A short sale is a way for you to get out from under your upsidedown mortgage and lessen the blow of foreclosure. At least, it offers a way to have to admit that you were foreclosed upon. We all know what the term “short sale” means these days. Many folks know less about what it involves, and more alarmingly, what it feels like to be on the receiving end of that short stick.

5 Secrets to Survive a Short Sale

Here are five little nuances that, if you’re just now considering this, you may not yet have been told, all of them something you need to weigh.

1. In comparing a short sale to a foreclosure, you’re basically trading one pain for another. Because in either case the bank won’t like you, and in return will send the credit bureaus a smear campaign with your name on it. Foreclosure will mercilessly ruin your credit for seven years. A short sale, if you can pull it off, will put a black mark next to your name for two, and give you quicker access to credit-rebuilding programs, which are suddenly all the rage.

But don’t sign up yet. Because your credit score isn’t the only variable involved.

2. Foreclosure is relatively easy. You just stop making mortgage payments, and then one day you get notified that you need to be out the door by a specific date. Which may or may not be the date you really need to be out of the house (some folks have been known to squat in their own home for up to year after a foreclosure notice).

When the real date arrives, you just pack your stuff and go. Simple.

3. By comparison, a short sale is like taking out your own appendix versus going to the emergency room. Nothing easy about it, and orders of magnitude more painful. First, you have to stop making your payments completely or the bank won’t even talk to you about a short sale. Don’t even thing about making a partial payment because, after all, you’re one of the good guys, it’ll back-fire on you.

What they will do, however, is turn your account over to a collection agency who will call you with some of the nastiest, most confrontational rants you’ve ever heard. Best advice here, if you truly are heading toward a short sale: don’t answer the phone. Instead, call your bank (not the collection agency) yourself every six weeks or so and tell them – yes, tell them – that you’ve chosen to do a short sale on the house, and you’re ready when they are, and in the meantime, no further payments are forthcoming.)

It gets worse from there. Once the short sale fuse has been lit, the bank will have a market appraisal done on your house, and your ego won’t like the number. They’ll want the highest price they can get, which is contrary to your desire to sell the house as quickly as possible. And by the way, at this point you are completely out of the conversation, on any and all issues. Just sit back and let your real estate agent handle the chaos.

Which brings us to the next little secret.

4. You absolutely need to work with an experienced short sale real estate professional. Ask for references and credentials. Anybody with a business card with the words “real estate” on it will say they can do it, but only a fraction actually specialize in it. Why do you need a specialists? Because the runaround you’re in for is astounding, and you need someone who can cut through the crap the bank will throw down in this process.

An attorney is a good idea, too, but that’s no secret.

5. There’s no such thing as a free lunch or a completely scott-free mortgage forgiveness, according to the I.R.S. You will receive a Form 1099-S in an amount equal to the amount of the loan forgiveness that results from a completed short sale. There are ways around actually claiming this income on your tax return, including the possible extension of Obama-generated tax breaks based on certain factors that you, your CPA and your attorney need to kick around.

But exempting this “income” from taxes is not remotely a sure thing, making this the dirty little secret of short selling.

6. There’s help out there. Go online and search for “short sale advice,” as well as “government programs for foreclosure avoidance.” The programs have income thresholds and expiring timelines, and this landscape is shifting constantly.

The banks, for example, have an incentive to help you apply for a kickback of up to $3000 — because they get a kickback of their own from taxpayers, which means you should thank all your neighbors for the help if you go this route – as part of the matrix-like cluster-bomb of paperwork and closing costs you’ll encounter.

Remember, while you may feel alone with your problems, you’re not.

Short sales are at an all-time high, and banks are resigning themselves to it as an alternative to foreclosure, which is the epitome of a pain-in-the-asset where they are concerned.

Just remember, though, that the short sale buyer is a close DNA match with the common shark, and they’re on your porch smelling blood for the sole purpose of capitalizing on your misfortune. Thus, coffee and cookies during showing are not expected… save the five bucks and buy yourself a sandwich. Just don’t tell your bank that’s how you’re spending your money, because they’re looking for any reason at all to tell you no.

Nolan Hoffman is the lead writer for onlinebanks.com and also blogs about his short sale experiences at debtkid.com.

The Fear of Mistakes

Remembering back to our experiences of buying a house I can recall that in the back of our mind the whole time we were worrying that we would make a big mistake.  If you only buy one or a few houses in your lifetime you don’t go through the process very often and a rookie mistake could end up costing you thousands of dollars.

It’s not just the potential cost of a mistake that sets you on edge, it’s also the fact that you’re making one of the biggest commitments of your life and making decisions that may live with you for the next 20 or 30 years – or even longer.

Buying a House With Less Stress

It was no surprise to me that when I asked what kept you up at night one of the big things was finding a house you liked and could afford.  So as a result over the last few weeks you’ve seen the series of articles on home buying topics.  I tried to focus them on common problems you might struggle with: finding money to buy a house, finding a house that won’t break your budget, getting a home loan at the lowest cost, and how to handle a big mortgage after you buy.

