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Renting or Buying: New Information for the Debate

Do you actually benefit financially from renting or buying a home? A new study may shed some light on that topic.

There’s always a debate about which is better financially – renting a home or buying one. While there will always be differing opinions on the matter, there is some new information that may help answer the questions or at least help you make a decision about which one is best for your situation.

In a recent study by of more than 7,500 cities in the United States including 224 metropolitan areas, researchers were looking for a “breakeven point” at which the cost of buying a home is a better financial decision than the cost of renting a home or apartment. In more than 75 percent of the cities and metropolitan areas, that point of breaking even was right around three years.

Three years, however, is just an average figure. In 7 percent of the cities that were included in the study, it took five years or even longer to reach the point of being a financial benefit. Some of the more popular cities where it takes longer to break even are located in California, including Santa Cruz, San Jose, San Luis Obispo and other. Oak Harbor, Washington is also on the list of cities where it takes five years or more for it to be financially beneficial to purchase a home.

On the other hand, there are some cities on the low end of the spectrum. In a few cities, it only takes 1.6 years to reach the break even point. Some of those cities include Miami, Mobile, AL, Tampa and Memphis. Red Bluff, CA and Salisbury, MD are also included in that list.

According to some analysts, these numbers have not always been that way. With mortgage rates and home affordability at historic lows, it is becoming more beneficial to purchase a home these days. Also, combine that with the average 5 percent increase in rent across the country in the past year, renting has become less of a benefit than it has been in years past. The study is also the first of its kind which studies the numbers and tells people the actual amount of time that living in a home becomes beneficial over renting. It’s also different than previous studies which only included the price-to-rent ratio because the current study used the overall cost of home ownership.

According to an article this year in the New York Times, today’s average home price in many areas across the country have reached the same levels that they were at in 2004. The values of these homes are also expected to increase by about 1 percent between now and next year. If you can get financing and you are tired of renting, this may be the best time for you to try to purchase a home if you can get financing for it.

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Steps to Take Before You Begin House Hunting

You have made the big decision - its time to buy! However, unless you’re going to be paying cash for that house, condo or co-op, you'll need to take out a mortgage to cover the difference between your down payment and the cost of the property. But before you go house hunting, you should take some steps that can help make the process, including obtaining a mortgage at the best possible interest rate, go as smoothly as possible.

Keep those monthly payments down

Getting the best interest rate on your mortgage is really important because even a small difference in your interest rate can make a big difference in your monthly payments, especially since you’re going to be making them for many years to come.

Great credit can help you score a great mortgage rate

The more creditworthy you are, the greater the likelihood that you will be offered a mortgage with the lowest interest rate, especially compared to someone whose credit rating may indicate, for example, delinquencies paying bills.

Credit rating agencies

To judge your creditworthiness, financial institutions review your rating from the three major credit ratings agencies, Equifax, Experian, and TransUnion.

Your credit rating is expressed numerically. The higher the number the better your credit. Most lenders will red flag applicants with credit scores below 700, so it’s important to be above this number when you’re applying for a mortgage. Even with a score above that you might not get the best possible interest rate, which lenders give only to those whom they judge to be the most like to make payments on time each and every month, so anything you can do to raise it is helpful.

Start by requesting your credit report

First, make sure your credit rating is as accurate as possible by requesting a copy of your report from each credit rating agency. Federal law mandates your right to a free credit report annually from each credit reporting agency, so you might request it, even if you’re if not applying for a mortgage in the immediate future. Then review each of these reports and if, necessary, make any corrections.

Other credit raising steps

Applying for new credits cards or having multiple inquiries made about your credit may affect your report, so try to keep these to a minimum.

Also, large open balances on any of your credit cards may cause a loan officer to question your application, so, if possible, payoff any open balances to show that you’re up to date on all your bills. for the best mortgage rates

Once you know your credit is in order, the best way to compare mortgage rates is to check the offerings on That way you can easly compare interest rates from a variety of lenders, in specific zip codes. Then you can instantly find your projected monthly payment, depending on the size of the mortgage loan you’re applying for and even see the difference in payments between, for example, 15 and 30 year mortgages and fixed and adjustable rate mortgages.

