, personal loans and credit cards are all the exact same type of loan. You borrow money and you pay a certain interest rate based on the collateral you give.

The first type of loan everyone gets in their life time is probably a credit card. A credit card company gives you a loan amount that you can spend at your leisure of say $5000. These loans are typically very high interest rates because they have nothing to sell of yours if you don’t pay the loan back. Usually anywhere from 15-30% based on your credit history.

The minimum payment will usually drag the credit card loan over about 30 years. What you want to do is use my mortgage calculator and plug in the amount you owe and the interest rate on the card to see what your minimum payment is over 5 years to pay that instead.

$5000 – Min Payment $110 

$5,000 x .25 (25%) = 1250 / 12 months  = $104/mo interest – $6/mo principal

Total Interest Paid – $32,500

The next type of loan with a high interest rate is a personal loan which I like much better. The interest rate is commonly around 10-13% in this 2011 economy and it’s an actual loan rather than a line of credit like a credit card. You’ll ask for a certain amount such as $5000 to start a small business or an online business for example.

Mortgage lenders will typically push this loan out over 5 years at 13% which is $113 per month for $5000. That’s not too bad and the good thing about it is you can’t continuously add to it like a credit card putting yourself more and more in debt. These types of loans will really boost your credit score if you pay the monthly payment on time.

$5,000 x .13 (13%) = 650 /12 months = $54/mo interest – $59/mo principal

Total Interest Paid – $1,825

Next is a car payment that you probably understand the most. The interest rate is usually very low in the 3-6% range with a good credit score because there’s collateral for the banks money. If your car is $5,000 and you get the loan over 5 years at 5% the mortgage calculator says it will be $193 per month. 

$5,000 x .05 (5%) = $500 / 12 months = $42 Interest – $151 Principal

Total Interest Paid – $661

A mortgage loan, like a car loan, has collateral as well. So they figure out the worth of the home to be sure they can get back the amount they’re loaning you. Current mortgage interest rates are in the 4-6% range right now and usually get pushed out over 30 years at a fixed rate. So if you got a loan for $100,000 at 5% over 30 years your mortgage payment ($536) would look like this:

$100,000 x .05 (5%) = 5000 / 12 months = $417 interest and $119 principal

Total Interest Paid – $93,200

Each type of loan has an amortization schedule because each time you make a monthly payment the total amount you owe goes down by the amount of principal. That means the second month will have less interest. The last example in bold above shows that $119 went to principal the first month lowering $100,000 to $99,881:

$99,881 x .05 = 4994 / 12 months = $416 interest – $120 principal

Then you add $500 to principal only:

$99,381 x .05 = 4,969 / 12 months = $414 interest – $122 principal

The same works for you car loan and personal loan. When you pay down part of the prinicpal you no longer owe interest on that money. The bank only collects interest on the money you have of theirs. That means you can use the same free mortgage calculator for any type of monthly payment with interest, not just a mortgage payment.

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.

Adjustable Rate Mortgages – ARM Interest Rates Explained

An adjustable rate mortgage is also known as an ARM rate which will adjust up or down each month or year depending on the prime rate. The prime interest rate is the base rate set by the government each month used as a starting point for mortgage lenders to base their interest rates on. So if it goes up then all adjustable rates will go up accordingly.

A fixed rate mortgage gives you an exact mortgage payment for the life of the loan while an adjustable rate mortgage changes once per year with a maximum of 2%. Usually the fixed rate will be slightly higher and look less attractive but it’s definitely the best option in this 2011 economy.

A fixed rate is the best option because after 30 years your adjustable rate could go from 4% up to 10% and the only good side to that gamble is that it could go down to 2% or so.. I believe an ARM rate was a great idea back when interest rates were in the 15-16% range because it had a lot of room to go down and save you money each month.

Types of ARM Rates

3/1 ARM
5/1 ARM
7/1 ARM
10/1 ARM

Usually people look at these adjustable rates because the interest rate is lower and offers a lower mortgage payment to start. Currently, a 30 year fixed rate is about 4.75% and the 3 year ARM is 3.50% which is a difference of $109/mo on a $150,000 mortgage. This makes it look pretty attractive to most people.

The 3/1 ARM means that your interest rate starts at 3.50% and stays fixed for 3 years. Then it adjusts up or down with the prime rate once per year each year after. So in 3 years if interest rates have gone up to 6.50% which isn’t that difficult your monthly mortgage payment would go from $673 to $948 per month.

