Archive for the 'Financing' Category
Home mortgage rates dropped across the board, with thirty year fixed rate mortgages going from an average 6.73 to 6.69%. When compared to a year ago, mortgage rates are still significantly higher, and given the current instability of the market, it seems unlikely that they will be falling much further.
With that in mind, and with an increasing number of mortgage companies leaving the business, now seems to be the best time to grab a mortgage before rates jump again.
Wells Fargo Mortgage, the nation’s second largest mortgage company, and one that encouraged me to lie in order to get a mortgage with them, has announced that they will no longer be permitting third-party brokers to issue subprime loans.
The company will continue to offer such loans directly to consumers (which is the method I had pursued when I ran into the loan officer’s ‘encouragement’ to fudge the truth. Hopefully they’ll proceed to further reform their in-house lending practices.
This move is seen as being indicative of widespread broker-abuse and predatory lending problems which have helped contribute to the increasing number of foreclosures across the nation.
Real Estate Agents often encourage their clients to put as much money down as they can. Lenders do the same. They rarely explain that this is often NOT in your best interest, particularly as a smart real estate buyer.
I often encourage people to at least explore the option of 100% financing, which angers some readers. I do so because, at least in my case, putting down a large down payment on an investment property would prevent me from purchasing other properties and thus utilizing leverage to allow me to own multiple profitable properties with relatively little cash tied up.
For example, if I purchased a $150,000 home here in Utah, with 20% down, I would need $30,000 cash. This same $30,000 cash could be utilized to cover the closing costs and renovations of three 0% down properties. From an investor’s point of view, it seems stupid to put anything down.
The same seems to apply to even those who are not investing. Given generous tax benefits of paying a mortgage, and now that PMI is tax deductible, a low down payment has become increasingly attractive.
There are trade-offs of course, in higher interest rates on loans, and often it can be more difficult to find a mortgage broker who is able to offer a ‘good’ low down payment loan. If you’re finding it impossible to achieve, you may benefit from paying 20% down, and then using a HELOC to withdraw that 20% and invest it elsewhere. The currently high interest rates on a HELOC may or may not make that an attractive option.
‘Safe’ personalities will warn of course, that interest payments are guaranteed, whereas investing your down payment elsewhere has no such guaranteed return. Investing money elsewhere instead of putting it down can be risky.
What few seem to realize however, is that keeping your cash in a home can hold risks as well. If you were to face foreclosure and the bank seized the home, then that equity is lost. If a disaster that you didn’t have insurance for destroyed the home, the equity would be lost. If you were sued and lost the home, the equity would be lost. If a rainy day comes along and you need some cash (lost a job, a divorce, etc) you’re going to prefer having that cash liquid over the trouble of trying to cash out your equity with a refinance.
With rates of return of 5%+ at most online banks, keeping the money liquid can conceivably break even vs. putting it as a down payment.
One truth to always keep in mind however, is that if you’re prone to waste that money in other ways, using it as a down payment might not be that bad of an idea.
Many of us who bought during the recent housing boom were forced to take second mortgages in order to keep PMI from occurring. Many of these were ARM, short term, or balloon mortgages that are quickly, if not already, jumping up to rather scary interest rates.
Taking control of a second mortgage and refinancing it to a set rate provides not only a few hundred dollars in savings each month, but also some financial security in being able to save or invest cash that you otherwise would be throwing at the second in order to pay it off quickly.
Credit unions like Pentagon Federal provide fixed rate lines of credit which can be used to pay down second mortgages at rates as low as 5.99%. Many of these lenders offer low/no closing costs options which can make getting the loan a no brainer.
For those not interested in shelling out some obscene sum to purchase Casey Serin’s Four Volume ‘The Foreclosure Code‘ Series, here are a few eBooks that will help you get a legitimate mortgage…did I mention they’re free?
Interest only loans and ARMS: Are they for you? (If you plan on staying in a home at all…ie, are not flipping it, then the answer is prolly no.)
Know before you go: Getting a Mortgage: Some useful, and some common sense items worth considering before making the largest purchase of your life.