What mistakes are commonly made when buying or refinancing a home?

If you're like most people, purchasing a home is the biggest investment you'll ever make. If you're considering buying a home, you're likely aware of the complexity of the endeavor. Because of the numerous factors to consider when purchasing a home, it's important to prepare as best you can. Some common home-buying principles and caveats are presented here for your consideration. By keeping them in mind, you'll help create a successful and more enjoyable experience. The information contained herein is presented as a primer. Since your home could cost you 25 to 40 percent of your gross income, it's important to conduct research, ask questions and study the process carefully.

Buying a home

Looking for a home before being pre-approved. As a potential buyer competing for a home, you'll have a better chance of getting your offer accepted by being as prepared as possible. Consider this hierarchy of buyer preparedness: Offers are submitted and -

• The buyer is not pre-qualified or pre-approved
• Buyer is Pre-qualified
• Buyer is Pre-approved

The benefits available at each level can be easily understood when viewed from the seller's perspective. Imagine you're a seller in receipt of multiple purchase offers. A complete stranger (buyer) is asking you to take your property off the market for at least the next two to three weeks while they apply for a loan. As the seller, lets consider the type of buyer you'd prefer to deal with.

• Neither pre-qualified nor pre-approved
  This buyer provides no evidence that they can afford to purchase your property. You may wonder how serious they are since they're not at least pre-qualified.
• Pre-qualified
  This buyer has met with a mortgage broker (or lender) and discussed their situation. The buyer has informed the broker regarding their income, expenses, assets and liabilities. The broker may also have seen their credit report. The buyer provided you with a letter from the broker stating an opinion of what the buyer can afford.
• Pre-approved
  This buyer has completed a loan application, provided a broker or lender with written evidence of income, expenses, assets, liabilities and credit. All information has been verified by a lender. As a result, much of the paperwork for this buyer's loan has been completed. This buyer will probably be able to close quickly. They provide you with a letter (pre-approval certificate) from the lender. You're as certain as possible that this buyer can close.

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For Sell By Owner!!! (FSBO)

Now it's easier than ever to sell your home yourself, or pay far less than the standard "6 percent" commission to a real estate agent.Why? The Internet. Information is power. For years, real estate agents and their lobbying groups have done their best to block public access to the Multiple Listing Service (MLS). The MLS is a collection of information about virtually all the "listed" homes for sale in a given area, (usually to the exclusion of FSBO's). Home buyers have had to work with real estate agents in order to gain access to information on the MLS. To this day, real estate agents attempt to maintain strict control of the MLS.

The Internet. The Internet now provides an enormous amount of real estate market information to consumers—information which wasn't previously available. Today, you might just as easily sell your home and find your next home via the Internet instead of the MLS.

• Advantages of selling as a FSBO.
• Increase your profit margin or net cash from the sale.
• Escrow and Title companies can handle most of the transaction.
• Disclosure services are available to handle the required disclosures.
• The Internet has over 600,000 sites that contain FSBO-related information.

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Why do interest rates change?

To understand why mortgage rates change we must first ask the more general question, "Why do interest rates change?" It is important to realize that there is not one interest rate, but many interest rates.

Prime rate: The rate offered to a bank's best customers.

Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate).

Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years.

Treasury Bonds: Long-debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations.

Federal Funds Rate: Rates banks charge each other for overnight loans.

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POINTS OR NO POINTS?

MORTGAGE RATES are lower than they've been in months. Just last week the national average for a conventional 30-year fixed rate loan was 7.47%, with 1.8 points. If you're in the market for a new loan or are thinking about refinancing an existing one, you may be tempted to pay a point or two upfront to secure a historically low rate. But is that extra point really worth it?

For the uninitiated, each point represents 1% of your total mortgage, and for each point you pay upfront, you'll generally get a 1/4 percentage point reduction on the interest rate for your loan. Tempting as it may be to lock in that lower rate over the life of your loan, you need to figure out if you could be putting that money to better use. The sad truth is, for most homeowners, the "discount" most lenders give to secure that lower rate usually isn?t worth it.

