• Posts Tagged ‘mortgage’

    Fixed vs Variable – Which Home Loan to Choose

    by  • May 12, 2014 • Tagged: ,  • Comments

    I couldn’t imagine that when we started this blog on New Year’s Day in 2006, that I would ever be writing that we are now homeowners. As far as blogs go ours is fairly ancient. We started out as young-ish 20 somethings with a net worth in the red, and now we’re older, have a family, have a positive net worth, and now own property. Actually, the bank owns the property and we’re borrowing it from the them.

    Is there still a crisis going on?

    Buying a house never really entered our collective brains until recently, and I hadn’t been keeping track of how the mortgage situation was going since the crash of 2008. Were people still being foreclosed upon? Were more homes being built and bought? So off I went to do some research. After realizing that really not much has changed, I plugged in our numbers to various housing calculators and landed on a price of house that both Her and I could agree upon. After that, we went about seeking out vendors to provide to us a home loan. This was harder than we thought it would be.

    Take my money

    On the advice of every financial resource out there, we went comparison shopping to get a loan. We started by getting the recommendations of mortgage brokers from trusted family and friends (as opposed to our shady underground ones, I guess) and started calling around. Weirdly enough, it didn’t really seem like any of them really wanted to talk to me. I would ask about their mortgage products (what a silly term) and they seemed like they were very, very exasperated that I didn’t do my homework. Well then, I’ll do my own homework.

    There’s really only two main options: Fixed vs Variable

    At the end of the day, what you’re looking at are fixed-rate vs variable-rate mortgages. Interest rates in fixed rate mortgages, if you haven’t figured it out by the name, stay constant for the life of the loan, whether it be 5, 15, or 30 years. They’re nice if you don’t like surprises (I generally do, but not BAD surprises) and like to pay the same amount for a very, very long time. Variable rate mortgages have interest rates that can…wait for it…vary over the life of the loan. Of the most well known are the adjustable-rate mortgages, in which the rate low and stable for a short amount of time (a teaser rate), and then changes yearly based on the moon cycles, tides, and the prime rate (okay, only the last one). An example would be a 5/1 ARM, where the interest rate stays fixed for the first five years, then may change every year after that.

    Interest-ing things to consider (haha get it?)

    With a fixed-rate interest mortgage, you’re actually paying less over time, assuming that inflation takes its toll. Also, like I said above, your payment will never change over the life of the loan, which makes cash-flow predictions and budgeting easier.

    With a variable-rate interest mortgage, the increase in interest rate after the initial teaser period might increase your monthly payment to an unsustainable amount. Some may ride out the teaser payment period and try and refinance at the end of the period, but then if you’re doing that then you may have bought too much home. These loans are popular among those who buy homes and flip them, as they assume that they’ll unload the home before the interest rate resets.

    Our decision

    As we were looking for our “forever” home, we didn’t want any surprises in the long run. After I did my due diligence, I decided that a fixed-rate mortgage was right for me and my family. I still called around to find the best rate, and definitely negotiated both the home and mortgage costs. We’ve now been in our home for a few months, and I can say that it’s been the right decision for us.

    Getting Rid of the For Sale Sign: How to Get Approved for a Home Mortgage Loan

    by  • November 24, 2013 • Tagged: ,  • Comments

    The dire straits of the economic recession are still taking their toll, especially within the struggling real estate market. There are millions of people throughout the United States who are eagerly searching for ways to qualify for a mortgage loan so that they can get the keys to their new home as soon as possible. Studies have proven that there are several key steps that can be taken in order to make this process fly by from start to finish much sooner than the average consumer might realize.

    Save Up a Lump Sum of Money

    Keep in mind that getting approved for a mortgage loan is only going to be half of the battle. In most cases, you can improve your chances of getting approved for a great interest rate and overall deal by saving up a substantial sum of money as an upfront down payment. Even if you need to save money for several years, the great deal you will qualify for with a substantial down payment will truly be well worth the wait.

    Search for the Best Interest Rates

    Another vital step that needs to be taken in order to make it much easier for you to get approved for a home mortgage loan is to search for the most competitive interest rates that are currently available. Many homeowners seem to search for competitive mortgage refinance rates years after they have purchased their home just to be able to gain some financial relief from the higher interest rates they signed up for initially. You do not have to subject yourself to these astronomical rates if you take the steps necessary to get a great rate today. Do not hesitate to shop around for estimates from a wide variety of mortgage lending institutions before finalizing any deal.

