Even though the $8,000 First Time Home Buyer expired earlier this year, there is still a great tax credit program for some First Time Home Buyers in North Carolina.

While all homeowners can claim an itemized tax deduction for mortgage interest, a Mortgage Credit Certificate (MCC) goes a step further by reducing tax liability, dollar-for-dollar, by a percentage of the mortgage interest paid.

Fairway Independent Mortgage is a qualified lender with the North Carolina Housing Finance Agency, which means those who qualify for an MCC can claim 30% of the interest paid on the mortgage as a credit on federal income taxes. This could add up up to $2,000 per year savings on federal taxes — money that can be put toward the mortgage payment.

The $2,000 tax credit can be used year after year as long as you have the mortgage! This could be way more than a measly $8,000 credit.

An MCC can be used with a 30-year fixed rate mortgage, including FHA, USDA, VA, and conventional loans. An adjustable rate mortgage may be acceptable in some instances.

There are income limits that vary by county – this is a list of the current limits.

If you are thinking of buying your first home soon - be sure to ask us if you qualify for the Mortgage Credit Certificate as well – we’ll take care of all the application details if you do.

A opinion piece in Investment News claimed that ‘For young couples, renting may be a better option”.  I hate headlines like that  – they are designed to get your attention, but most people don’t have the time to read the article.  They end up with this piece of random advice floating around their head that can cause them to doubt their decisions.

Here’s a good rule to follow – don’t take advice from newspapers and magazines!  Why?  First of all, you don’t know who wrote the article.  Was it written by a 23 year old journalism apprentice that has never owned a home?  If so, do you really want to take home buying advice from him?  Or, does the writer have a bias or an incentive to push a particular viewpoint?  For example, a proponent of reverse mortgages is also a paid spokesperson for a reverse mortgage lending company.  Do you think their advice is fair an balanced? 

So, should young couples rent or buy?  Right now, the interest rates, homes for sale, and the home prices are all reasons to consider buying.

The Investment News article says the strongest reason to not buy right now is that prices could fall further.  This surprises me, as the industry that uniformly teaches ‘Buy and Hold’ rather than trying to time the market with stocks or mutual funds turns around and says, “Time the Market!”.  Waiting for prices to fall further is a sure setup for disappointment.  Think about it, even if prices fall further, will rates be higher when that happens?  Will the loan program that you can qualify for today still exist then?  What if prices fall, but rates are 1-2% higher than they are now? 

What if you did not buy a $250,000 house today because you ‘knew’ prices were going to drop by another 10% in the next 12 months?  Didn’t you make a good choice?  Well, if interest rates rose from 5% to 6.5% (from where they are today to where they were 1 year ago), your payment on the lower priced home next year would actually be $77 higher than if you bought right now.  Couple that with the money you threw away in 12 more months of rent (and for some, the loss of the $8,000 tax credit), and you are talking about a significant difference.

Why not buy now?  Don’t buy if you are going to move in less than three years.  Don’t buy if you haven’t been stable in your employment for the last few years.  Don’t buy if you don’t want to stay in the town in which you are looking to buy.

Fear or uncertainty of the future are never valid reasons for not taking action – there will always be economic uncertainty, change, and surprises.  If you aren’t going to buy because the ‘economy is bad’, then realize you are forcing yourself into a situation where,

1. You will never buy a home as the economy will always be bad, just starting to recover, or starting to get bad.
2. You’ll never buy because you don’t know what tomorrow will bring
3. You will buy, but only when the economy is strong, in which case you will be buying a house in a strong market, which means the prices and interest rates will be higher.

You can find a million reasons to buy a home or not buy a home right now.  Separate the facts from the headlines, consult with an independent professional and let them guide you through a sound decision making process.  Don’t take advice from a newspaper or magazine article as everyone’s circumstances are different.  Evaluate your choices in light of your unique circumstances. 

We offer a free, no obligation, Rent or Own Analysis to help you see the differences between continuing to rent and buying a house.  The numbers aren’t the only reason to buy a house, but they are important.  Then, add your personal story to the numbers to make a great decision.

The 15 year mortgage has become more popular since mortgage interest rates dropped.  An article in the Wall Street Journal gave some reasons why this is happening.

