Personal Finance Ology

Everyone seems to say that buying a home is always better than renting. Well tell that to all the people in the states hardest hit by the subprime crisis. They now know that there are risks associated with owning a home. It isn’t always a good idea to buy. I plan on giving you a few things you should think about before making the plunge into owning your new home.

Reasons to buy:

You plan on settling down and would really like someplace more permanent.

Over the long term, they tend to be good investments. The population keeps growing but land doesn’t, the price of homes with land should theoretically keep going up.

You are benefiting from your monthly payments, not your landlord. Often your payments are going to be larger when you are buying your own home, but some of that money goes to pay down the mortgage. This is money you will get back when you sell.

Reasons not to buy:

You plan on moving soon. Realtors take out huge chunks of the sale price. If you buy then sell shortly after, it is hard to get all of your money back. Even if you are in a good market, the price of the house would have to go up significantly just for you to break even.

If you don’t need a lot of space. Sharing an appartment with another person or two is often cheaper than buying your own place. If you don’t mind living with others, you could probably save more money if you shared an apartment with a few other people.

You are lazy and don’t like taking care of a yard. Either you have to do the work yourself, or you have to hire someone to mow the lawn. This costs you either time or money which I’m sure you don’t have enough of.

Things to think about before you buy:

If you are really interested in saving money, do the calculations before you buy. I would assume that the value of your home stays the same to be on the safe side. To make a like comparason of home vs rental, figure out your monthly payment for both house and rental. Make sure you include all the small things that go along with a house like maintenance, taxes and utilities.

For an amortization schedule and calculator check out this amortization calculator. Here you can see how much you actually are ‘paying down the house’. Most people are surprised to see how little of it goes to pay down the house. In the first few years of home ownership, most of your mortgage is going to pay interest to the bank. Very little of it is going to pay off your home.

Filed under: debt, equity, home ownership, interest, mortgage, saving by admin - 171 Comments →

Everyone can relate to the constant search for the home they have created in their heads. Many of us can also relate to the effort and commitment it takes to finding that dream home. If I could offer a sound piece of advice it would be that a dream home is better created than located. The most important reason for this is the instant equity that’s added to your home once it’s enhanced to your liking.

I have found that a lot of my clients are pleased at the idea of finding the home of their dreams, however once they inhabit their new home their desires become more detailed and they see things they would like changed or added. After making this observation, I continue to look for houses most suited to their needs, but also those that can be “transformed” into exactly what they want.

Increasing the equity in your home is just as important as bargaining for a good selling price. The equity in your home becomes a concern when you are afforded the protection of becoming upside down in your mortgage simply by its presence. Other bonuses in focusing on your home equity are the opportunity to use it as a down payment on an investment property or use it to pay for unforeseen expenses that may arise in an untimely manner.

Purchasing a home that can be upgraded to your liking allows for an opportunity to gain a great deal on a house, as well as, create invaluable equity in the home. By initiating improvements to the home you are not only satisfying your appetite for your dream home but you are also creating a larger gap between the current value of your home and the balance of all financial obligations pertaining to the house. This created equity can be a nest egg that offers itself to other financial endeavors and is also instant money in the bank. As tempting as it may be to purchase a ready made home, there are advantages in purchasing a home that can be molded into our very own.

It is important to make wise additions to the home. It can be said that all improvements add equity to your home, however, there are a few that are more advantageous than others. For instance, it will offer more value to your home to focus on the kitchen by upgrading the appliances or installing tile showers in the bathrooms rather than the addition of a pool or Jacuzzi. While the value of a luxury pool and Jacuzzi doesn’t offer much addition to equity the outside venture of repainting or restaining a porch or deck is beneficial. Another great equity builder would be to upgrade the bedroom closets. These ventures solidify an increase in equity, as well as, our satisfaction with our purchase.

Home equity is often overlooked as many tend to focus primarily on paying off the debt induced by purchasing their home. However, there is importance and great value in creating equity and constantly finding new ways in gaining higher equity in our homes. Home improvements are one way of making our home work for us by gaining profit. Some other ways of building additional equity in our homes would be a higher initial down payment, extra principle payments and shorter mortgage terms.

Simply put, the increasing of equity in our home is one of the easiest and most successful paths to wealth that is available. It’s almost too easy! The value of your home is rising due to your improvements. As you continue to lower your mortgage by making your payments your nest egg is growing. Almost instantly you have turned your dream home into an asset you can use for future purposeful activities that can afford you the pleasures of increasing your bank account.

Photo by: Concept to Creation

Filed under: equity, home ownership, mortgage by admin - 136 Comments →

Most loans fall into three major categories: Fixed-Rate, Adjustable-Rate, and Hybrid Loans, these combine features of both.

Fixed-Rate Mortgages

A fixed-rate mortgage carries the same interest rate for the full length of the loan. Due to their fixed monthly payment a lot of homeowners opt for this mortgage. It makes it easier t o budget your money knowing that your mortgage payment is going to be the same every month. This option can also help protect against inflation being that the interest rate is locked in. Fixed-rate mortgages are most common in 30-year and 15-year terms. However, more lenders have begun offering even 40-year loans.

Adjustable-Rate Mortgages (ARM)

Adjustable-rate mortgages have an interest rate that can change over the length of the loan. This is because the interest rate is tied to an index, measure of interest rate changes used to determine changes in the loan’s interest rate over the term of the loan, which may rise or fall over time causing your monthly payment to change as well. ARM loans usually have caps that limit the rate from rising above a certain amount between adjustment periods, the length of time between interest rate changes. This is usually no more than 3 percent a year. For example, a one-year ARM-interest payment would change annually. There is also a ceiling on how much the rate can go up during the life of the loan. This is no more than 6 percent. These caps protect you against dramatic increases in the rate. With these protections and low introductory rates, ARM loans have become the most widely accepted alternative to fixed-rate mortgages. One last important to note is that some ARM loans have what is called a conversion clause. This is a provision in some loans that enables you to change an ARM to a Fixed-Rate loan. However, you usually cannot do this until after the first adjustment period and you may have to pay additional fees.

Hybrid Loans

Hybrid loans combine the features of both fixed-rate and adjustable-rate mortgages. Usually, a hybrid loan may start with a fixed-rate for a certain length of time and then later convert to an adjustable-rate mortgage. This may seem like the perfect situation for you, however be sure to find out how much the rate will increase once it is converted to an adjustable-rate mortgage. Alongside knowing this, you should also be aware that some hybrid loans do not have interest rate caps for the first adjustment period.

I would caution you to be very careful when choosing a hybrid loan. They can be very tricky. Some lenders will charge an introductory interest rate that is lower than a competing fixed-rate loan just to get you to choose their loan. However, this interest rate may later change to another, usually higher fixed interest rate for the time left on the loan. So before choosing a hybrid loan, be sure to consider all of these facts and ask as many questions as you need to get a full understanding of the terms of the loan.

This article certainly talks about a lot of different loans. However, it is important to gain a full understanding of the decision you are making when you are committing yourself to such a long-term agreement. Be sure you understand everything you are signing and why you have to sign. And with that said here’s to the progression of financially responsible homeownership!

Filed under: mortgage by admin - 113 Comments →