Home Buying and Mortgages Resources

Intro

A home is the largest purchase most of us will ever make and a mortgage is the biggest loan most of us will ever take out. A home is typically one of the best investments you'll make, too. In most parts of the country, homes rise in value every year. There is a lot of your money and time at stake.

Homebuying can be a complicated and sometimes frustrating process. If you are not prepared, the decisions you make, the questions you don't ask, and the details you miss could cost you thousands – in price, fees, financing, property issues, and home repairs. You'll want to be prepared for less than ethical business practices, too.

Before you shop for a home or mortgage, read the articles below. By doing your homework, you can prevent the American Dream of owning a home from becoming a nightmare.

Buy or Rent?

How do you know if owning a home makes the best financial and personal sense for you and your family? Is it the right time for you to buy a home? Determining whether you want to own or rent a home depends on your personal preferences and your financial situation. Begin by asking yourself these questions:

• Do I/we have a steady, reliable income? If you are thinking of changing jobs or if your job is insecure, now is not the time to buy a home.
• How much total debt do I/we have (credit cards, car loans, students loans, etc.)? Is it manageable? If you are thinking of buying a car, if you can, put it off until you have bought your home.
• Can I/we afford to pay a mortgage and other expenses, such as insurance and property taxes in addition to our current monthly expenses? Note that there may be other monthly expenses such as water/sewer, garbage collection, gas/electric, and pest control that you might not pay currently.
• Do I/we have money saved for a down payment?
• Do I/we have money saved for closing costs?
• Do I/we plan to stay in the home for several years?
• Do I/we want the responsibilities (and lifestyle changes) that go with being a homeowner?

If you answered yes to these questions, then the time is probably right for homeownership.

Pros of ownership

• You don’t have the prohibitions of a landlord. For example, you can put nails in the wall to hang pictures or have a pet.
• Your home is not just shelter, it’s an investment. As property values go up, your equity in the home increases.
• The interest you pay on the mortgage and your real estate/property can be deducted from your federal income tax.

Cons of ownership

• It may cost more to own than rent the same size dwelling.
• Property values can go down as well as up.
• You have to maintain the home and pay any maintenance and repair costs.
• Moving to another home can be dependent on selling the current home. 

Why and When Should You Refinance

Why would you refinance?

Refinancing is when you pay off your existing mortgage with a brand new mortgage. The common reasons to refinance are... 

• To lower your payment – Refinancing at a longer term or a lower interest rate can reduce your monthly payment. The first may increase the total cost of interest over the life of the loan. A lower interest rate on the same term may reduce it.
• To pay off faster – Refinancing a 30-year loan at 15 years can reduce your overall interest costs, though payments are often higher. Refinancing to a biweekly mortgage can have the same effect.
• To reduce interest – If you have sufficient equity, consolidating higher interest loans into your mortgage can lower your overall cost of debt and may allow you to deduct interest on your taxes.
• To change rate types – Depending on your situation, you may want to switch from an adjustable-rate mortgage to a fixed-rate or vice versa.

When refinancing may not make sense

• If you'll be moving soon – If you'll be paying points and closing costs to get a better rate, the interest rate savings over your remaining time in the home should be equal or greater than the closing costs or you haven't saved anything. If you look at the money you might have earned placing the point and closing cost money in a savings account over that time, the threshold is even higher for it to be worthwhile.
• If you're already several years into your mortgage – Once you are halfway through your mortgage, you've really started to pay down the loan principal. When you refinance, your payments will be mostly interest again. As a result, your payments may be lower, but you could pay more interest over the life of the loan.

However, refinancing could be beneficial if you do not extend the loan by doing so. For example, if you have 10 years left on a 30-year loan and you refinance for 10 years or less, refinancing may save you money depending on the interest rate, fees, and closing costs.

• If refinancing extends your mortgage past retirement age – If you haven't planned for house payments after retirement, you may want to either skip refinancing or make sure your new term does not extend past your original pay off date.

Special tax treatment for refinancing

When you purchase a home, you can generally deduct points as mortgage interest in the tax year you buy your home. Any points you pay on a refinance, though, must be amortized over the life of the loan. In other words, if you pay $1,500 in points on a 15-year refinance, you can deduct $100 in points every year until the loan's paid off.

If you pay off a refinanced mortgage early, you can deduct the rest of the points in the year you pay off the loan. Many homeowners forget to take that final deduction.