Tips to Buying a Condo!

Homeowners get tired of the responsibilities involved. First it's a leaky roof. Then it's a plumbing problem of mysterious origin. The last straw is usually when the septic system backs up. Finally, you realize that moving into a condominium and sharing the responsibilities of your "home" with others could solve most of your problems.

Originally, condos were apartments that were converted into permanent living units with owners sharing common areas-grass, hallways, laundry rooms, pools, etc. Nowadays, condos are designed with permanent occupancy in mind. Often, the interior of a condo is just as deluxe and spacious as a single-family home.

Houses often have a higher sale price, as well as a higher rate of appreciation. On the surface, this seems like an argument for buying a house; but sale price and appreciation don't address maintenance costs. With a condo, all the owners share expenses and pay for them out of the reserve fund-a pool of money made up of the residents' fees

Before buying a condo, investigate the reserve fund. Most condos have a Board to collect fees and keep records. You can request information directly from them about: a) how much cash is in the reserve fund; b) costs of scheduled repairs and maintenance; and c) any special rules or bylaws that the condo board has passed. If you find all the conditions agreeable, you may want to buy.

You'll go through the same process to finance a mortgage for a condo as you would for a house purchase loan. Paperwork and mortgage rates will be identical, and you can get mortgage quotes from any reputable lender in person or over the Internet.

Condominiums offer an equivalent living space to that of a single-family home, but without the worry of bank account-shattering repairs. Once you find a condo that you like, find a competitive mortgage rate loan and introduce yourself to your new neighbors.

Should You Pay Cash for Your Home?

If you could pay for your next home with cash, why wouldn't you? This could be one of the nicest problems that you'll ever have.

Most homeowners spend decades paying down their mortgage loans. When it's all said and done and the last payment is complete, most people pop a bottle and celebrate. Why in the world, then, would you ever take on a mortgage loan if you actually have the money to buy a house in cold, hard cash?

The traditional answer is that you could put that money to better use. Let's say you have a 6 percent interest rate on your mortgage loan, and you fall ino the 33 percent tax bracket. After deducting mortgage interest from your taxes, you'll end up with an effective 4 percent interest rate. If that's readily available in the market through certificates of deposit (CDs) or money market accounts, you could have a higher return on your money.

Here's how it works: You'd take the loan money and invest it into a 5 percent savings account for a tiny (but welcome) 1 percent return on your investment, or into stocks for an even greater return if your risk tolerance is higher. That's the magic of offsetting interest payments with investment returns.

An all-cash home payment ties up your assets in a very real way. If you need a sudden burst of money for medical bills, a dream vacation, or to pay for college tuition, it won't be readily available. In a tight mortgage market, like the one we're currently experiencing, you might not be able to draw equity out of your home as quickly and easily as you need to. If you had a mortgage payment instead, with the money parked in more accessible investment vehicles, you could easily pay those unexpected bills.

There are financial pros and cons in the all-cash strategy. But don't forget about the emotional impact. Owning your home free and clear is worth a little celebration whether you paid down the mortgage or bought it outright. It offers a peace of mind that no loan can ever match. In the end, that may be enough to outweigh the slim financial rewards of reinvesting the loan balance. That house is yours, and no bank can ever take it away.

A Good Faith Estimate

As of Jan.1, 2010, lenders will be providing more straightforward information to potential borrowers and making it easier to understand the costs involved in obtaining a new mortgage.

It’s not that they’re turning over a new leaf or making a New Year’s resolution. Instead, Jan. 1 is the date that a new Good Faith Estimate (GFE) form detailing the various charges and interest borrowers can expect to pay on a mortgage makes its debut.

The three-page form, which lenders are required to complete and provide to borrowers applying for a mortgage, is intended to make it easier for borrowers to compare mortgage offers from different lenders. It’s required under new Real Estate Settlement Procedures Act (RESPA) rules that take effect that day.

Some critics within the industry have complained the three-page form will confuse borrowers even more, noting that the old GFE was only a single page. But other mortgage professionals say it will make it easier by clearly distinguishing between what the lender is charging and third party fees for completing the loan, charges that were often difficult to sort out in the past.