Here’s a summary of everything we covered, let me know if there are things we didn’t touch on that you’d like included. 

Finding Money to Buy a House

Unless you’ve saved up enough money to pay for your house with cash, you’ll have to borrow funds to buy a house.  You’ll have to figure out how much you’re eligible to borrow and how much you’ll expect to pay based on your financial situation. 

If you’ve struggled with finances in the past and have bad credit or a history of bankruptcy or foreclosure that makes it more difficult and we touch on that in one of the articles. Also remember that how much you’re able to borrow usually isn’t the same as how much you should borrow.  You may be approved for a loan amount that’s actually higher than what you can afford.  But we’ll get to that in the next section.

• How to Improve Your Credit & Buy a House
• 12 Steps to Improve Your Credit Score
• Mortage Pre-Approval When Buying a House
• Down Payments and Private Mortgage Insurance

Buying a House You Can Afford

As I mentioned earlier, buying a house is probably of the biggest financial commitments you’ll ever make.  You want to find something that meets your needs but also a home that won’t put you in the poor house for decades to come.  So here’s a look at figuring out how much you can afford and some ways to help stretch your dollars to get more house for less.

• 3 Ways to Buy More House for Less Money
• How to Buy a House in an Expensive Market
• How Much House Can You Afford?

Financing Your Home 

Decisions about financing your house can potentially save you or cost you tens of thousands of dollars over the life of a home loan.  If that’s not enough to stress you out, picking the wrong type of loan could even mean the difference between being able to make your payments or facing foreclosure.  Here’s a look at the implications of the different loan options and ways to keep your borrowing costs down.

• 30 Year Mortgage vs 15 Year Mortgage
• FHA Loans vs Conventional Loans
• How to Use a Mortgage Calculator to Compare Home Loans
• 6 Key Factors for Home Mortgage Rates
• Finding the Best Mortgage Rates
• Home Loan Closing Costs

Paying for Your House

Once you finally find the right house and the right loan and get moved in your house payment is due every month for the length of your loan. If it turns out that bill is more than you can handle or is just higher than you’d like here are a few things you can do to help ease the pain of a monthly mortgage.

• What To Do If You Can’t Pay Your Mortgage
• How to Sell Your House Without a Realtor
• 5 Ways to Pay Off Your House Early

I hope these articles help take some of the uncertainty and stress out of the process of buying a home. Next up on the list of things that keep you up at night is a series that covers investing your money, stay tuned!

Many real estate agents take a 5% to 6% commission on a home. On a $180,000 sale, 5% is $9,000 – that’s money not going into your pocket.  Whether realtors are worth it is a topic we’ve discussed before and it really depends on your personal situation.

However, if you’ve decided not to use a real estate agent to sell your house, here are some things to consider.

Understand the Market

Research your area and understand the local market. Find out what comparable homes in your neighborhood are selling for. You can also ask a couple of real estate agents to come by and give you an analysis.  If you are up front about your desire to sell the home on your own, some may pay you a visit. They want to leave a good impression just in case you get tired of trying to go it alone. Get a realistic idea of what you can expect for your home and try to avoid pricing it too high.

Advertise Your Home

You can’t sell your home if no one knows it’s for sale. To spread the word, you’ll need to advertise your property.

You can do this with ads in the local Classifieds, which can be quite reasonable. You can also list online with a service like For Sale By Owner. These cost anywhere between $200 and $1,000, depending on the service and what is included. Some sort of listing is a good idea, since it will make your home more searchable in databases used by real estate agents and buyers when they are looking for homes.

For the best exposure you can have your home included in the Multiple Listing Service (MLS) by agreeing to pay the commission of the buyer’s agent when your house sells.  This is typically about 3% of the sale price – which is still a lot of money but better than 6%.

If you have some free time and want to be creative, you can take pictures of your home, and put them online on a web site or blog of your own. Getting people to your site will be the trick but if you’re creative enough you might be able to draw attention from local media or local bloggers.

Know the Paperwork

Perhaps the most difficult portion of selling your home without a real estate agent is making sure that the paperwork is in order. You can get help on this from a trusted attorney, preferrably one with experience dealing in real estate.

The legal fees you’ll pay won’t be cheap but will be less than what you would pay in commission. You can do the paperwork yourself, but you need to make sure that you are in compliance with all the state and federal laws that apply. Take some time to educate yourself about these things before you begin.

Prepare to Work Hard

Selling your home is hard work. Be prepared to show the home, negotiate, and keep it clean. You may need to stage your house or enhance its curb appeal. You also need to be ready to put in the hours necessary to educate yourself and properly advertise your home. If you are prepared, you can sell your home on your own — and save yourself the commission.