Let's say you wanted to take out a $250,000, 30-year, fixed rate mortgage on a home in New York. Countrywide, a large national mortgage lender, recently quoted these programs: 7.375% with 2.25 points, 7.5% with 1.5 points and 7.875% with no points. Which plan makes sense? It all depends on how long you plan to stay in the home and what rate of return you believe you could get on the money you would pay in points. Using the SmartMoney Interactive Points or No Points Worksheet, we figured an extremely conservative 6% annual return and the full 30 years in the home. The results: If you opt for the loan with the 7.5% rate, it would take you 81 months to recoup the money you initially spent on points, compared to the no-points loan. If you could earn 7% annually, your break-even point extends out to 87 months. At a healthy 15% return -- half the three-year average annual return of the S&P 500 -- it would take 182 months or over 15 years in the house.

The points you pay upfront are tax deductible -- another factor to consider if you have few other deductions and are buying your house late in the year. However, if you believe you might be able to refinance your loan if rates drop before your break-even point, the money you paid in the beginning is out the window.

To see how you would fare, try the Points or No Points Worksheet with rates supplied by your lender.
The results may convince you that a no-points loan, even if it carries what looks like a much higher rate, may be your best option.

Avoiding PMI Payments

The easiest way to avoid PMI is to make a cash down payment of 20% or more. This money may come from your savings or from a gift from a relative. You may also be able to borrow against your 401(k) retirement plan to raise the down payment needed. (However this option may have long term effects to your financial future and may not be your best option.)

In lieu of a 20% cash down payment, consider these options:

• Private Mortgage Insurance (PMI)---While it increases your payment, PMI may in fact be your best option to obtaining a house. After all, PMI often can be canceled within two or three years and some PMI programs even allow you to collect a refund of some premiums upon canceling. PMI is especially attractive in areas where the property values are steadily increasing.

• Lender-paid Mortgage Insurance (MI)---Another method of buying a house with less than 20% down is Lender-paid MI. With this MI program the lender pays for the MI premium while the borrower in turn often receives a slightly higher interest rate, usually a quarter-percent. While this slightly higher-interest rate is for the life of the loan, it often results in a lower monthly payment than taking out two loans (piggy back loans, described below), and reduces the costs of closing two loans. The interest paid on this slightly higher rate loan would be tax deductible. Lender-paid MI cannot be cancelled.

• Piggy Back Loan ---A piggyback loan structure is another way to buy a home without making a 20% down payment and without mortgage insurance (MI). In effect, the borrower is taking out two separate loans - one “piggybacked” onto the other - so you will have two loan payments each month. For example, the first loan could be 80% of the total amount and the second loan for the remaining 20%, and considered to be your down payment amount. The second loan is generally at a higher rate than the first.

Many times, the second loan has a variable interest rate, which means it can fluctuate, causing your payment to fluctuate. The most common piggy back loan combinations are:

• 80-10-10: Eighty percent first loan, 10 percent second (piggy back) loan, 10 percent cash down payment.
• 80-15-5: Eighty percent first loan, 15 percent second loan, 5 percent cash down payment.
• 80-20: Eighty percent first loan, 20 percent second loan, no cash down payment.

Like Lender-paid MI you receive full tax deductibility as the interest on the second mortgage is usually tax-deductible. However, you cannot cancel your second loan – you must pay it off in full or the balance due will be deducted from your proceeds when you sell the home.

NEW STUDY: CONSUMERS PAY LOWER ANNUAL PERCENTAGE RATES WITH MORTGAGE BROKERS, NOT MORTGAGE LENDERS

McLean, VA – The National Association of Mortgage Brokers (NAMB) today announced its support of the findings of Dr. Gregory Elliehausen of the Georgetown University Credit Research Center. The report stated that brokers’ customers have a lower APR, on average, than bank customers. Dr. Elliehausen presented his findings today to a Federal Reserve Board Conference.

