I made 12 phone calls today. 2.5 hours of talk time. Here’s what I learned:

1. All mortgage companies cost the same-ish.  If their rates were lower, their closing costs were higher.  If their rates were higher, the closing costs were lower.
2. Some mortgage companies sell your loans.  3 of the mortgage companies I called today gave me an unsolicited aside:  “We buy loans.  We don’t sell them.”  Does that mean that you should always go with a direct lender?  Nope.  It just means that the mortgage company might not be able to view or change things if the mortgage is owned by someone else.
3. You don’t need to give out all your information (address, social security) to get rates and closing costs.  You can get ballpark numbers as long as you provide the purchase price, the down payment amount, and the type of mortgage.
4. If you call a company and they won’t give you any estimated numbers without giving all your information, hang up.  Call again.  A different mortgage specialist will be glad to help you without giving all your information.
5. Closing cost fees are where you can differentiate a mortgage company from another.  Ask the mortgage people to break down their closing fees.  Fees can include:
   • Property appraisal
   • Credit report
   • Lender’s inpsection
   • Mortgage insurance application
   • Assumption
   • Mortgage broker fee
   • Tax related service fee
   • Application
   • Commitment
   • Rate lock
   • Processing
   • Underwriting
   • Wire transfer
   • Abstract or title search
   • Title examination
   • Document preparation
   • Notary
   • Attorney
   • Title insurance
   • Recording
   • City/county tax stamps
   • Transfer tax
   • Survey
   • Pest inspection
   • Condominium application
   • Prepaids for interest
   • Prepaids for hazard insurance
   • Prepaids for property taxes
   • Prepaids for mortgage insurance
   • Prepaids for flood insurance
6. The rates and payments assume you have great credit and good stability.  They want to quote you the best rate and closing costs possible so they pretty much assume you’re a model citizen.
7. Lenders don’t like it too much if you’re quitting your job and you don’t have a job secured yet.  Hopefully you have a wife or wife-to-be who looks more stable to lenders.
8. They ask you if the down payment is gift money or if you saved it on your own.  No one gave me a clear answer on why they ask that question.
9. Do your research even if your wife-to-be’s sister’s soon-to-be husband is a mortgage specialist.  You never know…
10. Every mortgage person you talk to will give you a piece of advice.  The advice that resurfaces the most is probably important.

Did I apply for a mortgage yet?  Nope.  This whole day just narrowed down my choice to 2 or 3 mortgage lenders.  Time to talk to Miss Soon-To-Be-Wife…

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The sooner you and your spouse can agree on where the family money goes, the better. The best time to figure out finances is before you’re married when both of your money is separate.

I’m getting married in November. The shared finances discussion has begun. It will continue for the next few months until we’ve covered all of the ground rules. These premarital financial discussions should minimize the fights while we’re married.

[Photo Credit]

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What does this have to do with paying high debt first? They jumped high and they’re high-fiving. Yeah it’s a stretch but I got nothing else.

Debt with the higher rate charge the most interest per dollar. The way to get out of debt most efficiently is to pay off the debt with the highest balance first. After that, tackle the next highest debt next and so on.

A lot of people will say to attack the lowest balance first but the numbers side with paying off the highest interest debt first. The reason people pay the lowest balance debt first is because one less bill makes them feel less burdened. You lose less money to interest by paying the highest rate debt first.

[Photo Credit]

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Avoid setting up a bi-weekly mortgage payment plan through your bank. A bi-weekly mortgage payment plan essentially means you make 13 mortgage payments (a half payment every other week for 52 weeks = 26 half payments = 13 whole payments) instead of the 12 mortgage payments you would be making if you paid once a month. The extra payment will go towards the principal, and will allow you to pay off your loan faster. Great, right? Sure, the savings from a bi-weekly payment plan can cut several years off of your mortgage payments, but it often comes at a price - a several hundred dollar enrollment fee, plus additional transaction fees.

If you are paid bi-weekly, you can achieve the same results of a bi-weekly mortgage payment plan (and avoid the fees) by taking half of your mortgage payment out of each check and placing it in a savings account. If you empty out this account every time a mortgage payment is due, you’ll be including the equivalent of an extra half-payment at least two times a year. Be sure to specify that the extra money should go towards the principal.

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A few weeks ago, I did a post that covered some home equity loan basics. In that post, I listed one of the advantages of a home equity loan as “Payments are often tax-deductible.” That’s some really insightful information, huh?