Our Home Buying Story

My wife and I live in that beautiful semi-rural part of central New Jersey that nobody knows about. It feels as far away from “The Jersey Shore” as Boulder, Colorado. Because of our relatively close proximity to New York City, the houses here are always very expensive.

During our nearly one-year house search, we learned that it was nearly impossible to find a decent house for under $300,000 in the county where we live. Note that I’m talking about a whole county, not just a town or two. This is also true of many of the surrounding counties where we live.

Here were our only requirements for our first home:

1. Home not be listed “as is”
2. Have three or more bedrooms
3. Be located in an area with a good school district
4. Not be located on a busy street
5. Not be a total “fixer-upper”

Our price range was $300,000 or less. We found it nearly impossible to find a home that met even three or four of our requirements in that price range. By utilizing the below tips, however, we did eventually find and purchase a great home.

We love our house and it met all of our qualifications with the exception that it is located on a busier road than we would have liked. It took nearly a year of planning to find a home we could afford in a pricey market. With the below tips you too might be able to buy a great home, even in an expensive real estate market. By implementing the tools it took us a year to learn, hopefully you’ll be able to afford a home in a much shorter period of time.

1. Find the Right Agent

I think this is important for any real estate purchase, but even more so if you are looking to purchase in an expensive real estate market. In the beginning of our house search my wife and I found an agent online. We were not very impressed with the results and still wonder whether that agent had our best interests in mind.

The second time around we got smart and asked a few real estate attorneys we know their opinions about who the most trustworthy local real estate agents are. You should be able to find a good real estate agent from within your social circle as well.

2. Do Your Own Homework 

Although you will be well-positioned if you have a committed and trustworthy agent, you should still learn about your local housing market. You should visit as many houses as you can. How else will you know what a fair price?

Websites such as zillow.com, realestate.com, or trulia.com can show you globalized real estate listings. Make sure you study the listings sent to you by your agent as well–even the homes you have little or no interest in.

3. Consider Foreclosures and Short Sales

Buying a foreclosure or a short sale can be an effective method for buying into an expensive market that you may otherwise be price-precluded from entering. Recognize, however, just how difficult these types of transactions generally are.

Banks have made the short sale process more difficult than ever. You may wait months even after a seller accepts your bid waiting for the bank to reach a decision. Some people waste months waiting for a bank short sale acceptance that will never come.

Foreclosures have their own issues. Many foreclosed homes are in terrible shape. Foreclosures and short sales provide a means to purchase a home in an expensive market at a reduced price, but do realize you will likely be paying in other ways.

4. Expand Your Search 

If you’re not finding a value home in your price range, then consider expanding your search. This will provide you with more options and a better chance of finding a home you can afford.

5. Look For Homes New to the Market 

Most of the homes that have been sitting on the market for months remain unsold because they are either: a) extremely flawed; or b) not priced to sell. Also, be weary of sellers who list the home themselves or who are using a real estate company you have never before heard of. These may be signs the sellers cannot accept the true value of their home, and therefore have not been able to hire a legitimate real estate agent to assist in the sale.

6. Develop a Solid Negotiation Strategy 

One of my favorite negotiation tools is the “price history” on Zillow.com. Many times I would find that the owner purchased their home in 2005–right at the height of the market. I knew this person would likely be difficult to negotiate with, because they would want me to subsidize their mistake.

If you know your market you can use the price history to establish a fair current market value. For example, if you know the person purchased their home in 2005 and your real estate market’s average home prices have decreased 20% since that time, this provides an idea of the home’s current market value.

The key to just about any negotiation is to make a low first offer that is still high enough to not be offensive. Good real estate agents should help you with your negotiating strategy as well.

7. Save for a Larger Down Payment 

It seems to mee that we’ll see further depreciation in most real estate markets. Although nobody can time the market, perhaps the best idea is to wait a year. During this time you can save for a larger down payment and hold out to see if prices will continue to drop. A year from now you might be able to afford that dream home, even in an expensive market.

What other strategies have you used to purchase a home in an expensive real estate market?

Paying it Off

For most homeowners your mortgage represents the largest outflow of cash from your budget every month. We like to think about all the things we could do in life if we didn’t have to pay to keep a roof over our head. Imagine how fast you could ramp up your retirement savings, build a college fund, or save up for a big vacation. In addition to the increased cashflow, having your house paid off also comes with a sense of security, that you own your home and not the bank.

One tax note to be aware of on your quest to pay off your mortgage.  For many of us homeowners the interest we pay on our mortgage is what enables us to itemize our deductions.  If you pay off that loan you might have to start taking the standard deduction. 

5 Ways to Pay Off Your Mortgage Early

Here are five ways you can pay off your mortgage early and reap financial benefits from not having that payment.

1) Extra Principal Payments

The easiest way to pay off your mortgage faster than normal is to simply include additional money on every payment you send in. The additional money will go straight toward the principal of your loan rather than to paying the bank interest. Over time this will slowly pay down your mortgage faster than your original financing term.

