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You Paid Off Home Mortgage – What Next?

Miranda — Thu, 13 May 2010 22:59:46 +0000

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If you paid off mortgage, pat yourself on the back! It is a great financial achievement. Whether or not you paid off your mortgage early, once that mortgage is no longer hanging over your head, it’s time to figure out what to do next. There are a few house-keeping actions you need to do once your mortgage is paid off, and then it’s time to think about what you can do with the extra money you have.

Checklist: What To Do Once Your Mortgage is Paid Off

We like to talk about “owning a home,” but the reality is that you don’t actually own it until your mortgage is paid off. As long as you have that mortgage, the bank really owns the home. If you miss a payment, the bank can repossess the home, since it’s the bank that put the money up for it in the first place. Because this circumstance changes when you pay off your mortgage, there are a few things you need to do:

Revise the title: You will need to have your title revised to reflect that the home is no longer mortgaged. You should also look into the legalities involved in “tenants by the entirety” and “tenant in common” on your title. Consult an attorney knowledgeable in real estate matters to make sure that your title accurately reflects your situation and your desires, especially if you have a spouse.
Make property tax arrangements: In many cases, your property taxes are paid as part of an escrow agreement when you arrange your mortgage. A monthly amount is added to your mortgage payment each month, to be applied to your property tax bill. Once your mortgage is paid off, you will need to pay this bill on your own. Go to the county assessor’s office, your city or county tax office to find out the procedure. You will need to know whether you pay one lump sum each year, or pay semi-annually. You can set aside money each month for property taxes in order to avoid having to come up with the money all at once.
Review your estate plan and will: This milestone is a good time to review your estate plan and your will. Decide what you want to have happen to your home if you become incapacitated or die. A good estate attorney can help you work out how your property will be distributed.

What to Do With That Extra Money

Once you get the paperwork out of the way, it’s time to decide what to do with the extra money that you have each month. Create a plan for that money. Consider your financial goals, from retirement to helping others, and decide what you want to accomplish with that money. Some things you might consider using the extra money for include:

Invest for income: You can work out an asset allocation that is appropriate for your age and situation in order to help provide income for later. Converting your monthly mortgage payment into income investments that provide an immediate income stream is another possibility.
Start a business: If you’ve been looking for a business opportunity, you can take the extra money you have each month and start a business. It might be enough to get a side business established, set up a good web site for residual income, or even to quit your day job and devote yourself to getting a business off the ground. It all depends on how much you are saving now that you no longer have a mortgage.
Invest in your heirs: You probably have kids or grand-kids. Your estate plan or will will take care of your legacy, but you might want to do something for them now. You can set up funds for your children or grandchildren with that money. Many decide they want to help their children or grandchildren with college, and set up 529 plans. This can be a good way to give a gift that keeps on giving.
Provide for charity: Paying off your mortgage can free up money that allows you to leave a charitable legacy. You can set up a gift fund or trust for a cause that you believe in, helping others for years to come.
Invest in yourself: It is said that investing in yourself can often be the best investment. If you have a relatively long work career ahead of you, you may want to upgrade your skills or go for that college program that you always wanted. On the other hand, you may want to learn new skills or hobbies that pay you back in more personal and socially satisfying ways.
See the world: Many find that the extra money can be used to travel. You can visit new places and see new things, with your home as your base camp. There are a number of interesting volunteer travel opportunities that allow you to help others while seeing the world.

Prioritize your financial wish list, and think about your future prosperity. You can even divide up the extra money each month so that some of it is invested for income, and some of it goes toward education or travel. Figure out what you want to do, and then make a plan so that paying off your mortgage works to your financial advantage.

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You Paid Off Home Mortgage – What Next?

Home Buyer Tax Credit Extended and Expanded

Brandon — Tue, 01 Dec 2009 16:04:00 +0000

Now it’s not just first-time home buyers who are having all the fun.

Source: sxc.hu Photo: linder6580

The Obama administration earlier in November enacted a new $6,500 tax credit for existing home buyers looking to upgrade. Qualified borrowers can buy a bigger, more expensive primary residence or downsize and save space and money using the tax credit.