"We commend Dr. Elliehausen’s detailed research on this very important topic," said NAMB President Bob Armbruster. "We have always believed that the customer who works with mortgage brokers, especially NAMB-affiliated mortgage brokers, receives some of the most favorable terms possible for mortgages. The findings of this report simply prove what NAMB has known for years."

The conclusions of the report are:

* Estimates indicate that borrowers obtaining subprime mortgages through brokers paid lower annual percentage rates than borrowers obtaining subprime mortgages from creditors.

* The results support the hypothesis that through competition, brokers tend to pass their origination cost advantages to the consumer.

* The results challenge the view that loans from brokers are more expensive because of broker steering.

* Although the report’s findings will not apply to every individual case, there is an overall price benefit to using brokers.

* The benefits of brokers also appear to hold for vulnerable market segments.

"For consumers, working with a mortgage broker who is affiliated with NAMB is a key tool to help protect oneself against fraud or abusive financial practices," adds Armbruster. "The more consumers know what resources to use, the better informed they will be in getting the best mortgage possible."

The National Association of Mortgage Brokers (NAMB) is the voice of the mortgage broker industry with more than 24,000 members in all 50 states and the District of Columbia. NAMB provides education, certification and government affairs representation for the mortgage broker industry, which originates the majority of residential loans in the United States.

To read this article in it's entirety, please visit NAMB.

Bad Credit is OKAY!!!

So You Got Declined...

You need a loan, but your credit won't allow you to get any of those great rates. You'll be glad to know there are alternatives. In fact, There's a whole segment of the mortgage industry that only lends to people who, for whatever reason, find themselves with less-than-perfect credit.

Called "B paper" in industry lingo, loans offered include 2/28 and 3/27 loans. The number before the slash refers to the number of years that the initial rate is fixed. After that, the rate changes on a predetermined schedule (usually every 6 months or 12 months) for the remainder of the life of the loan. The amount of the rate change (called an Adjustment) is determined by a mathematical formula based on the U.S. bond market (typically the yield on the 1 Year U.S. Treasury Bill). The 2/28 is usually the best place to start for two reasons, one of which impacts the other. These B paper loans usually have a two-year prepayment penalty, meaning you may not want to refinance for two years.

Most A paper lenders want to see 24 months of on-time mortgage payments in order to approve a loan. So, if you get that 2/28 loan with a two-year prepayment penalty, you can put up with a higher interest rate, rebuild your credit, and refinance into a better loan at the end of two years.

B paper is just as competitive as A paper, if not more so. There are plenty of lenders out there, so although you won't get the lowest possible rate, you also don't have to pay an exorbitant amount in points on top of the higher rate. (One point is one percent of your loan amount.)

Remember that you're not only getting a loan. You're also rebuilding your credit. Think how good your credit report will look two years from now when you have 24 on-time payments behind you. Then you can apply for an A paper loan with confidence.

Visit http://www.thinkkeystone.com if you need a mortgage in SD, NE, MN, or IA

Single Female Homebuyers - Who, Where and What

Who are these millions of unmarried women who have plunged into the housing market in the last few years and what makes them different from married couples or unmarried men? The Joint Center for Housing Studies at Harvard University recently released a study called Buying For Themselves: An Analysis of Unmarried Female Home Buyers which takes a comprehensive look at this group of homebuyer which, as we stated earlier, is the fastest growing segment of the home buying market.

These unmarried women are far from a homogenous group. They include woman of all ages, incomes, and races, widowed, divorced, never married; with children and without, but they still, as a whole show some striking differences from the other two home buying groups.