Check with your lender to see how they treat additional payments.  Most banks automatically apply additional payments to any outstanding fees.  How they handle extra payments after that can vary so be sure to note on your extra payment that it should be applied to your principal.

2) Bi-weekly Mortgage Payments

A second way to send in additional payments is to coincide your mortgage payment with your pay cycle. Since many people are paid bi-weekly you simply send in half of a mortgage payment on each pay day.

This doesn’t seem like it would save you any money, but you’ll end up paying an extra month’s worth of payment every year. This is due to how the calendar year plays out. Most people know there are 4 weeks in a month, but over 12 months that is just 48 weeks. That means throughout the year there are a couple of times where you will get a 3rd check in that month even though you’re paid bi-weekly. If you send a half payment in on those pay days you’ll end up making two additional half payments (to bring us up to 52 weeks in a year). It’s an easy way to “trick” yourself into paying off your mortgage faster.

3) Refinance to a Shorter Mortgage Term

Another way to pay your mortgage down faster is to refinance to a shorter mortgage term. If you’re three years into a 30 year mortgage and refinance to a 15 year mortgage you’ll save money over the life of the loan. Granted your payments will be higher every month, but the shorter term combined with the higher principal payments will save you a lot of money in comparison to your previous mortgage.

4) Refinance to a Lower Interest Rate

Even if you don’t change the length of your mortgage in terms of the number of years you are still better off if you refinance to a significantly lower interest rate. If you bought a house 4 or 5 years ago your interest rate was probably in the 6% range. With rates in the high 4% to low 5% range today you are likely to save a ton of money by refinancing – even if you keep your mortgage at a 30 year term. The lower interest over the life of the loan will pay for any refinancing costs you have out of pocket and still save you thousands of dollars in interest.

5) Recast Your Mortgage

In contrast to paying a little extra each month, a mortgage recast is usually used to payoff a big chunk of your loan at once.  When you recast your mortgage your bank actually reamortizes your loan based on the remaining term left on your loan and the new loan balance.  Your interest rate remains the same but because you’re paying interest on a lower balance, the amount of overall interest you pay goes down. 

If you’ll remember from the amortization tables in the mortgage calculator post, since you’re paying less interest your monthly payment will drop. Ideally this will free up money each month you can use to make extra principal payments. Another benefit of a recast is that it can help you get rid of private mortgage insurance (PMI) if the lump sum you pay puts you over 20% down on the value of your property.

There are some limitations on this strategy. Not all banks are willing to recast a mortgage so if your’s doesn’t allow it then it won’t work for you.  Most banks will have a minimum amount that you can recast and typically they’ll charge a several hundred dollar recast fee.  Some banks have limits on the number of times they’ll recast your mortgage.

Bankruptcies and Foreclosures

If you have a low credit score, with no bankruptcy or foreclosure, you might be able to purchase a home now. You will have to pay a higher interest rate, and you might not get the best loan terms, but you probably won’t have to wait — as long as you have a large down payment and a credit score above 500. (If you have a small down payment, you might not be able to get a bad credit mortgage with a score below 580.)

Waiting periods apply if you have had a bankruptcy or foreclosure. Most lenders won’t offer you better rates until a bankruptcy is four years behind you and it has been at least two since a foreclosure. In order to qualify for a FHA loan, you have to be at least two years away from a foreclosure, and you can get a loan with as little as a 3.5% down payment.

Improving Your Credit to Buy a Home

So what should you do if you don’t have any recent bankruptcies or foreclosures and would like to buy a home but have bad credit?  Your first move should be to try and improve your credit score. Here are three ways to begin improving your credit score:

1. Make your payments on time and in full.
2. Pay down your debt, reducing your debt to income ratio.
3. Avoid applying for very much new credit.

One way to build a history of making regular payments is with a credit card, but you may not qualify for one if you have bad credit.  One option is to open a secured credit card, where lenders are willing to give you a credit card if you provide collateral in case you don’t make your payments.

As long as you use it responsibly, making regular purchases and paying down the balance each month, this can be a fast way to help your credit score.

Other things that can help you improve your qualifications for a home loan include:

Earn a regular wage. Self-employment offers a different challenge. If you are self-employed, you should be able to show tax documentation of regular earnings. However, self-employment income isn’t going to be viewed by lenders as favorably as a salary. Show that you have been steadily employed for at least a year or two.

Save up for a down payment. If you have poor credit, you can improve your chances with a down payment of at least 10%. If your credit score is lower, approaching 600 or below, you might need 20% down. If you have a credit score of less than 500, there is a good chance that you will need a 35% down payment to qualify.

Letter of explanation: If you have a compelling explanation for your low credit score, a letter of explanation might be required. You can explain extenuating circumstances (such as job loss or medical catastrophe) that led to your poor credit. You can also describe what you are doing to improve your financial situation.

