The Advantages of Using a Mortgage Broker over a Bank

The following is a guest post. Enjoy! 

Dana at Tundra Mortgage Brokers recently shared her opinion on the benefit of hiring a mortgage broker to help with a home loan, instead of going directly to a bank. Whether you’re a first time buyer, a property developer, or an investor; could you really benefit by turning to a broker when it comes to borrowing money?

In this post, we’ll be diving into the advantages of using a mortgage broker instead of applying to a bank directly – and just how much you could save by doing so.

The Potential to Compare Interest Rates

Have you ever actually sat down and tried to compile a list of the different rates offered by banks? Not only do most of those in Australia (and other parts of the world) propose varying rates depending on the type of loans available; there are also fixed and variable ones to consider, too. As you might imagine this process can be quite time consuming and this is actually something that mortgage brokers typically specialize in.

Most will offer effective interest rate comparison services to those in need – and if you hire a great one, you could be looking at a selection of options in the space of a couple of days (or less!)

Recognizing a Great Deal

What’s the one thing that most borrowers will want to make sure they do when applying for a loan? Keep their costs as low as possible, of course. There aren’t many mortgages that won’t go on for at least a decade (or three) and so finding a great deal can make a lot of difference to your future finances.

A good mortgage broker should be able to compare the varying terms and conditions proposed with specific loan packages and hone in on the best available on behalf of a client.

Taking the Stress Out of Applying

Another frequently overlooked advantage of hiring a broker is the fact that they can actually take care of the technicalities, to minimize the stress that you feel when applying for a home loan. As they’ll be the middle-person when dealing with a bank you will often be able to submit your documentation to them directly, so that it can be forwarded to your chosen bank.

This can make it easy for you to minimize the formal activities associated with applying for a mortgage and allow you to focus on what really matters; getting approval.

You might need to cover a small cost when hiring a brokering agency up front, although some are happy to offer their services free of charge to you for commission from a bank, but just imagine the long term financial savings that you could enjoy. For a relatively small fee at first, you could save yourself thousands of dollars by ensuring that you sign up to a cheaper deal than you would have when applying to a bank directly.

Secure Your Future Retirement By Avoiding These Missteps in Your 40s

The following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

When you’re in your 40s, you may begin to feel a great deal of financial pressure.  Your children are growing up, and the expenses associated with that begin to pile up.  You may find yourself shelling out money for more expensive extracurricular activities, higher grocery bills thanks to your children’s endless appetites, car payments so your children can begin driving themselves, car insurance payments, and college tuition.

As if that is not enough to put a strain on your budget, this may also be the time when your aging parents need more support, both financially and physically.  You may be helping them out monetarily or helping them out physically, which may mean less time at work for you as well as less income.

This decade, more than any other, is the one where your choices can make or break your future retirement.  This is partly because if you make a mistake financially in your 40s, there is not much time to recover financially, unlike mistakes you may make in your 20s when you have four or five decades to recover before retirement.

In your 40s, be careful to avoid these financial mistakes:

 

Refinancing Your Home and Extending the Life of Your Mortgage

Refinancing your home for a significantly lower interest rate is a smart money move.  However, too often, people refinance to lower their interest rate, but then they also extend the life of the mortgage.  True, this can reduce your monthly payment, which may offer you financial relief now, but it can later wreak havoc with your finances and your target retirement date.

Let’s say you bought a house when you were 35, and you pay on the loan for 10 years.  You are now 45 and have just 20 years left on your loan; you would own the home free and clear at age 65.  This works out rather nicely as 65 is a time when many people retire.  However, if you refinance at 45 and extend the loan back to the original 30 year term to lower your payment and create some financial breathing room in your budget, your home won’t be paid off until your 75.  This can cause quite a strain in retirement.

Many people do not have enough money set aside in their retirement account to comfortably cover a house payment, especially as medical expenses typically increase as you age.

You may say that you won’t retire until the home is paid off, but you can’t always control that.  Sometimes medical issues make retirement come earlier than planned.