So what does a potential homebuyer or someone looking to refinance an existing home mortgage need to know about the form?

The first thing is that there are actually two new forms. The first is the Good Faith Estimate itself, and must be provided when you apply for the loan. The second is the Settlement Statement, which breaks down and details all final costs, and is provided before the actual closing. The two are designed to allow the borrower to compare the estimated and final costs to ensure they are either unchanged or that any changes are within the limits allowed by law. Links to the new documents are provided here and here.

The form also details your initial loan balance, interest rate and monthly payments, and whether any of these can rise during the course of the loan and if so, by how much. It also requires disclosure of any prepayment penalties and whether there is a balloon payment on the loan. Many of these elements were blamed for snagging unwary borrowers who obtained loans that later went bad in the subprime mortgage crisis, particularly in the case of adjustable rate mortgages.

Finally, the form spells out which charges on the GFE cannot increase at the time of settlement (as detailed on the Settlement Statement), which can increase up to 10 percent and which can change without limit. There’s also a “shopping chart” that allows borrowers to compare terms on up to four different mortgages.

Simple Interest Mortgages Are Not So Simple

One of the small pitfalls to look out for when shopping for a mortgage has to do with simple interest vs. a standard mortgage. Although the term “simple interest” sounds harmless, it can cost you money if you’re not careful.

A simple-interest mortgage is one where the interest charges are calculated on a daily basis, as opposed to once a month on a regular mortgage. There’s no difference in the two if you always pay your mortgage exactly on the due date each month, but if you tend to pay a few days late, it will cost you.

Many borrowers tend to pay their mortgages “late” each month because most mortgages have a grace period of about two weeks before any late fees are assessed. So if your mortgage is due on the first but you typically get your payment to your servicer around the 15th, that’s half a month of additional interest (not to mention running the risk of getting hit with a late fee if the mail delivery is running a bit slow!).

True, the actual amount of additional interest is fairly small – you’re only paying additional interest on the amount of your principal payment for the month. For example, suppose you owe $200,000 on your mortgage and $500 of your current monthly payment is going toward the principal. With a simple interest loan, for each day your payment is late, the interest rate is charged against a balance of $200,000 instead of $199,500.

For the $500 difference, the interest isn’t much – about 32 cents a day on a loan with an interest rate of 6 percent, or $3.20 if you typically pay 10 days late. But over the life of the loan, it can add up. On a 6 percent mortgage with simple interest, paying 10 days late consistently means more than three additional mortgage payments at the end of a 30-year loan – a period that gets even longer as the interest rate goes up or the longer you delay making your monthly payments.

The problem for many borrowers is that they assume simple interest is normal. When their mortgage lender tells them “Oh, it’s just simple interest” it sounds like the most straightforward, least expensive thing to do. But it’s not.

One more thing – even if your lender tells you you’re getting a standard mortgage, it might not stay that way unless it’s specifically written into the mortgage contract. Some mortgage servicers have been known to convert standard interest mortgages to simple interest when acquiring a mortgage if the loan terms don’t specifically prohibit them from doing so. So it’s a good idea to make sure your loan agreement specifically states you’re getting a standard mortgage at the outset.

What Not to Do for First-Time Homebuyers

The hardest part of home buying is saying "no." The job of realtors and loan officers is to get you to say "yes," and they tend to be very good at it. The pressure only intensifies when you fall in love with a house. But saying "yes" too hastily can lead to some big mistakes, such as overlooking these five mortgage no-nos.

When you apply for a loan, the first thing a lender looks at is your credit report. A poor credit score may cause your application to be denied, or the loan's interest rate to be increased. Beat your lender to the punch-check your credit report before applying. If you find errors, they can be removed and your score will increase. If your score is low because of bad credit, you may want to delay your application. After six months to a year of making payments on time, your score will likely improve.

Lenders and government agencies offer numerous programs for first-time homebuyers. They're designed to help a wide range of borrowers, including people with poor credit or little savings. Research the various programs. Call lenders, check with local government housing offices, and scour the Internet. You'll be amazed at how many programs you'll find.