The author of the study, Rachel Bogardus Drew, based her research on the 2003 American Housing Survey (AHS) which identified 18 million purchasers of homes, 3.7 million (20 percent) of which were identified as being unmarried females, 3 million (17 percent) as unmarried males, and the remaining 11.27 million (63 percent) as married couples . AHS collected data from households identified as living in a home they purchased in 2000 or later. The survey excluded buyers of second homes and disregards all but the most recent purchase by buyers who moved more than once during the study period. It also covers only a part of 2003. For this reason many of the figures it quotes are smaller than those gathered during a similar period by the National Association of Realtors® which was quoted in the first part of this article and will be referenced in the third part.
Previously married women accounted for nearly two-thirds of the female homebuyers with the majority of these being divorced or separated; the remainder widowed. Over half of the unmarried men had never been married and only 6 percent were widowed.

Among the first things that discriminate the unmarried female buyer from the other two groups is age. As a whole they are older than the other groups; they also have lower incomes and a higher share of minorities in their ranks.
The average age of unmarried female home buyers is 42 while the men averaged 37 years and married couples 38. The older the age group the greater its representation in the female home buyer population. Less than 10 percent are under age 25 while 10 percent of unmarried men are in that age group; about half of female buyers are in the 25 to 44 age group while men and couples represent around 59 and 63 percent respectively. Women over 45 however, make up 44 percent of female buyers and 12 percent are seniors.

One quarter of female homebuyers are minorities compared to 21 and 22 percent of unmarried male and married couples respectively. Under the age of 44, however, minorities represent 30 percent in the unmarried female cohort but only 22 and 24 percent of the other two groups. The study postulates that large numbers of minority single mothers are influencing this trend.

Single female home buyers differed most from unmarried males and couples by their "living situations." This, in turn, influenced their preferences for home locations and the financial resources that might be available to support the home purchase.

About 45 percent lived alone and 30 percent were single parents without another adult in the home. The remaining 25 percent were a mix of women living with other relatives, unmarried partners, or unrelated relatives who may or may not have been co-buyers of the property. In contrast, 55 percent of single male buyers live alone and 20 percent with an unrelated adult. Only 15 percent are single parents (we assume this means custodial single parents.)

Women buyers, not surprisingly, have lower incomes than the other two groups of home buyers. The median income is $37,000 compared to $48,000 for single men. Married couples have a median income about twice as high as the single women. This contributes, in part to these women carrying a larger "housing affordability burden." More than 40 percent have housing expenses in excess of 30 percent of their income and more than 20 percent carry a "severe" burden where housing costs exceed 50 percent of income. The other groups have less than 31 percent of their households considered burdened and less than 11 percent with severe burdens.
Important to those hoping to market to this group is not only who bought but what. 15 percent of unmarried females choose condos as compared to 12 percent of unmarried men and only 5 percent of married couples; seven percent purchased units in complexes composed of five or more units. Women also purchased smaller homes and 34 percent buy two bedroom homes, the largest of any of the three groups.
Single women (and single men) are more likely to buy in urban areas than suburban compared to their married counterparts and single women also seem slightly more likely to live in the Northeast and South than other buyers.

Women buy new homes at a higher rate than men but lower than married couples. One in five bought a home built since 2000 compared to 10 percent of unmarried men and 25 % of couples. Five percent of women, however, still own substandard housing, i.e. moderately or severely inadequate situations where homes do not have complete kitchen or bathing facilities, inadequate heat/cooling, code deficient wiring and plumbing, or rodent infestation.

No surprise that woman, given their lower incomes, purchased less costly homes. The choice of housing type (smaller or condos) and location of course also influenced the purchase price. Whatever the motivating factors, approximately 75 percent purchased homes for under $200,000 and only 4 percent bought in the $300,000 price range. A large number, 16 percent, of respondents, however, did not report a purchase price. 68 percent of unmarried men bought under the $200K threshold and 6 percent spent $300,000 or more. More than a quarter of married couples bought homes costing in excess of $200,000.

As important to the market place as the who, what, where, and for how much variables that make up this study is the information it contains on how and why women buy their homes. And they do think about and approach the task differently that others. This, the study points out, varies across the various strata of the survey respondents.