With the low mortgage interest rates, many homeowners are finding that a 15 year mortgage is more affordable than previously.  In addition, for those homeowners that have been in their house for 5-7 years, the leap to a 15 year mortgage isn’t as big of a stretch as it was then they bought their house a few years ago.

Should you consider a 15 year mortgage?

The Benefits of a 15 year fixed rate mortgage:

• Build equity in your home faster
• pay less interest
• forced savings account
• Benefit with low interest rate refinance without stretching loan term back to 30 years

The Cons:

• You have to make that higher payment each month
• A house is  a terrible place to store your wealth – better than spending, but worse than most any savings vehicle
• Opportunity cost – money used to pay down principal is money that can’t be used elsewhere
• Loss of flexibility – a future job loss or financial challenge could be catastrophic because of the higher required payment on the 15 year fixed mortgage

In some areas, a 15 year mortgage is a disaster for people – for example, someone who took out a 15 year fixed mortgage in Florida or Las Vegas in 2007 is now seeing that they send in a payment and the house price drops by more than the principal paid in.  How would it feel to send $1000 to your savings account and the next day have $0 left?  That is what many people experienced with 15 year mortgages in rapidly declining markets.

Which loan is best for you?

On the other hand, if you are in a stable housing market like Charlotte or Raleigh, North Carolina, the 15 year mortgage may not be so dangerous.  You will spend less on interest, build equity faster, and protect yourself from spending the money elsewhere – the forced discipline of this mortgage is helpful to some people.

If you have pretty good assurance that your income is going to be stable or increasing for the next several years, if you are already saving for retirement, have an emergency fund, and don’t carry other debts such as credit cards, student loans, or car loans, then you may be ready for the larger payment of the 15 year fixed mortgage.

If you have some credit card balances, don’t have several months living expenses already saved in an emergency fund, and aren’t putting away money for retirement or kid’s education, don’t get a 15 year mortgage – there are more important things to do with your money.

Before you decide to take on a 15 year mortgage, consider the best uses of your money, and make sure your new mortgage won’t prevent you from doing something more important.

For many homeowners, their monthly mortgage statement for their mortgage includes a sales pitch to call in to refinance.  Too many people do this to their own harm.  Right now, if you are paying over 6%, does your current lender really want you to refinance?  Short answer: No, but if you are going to they would rather have you refinance with them than with someone else.

Why would a mortgage servicer to whom you paying 6% interest want to help you refinance to 4.5% or anywhere else?

Since they don’t really want you to refinance, do you think they will really work on your behalf?  Too many times over the last 18 months, I’ve talked with homeowners that were charged $300-$500 to apply for a refinance, only to be delayed and ignored for 60 or even 90 days.  Then, suddenly interest rates have increased, credit scores aren’t high enough, or the appraised value is too low to refinance.  Often, we can help these home owners refinance in a little as 30-45 days with no issues.

An independent mortgage lender has no conflict of interest – if you can benefit from refinancing, they’ll tell you.  With your current mortgage lender, if you can benefit from refinancing, but it hurts them, do you really think they want to help?

“But, they already have all my information”. Guess what, over 95% of all mortgages will be sold to Fannie Mae or Freddie Mac.  Fannie and Freddie need current paperwork – so whether your previous lender has paperwork from last time or not, you will still have to gather up fresh pay stubs, bank statements, W2s and whatnot – regardless of who did your loan last time.

“My current lender doesn’t need an appraisal”.  Neither does any other reputable lender if your mortgage qualifies for a Making Homes Affordable Refinance Program.  This stimulus program allows some home owners who’s mortgage is owned by Fannie Mae to refinance to today’s lower rates without an appraisal.

“They told me it was easy”.  Sure it is, if you make it easy for them.  Realize, when you call, you won’t be talking to a local mortgage professional in Charlotte – you will get a call center employee earning low wages that really doesn’t care if you refinance or not, they are just watching the time clock until they can go home.  Do you really want to trust something as important as this to a call center that will connect you to someone else everytime you call in?  And, if it gets too difficult, you might stick with your current higher interest rate – even better for your lender than a new loan is.  Sounds easy for them, not for you.