Prequalification makes house hunting easier

After you’ve identified a lender, the next step is to get preapproved for a mortgage. While each lender has their own rules, in general, once you’ve been preapproved for a mortgage, which requires you to present all your documentation to the loan officer, you can go house hunting, confident in knowing how much you can borrow and what your monthly payments will be.

However, make sure you’re preapproved, not prequalified for a mortgage, since preapproval does not always require you to submit financial documentation. It’s possible that even if you’re preapproved, once you submit all the paperwork necessary to get a mortgage, you might not get the mortgage you thought you were approved for.

The next step

Now, with your preapproval letter in hand, its time to take the next step – finding that house of your dreams and financing it with best possible mortgage rate.

Should You Prepay Your Mortgage If You Have Ample Resources?

Paying off your mortgage as early as possible may offer peace of mind, but is it always the best financial move?

You might think that paying off your mortgage early is always the best decision that you can make. But are there times when it might be financially feasible to hold back on paying off your mortgage earlier than scheduled.

For one thing, it is important to consider the difference between good debt and bad debt. If you are going to apply for a loan, the amount of bad debt that you have is going to negatively affect your chances of getting that loan. Credit cards and other credit accounts are considered bad loans so the more credit debt you have, the bigger risk you are to lenders. Some of the reasons why credit card debt is considered bad debt include the following:

  • Depreciation – You probably don’t own anything that you paid for with a credit card that has actually increased in value. Nearly everything purchased with a credit card depreciates over time.
  • High Interest Rates – Another reason credit cards are considered bad debt is because of the high interest rates charged by the companies. In some cases, you could be charged a 20 percent interest rate depending on your payment history and credit score.
  • Not Tax Deductible – Credit card debt, unlike mortgage debt, is not tax deductible.

On the other hand, mortgage debt is considered good debt for the following reasons:

  • Investment – When you have a mortgage, you are investing in a product that appreciates in value – your home. Although home prices have been on the decline, over a 20 or 30 year period, they almost always go up in value.
  • Tax Deductible – If you have a mortgage loan balance, you can deduct it on your taxes. This means your taxable income is lower which can save the amount that you owe each year or increase the amount of your return.
  • Achieving Long-Term Goals – There are circumstances in which having a mortgage debt can help you achieve long-term financial goals. Instead of paying off your loan balance in one lump sum, you could invest that money in a 401(k) or other tax-deferred account with a higher interest rate than you are paying on your mortgage. For instance, let’s say you have a fixed rate mortgage at 4 percent and you have $100,000 to pay off over a 30 year term. Instead of simply paying off your mortgage right away, you can invest that $100,000 in an account that has a 7 percent return. At the end of the 30 year term, you’d have more than $760,000 from your initial investment. If you paid off your mortgage early and put those payments into the same type of account, you’d only have about $580,000 at the end of the 30 years.

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So is it always best to pay off your mortgage early? Sometimes it’s simply an emotional issue. You might be willing to give up some money just to have the peace of mind of owning your home outright. But if you’d prefer to earn more over the term of your mortgage loan, it may be worth the time to crunch some numbers and see if how far you’d actually come out ahead.

Is Designing Your Own Mortgage an Attractive Idea?

Have you ever heard about designing your own mortgage terms? Some lenders are moving toward this idea to accommodate this growing trend among home buyers and refinancers.

Have you ever wanted to have a mortgage that didn't fit the standard 15 or 30 year terms that seem to be the only options available to you? While it’s always possible to sign up for a 15 or 30 year mortgage and prepay it sooner on your own terms, few borrowers ever follow through with this idea and they often spread out their payments to last throughout the agreed terms.

But some lenders are offering more than these two standard options to accommodate the growing desire for designing your own mortgage. Quicken Loans has pioneered the idea by creating a product that is based on that idea. The YOURgage allows borrowers to choose repayment options that range from 8 to 30 years. As a result, you can plan your mortgage repayments to end at a certain time of your life.

Did you ever think about getting your mortgage paid off during the same year that your kids go off to college? That way you can apply your money from your mortgage payments to college tuition. Or you can arrange for your mortgage term to end along with some other life event.