Attention SD Residents!!!

Here are two reminders for the upcoming ballot:

VOTE NO: Ammendment D

VOTE NO: Ammendment E

Both sides are taking extremist approaches in their campaigning. I urge you to do your own research regarding these measures. Here are a few links to get you started:

Project Vote Smart

State of South Dakota

Ammendment E was started by a gentleman in California... don't let him use our state to further his own propaganda!!!

Why Refinance Back into a 30 Year Loan?

Refinance Your Mortgage for Rate and Payment Reductions

By Sasha N. Johansen, Mortgage Loan Officer
Keystone Mortgage

Sioux Falls, SD – One of the biggest reasons homeowners refinance their mortgage is to obtain a lower interest rate and lower monthly payments. By refinancing, the borrower pays off their existing mortgage and replaces it with a new one. This can often be accomplished with a no-points no-fees loan program, which essentially means at “no cost” to the borrower.
In the no-points no-fees scenario, the mortgage consultant uses rebate monies paid by the lender to pay off non-recurring closing costs for the borrower. These are “one time” fees such as escrow or attorney fees, title insurance, document preparation, tax service, flood certification, processing and underwriting fees, etc. The borrower is still responsible for recurring fees such as interim insurance, property taxes or insurance policy payments.
Refinancing typically occurs when mortgage interest rates drop significantly, but borrowers with recently improved credit scores (from paying off credit card debt, making mortgage payments on time, etc.) are often candidates for better interest rates as well. If you haven’t checked your credit score in a while, it’s a good time to call a mortgage consultant.
The question most asked is, “But why should I go back into a 30-year loan?”
There are two schools of thought on this subject, and the mortgage consultant should work hand-in-hand with the borrower’s financial planner to determine what works best for their mutual client.
One option is to take the route of the “same payment” refinance, and actually pay off the loan faster and save money on interest fees in the long-run. If refinancing results in a lower monthly payment, the borrower can still continue making the same payment they made in the original loan, and the extra money will be applied to the principal balance.

For example: Let’s say you have 25 years remaining in your current loan, and you refinance back to a 30-year loan with a slightly lower interest rate, resulting in a payment reduction of $200 per month. (Note: This is just an example. The actual amount could vary.) You could then take that extra $200 per month and apply it toward the principal on the new loan. At this rate, the loan will be paid off in 22 years and 4 months, which is 2 years and 8 months less than the original loan.

On the other hand, if the borrower’s financial planner is a proponent of best-selling author and investment guru Douglas Andrew’s philosophies (see Missed Fortune), he or she may suggest investing the extra money in a side-fund that could earn a better rate of return and grow to the amount of the mortgage (and beyond) in even less time. This method provides excellent liquidity, but having more direct access to this money may be too tempting for some homeowners.

Regardless of the reason for the refinance, the mortgage consultant will need to know what the existing loan scenario entails, review the homeowner’s long-term goals, and provide a comprehensive spreadsheet that compares and contrasts the various loan programs available.
Bear in mind, refinancing to obtain a lower interest payment could also result in a lower deduction at tax time. The homeowner’s mortgage consultant and financial planner should work hand-in-hand with their mutual client’s best interest in mind.

Should You Leverage Your Home or Pay It Down Rapidly?
By Sasha N. Johansen, Mortgage Loan Officer
Keystone Mortgage

Sioux Falls, SD – There is a great debate within the inner-mortgage circles these days. Should we, as loan professionals, encourage clients to borrow as much money as possible? Or would consumers benefit more if we helped them to understand the advantages of 15-year amortization schedules and pre-paying principal? Let's examine the pros and cons of both strategies.