Which loan is right for you?  The call center employee you talk with has no idea what loan you should get.  Shouldn’t you work with someone who can show you the various options and the financial impact to you over time of the different loans you have available to you?  A local, independent, mortgage professional should be able to show you the total cost over time of a new loan compared to your current loan.  If your loan representative doesn’t – quite frankly, you need to find someone who can.  Consider talking with a Certified Mortgage Planning Specialist to get the best advice on your next loan.

So, who should you call?

1.  Try the person that helped you with your last loan, if they are still in the business, were trustworthy and reliable last time, and gave you good advice

2.  Find a CMPS in your local area at the CMPS website.

3.  Ask a trusted advisor, like your Financial Planner, Real Estate Agent, or CPA who they would  recommend.

4.  Email me - and I, or someone on my team,  will help you in North and South Carolina, or, we will refer you to a professional elsewhere in the US.

You can always call your current mortgage servicer, but just remember, they really don’t want you to refinance – as they are watching their bottom line, not yours.

Many home owners in Charlotte are conditioned to hate whole life insurance, however, I think it deserves a second look in terms of your home ownership and mortgage strategy.

As a rule of thumb, consider a whole life policy equal to your mortgage balance. Here’s why:
1. You mortgage will always be protected.
2. You will build cash value as you also pay down your mortgage balance.
3. When you pay off your mortgage, you will still have Insurance protection, and the cash value in the policy will likely be more than the original loan was.

If you never looked at permanent Life Insurance, the Cash Value feature deserves serious consideration. Cash Value grows tax free, is always available to you if you need it, and can be accessed tax free in retirement or sooner. It’s a special way to build your wealth with fantastic tax benefits. I feel the benefits of Cash Value are the main reasons for whole life over term life in this strategy. Put some of your wealth in this liquid, tax advantaged asset class while you protect your home ownership.

Why not “buy term and invest the difference”? The number one reason to ignore this advice is that most people who tried this ahead of you “bought term and spent the difference”, or they “bought term, invested then difference, and then lost it” in one of the many crashes in the past few years.

Buy term Insurance for the coverage you need now, and add in some whole life to add in permanent protection, along with the wealth creation that comes in the cash value account.

Term Life Insurance offers you no cash value, and will likely expire when you can’t afford to pay the higher rates that insurers will charge you when you are older. As time goes on, the cash value makes your whole life insurance very inexpensive, even if it costs more early on.

There are some key secrets to how you should buy life insurance in this strategy.  Watch this video, or Email me if you want to learn more. Learn more about life insurance at life happens.org

Since the Great Depression, conventional wisdom said you should buy a house for both shelter and investment and pay off your mortgage as fast as you can.  No wonder many Americans store a large portion of their wealth within the walls of their homes.

Unfortunately, many of those people have seen their wealth disappear.

It’s time to re-visit conventional wisdom. With the real estate-led recession, many Americans are finding that 80 year old financial advice may not be right for today.

I believe the right mortgage should help you:

• Build and conserve wealth
• Become debt free as quickly as possible
• Achieve financial freedom
• Succeed Financially

In North Carolina, we work with our clients to help them develop a mortgage strategy that will allow them to turn their home into a castle.

If your last mortgage lender, or the loan officer you may have talked to recently isn’t talking about more than just interest rates, he or she is missing the point, and you are missing a great opportunity.

Sure rates are important, and by working with multiple lenders, we ensure our rates are always competitive.  Be sure to go the extra step and develop a strategy for your mortgage that will help you succeed financially.

Thanks to Rick Melville, a Sr. Mortgage Planner at Fairway Independent Mortgage in Charlotte for this guest blog post:

Winston Churchill once said that “a pessimist sees the difficulties associated with every opportunity and that an optimist sees the opportunities associated with every difficulty.”

Just for fun I decided to do a little math problem this week. Rates actually hit 4.375% on some 30 year fixed rate programs last week (of course remember – rates are very situation-dependent, and subject to change with market conditions). Can you believe it?! There are people who are on the sidelines waiting for prices to fall further before they make the leap of faith that we have finally hit bottom.