 

Taking Out a Home Equity Loan

When you feel a financial crunch, your first thought may be to tap the equity in your house by taking out a home equity loan.  After all, the interest rates are usually much lower than a loan you can take out at your bank or a credit card.  You can also extend repayment time, often to 10 or even 15 years, which is typically not available on a loan that you get from the bank.

However, if you’re unable to make your home equity loan payments, you can lose your house just as you could if you weren’t able to make your mortgage payment.  In addition, if your home loses value during the time you’re repaying your home equity loan, you may find yourself underwater, meaning you owe more on the house than the house is worth.  If you need to sell during this time, you would need to pay the difference between the current value of the house and what you still owe between the mortgage and the home equity loan, which is often tens of thousands of dollars.  Too often, people who are underwater are unable to even put their home on the market because they know they won’t be able to generate the money needed to pay off the house loan when they sell their house.

 

Taking Out a Student Loan for Your Child

When your child is ready to attend college, you may feel a natural instinct to help him.  College is expensive, and you may not want your child saddled with student loan debt.  However, there are plenty of alternatives to taking out student loans for your child.

First, let your children know, from the time they are in upper elementary school, that you will not be able to help pay for their college education.  (Does this sound too harsh?  Trust me, your children will be glad when you’re retirement age and have enough money to take care of yourself because you made saving for your own retirement a priority.  Your children will be glad that you are not their financial responsibility, especially when they’re just starting out.)

By letting your children know this early, they can pick local colleges that will be cheaper, they can apply for scholarships and grants, and they can save money themselves for college.

Yes, if you don’t take out loans for your children, they will probably have to take out student loans themselves.  Remember, they are the ones who may qualify for loan forgiveness based on their career.  That will never be an option when a parent holds student loans.  Also, children with student loans can choose an income-contingent based repayment plan; parents can’t.

The government takes very seriously defaulting on student loans and will recoup their money if you stop paying.  “Federal payments to borrowers who have not made scheduled loan repayments can be withheld to repay the loan, including tax refunds and Social Security retirement or disability benefits” (US News).

Finally, if you don’t take out student loans for your children and you’re doing well financially and saving enough for retirement, you can always choose to help your children pay down their student loans faster.

Simply put—don’t take out student loans for your children.  Just don’t do it.  You and your child will be glad you didn’t twenty years from now.

 

Raiding Your Retirement Account

Once you start to amass a fair amount in your retirement account, you may be tempted to tap into that account when you hit a financial bind, which is likely in your forties.  However, there are significant drawbacks to raiding your retirement fund.

First, you lose the ability for the money you withdraw to continue generating interest and growing your nest egg further.

Second, you’ll need to pay a 10% penalty for withdrawing the money if you’re under the allowable age.

Third, the money that you withdraw will count as taxable income on your tax returns, so you’ll also need to pay taxes in addition to the 10% penalty.

Your 40s can be the time when you secure your retirement funding and can begin to plan for a relaxing, enjoyable retirement.  However, as you face dual financial stress in your 40s from increased financial needs from your growing children and your aging parents, you may feel pressure to find more money to infuse in the budget.  This pressure can lead to any of the above unwise financial decisions that can derail your retirement plans and lead you to a difficult financial position in your 60s and 70s.

How about you all? What financial moves do you suggest people in their 40s avoid to keep their future retirement secure?

Finding the Perfect Mortgage the First Time 

The following is a guest post. Enjoy! 

Every year, millions of first-time homebuyers set out on a search for the perfect piece of property. They scour advertisements; they search through real estate apps; they go on countless tours and stop by untold open houses. Then, when they finally find the home of their dreams, they are utterly unprepared to make an offer.

Buying a home is more than comparing cabinet styles and deciding whether a pool is worthwhile. You must understand your mortgage options before you even consider whether you need or want granite countertops. This guide will help you determine what features you need from your home loan, so you can find and afford your dream home in no time.