When you have bad credit, it is still possible to buy a house. However, you will need to work hard to improve your credit score at least a little, and you may have a couple other hoops to jump through.

“Would you like a fifteen year or a thirty year mortgage”? You are sitting in a tiny chair with an anxious mortgage broker staring back at you, visibly impatient and waiting for an answer. For you it’s a major decision, but to the broker your just another customer in a long day at work.

So, what will it be? 15 years or 30 years? In some ways it seems like such an arbitrary decision. Yet deep down you know this is the rare decision that is powerful enough to make or break your financial future. So, what factors should you consider when determining what is the best mortgage length to choose? Thanks to contributor Chris Thomas for this article.

There are several factors to consider when selecting the best mortgage length. The major factor everyone tends to focus on is the monthly price differential between a 15 year or 30 year mortgage. For instance, if you are purchasing a $260,000 home, your monthly minimum payments might be something like: $1,800 for a 15 year mortgage and $1,450 for a 30 year mortgage. To be sure, the monthly payment probably is the biggest factor for the average person to consider when selecting a mortgage term. However, the analysis should not end there, for there are a number of other factors to consider when selecting a mortgage length.

Factors for Comparing Mortgages

1) Job Security and Predicted Future Income Levels
At the time you apply for a mortgage, the bank is looking at your finances at a static point in time. However, your financial reality is in fact much more of a moving picture than the snapshot photo the lenders are using. For instance, when my wife and I recently purchased our house, our financial profile “snapshot” was as follows: a young couple with decent jobs, a decent amount of money in the bank, but an even larger amount of student loan debt. That was an accurate portrayal of our current financial reality at the time we applied for our mortgage.

However, as we only recently received our graduate degrees, the hope is that we will with time earn much higher salaries. That is one of the reasons we went with a 15 year mortgage. Although nobody can predict the future, many of us possess an inherent knowledge as to our own job security and expected earnings, both in the near and long-term future. Your age, the amount of years you wish to continue working, and your health should also be considerations when choosing a mortgage length.

2) Future Plans for the House
How much work does the home need? Is it a money pit waiting to happen? How about just your ordinary everyday fixer upper? On the contrary, perhaps the house looks to be completely sound and you do not anticipate many repairs other than basic upkeep for the foreseeable future. These are factors you will have to consider when choosing a mortgage length, because they go to disposable income available, and may dictate which type of mortgage length would be best for you to choose.

To be sure, your expected disposable income/money must be examined in its entirety along with debts/investments as a whole. Simulated budgets reflecting the various monthly payments would also be a smart tool to utilize in determining the proper mortgage length. Finally, you will want to consider how much money you have saved should illness, a job loss, or any other unanticipated issue arise.

3) Interest Rates
Along with the monthly minimum payments, the interest rate is probably the biggest mortgage length factor to consider. If you can swing a 15 year mortgage at a 4.0% interest rate rather than a 30 year mortgage at a 4.8% interest rate, then the amount of money you could save in interest over the life of the loan might be well-worth the extra monies you would have to pay each year. In some cases, you might actually be surprised by how close the monthly payments are as and between a fifteen year v. a thirty year mortgage.

4) Budgetary v. Long-Term Monetary Freedom
If you go with the 30 year mortgage you will likely have more breathing room in your budget each month. At the same time, if you force yourself to instead choose the 15 year mortgage, you will in theory halve the amount of time you carry a mortgage. This will provide you the chance to do things like take on more investment opportunities, to start your own business, or to purchase an investment/vacation property in the future.

Although there generally is no penalty for paying down a mortgage faster than its specific term, you will still miss out on the lower interest rate a fifteen year mortgage offers. Also, despite your best intentions, if you are not careful you may very well find yourself slipping into only paying the minimum mortgage amount each month. Weighing the present budgetary freedom with the long-term freedom of owning 100% of your house sooner is a big consideration.

5) Taxes
You will have to factor in the property taxes (as well as utilities, etc), in determining just how much mortgage you can afford each month. On top of that, there are tax benefits to owning a home. Although the tax code is always subject to change, at the present moment the longstanding federal income code home mortgage tax deduction is perhaps the most powerful deduction offered to the average American.

I know several people that have said this home mortgage tax deduction is the reason why they have not paid off their mortgage in full, even though they could. For me, I would rather have the mortgage paid off. Moreover, I note that the math is challenging at best to try and prove that more money is saved by putting off full repayment of a mortgage note. That said, it is a factor that must be considered in the overall mortgage length landscape.

6) Private Mortage Insurance
This type of insurance protects the mortgage company (note holder) if you default on your loan and the house goes into foreclosure. It is generally required if your down payment is below 20%. However, sometimes there are exceptions depending upon whether you are utilizing a 15 year or a 30 year loan.