Here’s what that looks like, if they wait for house prices to fall and stabilize while interest rates creep back to the level of just a few months ago (at 5.375%).

• $250,000 mortgage at current rates of 4.375% equals a Principal and Interest Payment of $1248.21.
• That same payment of $1248.21 at 5.375% would only get you a mortgage of $222,906.

In other words, the house they wanted at $250,000 would have to fall another $27,094 before the payment would just be the same as it is NOW at the higher price. Well, that’s another 11%! I’d say there is a greater risk of rates rising than prices falling that much further.

If affordability and payment are important to a buyer, then trying to time the low in house pricing could make for higher payments. For a family who plans to stay in their house for a long while, buying now is the opportunity being created by our current difficulties and WOW!

What an opportunity we have now.

Great points – today’s low rates could be better than a further 10% decline in home prices.  If you aren’t happy living where you are now – the low rates are making affordable homes even more affordable.

Last month, Fannie Mae and Freddie Mac all but ended Interest Only Mortgage loans, so the only loans left are Amortizing Mortgages.  (Some borrowers can still get an Interest-Only style mortgage, but they are very restricted now).

If you have ever closed on a mortgage, you probably remember the large stack of paperwork you needed to sign.  A large chunk of that is the “Amortization Schedule”, which is the spreadsheet that shows month by month what the loan balance is projected to be, how much of your payment goes to interest, principal and mortgage insurance if possible.

An Amortizing Loan is simply a loan where your payment never changes, but the amount you pay in interest declines each month as the principle balance is paid down. (Here in North Carolina, the banking commission makes us use two pages of disclosures in the loan application package to explain that one sentence).

The Amortization Schedule is a useful tool for an Annual Review of your mortgage.  However, there is a major problem with the original Amortization Schedule you received at closing.  As soon as you pay as little as $1 extra in principle, the remaining months on the schedule become inaccurate.

When you pay extra principle on your mortgage, you shorten the term of your loan, effectively skipping past months on the schedule.

Here are a few ways to shorten the term of your loan, if that is something you want to do:

1. Bi-Weekly mortgage payments.  This is a separate service from your mortgage servicer that deducts half of a regular mortgage payment from your checking account every other Friday.  There are 52 Fridays each year, so this means you make 26 half payments or 13 full payments each year.  The extra payment each year shortens your loan term.  The problem with Bi-weekly mortgages is that you usually have to pay a fee of up to $400 for the privilege or sending the bank your extra payments.  It seems that they should pay you for sending in extra payments, but they don’t.  Bi-Weekly payments are handy if you get paid every other week so that you can have half your mortgage taken from each paycheck.
2. The ‘Banker’s Secret’.  A book from a few years ago explained the so-called Banker’s Secret.  What this program did was to have you pay the regular payment on the mortgage on the due date, but add in the extra principle from the next month on the Amortization Schedule.  This skips you down the schedule every month and effectively cuts your loan term in half.  The gotcha here is that as you get later on in the amortization schedule, you have larger and larger principle payments to make extra each month.  If you aren’t earning more money each year and don’t desire to put that money into home equity, the Banker’s Secret is actually a secret way for them to get more money from you faster, so that they can lend it out again and earn more interest.
3. Make One Extra Payment each year.  If you get an annual bonus or a regular tax refund, making one extra payment each year allows you to get the same benefit of the bi-weekly repayment plan without having to pay the extra fee.  This extra payment will go all towards principle, and not interest, so it will jump you pretty far down the Amortization Schedule each time you do it.  Maintain this practice for the term of the loan and you’ll reduce a 30 year loan to just over 24 years.

You can contact me for a free update of your Amortization Schedule – even if I didn’t originate your mortgage – I have some pretty good software to create an accurate update.

If you are a “Do it Yourself-er”, download a useful excel spreadsheet and plug in your own numbers.

Paying extra payments on the mortgage feels good for a lot of people.  Don’t fall into that trap of basing your financial decisions on your feelings!  If there are better uses of your money, such paying off other debts, building an emergency fund, or saving for kid’s college expenses – do that first.  Those beneficial decisions not only feel good, but are good for you.