Rent vs Own

If you are a renter then you should consider all the facts about owning a home before you snuggle down comfortably in your rental abode thinking you have it great. If things are so great then why do most renters have no serious money in the bank? The fact is you are throwing money into the furnace and I will tell you why. First of all, you don't get any tax breaks for renting so Uncle Sam gives you back squat. Secondly, your apartment is not your asset so you will not reap any benefit when the building goes up in value. Lastly, every cent you pay toward rent goes into your landlord's pocket. Also, most first time home buyers think if they are paying a low rent payment then they are better off renting instead of buying a home which is far from the truth. Check out the rent vs own video which explains the numbers in black and white why it is better to own your own home unless you live at home for free. I thought I could live at home forever until my dad said "get out". Today I thank him for kicking me out because I would have never have met my wife if I did not venture out on my own. So, unless you plan on living with your parents until you are old and gray then I would advise you check out the American Dream of owning your own home.

2-1 Buydown Mortgage Loan

A couple of years ago, first time home buyers were able to purchase a new home with some great adjustable rate programs but rates have gone up on these type of loans and now they are searching for more stable loan programs which keep their monthly mortgage payment low. The 2-1 buydown 30 year fixed mortgage loan allows you to buy down your rate for the first couple of years which means you can afford a bigger home with a low payment. Let's take a look at an example. Let's say you want to purchase a $258,000 home with 3% down which would give you a $250,000 loan and we will use the current rate of 6.25% (6.29% APR) then your payment on traditional 30 year fixed program will be $1,539 principal and interest. But if you take the buydown loan program at 4.75% (4.87% APR) then your first year payment will be $1,304 which is $235 less than the traditonal 30 year fixed loan. The reason why the program is called 2-1 because your rate will adjust 1% per year for 2 years and then it will remain fixed for the remaining 28 years so your interest rate will be 5.75% in year 2 and finally it goes to 6.75% in the beginning of year 3 and remains fixed thereafter for the life of the loan. Now, there a couple of points worth mentioning here. You may say, I will have a 6.75% rate for years 3-30 which is higher than 6.25% rate which is true but it will take 6 years on the buydown program to equal the rate on the traditional loan (4.75%+5.75%+6.75%+6.75%+6.75%+6.75% divided by 6 years equals 6.25%) and most people usually refinance or move by that time since the average first time home buyer will live in their first home 5 years or less. Also, you can buy down the rate further by paying more points up front to get the rates lower (1 point is 1% of the loan amount). For example, you can do a 4.50%-5.50%-6.50% program with 2 points. Please visit 2-1 Buydown Mortgage for more details.

The icing on the cake for this program is the fact that the inventory of homes are higher now and sellers as well as builders are willing to pay for your buydown points as well as closing costs to make a deal right now. The mistake most first time home buyers make is they get the seller or builder to reduce their sales price let's say $5,000 which only lowers your monthly payment $30 per month based on 6.25% traditional loan rate. What you may want to do is don't ask for the price reduction and request that the seller or builder pay points and closing costs which would give you a much lower payment and less out of pocket costs. Another point worth mentioning is the fact if you do end up moving within 2 years, your average rate on the buydown loan will be 5.25% (5.42% APR) which is much lower than the current market rate. Also, you will save approximately $3,800 in interest and your remaining mortage balance will be lower because you will pay more toward your principal at a lower rate. Bottomline, if you are looking for a more conservative program which doesnt' have as much risk as an adjustable mortgage then the buydown program may work for you. Finally, if you know your income will be increasing over the next couple years but you want to keep your initial payments low then this loan is an ideal choice. I know this program may seem somewhat complicated but you need to contact an experienced mortgage professional to go over this program in great detail so you understand how it works and will it benefit you based on your specific financial goals and situation. Personally, I offer my clients an analysis report which spells out everything about the buydown loan. I believe you must give home buyers the best loan options available so they can make an intelligent decision about the biggest purchase they will make in their life.

Legislative Alert! Mortgage Insurance is Now Tax Deductible

One of the top complaints from first time home buyers is that pmi or mortgage insurance is not tax deductible. Guess what? Legislation has just passed a new bill which allows a home buyer to deduct mortgage insurance on a mortgage loan after January 1st, 2007 and is available to taxpayers who have adjusted gross income of less than $110,000. How will you benefit? Up to this point, most first time home buyers have opted for piggyback or combination loans such as 80-20 and higher interest rate one loan programs to avoid mortgage insurance and to get the full tax deduction on mortgage interest since mortgage insurance wasn't tax deductible. Now, you must take a look at the lower interest rate loans available with mortgage insurance to determine if one of these programs will better than the no pmi loan options.

Let's take a look at an example. Let's say, you want to purchase a $200,000 home and you were eligible for the My Community 30 year fixed zero down loan program, your payment would be $1,231 based on a 6.25% rate (6.34% APR) plus mortgage insurance of $98 which equals $1,329 per month*. If you did the 80-20 loan your payment would be $1,011 based on 6.50% rate (6.56% APR) and $160,000 1st mortgage 30 year fixed loan plus $307 payment based on 8.50% (8.61% APR) and $40,000 2nd mortgage 15/30 loan which equals $1,318*. At first glance, it seems the 80-20 might be a better choice but remember you can usually get rid of pmi with a new appraisal without refinancing after a minimum of 2 years if you have 20% equity or value in home, then your payment will be $1,231 per month which is lower than $1,318 for the 80-20 loan program. If you plan on staying in the home 2 years or more, you will save about $87 per month or $1,044 per year. I would rather buy myself a new set of golf clubs or treat my wife Natasha and daughter Alana to a nice dinner every month than fork it over to the mortgage company.....wouldn't you?

*Payment does not include home insurance, taxes, and association dues (if applicable).

Buyers Market

In the last several months, the inventory of homes for sale have risen and home buyers have a lot more properties to choose from but I must warn you, don't wait too long. This week the inventory of homes have leveled off and home prices are starting to stabilize so wait are you waiting for? Furthermore, interest rates have dropped in the last 6 months and the 30 year fixed currently sits at 5.625% (5.75% APR) and buydown programs are available at 4.50% (4.66% APR). Today, we are experiencing a buyer's market which home buyers are in the driver's seat and usually, you can get the seller to lower their price below list price and have them pay all the closing costs. There have been a ton of buyers who have headed to the sidelines this year waiting for prices of homes to fall further and if you don't buy a home soon you may miss the boat.

It is very difficult to pick a bottom on a stock price and buy it at the lowest price. Before you know it, the stock climbs quickly and you lost out on the gain and the same applies to buying a home. Let's just say you think home prices have bottomed out and now it is a good time to buy a home, but wait a minute, everybody else is thinking the same thing and buyers flood the market, seller's start raising their prices and stop paying buyer closing costs, and you pay more for a home and you need to bust the piggy bank to pay your own closing costs. I think it's gut check time. Rates are the lowest they have been in a year and home prices and inventories are stabilizing and if you are waiting for the price to drop a few more thousand and interest rates to drop another .125th, then you may only save $20-$30 per month on your mortgage payment if you are right. But if you are wrong, not only will you incur a higher mortgage payment but your negotiating power may slip away and you may have to scramble for thousands of dollars to pay closing costs. You make the call.