How about some more detailed information, courtesy of Bankrate.com. Basically, interest paid on a home equity loan or home equity line of credit of up to $100,000 is tax-deductible. There are a couple exceptions, however.

“When the combination of all loans secured by a home, including the first mortgage and any other equity loans, are more than the property’s fair market value, the interest on the portion of debt that exceeds the home’s value is not deductible.”

So this stipulation only affects you if you have a loan-to-value (LTV) ratio of over 100%. For example, if your home is worth $100,000, you still owe $80,000 on your mortgage, and you have a home equity loan of $30,000, your LTV ratio will be 110% - ($80,000+$30,000)/$100,000. In that case, only interest paid on the first $20,000 of your home equity loan is tax deductible, since the other $10,000 is the portion of your loans that exceeds your home’s value.

One more exception - if you use your home equity loan for home improvements, you can deduct interest on up to $1 million in mortgage debt. In this case, it’s especially important to keep track of receipts so you can prove that your loan really was used to finance home improvements, and not just used to buy that diamond-encrusted cell phone you’ve always wanted.

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Keep your lines of credit small. Unless it’s for a Bottle Opener Batman Visa Card.

The number of open accounts and lines of credit affects your credit score. There’s no end-all, be-all equation to calculate how much is too few or too many. No calculation will be applicable to all borrowers and all accounts.

A dozen of open accounts and credit lines is looked at differently for a typical working employee compared to an entrepreneur. It’s expected for the self-employed entrepreneur to have more lines of credit than the typical working employee.

Too many open accounts with high balances lowers your credit score (and thus lowers your borrowing power when you need a car loan or a mortgage). Don’t have an absurd number of open accounts and lines of credit and you’ll be golden.

How Many Credit Cards Are Too Many? [American Chronicle]

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Contrary to popular belief: Pre-approval letters don’t come with a red-stamped “Approved” on it.

Pre-approval for a mortgage gives you a stronger position when it’s time to negotiate purchase price of a home. A pre-approval letter shows that you’re serious about buying.

The letter tells you the maximum amount of money the lender is willing to give you based on your income and credit report. It’s good to know what your new home’s maximum price can be. You don’t want to shop for houses above the price that you’re pre-approved for unless you have a significant stash of cash saved away.

Don’t mistake a pre-approval letter for a pre-qualification letter. A pre-qualification letter doesn’t contain an in-depth look into your income or credit report. It’s a general estimation. A pre-qualification letter doesn’t hold any water when negotiating a home’s purchase price since it’s less formal than a pre-approval letter.

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1. What is a home equity loan?

A home equity loan is a loan that is borrowed using your home’s equity as collateral. The amount of equity you have in your home can be calculated by taking your home’s value and subtracting off how much money you still owe on your mortgage. Since you are using this equity as collateral, if you fail to pay back the loan, your creditor can sell your house to get its money back.

2. How much money can I borrow?

Well, that depends on several factors, including your credit history and current income, but usually lenders will let you borrow until you reach a loan-to-value (LTV) ratio of 80%. The LTV ratio is is simply how much money you are borrowing (original mortgage + home equity loan) divided by your home’s value. For example: if your home is worth $100,000 and you owe $50,000 on your mortgage, your LTV ratio is 50%. So you will be able to borrow $30,000 for your home equity loan and your total loans ($50,000+$30,000 = $80,000) divided by your house’s value ($100,000) will be at the 80% LTV ratio.

3. Why do people usually take out home equity loans?

The most common reasons people take out home equity loans are for paying off high interest credit card debt, major home repairs, college tuition expenses, medical bills, or even just to buy a car or boat.

4. What are the advantages of a home equity loan?

• Lower interest rate than other types of loans
• Ability to get a relatively large amount of money (depending on the amount of equity you have in your home, of course)
• Payments are often tax-deductible

5. What are the disadvantages of a home equity loan?

There are none! Go get a home equity loan right now!

Only kidding. The main disadvantage is that you’re putting yourself in jeopardy of losing your house if you can’t pay back the loan. So if you’re confident in your ability to pay back the loan, or if you just don’t mind losing your home and living on the street, then there aren’t too many downsides to taking out a home equity loan.

