How Often Should You Make Your Mortgage Payment?

If you’ve done any research into home ownership, then you’ve undoubtedly run across the various ways that making your payment differently can impact your lifetime cost (in terms of interest), and how long it takes to pay down your mortgage. Typical schemes include making one extra payment per year, or dividing your payment in half and paying the same amount each month, but in two installments. Fox News explores the impact of taking it one step farther and making weekly payments.

 

What’s Your Mortgage Plan?

For most people, the only possible mortgage plan is to pay it off as quickly as possible.

 

 

There’s nothing wrong with this attitude in general, but did you know there are many situations where it may not be best?

 

For instance, what if you pay your loan off in 15 years, just as Junior is entering his freshman year at college? You’re footing the bill, so you tap home equity to pay for school. Unfortunately, you may end up paying a much higher ratethan you could have if you had put your extra dollars toward a college savings plan rather than your home loan.

 

Many other scenarios relate just as well. For example, how do extra mortgage payments stack up next to investments in retirement savings? The purchase of adequate insurance coverage?

 

We’re always happy to have a conversation about the future benefits you may realize when you establish a well thought-out plan specific to your needs today. After all, taking action now is the best way to achieve your goals for tomorrow.

How Deep Is Your Well?

The concept of “getting out of debt” commonly rules our thinking when it comes to financial planning.

 

But there are two types of debt. One is to be avoided, and the other can be used strategically.

 

For instance, if you carried over last month’s meal charges and are now paying a high rate of interest to finance meals that are long gone, that’s not good debt.

 

Alternatively, having a loan that’s offset and secured by an appreciating asset can actually serve you well. Why? Two reasons:

 

1. Using other people’s money to leverage an asset that usually rises in value (such as a home) often proves highly profitable. Inflation works to the owner’s benefit and against those who provided the cash. The owner’s advantage is even greater when the cost of funds is low because the value of the asset can rise faster than the value of interest paid.

 

2. Leveraging someone else’s cash allows your assets to remain more liquid. Liquid assets can help create a reserve well that is not only deep, but also far from dry. Having more of your own money when the need or opportunities arise can be safer, faster and less costly than scrambling to borrow funds quickly.

8 Tips to Make Your Move Easier

Tip #1: Choose a Reputable Moving Company
If you’re hiring a moving company, make sure you select a reputable company. The Internet can be a great resource for this, if you’re not sure where to start. Angie’s List, Yelp and The American Moving and Storage Association (www.amsa.org) are a few good resources to check out. It’s important to shop around, interview several movers and get written estimates for the job. Make sure you’re working with an insured service that provides compensation for loss and breakage.

Tip #2: Plan Your Move Early
Ideally, you should start planning your move two months in advance. Don’t forget, lots of people move around the first of the month when leases expire, so it’s a good idea to reserve your truck and moving crew a minimum of two weeks in advance.

Tip #3: Label Your Boxes & Take Inventory
Labeling your boxes and keeping an inventory for each room will help you get organized quickly in your new location. You can also use this for insurance purposes to determine your declared value for the moving company.

Tip #4: Secure Your Valuables
Consider locking valuable jewelry in your safety deposit box on moving day. Or, if you’re moving a long distance, carry precious items yourself to prevent them from being lost or stolen.

Tip #5: Back Up Your Computers
Make sure you have a backup of your computers, and put the disks or external drive in a separate box from the computer. That way, if by some chance your computer is lost or damaged in the move, you will have a backup of all your important files.

Tip #6: Take Photos of Computer & TV Wiring
If you’re not entirely computer or electronics savvy, take a photo of the back side of your computer or television setup, so you know where the wires are plugged in before you take it apart. This could be a huge time-saver when you put everything back together in your new home.

Tip #7: Keep a Record of Your Moving Expenses

Your moving expenses may be tax deductible, so keep a list of all your expenses, including miscellaneous expenses for packing, truck rental, etc. This will be convenient to have at tax time.

Tip #8: Pack Your Survival Gear
Get a clear plastic box (it will be easy to find amongst the other boxes) and pack it with the things you will need the first day in your new home. If you have children, pack a box of their favorite toys to keep them busy in a safe area while the rest of the house is being unpacked. Have each family member pack a personal overnight bag with basic essentials such as toothbrush, toothpaste, hairbrush, change of clothes,
etc.

Do’s and Don’ts for Getting an Ideal Mortgage

Here are some DOs and DON’Ts you should consider when you seek to get an ideal mortgage:

Do’s

1. Make loan and other debt payments on time, especially over the months leading up to the filing of your mortgage application. It sounds simple, but every 30-, 60- or 90-day delinquency on a loan or credit card will reduce the credit score the lender ends up considering as part of the loan file. That score, in turn, will determine the interest rate you get on your home loan.