The government introduced the new credit while extending the successful $8,000 tax credit for first-time buyers. For each tax credit, buyers have to purchase by April 30 and close by June 2010 to qualify.

Industry experts remain hopeful that the tax credit extensions will help buoy the housing market. The new $6,500 credit went into effect in early November and is poised to open up the market for an entirely different group than the first tax credit applied to.

“The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules,” Gibran Nicholas, chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers, told CNN after the bill’s passage.

In order to utilize the new tax credit, buyers must have owned their current home for five consecutive years over the last eight. Those who file their taxes solo cannot have an adjusted income greater than $125,000; for joint filers, the income cap jumps to $225,000.

There are a few more key stipulations with the new credit. Among them:

The home price must be $800,000 or less.
Buyers must live in the new home, which can’t be used as an investment property or a second home.
Qualifying home types range from single-family structures to mobile homes and even house boats.
Buyers can claim the credit on their 2009 tax returns or file an amended return for 2008

Now, that you have the facts, here’s my take. This is great for fiscally prudent people who are on the cusp of buying a home for the first time. My advice is do it now! Don’t wait in the hopes that prices will bottom lower or bet on mortgage rates. The differences you’re likely to see there honestly won’t make up for the $8,000 shot in the arm you could see immediately. This is especially true when you consider the fact that most first time home buyers are fairly low on cash and $8,000 is pretty significant.

As for the “move up” credit. That’s not an amazing deal in my opinion. Yes, it’s nice if you were already planning on moving and the timing works but if that’s not the case, I don’t think you should be swayed by just $6,500. Home prices are down and it’s almost universally a seller’s market. Hold on for a few years and I think you’ll make significantly more than the tax credit pays out today.

To learn more about the new $6,500 tax credit for existing buyers or the $8,000 credit for first-time buyers, visit the Mortgage Loan Place blog.

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Home Buyer Tax Credit Extended and Expanded

What You Need to Qualify for a Home Mortgage Loan

Miranda — Thu, 08 Oct 2009 20:43:05 +0000

Source: sxc.hu Photo: EyeLens

There is a lot of talk going on right now about the first time home buyer tax credit, what will happen when it expires, and whether Congress will approve an extension of the home buyer tax credit program. But no matter what happens with the tax credit for home purchase — and whether or not you end up taking advantage of it — you need to understand what is required if you want to qualify for a home mortgage loan. Here are the basics of what many mortgage lenders are looking for right now:

Credit Score: In the heyday of mortgage lending, you could qualify for a home loan with just about any credit score. As you might imagine, mortgage lenders are not so rash anymore. In order to even be considered, you will likely need a credit score of 660-680. If you want the best interest rate, though, you will need somewhere around a 720-740. Those low mortgage interest rates are nice, but not everyone will qualify for them.
Debt-to-Income Ratio: The amount of debt you have in relation to your income is a major consideration for mortgage lenders. They want to make sure that your debt won’t overcome your ability to pay. For most lenders, the debt-to-income ratio tops out at around 40% of your monthly income being used for debt payments. However, if you want the best mortgage rate, you will need to adhere to the 28/36 qualifying ratio. This states that your housing costs cannot exceed 28% of your monthly income, and your total debt payments each month should not exceed 36%.
Down Payment: The days of 0% down payment mortgages are pretty much over (at least until the next housing bubble), so you will need to put some money down. Many lenders want a 10% to 15% down payment, although some will accept 5% down. For the best rates, some lenders are now requiring 20% to 30% down payments. As a result of these new down payment requirements, many people are turning to FHA loans, which only require a 3.5% down payment.
Income Documentation: Gone are the days of low-doc and no-doc loans. Now, you need documentation of your income — and plenty of it. Some mortgage lenders require six months of pay stubs and two months’ worth of bank statements on top of your last two years’ tax returns. Making sure that you can handle the payments is paramount to mortgage lenders right now. If you are self-employed, this process can be even more onerous: When I applied for my home mortgage loan, I had to go through an income audit with an accountant (price: $600) in order to acceptably document my income.