Fixed vs. Adjustable

Mortgages last a long time ― typically between 15 and 30 years. Since that is such a significant amount of time for a loan, most lenders offer two options to help you manage your interest rate: fixed or adjustable. Which option you choose depends on your current income, your credit score, and a few other factors.

Fixed Rate

Fixed-rate mortgages are the most common. With these, you can expect the same interest rate for the entire duration of the mortgage loan. The primary benefit of having a fixed rate is knowing exactly what your mortgage payment will be each and every month; your home payment will never be a financial surprise. However, fixed-rate mortgages tend to have a higher interest rate ― at least initially.

Adjustable Rate

Adjustable-rate mortgages are less common but more accessible if you have poor credit. The opposite of fixed rates, adjustable rates will change over time. Most often, adjustable-rate mortgages (ARMs) are actually a hybrid product, as lenders will promise a brief fixed period before adjusting your rate.

Some buyers find ARMs preferable because they seem to have lower interest rates. However, over time, those interest rates will rise, and you likely won’t be able to predict when or how much. Therefore, you can expect financial irregularity for the duration of your loan.

Jumbo vs. Conforming

The cost of your home will also determine the type of mortgage you can obtain. Though you might not realize it, most home loans have a size cap, and not all lenders offer conforming loans, which are the standard size, and jumbo loans, which are substantially larger.

Conforming loans earn their name because they conform to the guidelines of the appropriate government-sponsored enterprise (GSE), Fanny Mae and Freddy Mac.

In 2013, these enterprises determined that the size of home loans should be limited to $417,000 for a single-family home in the United States. The GSE can do this because it purchases and sells mortgage-backed securities, which form the foundation of the housing market. In 2007, the unreliability of these securities incited the Great Recession, so adhering to the size cap for home loans should keep the economy more stable.

Conversely, jumbo loans are available from some lenders for those looking to purchase a home worth more than $417,000. However, such sizeable loans represent a marked increase in a lender’s risk, which means you must have impeccable credit, high income, and a large down payment to qualify. As long as you are prepared for the financial responsibilities of a more expensive home, a jumbo loan is an excellent mortgage option.

Conventional vs. Government-Insured

Finally, not all potential homebuyers have the credit history or liquid assets to purchase a home. Fortunately, the government offers unconventional, government-insured loan programs to help less-advantaged citizens buy property.

The benefit of having a government-insured home loan is that the government promises to pay your mortgage if you default, so lenders see the loan as no-risk. There are three main types of government-insured mortgages:

VA Loans

Typically available only to veterans or their partners, VA loans require no down payment, offer competitively low interest rates, and do not require mortgage insurance. These loans do conform to GSE guidelines, but they are incredibly easy to qualify if you or your spouse served in the Armed Forces.

FHA Loans

The Federal Housing Administration (FHA) also offers a mortgage program to low-income, low-credit homebuyers. Unlike VA loans, FHA loans require a down payment ― though it can be as low as 3.5 percent ― and mortgage insurance. However, interest rates are low.

USDA Loans

If you are willing to move to a rural community, the United States Department of Agriculture will help you secure a mortgage. Your qualification for this program depends on your income; it can be no more than 115 percent of the regional average. However, by participating, you earn exceedingly low interest rates and the opportunity to bypass a down payment, as long as you pay mortgage insurance.

A First-Timer’s Guide to Closing a Real Estate Deal

The following is a guest post. Enjoy! 

Hopefully, you did everything right from the beginning: You were pre-approved by your financial institution for an affordable home loan; you researched your area extensively to find the perfect property for you; you hired a real estate agent you could trust to gain access to property details and help you navigate the complex seas of paperwork. Now, it’s time to close.

Whether you are buying your first family home or a commercial property for your business, closing is convoluted and seemingly interminable. Even with the help of an experienced real estate agent, you should learn about the closing process before you attempt to survive your first real estate deal. This guide will walk you through the most important steps of closing your deal, so you come through excited to finally own your own property.