    Do Not Forget About Your Credit

    Several case studies have been able to prove that credit issues are the main reasons why there are so many American adults being rejected by mortgage lenders throughout the country. Keep in mind that less than 40 percent of adults in this country have actually checked their credit report within the past year, according to Experian. Therefore, checking your credit report should truly be one of the first steps that you take if you are serious about qualifying for a competitive home mortgage loan.

    A good credit score to have in order to qualify for a conventional mortgage loan is 680, based on a study conducted by the Home Loan Learning Center. If your score is nowhere near that figure, then you need to put your dream of home ownership on hold so that you can have plenty of time to address your credit issues right away.

    The Bottom Line

    The next time you drive by your dream home with the “For Sale” sign posted in the front yard, keep in mind that there is a chance you could be the one who finally removes that sign after purchasing the home. However, qualifying for a competitive mortgage loan today will help you to get the keys to that dream home, or a comparable model, tomorrow.

    We’re Buying a House…Sooner or Later

    by  • September 19, 2013 • Tagged: ,  • Comments

    Sadly, after almost nine years of renting an apartment and stable rent payments, we’ve decided that we need to get a bigger place to live. Our financial lives were pretty simple the past few years, even with the addition of a new family member. We’ve decided to turn our world upside-down and look for property to purchase. Of course this is going to be THE biggest purchase in our lives, so we sat down to look at the strategy we’d take in purchasing a home.

    The first thing we had to do was pull our credit reports and our credit scores. That’s easy and straightforward. Both of our credit reports were free of any errors or suspicious activity and or credit scores were above 760. We definitely started the process feeling pretty good and that when we went looking at getting a home loan we could 1) qualify and 2) get a good rate.

    The next thing we did was to get referrals from friends and family on mortgage brokers and other lenders. It turns out that everyone wants to offer up their particular mortgage person, so we weren’t short on referrals. However, it’s the next part that surprised me.

    I had been reading some books on how to shop for a mortgage, and even before we landed on a price of house I called up some of the lenders to see how they would react to some questions. I was surprised at the lackluster attitude of some lenders as they seemed like we would be too “high maintenance” of clients since I sort of knew what I was talking about. The lender we ended up going with was SUPER attentive with our questions and was available at any hour to make sure that anything that needed to get done was done.

    The home buying process so far has been a roller-coaster ride. For some reason it seems that the “perfect” place is always just out of budget. We’ve seen some magnificently awesome places (and magnificently out-of-budget) and dumpy wtf were the owners thinking kinds of places. It’s quite amazing to see what the housing bubble has done to raise the prices of a lot of crappy housing. We hope that we can get into a new house before it snows.

    To Love, Honor and Financially Obliterate

    by  • July 15, 2010 • Tagged: , , , , ,  • Comments

    underwaterhouse.png

    (photo: lionheartphotography)

    “A lot of people wonder how you know you’re in love. Just ask yourself this one question: ‘Would I mind being financially destroyed by this person?’”

    I first came across that quote hanging on my friend John’s fridge, soon after he started dating fellow friend Fahmi. Since Fahmi was on the verge of trading in her lucrative IT consulting job to head back to grad school, it wasn’t an idle question.

    Happily, Fahmi got her degree, John and Fahmi got married, and they’re now cheerfully bonded and financially stable.

    But for an illustrative example of just how literally that quote should be taken, there’s the tale of Dawn vs. The Leech.

    Dawn (not her real name) has been one of my best friends for a decade. About five years ago, comfortably before the housing boom’s peak, she and her live-in boyfriend decided to buy a house together. It was a pretty good deal: a recently foreclosed, two-bedroom place in a Western city for a tad over $100,000. Dawn had a stable job and could comfortably manage the monthly mortgage payment; her boyfriend, aka The Leech, was a contractor who could handle the house’s badly needed renovations. They bought the house on an ARM, planning to finish the upgrades and refinance the house before it reset.

    You see where this is going.

