How much should afford as opposed to how much can you afford?

With great mortgage rates and a plethora of foreclosures, it's almost too good to pass up on this deal. The possibility of getting your dream home may have some people in over their heads, so how much should you afford?

In a perfect world: Whatever house you can pay cash.

Realistic: If you have to, finance on a 15 yr fixed mortgage where the payment (PITI) is no more than 25% of your take home income. The monthly payment, including principle and interest, taxes, insurance, and association fees if necessary, should not be more than 25% of your take home pay on a 15 year fixed interest rate mortgage.

Example: If you make $100K a year, which would be around $75K after taxes, or $6,250 a month. So 25% of that is 1560.

Also, you should consider the size of the house that fits into your budget. How much of a house do you really need?

Labels: Budget, Mortgages

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Even celebrities and politicians are not immune from the mortgage blues.

Ed McMahon, the longtime sidekick to television star Johnny Carson, faces the possible loss of his Beverly Hills home to a foreclosure action initiated by a unit of Countrywide Financial Corp.

U.S. Rep. Laura Richardson, a California Democrat, recently lost a home in Sacramento to a foreclosure. Not only has Richardson missed house payments, but she is behind on her property taxes, a lien was placed on her Sacramento house because of an unpaid utility bill, and she angered her neighbors by not keeping up her home.

Labels: Celebrity Finances, foreclosure, Mortgages

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There are a variety of ways to payoff your mortgage early, don't be fooled into thinking you have to pay a fee to accomplish this.

Biweekly payments are just a gimmicky way to trick yourself into paying more than the minimum payment on your mortgage over a year's time. Lenders will skim a little extra off the top by charging you a setup fee and perhaps a monthly processing fee for something you can do for yourself for free.

Mortgages are based on 12 payments per year. Except when you are paying it off or refinancing or prepaying the first partial month interest on a new mortgage, interest accrues at 1/12 of the yearly rate regardless of the number of days in the month. Also, the payments are posted at the same time every month.

Since mortgages are based on 12 payments, but there are 52 weeks in a year, then when you make 26 half-payments that is 2 extra half payments on the principal every year. You will get the same net effect by adding 1/12 of the payment as extra on the principal with each regular payment, or by adding half a payment once every 6 months, or 1 full payment extra on the principal every year.

Most lenders just hold your mid-month payment until the normal end-of the month posting date, then credit both half-payments on your normal amortization schedule. About twice a year there will be an extra half payment to apply to reduce the principal. So essentially, you are letting them use your money for free for an average of two weeks every month. And you will not see any reduction in your mortgage balance or schedule except in those two months when the extra half-payment is credited.

In addition to avoiding biweekly payments, also avoid all the new multi level marketing mortgage accelerator schemes that essentially pay somebody else a big lump sump for some magic software that only shows you something you can already do better and cheaper by yourself.

The only way you can save time and money on any mortgage is by paying more than the minimum payment schedule. You will never save more interest on your loan by giving any of your money to others as closing costs, startup fees, monthly processing fees, entry fees, or higher interest rates on gimmick HELOCs instead of paying all of your spare money directly on your own mortgage.

Before paying extra on a mortgage is that whether you are following Dave's steps to the letter, or just want to put your money to best use, you will be better off eliminating most consumer debts and definitely should be maxing your pre-tax retirement investment opportunities before putting much if any extra on the mortgage. In the case of retirement funding, you can end up losing far more in compound interest earnings by postponing retirement contributions than the after-tax money will save on the debt.

Labels: Mortgages, retirement

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Stephanie is about to be a single mom. She has been a stay at home mom for seven years and is trying to find a job. Should she sell her house or let her husband keep it?

Labels: Dave Ramsey TV Show, Mortgages

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Read on to see how this family's hardship could be avoided, but there is more to the story.

As featured on CNN, Patricia Guerrero was making $70,000 a year and weeks later, with bills piling up and in need of food for her family, this middle-class mother did something she never thought she would do, she went to a food bank. What a sad, sad story.

If she had a fully stocked emergency fund of 3-6 months worth of expenses set aside in a savings or money market account, she would not be in such a tight fix.

Now for the rest of the story. Someone looked up Guerrero on the LA county assessor and recorder database. They found more information about Guerrero’s financial situation from public records.

The almost 3,000 square foot house sits on a quarter acre lot and was built in 1948. She and her estranged husband Ray acquired the house, apparently from his parents in August 2002, at which time the debt on the property was about $157,000.

Ray and Patricia took out a conventional fixed-rate first trust deed on the property in August 2002 for $202,000.

Between 2002 and 2006 there were various refinancing and equity loans, but the present note from August 2006 is for $649,999.

So, in the end they bought the place for a song and blew about $450,000 equity over a period of just 4 years. In CNN's effort to create more panic about the hosing market than there really is, they got scammed themselves.

Labels: CNN, emergency fund, Mortgages, Patricia Guerrero, Scam

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Tim is building a house and has cash to finish it. An investor suggested he take out a mortgage so he can invest 40K. Is this a good idea?

Labels: Dave Ramsey TV Show, investing, Mortgages

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Alexis Glick talks to Dave Ramsey about the do's and don'ts of real estate.

Part I:


Part II:

Labels: Dave Ramsey TV Show, Mortgages

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David Asman talks to Scott Bleier, Hybrid Investors Founder, Tracy Byrnes, Fox Business, Dave Ramsey, Fox Business and Peter Zalewski, Condo Vultures CEO about surviving a down housing market.

Part I:


Part II:


Part III:

Labels: Dave Ramsey TV Show, housing market, Mortgages

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In the book Freakonomics, it was proven that it usually does not pay for real estate agents to take the time to get the best price when selling a client's home. The agent will usually encourage you to sell to the best offer so they can make their profit and move on to the next client. Holding out longer for that $10K that you are asking will usually only net them about $150, so is it worth the wait for the agent?

Labels: money saving tip, Mortgages, real estate

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I recently found a site (Freeratesearch.com) that searches for the best rate for you. You will be asked a series of questions including your FICO scores, which are your credit rating. You have the option of providing your three scores from the three credit bureaus, applying for them, or answering questions to estimate your score. I went through the questions and was given the range of 750-800.

The FICO score range is between 300 and 850 and about two years ago my score was about 790. The best credit rates are given to people with scores above 770, but a score of 700 -- out of a possible 850 -- is considered good. Generic interest rate calculations on the myfico.com web site show that when the score dips below the mid-600s, those consumers generally qualify only for "subprime" lending and the interest rate starts to climb significantly.

The rate listed for me was 6.0% and I checked with two of my national bank/credit union that I deal with and one rate was 6.0% and the other was 5.75%. The site does not list the local instutions, but someone will contact you. So if you are interested in buying or refinancing, it is worth shopping around with this site.

Labels: interest rates, Mortgages, Sub-Prime Mortgages

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