 

Obtain Title Insurance

Though it might seem unnecessary, performing a quick title search and obtaining title insurance will safeguard your investment from conflicts down the road. It’s possible that a previous owner of your soon-to-be home left the house in a will to a long-lost relative or failed to pay debts taken against the house. If anyone shows up trying to claim ownership over your home, your title insurance should reimburse you, so you won’t take a significant loss due to the state’s poor record-keeping.

 

Open Escrow

“I’m in escrow!” is an exciting statement to shout, but before you do, you should know what “escrow” means. Escrow is an account held by a neutral third party to prevent you or the home’s seller from being scammed. Until both parties in the transaction finish the necessary paperwork, all the money involved will be stuck in escrow.

 

Negotiate Closing Costs

Escrow isn’t free, but odds are you aren’t sure how much it should actually cost. Most escrow companies will try to take advantage of your ignorance and inflate their fees unnecessarily. By displaying your knowledge of the system (and using a few smart negotiating tactics), you can lower your closing costs and save some money. So-called junk fees to watch out for include:

  • Administrative fees
  • Application review fees
  • Appraisal review fees
  • Ancillary fees
  • Email fees
  • Processing fees
  • Settlement fees

Complete a Home Inspection

Do you know the difference between a wall crack caused by foundation settling and one caused by water damage? Can you tell just by looking how old the pipes are in the master bathroom? Can you recognize black mold? Most likely, the answer to all these questions ― and any questions about home repair or construction ― is “no.” That’s why you need to hire a home inspector to survey your desired property before you close the sale: You should know exactly what you’re in for before laying down cash.

You should also consider hiring a pest inspector to look for signs of damage due to wood-eating insects. If an infestation is discovered, most mortgage companies require the seller to resolve the issue before closing.

Renegotiate

Based on what your home and pest inspectors find, you might be able to lower the price you previously agreed to. Because you will likely need to complete some amount of repairs, you should ask that the seller to lower the cost by at least as much as the cost of the repairs ― or else request they complete the repairs themselves.

Set Your Rates

If you didn’t seek pre-approval ― which you should have, by the way ― it is time to lock down your interest rate. The best lenders will watch the market for a dip in rates, but you should avoid becoming too obsessed with obtaining the lowest possible number. Interest rates fluctuate several times every day, so your goal should be to obtain a reasonable rate that you can afford.

Funding Escrow

Finally, you can enter escrow. When you signed your purchase agreement, you likely deposited some earnest money into your escrow account to convince the seller that you do intend to buy the house. By now, both parties are certain about each other’s intentions, and it is time for you to move a more significant amount of money into your escrow account. You should deposit the full amount of your down payment (less the earnest money) and closing costs.

Sign the Papers

The last step of closing on your deal is signing the paperwork. In total, there should be about 100 pages worth of material, detailing the agreements of the sale, and you should read absolutely all of it. Because a home purchase will impact your finances for decades, you must know for certain that the contract says what it is supposed to. You don’t want any surprises in the way of rising interest rates or unknown fees down the road.

Millennial Money Problem: Saving Up 20% For a Down Payment on a Home

down-payment-house-my-personal-finance-journeyThe following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy! 

Purchasing your first home is a huge milestone and the ultimate sign of adulthood. Many people like homeownership over renting because it allows them to have more freedom over what they can do with their home.

With that being said, home ownership is quite expensive, and according to Apartmentlist.com, of the millennials who want to be homeowners, a whopping 79% can’t afford it.

This is due to a variety of factors including the cost of living around the U.S. If you live in a busy metropolitan area, houses may be expensive near you.

Not to mention, you may need a sizable down payment to purchase  your home. It’s best to put at least 20% down if you want to avoid paying private mortgage insurance.

But if homes are priced around $250,000 in your area for example, that can mean you’ll need a down payment of around $50,000 which is a huge amount to someone who has student loans and an annual salary around $50,000.

Needless to say, purchasing a home is hard for millennials from a financial standpoint which causes them to rent longer than they wish. If you’re trying to come up with a way to afford your first home, here are some options to help you come up with a down payment.