For instance, FHA loans generally waive the PMI costs if you take on a loan that is 15 years or less and put down 10% or more. That means that the same 10% down payment on a 30 year FHA loan would likely trigger the requirement of PMI insurance. By the way, if you’re not familiar with it, PMI insurance can run pretty steep.

Additionally, this could mean that between the extra monthly PMI payments and the extra interest, the initial monthly payments on a 15 year FHA loan may not be noticeably different from that of the 30 year mortgage note.

7) Time Value of Money, Economic Outlook, & Inflation
I offer here a sort of a “mixed bag” of other factors you may want to consider when determining the best mortgage length for you and your family. The “time value of money” principle basically says that money is worth more now than in the future. This is due, among other reasons, the magic of compounding interest and the historical trend towards inflation. So, if you select the 30 year mortgage and then turn around and invest the extra money in your budget each month, it could cut down on the extra amount of interest you might pay.

At some historical mortgage interest levels this argument might be much weaker, but now that the interest rates on a house are 1-3% points lower than the traditionally “low interest” federal student loans, this argument might now have some traction. Just like nobody can time the market, nobody really knows whether the long-term global/national economic outlook is favorable or not to a 15 year v. a 30 year mortgage.

Even economic experts disagree on whether we are entering an era of rapid inflation, stagflation, or deflation. However, there are various charts and economic trends you may want to consider prior to making a mortgage length decision.

Conclusion

So, hopefully by now you have a better idea of what factors to consider when choosing the best mortgage length for you and your family. It is not an easy decision because so many of these factors are outside of our control. That said, it is important to look beyond just the monthly payments and to also consider other factors such as those addressed in this article.

By looking at this decision globally, you will have a better chance to make the best decision for you. Although this list is by no means exhaustive, it does provide a solid basis of some of the more important factors to consider in determining the proper mortgage length. As with anything, seeking the help of a proper financial expert may be necessary. Keeping all of these factors in mind is difficult, and ultimately is a decision you will have to make on your own (or with the help of a relevant expert).

So, what mortgage length do you think is best for you? Can you think of other factors that should be considered in determining a proper mortgage length? Did you know that some banks/lenders now offer 40 year mortgages?

Why does it seem like the place you want most when house hunting is often the one at the top of your budget?  Only you can determine how much house you can afford.  However, if you’re getting frustrated and having trouble finding homes that meet all your criteria and are in your price range, here are a few tips that can help lower the price of your home.

First we’ll look at lowering the cost of borrowing money to pay for your home.  Then we’ll move on to finding the square footage and features you want at a price you can better afford.

1) Lower Your Credit Score & Interest Rate
One of the best things you can do is work to improve your credit so that you get a better interest rate. The interest that you pay on a home purchase can make a big difference in how much you pay over the life of the loan. Indeed, you could pay tens of thousands of dollars more over the life of your mortgage just by having to pay an interest that is 1% higher.

The reason it makes such a big difference is because you’re often borrowing large amounts of money and then paying it off over 15 – 30 years.  Due to the way that banks amortize your mortgage payments, you’re paying mostly interest and only a small bit of principal during the first half of your home loan term.  Here’s more info about how your credit score affects your interest rates.

Credit Score

Your credit score is only of the factors that goes into determining your mortgage rate but it’s one that pretty universal for borrowers so it makes sense to work on it. Improving your credit is a great way to reduce what you pay in interest.

Work to boost your credit score by making on time payments, reducing your debt, and being choosy about the new debt that you apply for.   Remember, when you apply for a home loan it shows up on your credit report, so it’s best to check your credit first before just applying for a loan and seeing what rate you’re quoted.  If it’s lower than you’d like, you can work to raise your score before filling out any loan applications.

When you have a good score, you should be able to qualify for a lower interest rate. So this should help you buy more house with less –  since less of your payment will be going to interest. Saving up for a sizable down payment can also help, since you will be financing less of the home’s purchase price, and you will pay less in interest over time.

Credit score & Mortgage Rate Resources:

• How to Find the Best Mortgage Rates
• 12 Steps to Improve Your Credit Score

2) Home Bargain Hunting
All you have to do is drive around a few subdivisions and you’ll see the toll the housing market crash took on people who borrowed more than they could afford or who lost their job in the bad economy.

This has led to many foreclosures and short sales, which sometimes give you a chance to buy more house for less.  Obviously this is bad news for existing home owners but can be an opportunity if you’re looking to buy a house for a bargain.  According to CNN Money, foreclosures and short sales accounted for 26% of the total homes sold last year.  Based on a recent RealtyTrac report, their statistics show that foreclosures save you an average of 36% off regular home prices – and short sales typically get you a discount of 15%.

How to Use Home Savings

A 15–36% discount on a $100K-$200K house can certainly save you a lot of money. The question is do you use that discount to spend your existing budget on a bigger home, or get a smaller house and pocket the savings?  One thing to keep in mind is that if you’re buying a home that’s bank owned or in the process of foreclosure you’ll likely have to invest some money into it on top of the sales price.