First-time homebuyers are often approved for more of a mortgage than they can afford. Before you accept a super-sized loan, figure out a realistic monthly payment. Factor in everything from retirement savings to grocery bills. A little budgeting now will prevent trouble down the road.

First-time homebuyers tend to be naïve. They choose the first lender who approves their loan application, afraid that they won't be accepted elsewhere. The truth is that many lenders will bend over backwards for your loan. Instead of cowering before a loan officer, do some comparison shopping and find yourself the best rate in town.

Unscrupulous lenders may fail to disclose fees during the application process. Instead, they wait until the closing, and inform the borrower that, in order to drop the fees, the loan will need to be rewritten. Avoid the problem by scrutinizing your Good Faith Estimate, which includes all the fees and costs, before signing a loan application.

It's not easy being a first-time homebuyer. There's much to learn, and when you find the house you really want, you feel pressured to make quick decisions. Just remember that a hasty "yes" means a mortgage no-no could be overlooked. It's an error no homebuyer-rookie or otherwise-can afford to make.

Is the Market Good to Buy a New Home?

Consistently timing the market is impossible; make your home-buying decisions based on what you want and what you can afford.

You read it everyday in the news: "Real estate values are down! It's a buyer's market!" If that's really the case, why are you and other would-be homebuyers feeling so nervous about buying a new home?

Congratulations if you're considering your first home purchase. It's an exciting time for you and a good time to buy, in general. Home values have cooled off, giving you the opportunity to consider and compare many properties that would meet your needs. If you have some reservations about buying in the current market, don't worry-it's perfectly normal.

You might be nervous about buying too soon and paying more than you should. This is a valid concern, but one that should be weighed against the risks of waiting too long to buy. You could end up seeing the home you want pulled off the market or bought by someone else. If you find that perfect home at a price you can afford, it may not be wise to hold out for a better price. As long as you plan to stay in the home for the long-term, any immediate changes in value should even out by the time you're ready to sell.

For existing homeowners, the decision to buy is somewhat more complicated. Selling your current home may not be easy. This can become a problem if you find a new home that you just can't pass up. You can try making your purchase offer contingent upon the sale of the existing home, but given the current market, that may not go over well with the seller. If your contingency offer is rejected, you'll need to decide if you can afford to carry both homes temporarily. If you and the bank agree that the answer is yes, you're probably in good shape to put in your offer.

In the meantime, do everything possible to speed up the sale of your existing home. Experts recommend making key upgrades, so that your home is different from the others on the market. Your real estate agent can provide some ideas for minor and major changes that would make the home more saleable.

You might also consider taking out some form of equity financing on the existing home. A home equity loan can fund major upgrades and improvements. A home equity line of credit (HELOC) can pay for minor updates and help you cover expenses if you end up carrying both homes at once

What Mortgage Term is For You?

The fact that mortgage calculators are free and online makes them enormously appealing. The big payoff that comes with using a mortgage calculator is that you can compare home loans by calculating your monthly payment. There is, however, more to a monthly payment than meets the eye. You also need to have a solid understanding of which mortgage term is right for you before you start working with the numbers. Loan terms primarily fall into the following general categories:

1. Fixed-rate loans: These home mortgages have a fixed rate during the entire term of the loan. A 30-year fixed rate loan, for example, carries the same rate throughout the entire 30-year life of the loan.

2. Adjustable rate mortgages (ARMs): ARMs come in varying terms, and tend to have a teaser rate that can adjust on an annual basis. For example, a "5/1-year" ARM includes a five-year introductory rate, followed by a rate adjustment every year, based on current market conditions.

3. Two-step mortgages: These loans have an introductory rate, which then adjusts one time. A 7/23 two-step mortgage means that there's a 7-year introductory rate, followed by one adjustment that will remain in effect for the remaining 23 years of the mortgage.

4. Balloon mortgages: A low introductory rate, generally for a 7-year period, attracts people to this loan. But the buyer should be aware that at the end of the loan, the entire balance of the mortgage is due at once.

A fixed-rate term works better for people who plan on staying in their home for long periods of time. Conversely, mortgages with adjustable rates or balloons are a better option for people who plan to move or refinance before the end of the teaser rate.