6. What is the difference between a home equity loan and a home equity line of credit (HELOC)?

A home equity line of credit is just that - a line of credit. You get approved for a certain credit line, you can borrow up to that amount, and you only pay back what you’ve borrowed. A regular home equity loan is just a lump sum loan that must be payed back in a certain amount of time.

7. Is a home equity loan right for me?

It all depends. See what kind of rates are available. If you’re currently paying off some high-interest credit cards, a home equity loan might save you some money.

8. Where can i find the best rates for home equity loans?

Bankrate has a nice feature than lets you compare home equity rates in your area.

9. What is the airspeed velocity of an unladen swallow?

What do you mean? An African or European Swallow?

10. How many stockbrokers does it take to change a light bulb?

Dear God! It burnt out!! Sell all my GE stock NOW!!!!

(Ok, so that was only 8 real questions about home equity loans, but 10 is just so much nicer than 8.)

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This house only $100 a month!

Walther Updegrave of CNN’s Money warns people about the increasingly popular interest-only mortgage. Interest-only payments mean that you don’t have to pay off any of the principal. This means lower payments at the cost of building your home’s equity.

An IO loan lets you off the hook for principal payments only temporarily. Depending on the specifics of the IO loan you get, typically five, or seven or 10 years down the road you’ll have to begin paying off principal. The result is that your monthly payment can jump 40 to 45 percent.

You’re basically paying rent for the first few years when you’re not buying into your house’s principal. The only time an interest-only mortgage option is beneficial is when you use the extra monthly cash for good reasons such as paying off high-interest credit card debt or another investment that will give you higher returns.

Regular home-buyers need not apply.

Starting with an interest-only loan [CNN Money]
[Photo Credit]

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I was told by my fiance that we’re buying a house THIS fall sometime. Oh yeah, she also told me that the date she wants to get married is also this fall. Last but not least: We’re going to Hawaii for our honeymoon.

If it were up to me, I would buy the smallest, dirt cheap house available. I would get married at city hall. And I would honeymoon at White Castle. Not going to happen.

I’ve never priced out the price of a wedding (nor do I want to). I’ve also never bought a house before. It’s time to do some major research. There’s going to be more home-buying articles in the upcoming months (up from zero).

I talked to one of my home-owner friends yesterday. She told me she financed her home with a Federal Housing Administration (FHA) loan. An FHA loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration. The loan may be issued by federally qualified lenders.

FHA primarily serves people who cannot afford a conventional down payment. Typically, these are popular among first-time homebuyers (aka me).

I did some research and here are some advantages and disadvantages that I found to FHA loans.

Advantages of an FHA Loan

You only need 3% down payment.

First time home buyers usually don’t have a large chunk of downpayment to throw down on a house. You only need 3% down with an FHA loan. A $200,000 dollar house only requires a $6,000 dollar down payment. Horray!

They allow a higher debt-to-income ratio.

Lenders have a limit on how much debt you hold versus how much income you bring in. Obviously, more income and less debt is the most ideal situation. Word to the wise: Pay off your high-interest debt before buying a house.

Your credit doesn’t have to be as good as it would for a conventional loan.

A lender has a lesser risk loaning money to someone with a lower credit score since the loan is insured by the government. But your credit is great, right? Right.

Rates for an FHA loan are typically the same as a conventional loan given the same credit score.

This means that if I have a FICO credit score of 650, then both the conventional and FHA loan should offer the same interest rate. My credit score is higher than that but it’s nice to know that the FHA loan doesn’t penalize you.

The loan is assumable by someone else.

A mortgage loan that allows a new home purchaser to undertake the obligation of the existing loan with no change in loan terms.

Disadvantages of an FHA Loan

You essentially pay 2 mortgage insurance premiums (aka PMI).

There’s a one-time chunk of PMI that you need to pay. There’s also an additional monthly PMI that you have to pay which could add up to a huge chunk to your monthly payment.

The property needs to meet certain requirements.

FHA-insured loans are available in urban and rural areas for single family homes, for 2-unit, 3-unit, and 4-unit properties, and for condominiums. Also, the property can’t be worth more than a certain value.

There’s a maximum amount of money you can borrow depending on your area.

There’s a calculator here that will tell you the limit of what you can borrow in your area.

You could face a recapture tax on the property if you sell too soon.

Recapture is a Federal income tax that borrowers may have to pay if they sell or transfer their CHFA-financed home within 9 years.

For more information on FHA loans, visit the official website (http://www.hud.gov/).

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