Often home like these have been sitting empty for a while, which can cause problems for you as a new owner.  For example, if the utilities have been turned off then there’s nothing to power a sump pump and spring rains can mean wet and moldy basements.  Unfortunately, lack of care and maintenance isn’t the only concern.  Sometimes previous homeowners that are being kicked out by the bank will take their anger out on the house and intentionally damage the property before leaving.

How Much Will a Bargain Cost You?

There can be some unexpected costs when buying a foreclosed home, however, there are ways to anticipate some of them.  If you’re buying a house on the courthouse steps, which is an option right after a home has been foreclosed on, then it’s often sight unseen.  You have to bring cash to the auction and when you buy the house you may not know all it’s potential issues.

However, if you buy a home from the bank that foreclosed on the property then you have more time to do some research and anticipate your costs.  You can setup a time with the seller’s agent to bring in contractors to assess the damage and give you bids on what it would cost to get the house back into shape.  Not only does this information help you figure out how much you can afford to pay for the home and still do repairs, you can also include the estimates in your offer to the bank to justify the price that you offer.

Non-Foreclosure Bargains

If you don’t want to deal with a foreclosed home, there are still ways to save money on a house.  Start off by searching for homes that have been on the market for a while.  What you’re looking for are listings that indicate that the seller is motivated to sell since that gives you room to negotiate.

One frequent cause of this are home owners who are moving to a new home and don’t want to be stuck with two mortgage payments.  They may be more likely to give you a discount on price and get it sold than risk owning two houses for an extended period of time. 

Some companies that relocate their employees will actually guarantee them a sales price for their home if they’re willing to move.  Many of these companies work with re-location services to help sell homes and these can be a source of good deals for you.  The company isn’t in the real-estate business and doesn’t want to hang on to mortgage debt, they’re motivated to sell the house quickly, which gives you an opportunity to negotiate the price.

Short Sales

As I mentioned earlier, short sales are another alternative to foreclosures.  In these cases the bank hasn’t repossessed the property but the homeowner has asked the bank to let them sell the house for less than the amount owned on their loan.

The downside to short sales is that any offer you make has to be approved by both the home owner and the bank.  Banks are so swamped with short sales that it can take forever for you to get a response on an offer.  However, you can check the public records on a home and if you can find date it’s scheduled to go into foreclosure, this can give you leverage.

It’s often in the best interest of the property owner and the bank to get the home sold before going through foreclosure.  So if the home owner is coming up against a foreclosure deadline they may be willing to approve a pretty low offer, simply to avoid foreclosure.  Of course the trick is the bank also has to approve your offer so don’t make it so low that they simply dismiss it.

3) Know the Market

Understanding the local real estate market is a huge advantage when you’re trying to buy a house at a bargain. For example, anyone who comes to buy in my neighborhood is likely to pay $20,000 less than what the owner originally paid because there are so many homes for sale — and those that have sold have done so at a discount.

Real Estate Agents

One way to tap into market knowledge is to work with a buyer’s agent.  It’s best if you can work with someone who specializes in a certain area.  For example, if you really like a specific neighborhood and can find a buyer’s agent who actually lives in the neighborhood then you’re more likely to have access to property insights that you wouldn’t find with a random real estate agent you found in the phone book.

Technology

Whether you use an agent or not, you still want to do your own research.  The Web makes it pretty easy to keep your eye on developments in areas that you’d like to buy.  There are websites that allow you to save search critiera with your desired price range and house features.  They’ll send you emails when new properties are listed or when prices change on existing homes.  If you subscribe to a service like that for a few months you’ll have a decent feel for what’s available and what it will cost you.

Something else to consider is making use of a mobile device when you’re out “in the field” doing your research.  A lot of information about real estate is now accessible via your smart phone so if you run across something new or unexpected while out looking at homes you may be able to do your research and get your question answered while you’re in a house or sitting out front in your car.

Buying More House For Less

If you can lower your borrowing costs and find real estate that’s “on sale”, it’s definitely possible to get more home for your money.  Both of these require research, planning, and doing a fair amount of work before the actual purchase of a home.  However, the money you’ll save will make your efforts well worth the time you invest.

However, it is important to remember that although you’re not making payments a reverse mortgage is a loan and at some point it will have to be paid back — along with fees and interest.

How Does a Reverse Mortgage Work?

Applying for a reverse mortgage is similar to getting other types of loans, but your credit and income don’t matter because you’re borrowing against home equity.  Lenders look at your age, interest rates, and how much equity you have in the home (as well as the market value of the home) when considering applications for a reverse mortgage. Since the reverse mortgage is intended primarily for retirees, income levels are a moot point.

A mortgage lender will get an appraisal to determine the market value of your home and how much you are eligible to borrow.  Then you can decide how you want to receive your money; as a single lump sum, as a line of credit, or in the form of regular payments.