2. If something has to be missed, miss the credit card payment first, followed by the payment on any installment loan you might have, and finally, the payment of an existing mortgage. Because credit-scoring systems look at the performance of similar loans first when deciding what type of score to assign, it’s best to follow this order. This will give the most weight to the performance of another mortgage, for example, then the performance of something like an auto loan, which features fixed payments and a fixed rate the way many mortgages do. Payment performance of so-called “revolving” loans, like credit cards, which feature variable payments that fluctuate with the outstanding balance, is typically evaluated last.

3. Consider paying off more debt and putting down a smaller amount at closing. This move will leave you with a larger mortgage, but it allows you to replace non tax-deductible, high-interest rate debt with lower-rate mortgage debt that features deductible interest.

4. Get the mortgage first if multiple financial obligations are going to pop up in the near future. Numerous credit inquiries, such as credit card applications, can hurt your credit score, especially if they’re filed in the months prior to the home loan review process.

5. Increase the size of the down payment you’re able to make by saving as much as possible, as often as possible. Evaluate money market or other accounts that offer reasonable rates of return, automatic payroll deductions, or other financial incentives to save.
While these are all great steps to follow, you also have to consider what you shouldn’t do as well. Resisting the temptation to overspend is at the top of the list.

 

Dont’s

1. Don’t make any big purchases over the next couple of months. Besides the obvious fact that it makes less money available for the down payment, it might require you to get yet another loan. A significant debt such as a $15,000 auto loan will look bad to the mortgage lender as they review your credit-worthiness. Plus, this adds to your monthly expenses and may affect your ability to qualify for the mortgage loan you want.

2. Don’t try shooting for that six-bedroom house in the Hamptons if it’s going to be too much of a stretch in your current budget. Lenders consider what’s known in the industry as “payment shock” when approving loans. Someone who goes from a relatively small monthly housing payment to a large one either won’t qualify for a mortgage or will end up having to cover too much loan with too little money.

3. Don’t just get pre-qualified for a mortgage; get pre-approved. To get pre-qualified, you only need to submit credit and income/debt information voluntarily to a mortgage broker or lender. The lender then estimates the amount of home the borrower will qualify for. Before the borrower gains full pre-approval, the lender must pull your credit report, check your debt-to-income ratio, and perform other underwriting steps. Pre-approval gives the borrower more buying power and extra leverage when making an offer to purchase a home.

4. Don’t forget what kind of spending habits you have when getting a mortgage. By taking out a 30-year fixed rate loan rather than a 15-year mortgage, and investing the money saved on monthly payments, you might earn a higher return on your money in the long run. But, that approach won’t work if you enjoy dinner and a movie twice a week. If you’re a compulsive spender, the 15-year loan would force you to save your money and accumulate equity faster by going with the shorter term and higher payment.

If you can afford to rent…

Did you know that if you can afford to rent, you can probably afford to own?

Here are three basic factors for qualifying for a home loan:

Income – If you have a job or steady source of income, you’re off to a great start.

Down Payment – Many programs will work with 5%, 3.5%, and in some cases, even 0% down. Sometimes, closing costs can be paid for you as well.

Credit – Even if there are a couple of dings on your credit report, there’s probably a loan program for you.

That’s it. These three items are the fundamentals of mortgage lending. If you work and pay your bills on time, you may already be well on your way to homeownership.

Finding the Money to Close Your Loan

With vigilant focus on the source of funds for closing mortgage loans, it’s important to know what’s acceptable. Here’s what you need to know and what you’ll need to provide:

 

 

  • Mattress Money or any “cash on hand” is not acceptable. All funds must be “seasoned,” which means your money needs to be in an institutional account (bank, credit union, brokerage, etc.). You will need to provide all pages of up to three months of consecutive statements for proof these funds are yours.
  • Gift Funds are OK with a signed “gift letter” (a form we provide) and evidence of the donor’s ability (a statement showing sufficient funds). Later, we’ll need copies of the check, deposit slip and account statement to show the transfer into your account.
  • Assets Being Sold, such as a car, boat, collectible or anything of value you are selling, require proof of ownership (such as a registration or title) and evidence of value (blue book value or appraisal). After the sale, provide copies of the receipt and the check and deposit slip showing the transfer of funds to your account.
  • Other Examples include loans from employers or against retirement savings, grants, inheritances, proceeds of sale from other property, loan paybacks and winnings. Be prepared to show the source of funds, evidence of transfer into your account and any supporting documentation of value, terms, service provided, etc.

