I have not, however, found one that deals specifically with the question of whether a 15 year or a 30 year home loan is best suited for someone buying their first home. First time home buyers have unique circumstances. Most important: first time home buyers usually expect to live in their home only 5-10 years, upgrading when they need more space and can afford a more expensive home. Talking this into account leads to some surprising conclusions.

A numerical example helps shed some light on this decision. Here are a few assumtions for this example:

You have savings of at least $60,000 that you could, if you choose, devote to a down payment on a home, and you intend to put 20% down on your home.

You have decided that you can afford mortgage payments of up to $15,000 per year.

You can obtain a 30 year home loan at an interest rate of 5.0% or a 15 year home loan at an interest rate of 4.5%.

Given those assumptions, here are two alternatives. Each alternative results in your making mortgage payments of roughly $1,250 per month:

30 Year Mortgage: Buy a home for $291,000, putting $58,000 down and taking a 30-year, $233,000 home loan.

15 Year Mortgage: Buy a home for $204,000, putting $41,000 down and taking a 15-year, $163,000 mortgage. (If you go with this option, you are able to keep an additional $17,000 in your savings account.)

Which option is better?

The 30 year home loan has a big advantage: you can buy a much more expensive home, almost 50% more expensive. Keep in mind that you are making equivalent home loan payments with both options, so, at least while you are living in this home, you are not sacrificing your ability to spend in other areas or contribute to your savings goals.

In fact, while you are living in your home, you are actually benefiting from a larger tax deduction from the 30 year mortgage, even though the home loan payment is the same, because a higher proportion of the payments are categorized as interest payments.

So, if the 15 year home loan is going to be preferable to the 30 year home loan, it would need to have some substantial long term benefits. These benefits should show up when you upgrade to your next home.

If the 30 Year is better in the short term, which is better in the long term?

Suppose you decide in to upgrade in five years. When we do the math, it turns out that it isn’t completely predictable which option puts you in a better position when you upgrade. Here are the three variables that matter:

The growth in home values over that five year period. The higher the growth rate, the better the 30 year does. Why? With a higher home value, the same growth rate produces greater absolute dollar growth. Ten percent growth increases the 30 year’s home value by $29,100 and the 15 year’s home value by $20,400, a difference of $8,700. Twenty percent growth increases the 30 year’s home value by $58,200 and the 15 year’s by $40,800, a difference of $17,400.

Your tax rate. The higher your tax rate, the better the 30 year does. Why? More of its payments are interest payments, which are tax deductible. The higher your tax rate, the more tax deductions help you. For someone in the 25% tax bracket, the difference is close to $1,000 per year in tax savings.

Your investment growth on the money not spent on the down payment in the 15 Year option. The higher the rate of investment growth, the better the 15 year does. One caution: don’t assume equity returns on that investment. Five years is not enough time to invest in stocks. I think the fairest assumption is that you are able to invest the saved down payment at the same rate of return that your home values grow.

The results.

In most circumstances, 15 year does leave you with more equity to roll into your new home. It takes a housing growth rate if around 7% – far in excess of historical norms – for the 30 year to win. If home values grow at a more typical 3.5% rate, the 15 year will leave you with about $15,000 more to spend on your home upgrade.

If we run the numbers again for a home upgrade in ten years instead of five, the results don’t change materially. It still takes an unusually high 6% growth rate for the 30 year to break even. At the 3.5% rate, the 15 year wins by close to $25,000.

Is living in a more expensive first home worth reducing the amount of equity you will have to roll into your next home?

Here’s one way to decide: compare the amount you sacrifice in the future to the difference in the rental value of the two homes. The above calculations suggest that you sacrifice about $2,000 – $3,000 of second home value for each year you live in your first home. Compare this to the difference in rental value of the homes. Using the historical average rental rate of 5%, the $291,000 home would rent for about $14,500 per year, and the $204,000 home would rent for $10,200 per year.

The difference, $4,300 per year, is greater than the amount that choosing the 30 year is likely to cost you. On that basis, at least, it appears that the 30 year gives you a good deal for your money: you live in a better first home without having to spend a whole lot more order to live there.
But shouldn’t we defer present gratification for our future benefit?

Every rule has its exception. Consider this: moving multiple times over the course of your life reduces your net worth. The transaction costs involved in buying and selling a home (broker fees, legal fees, title fees, transfer taxes, moving costs, etc.) typically drain away 10% of the value of your home. The more times you move, the more times you subtract this amount from your total net worth.

Choosing a 30 year home loan may help you limit your number of moves because you’ll be more willing to remain in your first home longer. As your family grows or your children get older, the larger space is more likely to meet your needs. If choosing a 30 year increases the liklihood that you will only move once, it actually may increase present gratification AND provide future benefit.

Do you find this conclusion surprising? I confess that this is not the outcome I expected to reach when I began considering this question. The 15 year home loan represents many of the characteristics that are normally beneficial in managing your finances: a lower interest rate, reduced consumption, and automatic savings. Despite all those advantages, for most people it is the wrong choice for a first home. The traditional 30 year mortgage makes more sense.

