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Should You Buy a Home for Your College Student?

May 28th, 2010

College expenses can put a serious dent in your wallet. Although many students qualify for financial aid, parents may still be expected to contribute to tuition and housing costs. Does it make sense to buy a condo or house for a college student instead of having them live in a dorm? Here are 5 things to consider before beginning a house hunt.

  1. Do you need a home loan to pay for the purchase? If so, are you really in a position financially to take on monthly mortgage payments? Use a mortgage payment calculator to figure out how much house you might be able to afford.
  2. Expect mortgage lenders to scrutinize your credit history. Lenders want to know that if they underwrite a home mortgage, that you are able to pay it back. Mortgage lenders are going to want to see proof of income, assets, investments, and tax returns. Also expect to provide documentation that you have made mortgage payments on time for the house you live in.
  3. Don’t expect Junior to pay the mortgage each month. Unless your college student has a steady income and expects to work full-time, it is unlikely that your child can make the mortgage payments. If your student is attending school full-time, that should be considered a job. Any money earned from a part-time job can be used for food and household expenses.
  4. Are you able to afford utilities and maintenance costs? If you already own a home, you know that there always seems to be something that needs to be fixed or replaced. Also factor in the cost of routine maintenance such as mowing grass and snow plowing if your child won’t be doing the work.
  5. Be honest with yourself–is your kid responsible enough to maintain a home? You don’t want to invest in a property only to have your college student trash the place. Also, consider your child’s maturity level. When you consider everything, you may decide that living in a dormitory is a better option.

Finally, have you checked out rentals near the college campus? Before shopping around for mortgage loans and visiting open houses, see what types of properties are available in the area. You may find an apartment, condo, or home for rent that is suitable for your student and much cheaper than applying for a mortgage to buy a property.

Mortgage Rates Are Low for Refinance and Purchase

May 24th, 2010

If you were expecting mortgage rates to begin rising this year, you may have to wait a while longer. Current mortgage rates are surprisingly low, with 30-year fixed-rate home loans averaging 4.86% and 15-year rates averaging 4.24%. Many economists had expected mortgage rates to rise to around 6% this year, but the European debt crisis has resulted in investors pouring money into American bonds, which has helped lower mortgage rates.

Time for a Home Refinance?

The lower mortgage rates mean you can still get a good deal on a refinance. “It’s another very good opportunity for anyone who hasn’t yet been able to refinance — or has missed other chances,” Keith Gumbinger, vice president of HSH Associates, told MarketWatch. “Rates have unexpectedly returned to near 50-year lows due to the overseas mess, but it’s worth noting that such sudden declines have proven fleeting in the past, with rates bouncing higher just as soon as a permanent (or potentially permanent) solution has been identified.”

Get a Mortgage to Buy a Home

Current mortgage rates are also good news for people applying for a loan to purchase a home. Getting pre-approved for a mortgage loan can improve your chances of having an offer for a house accepted by the sellers. Some real estate agents won’t even work with you unless you have a letter from a mortgage lender that shows you have been preapproved for a home loan.

You can search for mortgage rateshere to get started on the process of getting preapproved. Getting a preapproval letter doesn’t mean you have to actually apply for a home loan with a particular mortgage lender when you are ready to buy. Any preapproval you get probably expires in about three months time, but you may be able to get an extension if necessary.

Documentation Is Important

 Whether you want to do a home refinance or buy a house, you need to provide documentation of your income to mortgage lenders. You need to show proof that you are employed or have a steady income. Mortgage lenders also want to know that you aren’t carrying too much debt relative to your income. Among the financial documents you might have to provide are tax returns, W-2 statements, bank account statements, and recent pay stubs.

Don’t Waith Too Long

Current mortgage rates are very attractive if you want to refinance or buy a home. But don’t expect mortgage rates to remain at such low levels for the long-term. Get moving if you want to lock in a mortgage deal before interest rates begin rising.

Should You Refinance Your Home Loan?

May 16th, 2010

Current mortgage rates are low and it seems like it might be a good time to refinance your home loan. You’ve even begun to gather quotes from several local mortgage lenders advertising competitive mortgage rates. But does it make sense to do a mortgage refinance at this time?

Use a Loan Calculator

It is important to determine the amount of time it’s going to take to recoup any money you put out to refinance. Use the “Is it time to refi?” loan calculator to compare several mortgage quotes. The following example walks you through the steps of using the loan calculator.

Existing Home Mortgage

First, the loan calculator asks for information about your existing mortgage.

  • What is the original term of your home mortgage? For this example let’s use 30 years.
  • What is the original amount of your mortgage loan? Our example uses $250,000.
  • What is the current balance of your home loan?  ($175,000)
  • How long have you had the mortgage? (8 years)
  • What is your current interest rate? (7%)

New Home Loan 

Next, the loan calculator needs information about the new mortgage.

  • What is the amount of the new loan? ($175,000)
  • What is the new mortgage term? (15 years)
  • What is the interest rate on the new loan? (5%)
  • How much are the estimated closing costs? (2%)
  • How long do you plan to remain in the home after doing a mortgage refinance? (10 years)

How Much Would You Save?

When you run the numbers in the loan calculator, you get a report detailing your potential savings. Using the numbers in this example you would go from having a monthly mortgage payment of $1,663 to paying $1,384. Over the 10-year period that you plan to remain in the home you would save $33,524 due to the decreased monthly mortgage payment.

Reducing Mortgage Loan Principal

The loan calculator also gives an analysis of the reduction of loan principal. In this scenario if you refinanced and stayed in the home for 10 years the principal would be reduced by $101,667. However, if you did not refinance your mortgage, the principal would be reduced by $111,194 over the 10-year period.

Total Savings

The last part of the report shows that the estimated cost of refinancing is $3,500, which is based on the 2% closing costs. It also shows that the total amout that would be saved by refinancing would be $20,497.

Assemble Team When Getting a Home Loan

May 8th, 2010

Applying for a mortgage loan can be an intimidating process if you aren’t sure what to do. That’s why it’s important to assemble a team of knowledgeable professionals to help you through the mortgage loan application process. The team you choose should include some of the following professionals.

Mortgage Lender

Before you even begin to hunt for  a home it’s important to choose a reputable mortgage lender who is willing to commit to loaning money to you. An experienced mortgage broker can help you shop for home loans from a variety of lenders.

You can also go directly to mortgage lenders to inquire about mortgage rates and terms. Choose a mortgage loan officer who can explain the different programs and takes time to assess you needs.

Real Estate Agent

A knowledgeable real estate agent can help you find listings in the area you want to buy a home. Agents should have information about recent purchasing activity in the area and access to the Multiple Listinig Service (MLS).

Avoid choosing an agent who haven’t sold any homes in the area you are interested in or who seems green about what’s involved with the home buying process. Another red flag is when a real estate agent won’t take your calls or spend much time helping you.

Real Estate Attorney

Find an attorney that specializes in real estate transactions before you get to the point of making an offer on a home. It’s important to have an attorney who can review your offer to purchase a home. An attorney will review all paperwork, prepare and register legal documents, and make sure you get a clean title to the property you buy. Your attorney is also going to be present when you close on the deal.

Home Inspector

Once you make an offer on a home you should make the deal contingent on having it inspected by a qualified professional. A home inspector goes through the property you want to buy and looks for areas that could be trouble, such as faulty wiring, bad plumbing, or a leaky roof. Most states require home inspectors to be licensed so only use one who has credentials that are up to date.

Getting a home loan to purchase a house is a huge investment of your time and money. Make sure you are getting the proper guidance from people who are qualified so you don’t run into problems later.