Leveraging Your Property. In order to understand why you'd want to borrow as much as possible for your home purchase, you must first grasp the concept that equity has a zero rate of return. Here's an example: If Consumer "A" buys a home for $300,000, and puts 20% down, then they have $60,000 in equity. Over the next 5 years, the property appreciates $100,000 in value. Consumer "A" now has $160,000 in equity. Consumer "B" buys a home for $300,000, and puts no money down. At the end of 5 years, that same home is now worth $400,000. Consumer "B" has $100,000 in equity, which is the same appreciation as Consumer "A", a net $100,000.
As you can see, your down payment has nothing to do with your rate of return. What becomes important is how you choose to manage the $60,000 you didn't use as a down payment. If you use it for frivolous activities, such as buying toys or going to Las Vegas, it would be more prudent for you to use that money as a down payment. Especially since this will enable you to obtain a lower interest rate.

However, if you were to invest the $60,000 in a vehicle that can out-earn the cost of that debt, then this could be a formula for success. This is why some lending professionals suggest putting as little down as you possibly can, maximizing your tax write-off, and investing the rest. This principle has been applied for many years in the life insurance game. The old saying goes, "Buy term and invest the rest." The key component is taking the money you would have used as a down payment and creating an asset accumulation account. This account should earn a significant enough rate of return to enable you to pay your mortgage off entirely and achieve the ultimate goal of being debt-free.

Paying Your Home Down Rapidly. There are very few times over the course of my career that I have seen a client with zero debt and no financial difficulties. Choosing to pay off all of your debt can reduce stress and help you to gain freedom of cash flow for investment opportunities. A 15-year mortgage or a bi-weekly payment strategy provides structure. It can also put you on track to have your mortgage paid off within a set timeframe. Simply put, it contains built-in discipline.

It's important, however, to understand that regardless of how rapidly you pay your home off, you're not getting any greater rate of return on your investment than if you paid it off slowly.

Conclusion. So how does one determine which scenario is best? The choice depends entirely upon the individual. Savvy consumers who are disciplined, and are comfortable taking chances from an investment perspective, would do well with the first scenario. Over the course of time, it's been proven that your rate of return over the long-haul will be far greater than the rate you'd pay for a mortgage in today's rate environment. It's important to seek the advice of a skilled investment advisor to ensure success with this strategy.

The second scenario is best for those who have a difficult time managing their money or who'll sleep easier at night knowing they have a plan in place to pay their loan off more rapidly. Be sure that your budget can handle accelerated payments. When consumers "bite off more than they can chew" with a 15-year mortgage, they frequently end up having to refinance back into a 30-year schedule.If you find this subject intriguing and would like to know more, I recommend that you read a book titled, Missed Fortune 101, by Douglas Andrew. It's an outstanding read that is very simplistic and goes into far greater detail than I can cover in this column. Douglas is a financial planner who advises safe-structured investments such as whole life policies and tax-free fixed income instruments.

Understanding Credit Scoring & Credit Repair

Sasha N. Johansen, Loan Officer
Keystone Mortgage

Sioux Falls, SD – Credit remediation is a subject consumers often face with fear and trepidation, and for good reason. With the exception of recognizing that the best score wins, the average home shopper knows very little about the whole credit scoring process. Sub-prime borrowers who are eager to move into A-Paper territory often find themselves at a loss when trying to find ways to upgrade their credit history. The good news is there are ways to improve less-than-perfect credit scores and obtain a loan for the home you really want.

The first step in the process is making sure that you have a current copy of your credit report. Congress recently amended the Fair Credit Reporting Act so that consumers may now receive one free credit report annually. There are three major credit bureaus: Equifax, Experian, and Transunion. Since entries can vary across bureaus, you’ll want to request a free report from each of the three companies. (Go to www.annualcreditreport.com)

It's also important to know just what a good credit score is. Most A-Paper scores generally begin around 680, although this number may differ slightly among lenders. Don't despair if you come up shy, there is always room for improvement. Increasing your score just 5 points can save a significant amount of money. For example, if your score is 698 and you increase it to 703, then you could save yourself thousands of dollars over time as a result of a slight improvement to your loan’s interest rate.