In addition to these basic requirements, some banks may require a certain degree of liquidity. They may require that you have at three months’ worth of payments available in a savings account, emergency fund or some other place where it is readily available. Some banks want as much as 12 months or more available for payments. They want to know that if you lose your job or run into some other problem, they will still be paid — for at least a little while.

First Time Home Buyer Tax Credit for Home Mortgage Loans

These rules still apply even if you are trying to get a first time home buyer tax credit, although you can use the $8,000 tax credit toward your down payment. If you want to take advantage of the first time home buyer tax credit, though, you might be running out of time. If Congress doesn’t extend the deadline (currently November 30, 2009), then you need to hurry. Home loans need to close by November 30 in order to qualify. With most mortgages taking around 45 days to close, it means that if you don’t get the paperwork started by October 16, you could be in trouble. If you run into issues, it can take up to 60 days to close on a mortgage — and you could miss the deadline.

Responsibly getting a home mortgage has always required good financial management, planning and preparation. Now, though, with tightened lending standards, it is even more important that you prepare ahead of time to buy a home.

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What You Need to Qualify for a Home Mortgage Loan

FHA Loans Then and Now

Brandon — Fri, 17 Jul 2009 18:00:40 +0000

Source: sxc.hu Photo: CraigPJ

The year is 1934- The War to End all Wars (WWI) is a distant memory, but the United States is fighting a new battle; The Great Depression. Most Americans have given up on the Great American Dream and are just trying to stay alive. Many Americans lived in “Hooverville” or “Shantytown”; cardboard cities set on the outskirts of towns all over America. It was under these conditions that Congress first formed the Federal Housing Administration (FHA) in 1934.

In 1934, mortgage loans were nearly impossible to get. Banks required a 50% down payment and most mortgage loans had to be repaid in 5 years. With the formation of the FHA, mortgage loans changed and the American Dream began to seem a possibility again.

The FHA did not lend money, rather it insured the mortgage loan. This meant that should a borrower default on a loan, the FHA would pay the lender for its losses. This greatly reduced the risk to the lender. In exchange for this insurance, the FHA demanded that lenders make loans more affordable and easier to obtain.

The FHA demanded that lenders require only a 3% down payment from its borrowers and to allow that down payment to come from any source. Additionally, loan repayment terms were to be extended up to 30 years. Simply changing these requirements made the American Dream once again a reality for many.

The FHA did not require tax payer revenue to support its cause. All money for default payments came from insurance fees charged the borrower over the life of the loan. The FHA was made part of the Federal Department of Housing and Urban Development in 1965.

Today the FHA continues to function as it did in its inception. With few exceptions (i.e. a 3.5% down payment) requirements remain the same. Without exception the goal of the FHA remains the same; to make America a nation of homeowners.

FHA loans were not in vogue in the mortgage boom but today they account for around a third of all mortgage applications. The economic stimulus bill is the main driver of the growth in FHA applications with some new, home buyer friendly legislation.

In May of 2009, the FHA announced that it will allow first time home buyers to use the Recovery Acts new first time home buyers tax credit for immediate assistance.

The American Recovery and Reinvestment Act of 2009 offers first time homebuyers a tax credit of up to $8,000 for purchasing a home. Ordinarily this tax credit is only available to first time home buyers after they file their tax return with the IRS. The new change announced in May will make home ownership more affordable to many.

The new rules will allow certain FHA approved agencies to monetize the tax credit prior to tax filing, allowing first time home buyers access to the full $8000.00 tax credit when purchasing their new home.

Home buyers can apply the tax credit to the down payment in addition to the required 3.5%. Increasing the down payment will lower interest rates and make home ownership more affordable for many. Additionally, the tax credit may be applied to other cost associated with purchasing a new home (i.e. closing costs). The FHA anticipates that the new tax credit will encourage the purchase of approximately 160,000 homes.

The FHA warns first time home buyers to beware of mortgage scams. Although there are plans in place to ward against misuse of the applied tax credit, the buyer should always beware. The FHA suggests that first time home buyers compare the services of several agencies approved to use the tax credit and choose the servicer that makes the most sense for them. The FHA intends to track the approved servicers to be sure the newly available funds are not misused.

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FHA Loans Then and Now