It looks like we're moving (again)!

I was scrambling to get things done this week, so posts were a little delayed to get out. We’re transferring the down payment money from our ING savings account. We have tried our best to ignore this account and not deplete it until we needed it, such as now for the house. We also have home insurance ready to go on the place.

We’ll slowly move into the new place as we’re in the short term lease apartment and we’ll have 60 days to move out. That will give us time to paint and prepare the place before we have to move in.

We’re going for a 30 year fixed rate mortgage for the place. We felt it was in our best financial interest to keep the interest rate steady and right now the interest rate is relatively low, which is another bonus.

We’re automating extra payments to the principle from month 1. Our goal is to pay off the house in 15 years, so we need to get started on it as soon as we can. Since the $8,000 Tax Credit for First-Time Homebuyers was extended and expanded, we’ll use it to pay down our mortgage and increase our financial cushion.

Your Thoughts

Have you had something similar come up at the last minute with closing? How did it get handled?

Big Mess with Closing

While driving to Lowe’s to get painting supplies, my husband gets a call and is told that the closing date is delayed. I’m driving while he’s listening to everyone (conference call) on the line. Apparently someone in the office dropped the ball and an inspection needed didn’t happen and we can not close. The estimated time for the new closing day is in 2010! My husband calmly listens to their explanation and they say they will get something worked out. My husband hangs up the phone and summarizes what the conversation was.

I’m basically upset at this point and turn the car around to go home (why spend money at Lowe’s until we know what is going on) and call my real estate agent to get try and understand how this could’ve happened so close to closing and no one picked up on this mistake.

We were planning on moving this week, but now there is a delay.

We’re supposed to be out of our apartment next Monday evening and my husband took the entire week off to help with the move. We lined up helpers and they have cleared their schedule for our move.

We need a solution to this problem

From everything explained to us, we fulfilled our end of the bargain. I’m willing to take our earnest money back and just hunt for another place. If we can come up with a solution that works for us, that will work, but this is a big mess.

Any Ideas?

Have you had something similar come up at the last minute with closing? How did it get handled?

Photo Credit: fotographix.ca

The big financial news this week is that the Tax Credit for First-Time Homebuyers that was set to expire on November 30, 2009 has been extended until April 30, 2010. It also has been expanded to include a$6,500 tax credit for current home owners who buy a new house. President Obama is expected to sign the bill this morning.

Do you plan on buying a house?

Eligibility for the First-Time Homebuyer Credit

There are some requirements you have to meet before you can get the First-Time Homebuyers credit.

• You must be a first-time home buyer and you must have a purchase contract by April 30, 2010 and closes by .
• The house you purchase must be your primary residence and is not greater than $800,000.
• The buyer must live in the home for at least three years after the purchase date. You will have to repay the credit on a home only if the home ceases to be your primary residence within 3 years from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.
• The income limits have been raised for singles to $125,000 and married to $225,000.

Eligibility for the Existing Homebuyer Credit

• You must have lived in your current residence for 5 of the last 8 years.
• The house you purchase must be your primary residence and is not greater than $800,000.
• The buyer must live in the home for at least three years after the purchase date. You will have to repay the credit on a home only if the home ceases to be your primary residence within 3 years from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.
• The income limits have been raised for singles to $125,000 and married to $225,000.

Please check out the NY Times for more details and other provisions in the bill.

Your Thoughts

Will you buy a house within the tax credit’s extension? How much did the tax credit factor into your plans?

Photo Credit: roarofthefour

My husband and I are in the process of buying a house. Reviewing  several books on personal finance and mortgages,  I’ve been reviewing information on down payments.

How Much Should Your Down Payment Be?

The direct answer is as much as you can afford.  What can you afford to put down without putting your finances in jeopardy?

You shouldn’t look at the minimum you can get away with. You should examine your budget line by line and see how much you can put down and still have a buffer. You don’t want to put yourself in a financially vulnerable position.

Running the Numbers

Have you ever wondered what is involved in owning a house? Do you want to see if you can handle the pressure?

How much can you afford for a down payment?

The best advice I can give is ask your friends who are home owners and see how much it costs. What if you’re nervous about asking them? What if you’re not sure if they’ll tell you because this is a personal question?

Before we went house hunting, we asked almost everyone we knew about owning a house.  We weren’t just looking at buying a home; we were looking at the 15, 30 year outlook. You might think such details are boring, but they are meaningful. We needed to know if we could do this month to month, year to year. That’s the issue to weigh.

Here’s how I have gone and asked some friends. Feel free to adapt this to your circumstances.

Me: Hey. We’re looking at buying a house, but we want to do right. I know you’re smart with your money, so I wanted to ask you for some advice.

Friend: Yeah, what is it?

Me: We want to make sure we can afford to live in it. We looked at the cost of mortgages, utilities, property taxes, etc, but is there something we missed?

Friend: Did you include ___ in your calculations?

Me: No, thanks for mentioning that. (Write it down or put it on your phone for refernece – show that they are really helping you)  What expense(s) was(were) higher than you thought?