According to recent numbers, more than 14 percent of homeowners that refinanced their homes in June of this year chose a mortgage term that was something other than the standard 15 or 30 year fixed rate. That’s more than a 100 percent increase compared to the same time period last year. Many of the refinancers in that 14 percent demographic chose 20-year fixed rate mortgage loans, which is the third most popular term.

Before you decide if you should design your own mortgage, consider the following:

  • Your Interest Rate – When designing your mortgage loan, you may not be saving any money by refinancing. For instance, if you currently have a 15 year fixed rate loan and you want to change to a 12 year fixed rate loan, your interest rate is likely to stay the same. This will cost you money with closing costs and other fees so you’re almost better off financially to continue paying on your 15 year loan and just paying extra each month to pay it off earlier.
  • The Economy – By keeping your longer term mortgage, you are giving yourself flexibility in case a financial emergency arises. The longer mortgage term means you’ll be paying more in the long run, but you also have more money to put into your pocket each month because the payments are lower.
  • Making Sense – Are you the type of person that simply isn’t disciplined enough to pay extra on your mortgage payments each month unless you’re forced to? If so and you want your mortgage paid off by a certain time in your life, designing your own mortgage may be the ideal way to make that happen.

Does this sound like a good idea to you? If you could design your own mortgage, what events coming up in your life would you start planning for today?

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California Cities to Implement Controversial Eminent Domain Solution for Underwater Mortgages

Should eminent domain be used to help cure the mortgage crisis in California?

San Bernardino, a city that just filed bankruptcy and one of the hardest hit areas when it comes to underwater mortgages is the inland area of California, is considering a plan that will help people who now owe more money on their house than what it’s worth, but the plan is not without its controversy.

Along with the surrounding cities of Ontario and Fontana, officials in this region are trying to stem the housing crisis by using the power of eminent domain. In short, what would happen with this plan is that the local government would seize the homes that are affected by the underwater mortgages. The government would then condemn these mortgages which would allow them to be seized from investors that have purchased them. This would make it much easier to rewrite the mortgage loans so the borrowers could lower their monthly payments.

Eminent domain is a law that is typically reserved for clearing land for new infrastructures. If the government wants to build new roadways, utility poles, gas lines or any other infrastructure and there is private property that is standing in the way, the owner can have their land taken through a court order. However, they must be given the current fair market value of their land at the time the government decides to seize the property. When this happens, it’s called “condemnation” proceedings.

With the new plan being discussed in San Bernardino and surrounding cities does not involve building infrastructure, officials say they can use the idea of eminent domain to condemn these mortgages because it is in the best interest of the public. Since the housing crisis has been so detrimental to the economy in this area of California, rewriting the mortgages and offering lower monthly payments to the borrowers will be a huge step in improving the local economy, according to those who are touting the plan’s positive impact.

If the plan goes into effect, it will focus on those mortgages in which the borrower is current on their payments but they owe more money on their home than its actual value. The mortgages for these homes would be “condemned” and the new loans would be written using the home’s current value rather than its value when it was purchased years ago. This would inevitably lead to a lower loan amount which would result in lower payments.

Some officials, however, aren’t sure that this is such a great idea. Although it will make mortgage borrowers and private investors happy, it could make banks hesitant to offer new mortgages in the area. Others say that the plan would result in “costly litigation” as some private investors who invested in mortgage securities will lose money on the deal. It will also discourage new investors from putting their money into fragile housing markets where it is needed the most.

If this plan works, do you think it will spread to other areas of the country where the housing market has been hit hard? Is it a good plan or will it create more problems than it solves?

Shopping for Mortgages Just Became Easier with Dodd-Frank Reform

The new regulations for mortgage shopping have recently changed due to the Dodd-Frank reforms. Are they good for buyers and the mortgage industry?

If you have tried shopping for a mortgage lately, you’ve probably encountered several difficulties. Mortgage documents are some of the most complicated papers that you’ll ever sign and the ordinary consumer does not understand everything that is explained when committing their name to the bottom line.