 

TIP: If you have time and want to minimize paperwork, consolidate all funds into one account at least two or three months prior to closing. Save any and all evidence of transfers and deposits and keep activity to a minimum.

 

Never hesitate to ask questions when you’re unsure about what will work and what will not.

What You Need to Know About Gift Money

If you’re getting gift money to help finance your new home, here are a few things to remember:

 

 

The “Donor” of the gift must be a family member, fiancé or domestic partner. They must prove they have the ability to provide you with the gift by providing a copy of their bank statement, a copy of the canceled gift check and/or a signed letter from their bank saying the funds are available.

 

The “Gift Letter” is a form we will provide. The donor will need to complete it with basic information and a signed statement that the funds are a gift with no expectation of repayment.

 

The “Transfer” must be documented carefully. Make a copy of the gift check and deposit slip or of confirmation of the wire transfer. Deposit the gift in the account you’re already using for verification of funds to close. DO NOT combine this deposit with any other incidental deposits. Provide either an online update or the next account statement to show that the deposit cleared into the account.

 

Some programs allow for the entire down payment to be in the form of a gift. Others may require that you have at least 5% of the purchase price from your own funds. As these rules can vary or change at any time, never hesitate to consult with us for the specifics as they relate to your transaction.

 

While the documentation requirements may seem excessive at times, please remember that the underwriters are simply following the rules to assure that your down payment is not borrowed and that any allowable gift funds are coming from acceptable sources.

Are You Still Paying the Landlord?

Still Writing Checks to the Landlord?

Home loan payments are now often less than rent payments!

If you don’t intend to stay in your home long, need extra mobility or are unsure about your employment prospects, renting probably makes good sense for you. But if you’re planning to stick around, owning may prove to be more rewarding. Here are five good reasons:

 

  • Rates are near historic lows, and prices are still well below the past peaks. This unusual combination places the real cost of purchasing a home near a 50-year low.
  • Buying builds equity. On most mortgage loans, you pay down the principal balance with each payment. This typically starts at about $100 per month for every $100,000 of loan balance and increases each month through the entire life of the loan. To make a fair comparison, be sure to subtract principal paid from a home loan payment vs. the cost of renting the same property.
  • Home values rise over time. Increases are not guaranteed; however, if we use the last 50 years as a guide, values have typically risen at a pace above inflation.
  • Homeownership often brings tax benefits. Deductions for home mortgage interest and real estate taxes save many homeowners thousands every year. Others still find taking the standard deduction more beneficial. Always consult your tax pro for advice.
  • It’s more than just the money. Families become rooted in a neighborhood, school district and community. Homeowners have the freedom to choose paint colors and make modifications. Pets are welcomed. Intangibles like these often formulate the most valuable returns.

Housing is a precious commodity that we all need every day. It’s your choice to rent or to own, yet buying a home for yourself usually beats buying one for your landlord.

What’s standing in your way of refinancing?

What perceptions might be keeping you from saving money with a refinance?

 

“I’ve read that the rate needs to be 1% or 2% lower than my current one.” When average loan amounts were much lower, it took a much bigger drop in rates to achieve tangible savings. Today, even small rate differences can make a big impact. The best way to determine value is to simply divide your costs by your savings. This provides a “break-even” period, and if you know you’ll be using your loan past this point, the rest is pure benefit.

“I haven’t yet reached the break-even point from my last refi.” That may be okay. Refinancing again will require additional investment, but it could get you to an overall break-even point—and greater savings—more quickly.

“I don’t want to add years back to my loan.” The new loan term created when you refinance is only on paper. You determine the actual length of the loan by how much you pay. If lowering your interest rate saves you $100 per month, add that money to your new payment. You will reduce your balance more quickly and reach free and clear ownership faster than you would by keeping your current loan.

“It’s too expensive.” I’d rather save my money. Refinancing is all about saving money! The historically low interest rates that make refinancing such a good deal right now also make “saving” your money in the bank a lousy one. Banks are paying just fractions of a percent to hold your cash, but investing in a refinance could save you hundreds of dollars per month for a far greater yield on your cash.

Example: If closing costs = $3,600 and annual savings = $1,200 that’s a 33% rate of return on your money ($3,600 x 33.3% = $1,200).

Even better, you can often refinance without using any funds “out of pocket.”

Refinancing can have other benefits, too. A lower rate may mean not only a smaller payment but more paid toward principal each month, too. You may be able to free up cash for renovating your home, financing a college education, purchasing a vacation home or investing in property without adding to your monthly expenditures.

Are you ready to explore you refinancing options by the numbers? We’re here to help.