Get an FHA Loan

I wanted to mention FHA loans early on because you don’t absolutely need to put 20% down on your new home even though it’s highly recommended. The Federal Housing Administration is a government agency that helps homebuyers (especially first time home buyers) get approved for a mortgage.

With an FHA loan, you are only required to put down at least 3.5% as long as you are a first-time homebuyer or military service member. While this type of loan helps make owning a home much more affordable for millennials, they’ll need to find a property that accepts an FHA lender first.

Also, putting less than 10% down on your home can be risky because you won’t start out with much equity. If the value of your home started to plummet and you barely put 4% down, you may be underwater for a while.

Also, when you put less than 20% down on your home, you’ll need to pay private mortgage insurance (PMI) which can add to the cost of your mortgage even though you can probably get rid of it later.

Given all the downsides of using an FHA loan, it’s still a solid option for millennials who don’t think they’ll be able to afford a home anytime soon. Plus, if you are planning on getting a starter home to occupy only for a few years, you might want to use the FHA loan since it won’t be available to you if you purchase a second home later down the road.

If you are not sold on the FHA loan yet or would prefer to consider other options to help you come up with a 20% down payment, here are some alternatives.

Extend Your Timeline

If you can’t afford a home right now but really want to be a homeowner, it can be hard to extend your timeline but it can allow you to save up enough money and make a wiser purchase. If you have kids, debt, or other expenses like planning a wedding, for example, it’s best to tackle one major goal at a time so you can dedicate all your attention to it.

It’s important to determine what your budget is for a home and how much you’ll need to put down. Then, set a timeline based on how much you can afford to save each month and not your emotional connection with a pretty home across town.

For example, if your budget for a home is $200,000 and you’d like to purchase a house in the next 5 years, that means you’ll need to save $40,000 for your down payment or $8,000 per year which adds up to $666.66 per month.

Let’s say you don’t want to wait 5 years and think you can do it in 4 years instead. That’s $10,000 that you need to save every year or $833.33 per month. It can be doable if you split that monthly amount with your partner and your income and living expenses can support that goal.

Cut Down on Living Expenses

Cutting down on living expenses is one of the best things you can do to boost your savings so you can reach that 20% down payment. You may want to cut or reduce smaller expenses like cable and other subscriptions, your shopping budget and other impulse purchases, and your daily coffee habit.

You can even cut larger expenses like your current living expenses. Living in a basic apartment that falls way below 30% of your income can help you save a ton or you can even become a one car family or see if you can move in with your parents or other relatives in order to save more.

Live on One Income

If you want to purchase a home with your significant other or spouse, you can leverage both of your incomes to help you reach that goal quicker.

Living on one income and using the other income to save is a strategic way to round up enough money for a 20% down payment.

My husband and I started living on one income when we got married and as a result, we paid down $4,000 in debt within our first 3 months of marriage.

You may need to cut some of your expenses and make some sacrifices to make it work, but you can start out by saving the lower income and living off the higher income.

Start Side Hustling

If you’ve cut expenses all you could and still need money to live off, you can always try to earn extra money through a side hustle. If the income from your full time job isn’t getting you to your goal quick enough, look into freelancing your skills whether it’s freelance writing, graphic design, photography, dog walking, or babysitting.

There are tons of things you can do in your spare time to earn extra money and you can throw all your earnings toward your down payment fund.

Again if you are planning to purchase a house with a spouse, both of you can establish a side hustle so you can earn twice the amount of extra money and avoid burnout.

When my husband and I were planning our wedding, I did freelance writing and blogging as a side hustle and he tested websites online and took surveys. Now, he is looking into becoming an Uber driver to earn extra money so we can pay off our debt quicker.

Use Extra Lump Sum Payments

If you receive any extra lump sum payments like a tax refund, bonus at work, or commission, you can put it directly in your house down payment fund.

If you have a birthday or special event coming up like a college graduation, you can request that family and friends make a contribution to your house down payment fund instead of buying you a gift.

The money can really add up.

How about you all? Can you think of any other great ways to save up for a down payment on a home? What has worked for you in the past?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/76657755@N04/6881505052/