    Over the next few years, Dawn and The Leech got married and worked on the house, but the renovations never quite got done. Time management is not one of Leech’s strong suits. To finance the renovations, they tapped a home-equity credit line, which added a second mortgage to the house’s debt load.

    Then the economy tanked. The Leech wasn’t getting contract work the way he used to. At the same time, the ARM on the house reset, and the interest rate zoomed past 11%. Once-affordable payments were suddenly a big struggle. Like millions of other Americans, my friends were being bankrupted by their house. Somewhere in here a third home-equity credit line snuck into the mix.

    It’s easy to point fingers (“An ARM — what were they thinking!?”; “Never buy a house unless you have enough money saved to make the payments for uppitygazillion years without an income”; etc etc.), but as they say, hindsight is 20/20.

    Here’s where the situation gets really sticky. Dawn came up with a clever solution to the ugly financial math: move. She’d worked in NYC before moving out West, and had a job offer that would pay about twice what her local job did. With that extra cash, she could afford to keep up the house payments and also get a rental in NYC. So, after extensive discussions with Leech, she moved back East. The plan was that he would stick around for a few months, finish the house and rent it out, then join her in New York.

    It was a pretty cool plan. One that got blown to smithereens a month later when Leech moved his new girlfriend into the house. (Here’s the part I like best: He didn’t want to get divorced. He was pretty happy to stay married to Dawn, keep her on the mortgage … and live with the new chick. Logical thinking is *also* not one of Leech’s strong suits.)

    Now, all of this still could have worked out if Leech had the income to support the house he wanted to stay put in. But he doesn’t.

    Dawn — who was far nicer to him than I would have been — took a fair stab at weaning him off her financial support. They drew up an agreement under which she would keep paying into the mortgages for most of a year, while he got his act together. Which she did.

    A year later, shock of shocks, Leech was still broke. He promptly fell behind on the mortgages, obliterating his already-shaky credit rating and Dawn’s excellent one.

    So Dawn is now caught in an epically nasty situation: She’s getting divorced but is still on the mortgages for an underwater house she isn’t living in and can’t sell without the consent of the house’s co-owner, Leech. The full face value of the loans on the house sits at around $200,000. The house’s market value is maybe 75% of that.

    This has to be a pretty common situation these days, but all the researching Dawn and various lawyers have done turns up basically no good way of dealing with it.

    No lender will refinance the house notes into Leech’s name alone; it’s underwater and his credit is shot to %@$!. The best option is to sell the house, but a) that requires Leech’s consent, and b) it’s probably going to be a short sale, which won’t fetch enough to clear all the notes. The second and third lienholders have little incentive to agree to that — and even if they do, they could then still pursue a deficency judgment for the shortfall.

    So for now, Dawn is stuck taking a credit hit every month that Leech fails to make payments, and remains on the hook for a life-destroyinging giant sum of money. She’s been waiting for more than a year for one of the three lenders to finally get fed up and foreclose, but every time that seems imminent, Leech chucks the lender a small payment and manages to stave it off a bit longer.

    I know the advice, before you co-sign a whopping loan with anyone, is always to be really, really sure you know what you’re getting into. But how can you? Very few people get married expecting to get divorced, and yet, almost half of us do. Neuroscientists keep pointing out that we’re hardwired to be overly optimistic, make irrational choices, and stay in bad relationships.

    So on top of all the many, many ways we now know that buying a house can turn into a debacle, add this one: That mortgage can be more like a marriage. You might end up bound to the ball and chain till death — or something else equally unpleasant — do you part.

    The Price of Compromise

    by  • May 12, 2010 • Tagged: , ,  • Comments

    brownstones.jpg

    photo: somebox

    My husband David and I recently tackled the Big Scary Most-Expensive Thing You’ll Ever Buy investment: buying an apartment. In New York City. It was one of those “well, they say if it doesn’t kill us it’ll make us stronger …” experiences.

    The most financially fraught moments came at the end, at the closing table, where we forked over checks for pretty much every dollar we could lay our hands on legally. (We didn’t end up knocking over any liquor stores, but we briefly considered it when we saw the five-figure bill for property transfer taxes.)

    But emotionally, the big money-related hits came early on, when we had to decide how much we could afford to pay and what trade-offs we’d be willing to make.

    A thing we rarely agreed on. Even the best-matched couples aren’t going to have identical preferences and priorities.

