Finding Your Down Payment
November 17, 2008
Why You Need a Good Down Payment
With the mortgage market continuing to struggle, the days of getting a loan without a down payment seem to be all but over. Lenders are making it increasingly difficult to get approved for a new mortgage and one of the main sticking points is the down payment. While no one likes being forced to have a hefty down payment, it’s probably worth your while in the long run. A sizable down payment can really benefit the buyer – it’s less money they’ll have to borrow and it’s less money they’ll have to pay back with interest. Not only that, a down payment provides instant equity in their home, which can later help when taking out a home equity loan or line of credit. In certain cases, making a down payment of at least 20% of the home’s price can also allow the buyer to forego mortgage insurance completely. Still, coming up with a down payment is easier said than done for most people. Some people save for years to get a large enough payment, but if you’re in need of some extra cash for yours right now, try some of these tips:
Finding Your Down Payment
- Do you have some assets you can sell off or no longer need? A used car, boat, or some type of collectible can take care of a good portion of your down payment without much work on your end!
- Have you been investing in your 401(k) for several years? You may have enough to take a loan out from. While 401(k) loans have interest rates, the good news is you’re actually only paying interest to yourself.
- Are you due a major tax return this year? Wait until you receive your tax return and put it all toward your down payment.
- If you can carefully time out exactly when you plan on buying your home and needing a down payment, you could wait until you receive your annual bonus or raise from work to take care of it.
- Do you have some old savings bonds or a mutual fund you’ve been waiting to cash in on? Now is the perfect time to make use of these investments, as long as you’re not taking a substantial amount of money away from your retirement.
- Find out if your state or local government offers a homebuyer’s or down payment program. These programs can get you the money you need for a down payment now, which you pay back later.
- Finally, if you’re still struggling to come up with a down payment, wait and save for 6-12 months. During this time, you should set up some type of automatic savings program, so that a certain percentage of each check you earn goes toward savings for your down payment.
The Birth of the Adjustable Rate Mortgage
November 7, 2008
A History of the ARM
The adjustable rate mortgage has long been a staple in the American mortgage industry and it’s helped thousands of people qualify for a home that they otherwise could not afford. In recent years, these types of mortgages have tended to be labeled with negative connotations and they can be dangerous if not used with caution. Originally, adjustable rate mortgages were created to combat inflation in the 1970’s. Lenders quickly realized they were losing money on mortgages due to inflation costs and soon transferred those costs to consumers through ARMs. When inflation stuck and interest rates increased, the consumer would face rate hikes in their mortgage, ensuring lenders still earned a profit. While this caused more than a few people to lose their homes, the mortgage industry eventually refined and improved ARMs, adding rate-caps and other protections for buyers.
ARMs Take off
With the development of new adjustable rate mortgage products and less strict credit standards, the housing market began and ARM’s began to take off around 2003. Around this time, the Federal Reserve enacted policies that combated inflation, allowing banks to offer low-introductory rate ARMs by the dozen. Lured by the initial low rate, thousands of people took out adjustable rate mortgages, some completely unaware that their interest rate and house payment could dramatically increase. Some buyers were well aware their interest rates would soon go up, but planned to immediately refinance when it happened. As more people purchased homes through ARMs and loose credit guidelines, the housing market boomed, attracting investors far and wide. Home prices increased and just about everyone was making money in the housing industry cash cow. Unfortunately, the housing market boom and the success of ARMs was not destined to last.
Current Situation
Since home prices were increasing during this time, buyers with adjustable rate mortgage were typically able to refinance to a new mortgage once their rates went up. That is until about 2006, when home prices stopped increased and even began decreasing in some areas. This left many homeowners without the option to refinance, leaving them stranded in their ARM with increasing rates. Soon buyers started to fall behind on their mortgage payments and foreclosures started popping up around the country. Of course, these foreclosures caused serious damage to lenders and many were forced to cut back or declare bankruptcy. Now, most lenders won’t go anywhere near the once popular adjustable rate mortgage and credit guidelines are more stringent than ever. It’s all left the housing market in a veritable crisis, although the proposed financial bailout plan could spark some new life in it.