The Dodd-Frank Financial Reform legislation is seeking to simplify the process. This week, those new guidelines went into effect after months of testing their viability. Here are some new procedures and rules to look for when you are shopping for a mortgage as a result of the new guidelines.

Basic Information Cover Page
Instead of hiding the basic information about a mortgage loan (interest rates, loan amounts, monthly payments, closing costs, etc.) in the middle of the package of documents, lenders will now be required to put that information on the front page. This will help the buyer pinpoint all of the important information they need about their mortgage loan right away.

In addition to including this information on the first page, the lender will also be required to explain how the buyer’s payments, mortgage rates and the amount owed can change over the term of the loan. This information will need to include how high the monthly payments can potentially go along with information about insurance, taxes and other costs. This is all designed to help the buyer understand the total cost of the home before making the purchasing decision.

Information about Risks
Another guideline of the Dodd-Frank reform is that the lender’s forms need to give a clear warning to buyers about risky features. This includes information about prepayment penalties for the mortgage loan, the risks that are associated with adjustable rate mortgages and the possibility of a loan amount increasing due to negative amortization.

Simpler Forms
Instead of the huge packets of forms that have been commonplace when applying for a mortgage, lenders are making their forms simpler and shorter to give consumers a better chance of reading them and understanding everything that is in the agreement before they make their final decisions.

Realistic Loan Payment Determination
For a lender to offer a mortgage loan to a buyer, they must prove that they have a reasonable method for making payments on the loan. This means that the lender must calculate the payments based on a fixed rate that is equal to the fully-indexed adjustable rate plus 2.25 percent. As an example, if a buyer was getting a 5/1 ARM loan at 3 percent, the lender must calculate the cost of the rate based on 5.25 percent when determining if the buyer can afford the monthly payments.

These are just a few of the new regulations that you may notice with the Dodd-Frank reforms. Do you think they are going to be beneficial for buyers? Or is it going to make a difference?

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5 Strategy Tips for Placing a Bid on a Home

Finding the ideal home for your family is the beginning of achieving a dream. But how do you place a bid on the home that is a fair amount?

Finding a home that you want to move into is just the beginning of the home buying process. The step immediately after you find the home that you want to purchase is placing a bid on that home. But when making a bid, there’s a fine line between offering a reasonable price that you’re happy with and insulting the seller with a lowball offer. When it’s time for you to bid on a home, here are some strategic tips to remember.

1. Know the seller’s motivation to sell. Knowing how motivated the seller is can help you reach a fair bid that will be amicable for both you and the seller. Find out why they put it on the market and how much equity they have in the home. Also, knowing how long it’s been on the market will help you decide how much to offer in your bid. If it’s been on the market for awhile, they may be more motivated to sell it so they don’t have to make any more mortgage payments than necessary.

2. Talk to the neighbors. Placing a bid on a home should involve an evaluation of more than just the structure. It should also include a consideration of the surroundings. Does the neighborhood have a high crime rate? Are there any major construction projects planned in the near future? How are the schools in the area? If you can find some facts that seem less desirable, you can offer a lower bid based on what the neighbors tell you about the area.

3. Get your agent’s advice. Having a real estate agent working on your side is one of the best things you can do when buying a house. Before you making a bid, you should ask their advice on a reasonable offer that is fair and won’t insult the seller. A buyer’s agent has the skills and the resources to find prices of comparable homes in the area. They also have better negotiation skills for getting a better price for you.

4. Know the market. Before placing your bid, do some research about the real estate market overall. Is this a buyer’s market or a seller’s market? If it’s a seller’s market, the homeowner will be less likely to take low offers because they know there will be another buyer around the corner.

5. Include contingencies with your bid. It’s common for a potential home buyer to place a bid on a home based on contingencies. This means that there are clauses in the buying contract that give the buyer a legal way out if there are major problems with the home. It’s common to include contingencies that state that problems must be fixed in order for the bid price to be valid. Many times, the bid amount is contingent on the outcome of the home inspection or the buyer qualifying for a mortgage, but the offer can include other contingencies as well.

Placing a bid on a home shouldn’t be approached lightly. There should be careful thought and consideration in the amount that you bid so you and the seller can reach a price that can make everybody happy.

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