Reverse Mortgage Payments

How you elect to receive the money depends on what you use the money for. Some people take out a reverse mortgage and use a lump sum to pay some major expense. Others are looking to make up for a shortfall in their monthly cash flow, and choose to receive payments monthly.

Reverse Mortgage Fees

Lenders will charge you an origination fee, mortgage insurance, and closing costs to process a reverse mortgage.  This can be a lot to pay if you’re on fixed income so many lenders will let you roll these costs into the loan. When the Federal Housing Administration (FHA) defined the reverse mortgage product they created a cap on the origination fee. The fee can’t be more 2% of the first $200,000 and 1% thereafter, with an overall cap of $6000.

Reverse Mortgage Eligibility

Since the FHA insures reverse mortgages, they set following criteria about who qualifies for a reverse mortgage.  You must:

• Be at least 62 years old. (Some lenders will offer non-FHA reverse mortgages to those who are younger.)
• Own the property, or have a small balance remaining on your original mortgage.
• Have no federal debt delinquencies.
• Meet with a counselor about the reverse mortgage.

Repaying a Reverse Mortgage

As long as you live in your home as your primary residence, you do not need to make payments on your reverse mortgage (although you can). Once you have not been living in the home for a year, though, the reverse mortgage comes due. For many, this happens when long-term care is needed, or upon death.

The reverse mortgage is repaid with funds from the sale of the home. This is why the market value of the home, and the equity in the home, are such important considerations when getting a reverse mortgage. Unless the estate or heirs pay of the reverse mortgage, the home will have to be sold to repay the obligation.

Reverse Mortgage Insurance

It is important to note that a FHA reverse mortgage cannot be repaid for more than the amount of the home’s market value. This means that if home values plunge after the reverse mortgage is made, the lender can only take the amount the home is now worth — even if more is owed on the home.  This is why you’re required to buy mortgage insurance on a reverse mortgage.

The FHa offers two different types of reverse mortgages, the Home Equity Conversion Mortgage (HECM) and the HECM Saver.  The HECM Saver reduces the amount of mortgage insurance you pay up front at closing but also puts a lower limit on the amount you can borrow relative to the value of your home.

Bottom Line

It is important to research the pros and cons of reverse mortgages before making the decision to borrow against your home.  You should read more about the benefits of reverse mortgages for seniors as well as reverse mortgage disadvantages.

Thinking about mortgage refinancing?  You’re not alone, with some of the best mortgage rates available in history many people are debating whether they should spend the money and refinance. 

The benefit of refinancing comes from borrowing at a lower mortgage rate so you can either lower your payments or reduce your loan term, either way saving thousands of dollars over the life of your home loan.

However, there are some pitfalls to watch out for; here are some of the mortgage refinancing mistakes you want to avoid:

Paying High Closing Costs

When you refinance, you are essential getting a new mortgage to replace your old mortgage. This means fees; origination fees, administrative fees and other closing expenses. 

Many people simply pay them, adding them to the cost of the loan and reducing the savings benefit of refinancing your home. Instead, shop around and compare costs between various banks and credit unions. Check out this article on how to lower your home loan closing costs.

Not Getting a Big Enough Discount on the Rate

Many people refinance because rates have dropped but then find that the difference in the interest rate wasn’t big enough to really save them money. If there is only a small difference, the closing costs can erode the savings you are getting.

If you don’t stay in your house for five to seven years after you refinance, this small difference can actually result in you losing out over all. The generally accepted rule of thumb is that the new rate should be at least a full percent lower than your current rate, and you should be planning to stay in your home for a few years.

Waiting Too Long for a Good Rate

It is tricky trying to predict how low mortgage rates will go. In some cases, you might wait too long, and then find that you missed your opportunity. At this point, mortgage rates are unlikely to drop very dramatically again in the near the future. Waiting for even lower rates could mean that you miss out altogether.

Look at the current rates, and then look at your mortgage rate. If you will be saving more than one percent, it might be worth it to just go ahead and refinance now. Rates are not likely to head another full percent lower, but if they head higher, you will have missed out.

Cash Out Refinance

One of the biggest mistakes that people make with mortgage refinancing is to get a cash out loan. In this type of refinance, you get a loan for more than you owe. For instance, if you owe $170,000 on your home, but it is worth $205,000, you might refinance for $180,000. You pocket the $10,000 difference between what you actually owe and what you borrowed. (Of course, closing costs can erode what you actually end up with.)

Cash out refinances can be an issue for several reasons. First of all, you are adding to your debt. Another concern is that your cash out finance could put you above the 80% loan to value ratio, and result in the necessity of paying private mortgage insurance, which adds to your costs. Some people like to do a cash out refinance and pay off consumer debt, but if you are not careful, this could land you in even more trouble — especially if you just run up the balances on your newly paid credit cards.

In the end, it’s better to avoid a cash out refinance if you can, and just stick to refinancing what you actually owe on your home mortgage.