Fighting Foreclosure? Open a Haunted House
October 28, 2008
Ghoulish apparitions, the undead, and bloodthirsty monsters used to send shivers of fear down our spines around Halloween. But, if you’re a homeowner, you’ve undoubtedly become rather blasé about these sorts of things because you’re facing down the most terrifying of demons: foreclosure. For those of you looking for a good fright, the state of the housing market is a excellent start. In the third quarter of this year, foreclosure filings were up 71% from the same period in 2007. That’s enough to elicit a bloodcurdling shriek from any homeowner with a mortgage.
So, yeah, things are bad; you probably already knew that. Here’s what you don’t know: homeowners, you can shamelessly exploit Halloween to your advantage and get yourself off the Foreclosure Express. How, you say? It’s simple — turn that soon-to-be-foreclosed-upon home of yours into a haunted house. Haunted houses, of course, charge admission, and that’s money you can then use to keep up on your mortgage payments. Brilliant! We’re even going to give you pointers on how to do it.
Turn That Money Pit into a Moneymaker
Converting a home with frightening mortgage payments into a just plain frightening home is surprisingly easy. Almost anyone can do it. Case in point: a gaggle of teenage boys in Sylvania Township, Ohio, built a 2,000-square-foot haunted house in their backyard. If a bunch of pubescent males from Nowhere, USA did it, you can, too. Here is a breakdown of the basic steps:
- Task #1: Make the exterior spooktacular. The basic premise here is that you want your home to look haunted to prospective customers, or “visitors.” Windows have the singular effect of making a house look suspiciously unhaunted, so you’ll want to black those out from the inside somehow. Black trash bags work well for this task. Now about those porch lights — change the bulbs to red or orange or go with a black light. Use heavy-duty paper to decorate your front door to look like a coffin. You’ll also need to do something about that Brady Bunch picturesque yard of yours. The best way to make a yard look Halloweenesque is to buy some of those cheap Styrofoam headstones you can probably find at the dollar store. Finally, don’t forget the audio effects. You want weird organ music or an eerie noise soundtrack blasting from discreetly positioned speakers at all times.
- A frightening foyer. The first thing your visitors see when they walk inside your house will set the tone for the rest of the tour, so you will want to go all out here. A dead body is a must, preferably hanging from a chandelier or a similar object. You can stuff old clothes to make the body and decorate the bottom of a bleach container for the face. Artificial fog is a staple of all impeccably haunted homes, so you may want to round up some dry ice or see if any of your rock star or roadie friends have a fog machine you could borrow. Blood, detached body parts, and spider webs are also nice little touches for the entrance. To help guide your visitors, you can block off the rooms, hallways, or staircases that aren’t part of the tour with black garbage bags or cheap black shower curtains. For added shock value, you might recruit one of your friends to spritz your visitors in the face with water when they walk in. The goal is to startle and awe to get them in the mood for the rest of the tour.
- The rest of the house. The remainder of the house mainly hinges on the artistry of your ghoul assistants. You can position your costumed helpers behind off-limits doors that you have disguised with decorations, so the ghouls/monsters/what-have-you can leap out and startle your guests easily. Another little delightful fright you can provide along the way is to peel back grapes and use them as eyeballs. Strategically place them throughout the tour in places you know your visitors will have to touch. The key for a successful haunted house tour is to appeal to as many of the guests’ senses as possible. For an added tactile effect, you can have your visitors walk through spider webs made from stretched cotton and/or hang wet yarn from the ceiling in dark places. Slimy string-like objects feel especially creepy when your visitors have no idea what they are. If you can get a black light in each of your rooms, then you can make decorations pop by using black light sensitive materials. Otherwise, you can just change the bulbs to different colors or use strobe or colored flood lights in strategic places.
- Do a walk-through. Go through your haunted house as if you were a visitor. Fill in any gaps with extra decorations and remember your goal of appealing to as many of the five senses at once as you can. Map out a plan with your ghoul assistants and do a practice run to make sure they know when and where they are supposed to appear. If your ghouls are in good shape, all the better because they can add to the suspense by chasing after guests once they pop out of their respective hiding places.
- Advertise. Make up signs that advertise your haunted house and put them up in and around your neighborhood. You might even hand out flyers at an event or at a Halloween store. Use billboards, the Internet, mass texts, or whatever you need to do to get the word out. You could even appeal to a nobler purpose by embellishing the truth and saying that the proceeds go to charity. No one has to know that you are that charity.
