Re: Curious About Home Mortgages

Posted by MarkB_MI on October 13, 2007 at 04:16:57 from (75.111.220.37):

In Reply to: Curious About Home Mortgages posted by in-too-deep on October 12, 2007 at 12:10:25:

You've received a lot of good advice. A few more points:

1. The general rule of thumb is that the monthly rental OR purchase cost of a home is around one percent of the total price of the property. So if the house is worth $100,000, it will cost you 1000 a month to own it or to rent it. (In theory this number changes with interest rates, but in practice it's not much, due to fixed escrow costs.)

2. Another rule of thumb is that your house payments should not be more than one-third of your gross (before-tax) income. One-quarter is better, because you need some money for repairs, particularly on an older home.

3. When shopping for a mortgage, ask for the payments on 30, 25, 20 and 15 year loans. The mortgage company will always quote a thirty year loan, saying "it's the standard". But after they're done grumbling, you will find that there is almost NO difference in the payments on 25 and 30 year mortgages! 20 year mortgages will be a little higher. 15 year mortages will be quite a bit higher, but they will usually give you a lower interest rate on a 15 year mortgage which will help to offset the shorter term. And when you do the closing CHECK to see that they gave you the term you asked for. Mortgage companies will often make out the paperwork for 30 years even if you applied for a shorter term.

3. Buy a book of "Loan Amortization Tables". You'll find them at most bookstores. Sure, today you can find calculators on the web, but I like to have the numbers right in front of me where I can quickly do "what-ifs" just by looking in a different column. I bought mine thirty years ago and I still use it every time I think about taking out a load.

4. You need to save AT LEAST ten percent of the purchase price of the house, even if you only have to put five percent down. You will need the other five percent for closing costs and "pre-paid" items. (Pre-paid means it goes into your escrow account.

One last thing: A house is NOT an investment, it is a place to live. If you think you're going to move in the next two or three years, think carefully about purchasing a home. Remember: It is ALWAYS easier to BUY real estate than it is to SELL it. You need to keep your house for at lease two years to recoup the costs of buying and selling it.

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