Buying a house ... (gasp) (1 Viewer)

[Bill Cowmeadow]

Well said DaveF. Thanks.
Dave,

One can litigate anything, especially in California.

 

[Marc S Kessler]

If you can afford it I believe a 15 year mortgage is a much better deal . I may even lower the interest rate by a 1/4 point.

 

[DaveF]

Or take a 30 yr mortgage and make monthly payments equivalent to having a 15 yr mortgage. Most of the savings of a 15 yr, but some with the flexibility to lower your payments if personal finances require it.

 

[Francois Caron]

As long as the mortgage terms allow it. My previous mortgage limited me to how much I could pay per year above the year's negotiated payment amount. If ever I wanted to pay more than the limit, it first had to be authorized by the bank.

 

[Robert_Z]

It's done! I'm in baby. Wish me luck.

I'm having a home theater installer over on Friday to give me an estimate on doing my HT right, with no wires in sight.

Take care.

 

[Chris Lockwood]

> As long as the mortgage terms allow it. My previous mortgage limited me to how much I could pay per year above the year's negotiated payment amount. If ever I wanted to pay more than the limit, it first had to be authorized by the bank.

That means you need a better bank. There shouldn't be a limit on how much extra you can pay.

 

[Jason L.]

I agree. You should be able to prepay whatever amount you like. I paid off a 30-year mortgage in 5 years and 2 months.

I like the 30-year fixed because it gives you the opportunity to prepay as much as you like [assuming you are disciplined] with the ability to pay only the minimum if you run into financial problems.

If you start prepaying at the beginning - throwing whatever spare cash you have available against it - you can cut a ton of interest and time off your loan.

 

[Francois Caron]

It wasn't a problem for me because the limit was so high that there was no way I could ever match it. That doesn't mean I didn't pay more than the minimum payment. But my finances did limit me to an overpayment of about $100-$150 above the minimum payment. The ceiling would have allowed me to pay about $1000 above the minimum payment before I had to ask for approval.

Also, this is a Canadian mortgage, not a US mortgage. The rules are different from one country to another. But however you look at it, the mortgage broker who got me the mortgage not only got me an excellent rate, they also found me a bank that finally gave me satisfaction. And because of the high ceiling, the overpayment limit never became an issue.

Here's another interesting question. Do US mortgage lenders also require a payment of a portion of the property taxes along with the mortgage payment? My bank took responsibility of paying the property taxes, so I was obliged to pay an extra $250 per month which was held in a special account until it came time to pay the taxes.

This may seem bizarre until you think for a moment this is probably one of the best ways to prevent a homeowner from defaulting on the property taxes.

 

[Scott Merryfield]

U.S. mortgages sometimes require this, depending on how much down payment you make and your credit rating. It's called escrow, which is an account that holds up to 13 months of property taxes and insurance. Generally, if you have more than 20% equity in your home you can get an escrow waiver and pay your own taxes and insurance.

 

[Bryan X]

I have both my property taxes and insurance added to my monthly payment in escrow. I like it because it's fewer things I have to remember to pay.

 

[DaveF]

Same as BryanX.

 

[Scott Merryfield]

Personally, I prefer to make the payments myself. (1) I control when the taxes get paid, and (2) someone else is not keeping my money interest-free for a year. We have not had an escrow account for many years.

 

[nolesrule]

Escrow accounts are beneficial to those that don't have the discipline to set the money aside on your own. The last thing you need is to not have the money when the tax bill is due.

 

[DaveF]

Or to those who would forget to pay their tax bill, funds not withstanding

 

[Scott Merryfield]

That is very true. In our case, though, I actually make our winter tax payment before it would get paid out of an escrow account. The payment is not due until February and I want it paid before the end of the year so I can deduct the payment from our income tax earlier. Also, when we did have an escrow account, they were actually late one time in paying the taxes. So, I've been more reliable than our previous escrow company.

 

[nolesrule]

In Florida, property taxes are due in April, but you get discounts that increase the earlier you pay, starting in November with 4% and decreasing 1% per month as you approach the due date.

In my experience with escrow, the tax bill (and insurance bills) is paid as soon as the bill is received, providing for the smallest tax payment possible. This may be state law here, but I'm not sure.

And it looks like we're going to be upgrading houses by the end of the year. We should be able to get a decent down payment from proceeds from our current house, as the market seems to be on the verge of a turn around here.

 

[Colin Dunn]

Some other comments...

- Buying at the top end of one's qualification range isn't as risky this year as it was a few years ago. Banks have tightened credit, so it's not as easy to borrow an amount you'll never be able to legitimately repay.

- Property taxes (rather high in Texas, ~3% of the property value in most city/suburb locations) are factored into the qualification process. A property tax escrow will be about a third of a borrower's monthly payment if the borrower put between 5-10% down. (It could be more than half of the payment if the borrower came in with a large down-payment, such as 50% of the value of the property.) The sum of principal, interest, taxes, and insurance (PITI) is generally limited to 28-31% of the borrower's gross income. Overall debts (add in credit cards, car payments, other loans) are restricted to 36-41% of the borrower's gross income.

- Texas didn't have a housing bubble between 2002-2007, as some other regions (Florida, California, Washington DC, the desert Southwest) had. Average home prices only rose slightly during this time. There was not much speculation in the real-estate market. If prices drop here, I don't expect it to be 50%.

Florida got hit especially hard because the speculative bubble burst, and because the jobs base there doesn't support the price levels achieved in 2006 ($300+ per square foot in many cases). People working in $9/hr tourism industry service jobs cannot legitimately repay a $450K loan balance for a 2-bedroom condo. Now that the "liar loans" and speculators have been driven out of the market, the only buyers left are people who will actually live in the homes and repay the loans.

- As interest rates drift up, this will put a ceiling over home prices. What a borrower can pay for a home is determined by three factors: amount of down payment, borrower's income, and market interest rates. Slow growth (or declines) in home prices diminish down-payments. Higher interest rates reduce the amount a borrower may qualify to receive. A recession limits borrowers' ability to get pay raises (or even have a job!), putting a lid on income. Current economic conditions (rising interest rates, rising unemployment, stagnant or declining home prices) suggest that resale home prices cannot rise significantly, as borrowers cannot finance higher purchase prices. If anything, borrowers have had the wind knocked out of them, and prices need to come down to reflect the "new reality."

- Building costs are rising due to inflation - especially energy and materials costs. But builders have to compete with the inventory of existing homes. Their profit margins will get squeezed, as the trio of factors above (difficulty raising down-payments, higher interest rates lowering qualifying amounts, rising unemployment) will preclude buyers from financing and paying more. I wouldn't want to be in the home building industry right now...

- I worry about right now about ENERGY COSTS. It takes a lot of energy-consuming air conditioning to live comfortably in Texas during the summer (which is about 7 months out of the year!). I bought at the top end of my qualifying range and got the biggest home I could within my budget. My budget will break if electricity costs triple, as gas/oil prices have in the last few years.