This article is brought to you by www.JemCreditCards.com – More than credit cards, we build financial stability! Browse the best charge card offers including Discover balance transfer cards and Chase balance transfer credit cards today!

With so much attention placed on the housing market – and talk of an upcoming rebound, I wanted to take a moment and remind everyone of some important components within the government’s first-time home buyer tax credit, which was extended last fall by both the House and Senate.

Qualified buyers: you still have time to find your dream home and take advantage of this gift from Uncle Sam! Here’s the rundown:

Are more people eligible?
Yes. First time home buyers (buyers who haven’t owned a home in the past three years) are still eligible for a credit of up to $8,000. The bill created a new buyer category that allows existing homeowners or “repeat buyers” who have lived in their principal homes for five consecutive years (out of the past eight years) and are purchasing a new principal residence to apply for a credit of up to $6,500.

What are the income limits?
Buyers filing as single or head-of-household taxpayers can claim the full credit if their modified adjusted gross income is less than $125,000. Married couples filing joint returns are eligible if their combined income is less than $225,000. Single or head-of-household taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000, are eligible to receive a partial credit.

What are the new dates?
Last November, many news outlets referred to the credit as being extended through May, others are referencing June as the deadline. Specifically: to be eligible, binding purchase agreements must be signed by April 30, 2010 and deals must be closed by June 30, 2010.

What homes qualify?
All homes with a purchase price of less than $800,000 qualify. Vacation homes and rental property purchases are not eligible.

Is the credit refundable?
If the amount of income taxes you owe is less than the credit amount you qualify for, the government will send you a check for the difference. For example: a first-time buyer qualifying for the full $8,000 credit who owes $5,000 in federal income taxes would receive a $3,000 refund. Qualified home buyers can take the tax credit on their 2009 or 2010 income tax return.

Does the credit have to be repaid?
Not unless the owner sells the home or stops using the home as a principal residence within 3 years after the date of purchase.

Looking Ahead…
We know that interest rates will always fluctuate and that the market will swing – but for the next few months, the tax credit will remain static. It’s one of the few “sure things” today – and if you qualify, take advantage of this free gift, because it won’t last forever.

Click Here to Get Great Rates And A Speedy Approval From Lending Tree Without Any Hassels.
Go to Source

Read this article to learn more.

You read and you decide.

Here is the post:

I read this article over the weekend and it was so full of inaccuracies and distortions that I had to share my perceptions on it.    My comments are in bold and italics…..  and I’ll have more at the bottom.

Tight Mortgage Rules Exclude Even Good Risks – NYTimes.com

Inna Komarovskaya was ready to do her part to revive the economy: She found a “really cute” condo to buy.
Despite a good credit score, a six-figure income and an ample down payment, Dr. Komarovskaya, a recent dental school graduate, could not get a loan. Her mortgage broker told her she ran afoul of new rules requiring two years of sufficient tax returns from some home buyers, instead of only one……

Tom here – the way they say it makes it sound like they are randomly saying, “we need two years tax returns rather than one.”   Let me tell you the details that I “know” they aren’t putting in the story:  Dr. K recently graduated from dental school and then, rather than going to work for a practice with a guaranteed salary, either started her own practice or bought into a practice where she has an ownership stake in the practice.   Because of her ownership interest, the mortgage market is going back to what they have required for years which is a 2 year history to verify income.    Is that a new and restrictive guideline?   Nope, it’s going back to the way things have worked for a very long time.

The recession is the major reason sales are dragging, of course, but it is not the only one. As Dr. Komarovskaya found, buyers once viewed as perfectly qualified are being denied mortgages……

The credit pendulum is stuck at ‘stupid,’” said Lou S. Barnes, an owner of Boulder West Financial Services, a Colorado mortgage bank. “I am turning down loans every day that my grandfather in his Ponca City, Okla., savings and loan in 1935 would have been happy to make. And he was tough.”………
Tom here – I’d like to talk to this Lou Barnes and find out what his customer baser is like.   Am I talking to customers on a daily basis who can’t do what they want to do?  Yeah, I am.   But why?  Not because the guidelines are too tight, but because the bubble burst and property values have fallen.   It’s not stupid lending to refuse to do a “secured” mortgage at 130% of the value of the property.

The denials are occurring for a wide array of reasons: the buyers’ incomes are adequate but irregular; they are self-employed and take many deductions, reducing the taxable income on which lenders focus; their credit scores are below the cut-off point, which has been raised drastically; their down payments are less than 20 percent……
Okay, I think I can disagree with a lot of things in this sentence:

• Adequate but irregular – Gee, hasn’t the mortgage world always (as in like since I was in 1st grade?) taken a 2 year average to deal with irregular income?   So what’s the problem now?   The problem now is that too many people are used to dealing with mortgage rules that allowed virtually anyone to get a mortgage.   Those days are over.
• Self employed and take many deductions, reducing taxable income:  This one has bothered me for a long time.    For many many years, well educated lenders have known that true non-cash writeoffs that self employed people take on their tax returns can be added back to their income.    The cash expenses – well, guess what “cash expenses” means?   It means that you actually paid them.   Now some of you are probably saying, “But I write off the payments on my car loan, so why should that penalize me?”   A couple of things about that:    1) If you are writing off  your car loan and doing it appropriately, you should have absolutely no issues providing enough documentation to your lender so that while you can’t count it as income, at least you don’t have to have it counted as a liability.   2) If you structure things in such a way that you can use “pre-tax” income to pay for personal expenses, then you end up not having the same amount of income to qualify for a long, but employees don’t have that option.
• Their credit scores are below the cut-off point, which has been raised drastically;  Yeah, the cut off points have been raised drastically for credit scores.   Why?   Because the people with lower credit scores are a large amount of the people who are delinquent on their mortgages.   But guess what?   Through FHA, we’re still doing doing mortgages for people with credit scores down in the lower 600’s.   So, if someone has a credit score that’s too low for an FHA mortgage, then yes, they areally shouldn’t be getting a mortgage.
• Their downpayments are less than 20%.   Have the PMI companies instituted what are called “restricted markets?”   Yes.   What does that mean?  It means that if you are located in a restricted market, you have to come up with an extra 5% down.   Take the state of Michigan for example.   We are, according to some PMI companies, a restricted market, so rather than being able to do a 5% down conventional mortgage, we’re limited to a 10% down mortgage.    Oh, and how about FHA and VA?   According to what I’ve read, FHA and VA are in excess of 30% of the entire market.   So, there are a lot of options without 20% down.

Fannie Mae, the government-controlled company that buys mortgages, is so dominant in the lending market that its rules set the standard. It recently toughened its policies, saying it would count only 70 percent of the value of stocks and mutual funds when calculating a buyer’s assets. Previously, that figure was 100 percent…….

Mortgage brokers say those who are being rejected for loans are often entrepreneurs who are used to taking risks. “They are chomping at the bit to get into this market, but are forced to the sidelines,” said Stuart Fraass of Guaranteed Rate Inc. “If you’re self-employed, you have virtually no chance of getting a mortgage now.”……..
If you are self employed, don’t claim all of your income, write off a lot of personal expenses as business expenses, haven’t been in the business for at least 2 calendar (tax return) years, yes, you’re going to find it challenging to get a mortgage now.   But if you are self employed, are showing a profit and are reasonable about what you want to borrow, you should be good to go.   If that applies to you and you are having troubles getting financed, call me.

Mr. Fraass was unable to help Raghbir Singh, a real estate investor who owns a gas station in Dover, N.H. Mr. Singh tried to buy a $301,000 house for himself and his family with 10 percent down and excellent credit, but was rejected. “It was unfair,” Mr. Singh said. “I’m a good risk, but I’m forced to rent.”

A couple of things about this story that don’t “line up.”   Let me explain:   1) Mr. Singh is a real estate investor who claims that he’s “forced to rent.”   What’s up with that?   2) I’d be willing to venture that Mr. Singh’s tax returns don’t show quite the same income amounts that he’d like to “tell you” he makes.  3) “I’m a good risk?”   Didn’t we get away from the borrower underwriting (stated income loans) because they performed so horrendously?

Members of Congress are proposing to extend and enlarge an $8,000 credit for first-time buyers, which is due to expire in December. One bill would extend the credit to all buyers through next June. Another would extend it to all buyers through 2010. A third bill would expand it to $15,000 for all buyers.

Some economists, noting that tax incentives helped stoke the boom, say these proposals should be shunned. “When do you decide enough is enough?” said the housing consultant Ivy Zelman. “I don’t want to feed the drug addict with more drugs.”

Okay, a couple of additional thoughts to wrap things up:

• In case  you can’t tell, this sort of “half story” journalism really bothers me.    Is the mortgage world a lot harder than it was 3 years ago?   Absolutely.    But don’t tell lies and fabrications and half truths that make it seem worse than it is.
• Can people still get a mortgage?   Absolutely!   If you have a downpayment (as little as 3.5%), verifiable and stable income, are looking at buying a house that is reasonable for your income and debt levels and have decent credit, you’re good to go.
• This is exactly why I wrote my book, “Straight Talk About Mortgages – How to Survive and Thrive in Today’s New Mortgage World.”
  
• The world already believes the mortgage industry is dead.   It’s not and we don’t need irresponsible stories and half truths making it worse.

I have  client who was supposed to close on their loan on June 30th and they are still waiting. The reason? The home they are buying is owned by a trust. I don’t want to get into what a trust is except to say that people set up trusts so that when someone dies they can avoid probate and the trust can sell or transfer the property to whomever.

It is not very complicated, the transaction is the same as any other. Except the lender is making it soooo difficult, requesting one stupid document after another, none of which really have anything to do with trust. The latest request is that the bank would now like a copy of the the sellers death certificate. First of all — the seller is the trust (They Know that), secondly, do they not believe that the person actually died????? Can you tell that I am a little P O’d?

I guess, my advice to you is that if you are in the process of buying a home, make sure all your ducks are in a row and your loan is cleared to close well ahead of the closing date. In this day and age you never know what kind of crazy conditions the lender will require before they actually lend you the money.

Avoid and complications and  Get Your Approval Completed Quickly At Lending Tree