Set Admission Prices & Rake in the Dough
Your haunted house is all set up, you’ve done your marketing, and now all you have to do is set an admission price and open your house up for business. You may be able to get away with charging more as it gets closer and closer to Halloween because people are more in the mood for fear. After Halloween is over, count your profits and get ready to celebrate because you can make your mortgage payment. . .at least for this month. But remember there are always the ever-popular Thanksgiving-themed house tours, Santa’s workshop tours, Valentine’s Day love canal rides in your pool. . .the possibilities are endless.
Beware of Co-signing a Mortgage
October 23, 2008
Co-signing a mortgage is something that you might want to do in order to help you your children or a friend. This is something that is very nice and takes a lot of responsibility. This is why you need to make sure that you are not going to harm your finances just so you can help out a friend. The following are some of things that you need to beware of when you co-sign a mortgage. You are assuming responsibility, which is why you need to make sure that everything works out just like you want it to. Read through the following things so you can have a better idea of how to go about this situation.
You Take Over Control
When you co-sign a mortgage you are assuming a lot of responsibility. This means that if the person you are helping out does not pay their mortgage then you will have to pay for them. Also, you are putting your credit score on the line as well. If they mess up then it can also mess up your credit score. Now you can see why this is a tough decision. Money and credit score are two major things, so anytime they are on the line you really need to make sure that you are protected first. Some people only look at co-signing as a signature, but really it is much more then that. This is why it is a major responsibility.
Set Up a Plan with the Signer
You need to come to some sort of terms with the person that you are helping out. They need to have a plan to show you that they are capable of making payments and that they will not mess anything up. You also need to stay on them to make sure things are going well. You do not want to be surprised some day that there are bad marks on your credit report because of your co-signature. The signer must prove to you that they are worthy of your help in this situation and that they will do everything they can to make sure things go perfectly. If they do not want to listen to you then they should not get your help.
Rule Out the Unexpected
The whole goal behind co-signing is too make sure that nothing unexpected happens to you. You must be aware of all the terms of the mortgage and you must know where your fellow signer stands. You are already putting your credit on the line in order to make this go through, so you should treat it just like you treat your mortgage. The worst thing you can do is co-sign and then never wonder about it again. That is how you could get a bill for the mortgage on your front door step. Co-signing is a nice thing to do. Just make sure that it benefits you and your fellow signer. Nothing negative should come about from it.
Additional Resources:
Your Credit Score could Affect Your Mortgage Rates
October 17, 2008
Perhaps the most important aspect of applying for a mortgage is your credit score. While there are several factors that can affect your mortgage interest rates, experts by and large agree that your credit score is the pivotal factor. Borrowers with high credit scores, usually anything over 760, are eligible for interest rates under 6% and get the most loan choices. Those with credit scores under 700 but above 600 can typically still get decent rates, between 6%-7%. People who have scores below 600 are generally stuck with the highest rates, anywhere from 7% to nearly 10%, if they can even get approved for a mortgage. As you can tell by those rates, the difference between a good credit score and a poor one is tremendous, easily adding up to thousands of dollars over time. Fortunately, even if you have a poor credit score right now, there’s plenty of ways for you to bring it up before applying for a mortgage.
Improving Your Score
- One way you may be able to increase your credit score before applying for a mortgage is by paying down your balances, especially those that are close to the limit. Using a high percentage of your credit can hurt your score, so try to keep a good balance in your debt to credit ratio.
- There’s a common misconception among consumers that you should close your credit accounts if you want to increase your score. The truth is, closing your accounts will not increase your score and could even decrease it. Closing accounts can increase your debt to credit ratio and lower your overall credit history.
- Long before you apply for your mortgage, you should get copies of your credit report from all of the major credit bureaus. Make sure all of the information they contain is accurate and up to date. If you do find any mistakes on your report, contact the lender involved immediately because errors can take months to sort out.
Other Factors
As mentioned earlier, your credit score is a crucial factor in determining your mortgage interest rates, but it’s not the only one. That means your low credit score won’t necessarily stop you from obtaining a good interest rate. Something that can help is having an overall low debt to income ratio or large cash reserves. Another off-setting factor that can help balance out a low credit score is having a large down payment for your mortgage. With a big down payment, you won’t have to borrow as much money and lenders will be more likely to give you a favorable rate. Of course, like any loan product, mortgage vary from lender to lender so it pays to shop around and get the best rate possible, regardless of your credit score.
Loan Calculator
 | ||
 | ||
 | ||