    On the big-picture stuff, David and I were fairly in-sync. We had similar ideas about what kind of total monthly payment we’d be willing to shoulder, and we were both dead-set on only considering a 30-year fixed mortgage — no ARMs or interest-only exotic stuff for us, thanks.

    But within the rough framework of “we can afford X,” we had the usual stack of disagreements about what we should use that money to buy. The #1 rule of NYC real estate is “you will never get everything on your wish list unless you double your price range.” What stuff couldn’t we do without?

    I wanted a short commute. David wanted a second bathroom. I wanted two bedrooms.  David wanted a nice-looking block.

    I didn’t care about the block or the bathrooms; he thought a one-bedroom would be fine and wouldn’t mind an extra half hour on the subway. Everything on the list came with a price tag. So how could we pick? Whose wishes got to win out?

    I’d like to claim we talked it out like sensible adults, calmly bartering swaps from our own personal want lists. “OK, this place is a little further from the subway than I would like, but it has that second bathroom you want, so let’s go for it  …”

    There was some of that. We picked a building fairly quickly — which, I’ll admit, catered more to my preferences than his. Commute: great! Neighborhood aesthetics, not so great.

    But the building is fairly large, with more than 100 apartments and dozens of different floor plans available. Therein commenced the “discussion” about compromises.

    Which eventually escalated to yelling.

    We only had one really epic fight, but it was a full-decibel affair that led to several hours of us speaking to each other only via the cats: “Kea, go tell the human being on the other side of the room that if he wants dinner, I’m leaving it on the counter.”

    Finally, a day later, when we decided to again acknowledge each others’ existence, we hammered out a framework for decisions. The only way we (ok, I) could see to make either-or choices was to bow to the wishes of the partner who cared more about the issue.

    I would have preferred a walk-in closet to a second bathroom. But David felt really strongly about that one, so I said OK to his extra room and goodbye to my shoe-and-handbag haven. On the other hand, I desperately wanted the apartment with a small terrace — the proximate cause of our Waterloo, since David hates heights. After some extensive pleading on my part, he finally agreed to it.

    Buying a house (ok, in our case, “tiny living cube”) isn’t the only pricey investment that brings clashing wants to the fore. Cars, schools for the kids, even expensive appliances or furniture seem likely catalysts for showdowns. I’m curious how other couples have negotiated the peace treaties.

    “How Much Home Can You Afford?” Calculators Scare the Bejeezus Outta Me

    by  • June 22, 2007 • Tagged: ,  • Comments

    Between friends and coworkers, I’d say that 80% of the people I know are now homeowners, with many of them buying their first home in the last year or so. Admittedly, I’ve felt out of the loop.

    In the past, we’ve wondered if it were feasible to put down 20% on a home. The more I look at our future, it looks like that could be possible. As we’ve just paid off all of our revolving credit card debt, I’ve wondered (just for fun) how it would affect how much home we’d be able to afford. So in order to get a better idea of a number, I decided to run the numbers using four different online calculators, and maybe even see if I could get some of the best home loan rates.

    Before I get into the details of each calculator, there were some ground rules in the numbers to make everything even. I assumed:

    - $50,000 for a down payment, the approximate amount I’d like to save up before buying a home

    - Fixed 30-year mortgage at 6.25%, a reasonable guesstimate of what our interest rate would be considering our FICO scores

    - Annual property taxes of $2,300, an eyeballed average of property tax listings of condos in my part of town

    - Annual homeowner’s insurance of $659, the 2004 Illinois state average.

    - Monthly debt of $1,000, the minimum payment for the student loans

    The first calculator is the one (warning, this calculator is a java applet that will slow down your computer for a few seconds) from dinkytown.com. I’m pretty sure that it is the same calculator found on (also java) interest.com (disclosure: they may have ads on this site, on every page, or something). I like their calculator because it shows how much mortgage you can afford over a range of interest rates. But since we’re only looking at interest rates at 6.25%, I’ve gratuitously outlined the value in the chart: $318,883. Add to that a $50,000 down payment, and we have a value of $368,883. Not bad.