As you can see, you’re not trying to be nosy, but you’re looking for concrete examples. Your friend feels (rightly so) that they are helping you and that they’re an expert. People love to be the experts, so let them be and learn from them.

Doing a Test Drive For a Mortgage

Put yourself ahead of the game. Start living as if you have bought the house. You got the information from personal research and interviews, so put it into practice.

Have extra expenses deducted (and put into savings) so it would match what you would spend as a home owner. If you can’t afford to maintain the extra payments, then you have at least put some money away in savings for a down payment. Cut back and look at what is important and not really important to you.

Our Down Payment and Emergency Fund

Our down payment will be coming from our joint savings account that we’ve deposited slowly in since we got married (some of the first dollars were actually gifts of money from our wedding). We have tried our best to ignore this account and not deplete it until we needed it, such as now for the house.

Our mortgage after the down payment will be well within our budget. Even if we didn’t have the $8,000 tax credit, this would be a house we could afford. We’ll build up our reserves a bit after we move and our plan is to use the tax credit to pay down the mortgage.

The Point Behind Running the Numbers

You may think it is a bit overboard to plan and write about this so much, but buying a house is the biggest purchase we have made. We want to make sure we do this intelligently and enjoy the house as much as our families have enjoyed theirs for the all these years.

Why is running the numbers so important? Why do I keep repeating the phrase? I read this somewhere and it really stuck with me:

If you waste your money, you are also wasting the time you spent to earn it.

Your Thoughts

How about you? Were you able to set aside money for a down payment? How did it turn out?

I wanted to share some information that I found that I thought might be useful.

What is my mortgage interest rate?

Your mortgage interest rate is the annual rate you pay for the mortgage you take out.

What kind mortgages in regards to interest rates can I take out?

Some options available for the home buyers:

• A fixed rate (popular terms include 15 and 30 year): The interest rate remains the same through the length of the mortgage. This can be a smart choice if you want predictable payments over the long term of the mortgage.
• An adjustable rate (better known as an ARM):  The interest rate changes at specific times and the interest rate is subject to market conditions. There is a lifetime cap and annual limits to give some protection to radical increases, but your mortgage payments can still increase dramatically.

There are different repercussions based on your decision, so plan carefully.

How do rates on an ARM adjust?

Depending on your mortgage, your interest rate will be based on an index like the Prime Rate and the margin specified in your loan. The margin is the percentage point(s) above the index that the lender determines with your mortgage.

Each loan is unique, so check to see what different mortgage lenders are offering.  Your credit score can also be a factor in determining the amount the lender has for your margin.

Therefore your mortgage payments can rise and drop based on the index. Here is some information from the Consumer Handbook on Adjustable-Rate Mortgages on payment shock with ARMs with an example to illustrate it:

Payment shock may occur if your mortgage payment rises sharply at a rate adjustment. Let’s see what would happen in the second year if the rate on your discounted 4% ARM were to rise to the 6% fully indexed rate.

As the example shows, even if the index rate were to stay the same, your monthly payment would go up from $954.83 to $1,192.63 in the second year.

Suppose that the index rate increases 1% in one year and the ARM rate rises to 7%. Your payment in the second year would be $1,320.59.

That’s an increase of $365.76 in your monthly payment. You can see what might happen if you choose an ARM because of a low initial rate without considering whether you will be able to afford future payments.

If you have an interest-only ARM, payment shock can also occur when the interest-only period ends. Or, if you have a payment-option ARM, payment shock can happen when the loan is recast.

What are hybrid ARMs?

These loans have features of both fixed and adjustable rate loans. There is an initial period where the interest rates are fixed and then it will fluctuate based on the index and margin. I’ve usually seen this expressed in advertisement and sales pitches as 5/1 loans or 7/1 loans.

Taking the 5/1 as an example, the numbers reveal two things:

• The 1^st number is the length of the fixed period in years
• The 2^nd number is the time period of adjustments. If this is a 1, for example, then it adjusts annually.

There are some other ways of numbering the ARM loans, but the above is the most common.

Check to see if there are any penalties if you decide to refinance your arm loan or convert it to a fixed rate.

What mortage loan type is right for me?

Run the numbers and find out for yourself what will work with your budget and goals. Here are some things to keep in mind:

• How long are you planning on staying in your house? If you’re planning on moving relatively soon, renting may be a better option. Try the NY Times calculator and see how long you would have to stay in your house to break even when comparing to renting.
• Do you want stability with your mortgage payments? Fixed mortgages remain the same for the life of the mortgage loan. Adjustable rates can be lower for a time period, but no one can predict rates over the long term.

Run the numbers on the different mortgage types and interest rates.

Source: Consumer Handbook on Adjustable-Rate Mortgages

Your Thoughts

We applied for a 30 year fixed rate mortgage. We felt it was in our best financial interest to keep the interest rate steady. Right now the interest rate is relatively low, which is another bonus.

How about you? If you’re a home owner, what kind of mortgage did you get and why? If you’re planning on buying a home, what options are you looking at?

Photo Credit: pnwra