While credit repair is necessary for some, it's not the only way to increase your credit score. Even if you have stellar credit, you can enhance your score through these steps:

· Evenly distribute your credit card debt to change the ratio of debt to available credit. Let's say you have a credit score of 665. If you have debt on only one card, and four additional credit cards with zero balances, evenly distributing the debt of the first card could move you closer, and possibly into, that ideal bracket.

· Keep your existing accounts open and active. The average consumer is usually anxious to close credit card accounts that have zero balances, but doing this can cause them to lose the benefits of a long-term credit history and increase their ratio of debt-to-available credit. The bottom line is don't close those old accounts!

· Keep credit inquiries to a minimum. Each inquiry into your credit history can impact your score anywhere from 2-50 points. When it comes to mortgage and auto loans, even though you're only looking for one loan, multiple lenders may request your credit report. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry, so try and stay within that time frame.

Remember, credit scores don't change overnight. Improving them requires time and diligent effort on your part, so it's a good idea to get the ball rolling at least three to six months prior to submitting your application for home financing.

If credit repair is what you need, you can either begin the process yourself or seek out a repair service. If you decide to make your own improvements, visit as many websites as possible to get information regarding credit laws and consumer rights. Diligently search through them and educate yourself to ensure that you don’t sustain any self-inflicted wounds. A good place to start would be the Federal Trade Commission's website, which contains a wealth of helpful literature.

If you’re facing severe or complicated credit issues, then you’ll probably want to enlist the assistance of a professional credit repair company. Before you do, be sure to familiarize yourself with the FTC's regulations on credit repair. With over 1100 credit repair companies to choose from, it's important to be certain you are dealing with a reputable firm. Examine the FTC's information on fraudulent practices to avoid falling prey to credit repair scams.

Addressing credit issues can be uncomfortable to say the least. But by taking these steps now, you’ll be that much closer to obtaining the home of your dreams.

Additional Resources:

To order your free credit report, go to:
http://www.annualcreditreport.com/

To read the Fair Credit Reporting Act, go to:
www.ftc.gov/os/statutes/frca.htm

For the Federal Trade Commission's information on consumer credit, go to:
www.ftc.gov/bcp/conline/edcams/credit/index.html

Renters Have Much to Gain by Pursuing Home Ownership
By Sasha N. Johansen, Loan Officer
Keystone Mortgage

Sioux Falls, SD – Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.

Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.

The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!

However, if you were to purchase your own home or condominium, you would be well on your way toward building equity within that same five-year period. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop, and this would cause your monthly mortgage commitment to go down.

In addition to building equity, there are tax advantages that come into play with home ownership. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.

To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.

There are many different types of loan programs available, including “low” and “no” down payment mortgage programs. These types of programs require the borrower to provide less than 3 percent of the loan amount as down payment. FHA lenders rule that the mortgage payment, including principal, interest, taxes and insurance (PITI) should not exceed 31 percent of your gross income, and the PITI plus other long-term debt (car payments, etc.) should not exceed 43 percent of your gross income.
Housing is an expense that takes a big bite out of the monthly budget. If you are a renter and feel that “home” is more than just someplace to hang your hat, think about the advantages of purchasing real estate. It may be time to take the step into building your personal net worth as a home owner.

Welcome

Hello and welcome to my site. My name is Sasha N. Johansen and I am proud to say that I help people finance their dreams. When I work with clients I focus on being upfront and honest, looking for ways to save them money and solve any problems that may arise.

Mortgages are complicated. An oversite or error can cost someone tens of thousands of dollars. I tell my students (I teach graduate courses as an adjunct professor) that knowledge is power. I believe this wholeheartedly. That's why I have created this blog-- to share as much knowledge as possible with people nationwide. Some mortgage loan officers and/or real estate agents don't want you to have this knowledge because they may not make as much money! Well, that's not your problem.

Feel free to contact me with any questions. I will try to post all questions and my responses in a timely manner.

~Sasha N. Johansen