Tips

Mortgage Burning Party!!!

A Mortgage Burning Party— just wth is that you might ask? In this world awash with mega-debt I imagine that most people have never heard of a mortgage burning party. But, back in the day, it was not uncommon. And ’twas a goal that many aspired to.

Few people can pay cash for a new home, so they get a mortgage loan from a lender to make up the difference between their cash down payment and the purchase price. Then, when they write the mortgage lender a check on the 1st of each month, a portion of that payment goes toward the principal. That amount grows with each passing month. Pay on it long enough and you’ll eventually own your home free and clear. Paying a mortgage loan down builds financial security and wealth. For most people, the equity in their home is the largest piece of their financial wealth.

So, just exactly how does one go about paying off their mortgage? Let’s take an example, using a typical $140,000 house. (Btw, that’s the current median average sales price of a home in Central Indiana.) Option A would be what most folks do- they take out a loan for 30 years. The current rate on that loan is around 4%, making for a loan payment of $668. At the end of the first 5 years you would have reduced the loan balance from $140,000 to $126,519. Pay faithfully for another 5 years and you’d owe just $110,298. Pay another 20 years and the bank will send you the mortgage document stamped “Paid in Full!” and you can pull out the box of matches.

Now, let’s look at how you can accelerate this so you can envision that happening on the near horizon. Rather than a 30 year, consider taking a 15 year mortgage. The rate’s a little better- like 3.5%. That combination would put your monthly payment at $1,001. It’s more, but you can buy and budget accordingly if your goal is to own your home free and clear— and save yourself tens of thousands of dollars in interest charges. (I’m sure you can find a better use for that money!) So, with that set-up, at the end of 5 years you’ll have paid down to $101,211 (less than what you’d still owe on a 30 year mortgage after about 14 years). And after 10 years you’d have the balance paid all the way down to just $55,015! Just another 5 years and you could have yourself a good ol’ fashion Mortgage Burning Party! Thinkaboutit…

Just HOW good does one’s credit need to be?

I had an email from a prospective buyer yesterday saying she was going to hold off on buying until she got her credit in order. Now, that can certainly be a good strategy. But just how good does one’s credit have to be— before the time is right to get a mortgage and buy a house?

For the most part (ie. there are exceptions to everything) as long as you are above a certain threshold, how much above the threshold makes very little difference. For instance, whether your credit score is 741 or 759 makes absolutely no difference whatsoever. And the difference between 719 and 779 might amount to $8 on your monthly payment. I doubt that for most people waiting a year to bring one’s score up to save $8/month makes much sense.

The minimum required score changes from time to time, and there is some variability between lenders. As a general rule, you’ll find mortgage brokers to be more flexible on credit scores than banks. Currently, you can find lenders who will make competitive, fairly priced, fixed rate mortgage loans based on the following credit scores:

VA- many lenders make VA loans with scores starting at 620. For those close to that mark, they’ll probably insist that there be no loan, rent or credit card payments more than 30 days past due during the most recent 12 months.

RD- lenders making these loans often dip to scores beginning at 600, and for the lower scores will have similar requirements to VA lenders.

FHA- lenders making FHA loans may dip even lower… say into the 580 range. And once again, the lower the score, the more likely there will be stricter requirements on the absence of payments 30 days late in the past year, and on proving one’s rental payment history.

Getting a mortgage can be a PITA. There is no doubt about that. And for those with lower scores, an extra dose of patience and determination will likely be required. However, with the right attitude, one with a lower credit score can obtain a mortgage and buy a new home. To get the facts, just ask.

Deal breaker— removed!

One of my pet peeves is road noise. I mean, when I drive down busy thoroughfares with lots of traffic, and loud traffic noise… I just wonder what in the world makes people buy homes along noisy streets when they could buy someplace quiet. Idk, maybe they live inside the house all of the time, with the tv blaring and the a/c humming away?

But, anyway, just last night I was pulled up to what looked to be a very nice house. As I got out of my car, I noticed road noise. I got a disgusted look on my face and thought this is probably not going to work. As I walked through the house I was favorably impressed. Then when I stepped out back, I got a shock! Surprise—- no road noise!!! In its place was the delightful and tranquil sound of water. The owners had four small fountains running in their pool. I was so impressed that when I got home I had to check out the cost of this simple solution. Another surprise- these fountains cost like $29-39 a piece. Wow! It got me to thinking, and I figured that even without a pool, a homeowner could put in a fairly simple water fall for a cost of a few hundred dollars; or even less than a thousand for something pretty creative. At any rate, that sure sounds like a simple, cost effective cure to what might otherwise be a deal breaker. Thinkaboutit!