    The second calculator was the venerable bankrate.com‘s housing affordability calculator, which said we could afford a $368,902.36 home:

    bankratehomeafford.gif

    I next went to smartmoney.com to use their calculator. The mortgage amount was pretty much the same as was dinkytown.com stated, $318,835, making the final value $368,835.

    smartmoneyhomeafford.gif

    The last calculator I tried was CNN Money’s offering. This calculator gave me a range from $368,882.87-$397,846.38.

    cnnmoneyhomeafford.gif

    This was a fun exercise considering that a year and a half ago a calculator (erroneously) told us that we could only afford a $10,000 home!

    Why do these calculators scare the bejeezus out of me? Because I know for a fact that I’m not in the state of mind for home ownership. I’m still in young and carefree mode, and with a house comes a lot of responsibility that I don’t think I’m ready for. I think Mapgirl would agree with me on this one.

    The real scare is knowing how much more debt would be added to our tally. That is only slightly tempered by the fact that we’d have to be paying for housing whether we’re renting or buying…so why not build equity? I also have to keep in mind that these numbers represent the MAXIMUM amount of mortgage that we’d be able to handle. Her and I have had some pillowtalk discussions about how stretched thin we’d be if we bought the maximum amount of house we could “afford,” and how we’d rather not have to stress about the money.

    In the end, I know that none of this is serious. We’re not looking to buy until at least a few more years, both for maturity and saving’s sake. It does feel good though, to know that we’re making some financial progress.

    Is It Feasible For Us To Put Down 20% For A Home?

    by  • September 19, 2006 • Tagged: , ,  • Comments

    The home ownership bug has hit me as of late. This is a dangerous thing, apparently, as many hours of my day are spent looking at housing calculators, reading up about different types of mortgages, and most procastinating-ly, looking at various properties in Chicago (those virtual tours devour my lunch hour).

    I know I know – we are SO not in a position to buy a home. But hear me out.

    We’ll be credit card debt free in less than two years, freeing up about $1,000 a month for us. By that time we’ll be married, and we will have a nice chunk of wedding money and other money saved up – by my estimates around $20,000. (EDIT: Please note that the $20,000 is coming from wedding gifts and OTHER SAVINGS. My parents have comitted to giving us a $10,000 gift for our wedding, so there’s where half of it comes from.) Because we’re faithfully paying off the credit card debt, we’ll have excellent credit scores by then as well.

    A decent 2 bedroom condo in Chicago runs about $300,000, so a 20% down payment on that home would be $60,000. That is a considerable chunk of change, especially when we already have a mortgage worth of student debt to pay off.

    Is it feasible to drop 20% down considering our financial situation? What alternatives would you recommend?

    Mortgage on my mind

    by  • January 31, 2006 • Tagged: , ,  • Comments

    Today I saw this article in the Seattle Post-Intelligencer about the new face of poverty: the college grad. According to the article,

    About 40 percent of students now graduate with what lenders consider “unmanageable” debt loads, meaning their payments eat up more of their salaries than is considered financially sound.

    It may not be financially sound, but it sure sounds familiar. My parents believe that their children are not owed an education, and therefore we each had to pay for our own university costs. I feel this was a very costly decision, both in financial and life terms. One sibling of mine joined the military to get an education “for free” — serving our country for 25 years and still doesn’t have any promised degree. My other sibling put went to a top school — the resulting financial burden strained the relationship with my parents to the point that they haven’t spoken in years. As for me, my outstanding $136,000 in student loan debt costs us nearly $1,000 per month. The truly frustrating part is that the interest accumulates so quickly that some months the principal balance actually increases. This is equivalent to what some of our friends are paying for their mortgages, and it means we can’t afford a home mortgage until we pay off the mortgage on my mind.

    This amount of student loan debt has caused us to argue at times. He feels that I’ve already spent so much money that he should get to spend a similar amount on stuff he wants, including his doctorate degree in the future. I feel we have so much debt already that neither of us can afford to spend more. Of course, we are both right and wrong.

    My student loan debt is also going to impact our future finances. It will take 30 years to pay off this debt, and of course we will want to buy a home before we’re 55. So that means our mortgage application will inevitably include some student loan debt, which is dragging down my FICO score. So this debt will also cause us to incur more debt than necessary when purchasing a home. Hopefully we can pay the loans down more aggressively in the future and pay them off much sooner.

    If you can mortgage your mind, why can’t degrees grow on trees?