A mortgage calculator can help you calculate your monthly payments for any of these loan programs. They can also help you with other mortgage items, including amortization and calculating interest only payments. Be sure to use this valuable tool when deciding on the term that's right for you. It's fast, free, and a whole lot easier than trying to count up long-term interest using your fingers.

How Big Should Your Down Payment Be?

How much of a down payment should you make on your mortgage? Though the usual answer is “whatever you can afford,” it’s really not all that simple – though it’s not difficult to figure out.

To begin with, it’s almost a sure thing you’re going to need one. Unless you can qualify for a VA or USDA home loan, the zero-down payment mortgage has pretty much disappeared from the scene. The closest to zero down most people can get these days is an FHA mortgage, which requires a minimum down payment of 3.5 percent.

For a conventional mortgage though, most borrowers are going to need at least 10 percent down and preferably 20. You may still be able to get a conventional mortgage for as little as 5 percent down from some lenders if you have excellent credit and are buying/refinancing in an area where home values have escaped the worst of the downturn in the housing market.

Here’s where it starts to get interesting, though. While FHA mortgages generally offer competitive interest rates compared to conventional mortgages, they charge an up-front premium of 1.75 percent of the loan amount. So if you can get better terms on a conventional mortgage with a 5 percent down payment, you’re probably off going that route than effectively putting up 5.25 percent (3.5 percent down plus 1.75 percent premium) on the FHA loan. Plus, all of your down payment gives you equity in the property – the 1.75 percent FHA premium is money you won’t see again.

The main thing you want to do is tailor your down payment to one of several down payment categories your lender uses, depending on what you can afford. Most lenders use a scale in which interest rates go down as down payments go up, with small rate decreases typically occurring at 3 percent (when available), 5 percent, 10 percent, 15 percent, 18 percent, 20 percent and sometimes above.

So while you’ll probably get a better interest rate with 15 percent down than you would with 10 percent, putting 13 percent down isn’t going to help you any. In that situation, you might want to try to come up with the additional 2 percent to move yourself up to the next category, depending on what your interest savings would be.

On the other hand, if you can’t come up with the extra 2 percent, you may want to simply stick with a 10 percent down payment and put the rest into savings or other investments. Your interest rate won’t be any higher and it’s always good to have a bit of a financial cushion for unexpected expenses when buying a home.

Get In for a Short Sale!

Short sales are on the rise as borrowers and lenders struggle to stay afloat during a housing market correction.

Today's housing market is working its way through a hangover. Following the freewheeling, party days of lending mortgage dollars to anyone and everyone, lenders are finally pulling back. As the money supply tightens up, housing values are getting hit hard.

For homeowners who can continue to meet their monthly mortgage obligation, the logical strategy in these tough times is to ride out the cycle. But if cash flow issues are turning your mortgage payment into an impossible burden, you'll need to look at other options. First, consider a mortgage refinance. Your lender might help you by restructuring the debt, as long as your home's value hasn't dipped below your mortgage balance. If you owe more than the home is worth, you might be stuck choosing between a foreclosure and a short sale.

When you sell short, you sell your home at market value and turn over the sales proceeds to the lender. The lender then pays off the real estate agent, and cancels your mortgage obligation.


Still, the short sale might be the lesser of two evils for the lender and for you. Lenders don't like to get involved in foreclosure; it's very messy and time-consuming. After using an inordinate amount of resources to wade through the legal necessities, the lender still has to sell the home before it sees any cash. A short sale, on the other hand, allows the lender to cut its losses and get out faster.

You'll benefit from avoiding a foreclosure, too. Your credit history will be bruised somewhat from any missed mortgage payments and the short sale itself. But the marks left behind won't be as damaging to your credit score as a foreclosure would be.

If your mortgage obligation becomes impossible to meet, open the lines of communication with your lender as soon as you start missing payments. If you address the problems early, you might be able to refinance the debt and keep your house-by far the best solution for everyone involved. If refinancing won't work, team up with a real estate agent who has experience in short sales. The agent can help prepare you for gaining your lender's approval to proceed with the short sale.

This is undoubtedly a stressful situation for you. Just remember that your lender is reeling too, and neither one of you has the option of sleeping it off.