Now if you were worried about saving $109 so much that you went with the adjustable rate in the first place then I doubt that you can afford this mortgage at 6.50%. And refinancing to a fixed rate at this point is even harder because it’s still higher than the adjustable. So you’d have to go from 6.50% to 7.50% for the fixed rate in hope to not have to pay 10% interest in the future with your adjustable rate.

Adjsutable rate mortgages are VERY scary and I highly recommend getting the fixed rate mortgage first or switching to a fixed rate as soon as possible because rates WILL go up eventually. I can’t tell you when, no one can, but we all know that it will eventually. So don’t ignore it until it happens, act now and save that well earned money!

The 5/1 ARM 3.75%, 7/1 ARM 4.00% and 10/1 ARM 4.25% are all the same concept but has slightly higher interest rates for each and a longer fixed payment. The 5/1 ARM keeps your first mortgage payment for 5 years, the 7/1 for 7 years and the 10/1 for 10 years.

Each of these adjustable rates will still change every year after the fixed rate portion is up leaving you stressed about where interest rates are going on a monthly basis.

Use my free mortgage calculator at the bottom of this blog and on my home page to play around with the current interest rates. Plug in the mortgage amount you plan on getting and then enter a rate of 4%, 5% and 6% to see the difference an interest rate can make on your monthly payment.

Play the Game instead

This game I’ll be playing is a great idea to pay your mortgage down faster. I have, in my mind only, got an adjustable rate mortgage (but I really have a fixed rate mortgage at 5% right now). I do this because when interest rates go up to 6.5% I’m going to recalculate my mortgage using my mortgage calculator and start paying that amount.

So $150,000 at 5% is $800/mo ($140,000 in interest) but when it goes to 6.5% it will be $950 which is $150 each principal payments to my mortgage each month which will save me $45,000 in interest over the rest of the mortgage!!!

If the interest rate goes up to 7.5% I’ll save another $25,000 because if I had my adjustable rate I wouldn’t have a choice but to figure out a way to pay the higher amount so I’m going to anyways. 

You only have to pay off one house in your life time so get it over with and stop paying a mortgage or rent of any kind!

Ways To Lower Your Mortgage Payment

It seems like during and after the housing crisis, those looking to buy were in the best position. Mortgage rates lowered, the government offered incentives and builders were practically paying shoppers to buy their homes. What about families already in a home that want to take advantage of the low interest rates? Well, luckily there are easy and hard ways to lower your mortgage payment. 

          A popular way to lower your mortgage payment is to refinance. This option may not be right for everyone. But may be ideal if your financial situation has improved. If you’ve paid off a large balance on a credit card or your income has increased then perhaps you’ll garner a better interest rate than you had before. This method may work especially well if you have a lump payment that you can apply toward the principal.

          You could also extend the term of the loan. Extending the term five years on a 15-year loan can save you over $100 on the monthly payment. However, by increasing the length of the loan, you pay and extra $20,000 in interest.

          If you don’t want to stay in your current home, there are also options.  You could downsize to a smaller home with less mortgage. One interesting option is to buy and live in a multi-unit rental property.

You can live in one unit and put the rent you collect from other units toward the mortgage. If this type of situation is right, you could avoid putting any money toward the mortgage at all. But you will have to deal with tenants.      

          What are you waiting for? Interest rates are still at historic lows.

Take advantage of the situation, talk to your financial institution about ways you can lower your mortgage payment.

Interest Rates are Still Low – Make Sure You Have a Current Rate

Though federal incentives to purchase a new home have run out, there are still a lot of great deals to be found in the housing market. Before you go shopping, remember that current interest rates are still low. Make sure you have a current rate by using these methods:
Shop around. A mortgage is just another product. Most of the time, we look for the best deal on groceries, why not do the same for your mortgage? Just like saving pennies on a pound of ground beef, you can save thousands of dollars over the course of the loan. You can begin at your financial institution and other local banks or shop online and compare standards and rates for institutions all over the country.
Fix your credit. This one may take a while but addressing your credit and debt can make you an ideal candidate for an excellent rate.
It can be as easy as ordering a free credit report and resolving issues. You also win by paying of consumer debt, especially if your debt-to-income ratio is close to 50%. Paying down a credit card will decrease your debt to income ratio, making you more attractive as a borrower, so does paying your bills on time. It seems like a no-brainer, but a lender will take a risk on someone who can’t pay a smaller bill on time.
If you already own a home, you can refinance to get a better interest rate. Refinancing to get a better rate could lower your mortgage payment significantly.
If you’re ready for home ownership, it may still be a good time to buy your dream home. Tax incentives may have expired, but good interest rates can still be had if you do your research and keep and eye on your credit.