by Pat Zaby
February 13, 2012 9:19 AM
If you invest in a savings account, you'll make less than 1% and will have to pay income tax on the earnings. On the other hand, contribute something extra to your house payment on a regular basis and you'll essentially, earn at the mortgage interest rate which is certain to be more than you're earning in the bank.
Making additional principal contributions on your mortgage will save interest, retire debt and build equity. An extra $100 a month in the example shown will save thousands in interest and short the term of the mortgage as well.
Reducing your cost of housing is another way to improve the investment in your home. Becoming debt-free is a worthy goal that is achieved with discipline and good decisions. Suggestions like this are part of my commitment to help people be better homeowners when they buy, sell and all the years in between.
© 2012 Residential Finance Consultant | This article cannot be reprinted or republished without written permission. Subscription service is available to republish the article in your blog or mail merge through InTouch.
by Pat Zaby
February 5, 2012 12:23 PM
Regardless of what a lender quotes on mortgage rates, the actual rate paid by a borrower is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.
Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.
- Loan amounts - conventional loans for more than the conforming limits set by Fannie Mae are considered jumbo loans and generally have a higher interest rate.
- FICO score - the lowest interest rate is reserved for the highest credit scores; the lower the score, the higher the rate borrower will pay.
- Occupancy - borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
- Loan purpose - purchase transactions generally have the lowest interest rate while refinancing a home is generally higher.
- Debt-to-Income ratio - a borrower's monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower's ability to repay the mortgage.
- Loan-to-Value ratio - the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.
Any combination of these factors could limit a borrower's ability to secure a mortgage at the rate initially quoted. Being pre-approved by a trusted mortgage professional is the best way to know what rate you can expect to pay. Please call for a recommendation.
by Pat Zaby
January 16, 2012 7:56 AM
One third of all U.S. households, 75% of households with more than $75,000 income and most homeowners itemize their deduction on their federal income tax returns. It makes sense because the interest paid on their mortgage and their property taxes probably exceeds the allowable standard deduction.
However, with interest rates as low as they have been in the last two years and the price of homes having come down considerably, it is possible that the standard deduction may be the better choice.
Each year, the taxpayer can compare the total of the itemized deductions to the standard deduction to select which method will result in the most benefits. The 2011 standard deduction is $11,600 for married couple filing jointly and $5,800 for single filers.
For more information, see www.IRS.gov and consult your tax advisor.
© 2012 Residential Finance Consultant | This article cannot be reprinted or republished without written permission. Subscription service is available to republish the article.
by Pat Zaby
January 9, 2012 9:04 AM
Part of the American Dream is to own a home. A home is a place to call your own; a place to raise your family and share with your friends. A home is a place to feel safe and secure. A home is a good investment?
In a recent report* by Beracha and Johnson, it is suggested that buying a home is the right thing to do but not necessarily for the reason that people expect. A home is, in many instances, the largest investment that homeowners have and it accounts for the majority of their net worth.
The report suggests that the self-imposed savings due to amortization has a significant contribution to a person's net worth. The premise was determined by comparing the net worth of buyers to renters over a 31 year period of time.
When the savings in rent and down payment were reinvested, renters had a greater net worth than buyers after each 8-year cycle by a margin of 91% to 9%. On the other hand, when the requirement to reinvest the savings was dropped and renters were allowed to spend the savings on consumption, the Buyers had a greater net worth 84% compared to 16% for renters.
Appreciation, tax savings and amortization contribute to lowering the cost of housing and help homeowners build equity. The forced savings due to amortization benefits the individuals who may not be disciplined enough to invest the savings otherwise. Regardless of which benefits apply in different situations, owning a home can be a satisfying investment both emotionally and financially.
*Factor Sensitivities in the Making of Buy vs. Rent Decisions: Do Homeowners Make the Right Decision for the Wrong Reason by Eli Berach and Ken J. Johnson of Florida International University writing for the Journal of Housing Research.
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by Pat Zaby
January 2, 2012 11:27 AM
Work hard, buy a home, start a family and continue to upgrade your home until everyone has enough room. This has been the blueprint for lots of homeowners for the last fifty years but there is certainly a shift in thinking that could change all of that.
Interestingly, Americans live in much larger homes than most people in other countries throughout the world. The U.S. Census reported in 2006 that the average single family home completed had 2,469 square feet which was 769 feet more than in 1976.
Once the children are grown and have moved out, homeowners are finding they have too much room. Even if their home is paid for, they have higher property taxes, insurance, utilities and maintenance on the larger home than they'd have if they were living in the "right size" home.
Some homeowners state thaty they're keeping their larger home because it has luxury features that smaller homes don't have. There's a movement that seems to have started in the United States to find the "right size" home with the amenities and convenience that homeowners want.
This philosophy has been expressed by Sarah Susanka in her book Creating the Not So Big House. It proposes a house that "values quality over quantity with an emphasis on comfort and beauty, a high level of detail, and a floor plan designed for today's informal lifestyle."
© 2012 Residential Finance Consultant | This article cannot be reprinted or republished without written permission. Subscription service is available through InTouch.