Your Questions About Save Loan Schedule

George asks…

What things do I need to do to prepare to move out when I’m 18?

I’m 15 and I am trying to think about how much money I need to save up to move out when I turn 18. I’m 15 right now. I need real advice on how to do it because I have the determination and I’m not lazy. I’m a hard worker and smart. I’m going to get a job in February so i’m saving up.
What are the realities of moving out at 18? Is it unrealistic to think I can live on my own in an apartment or a college dorm? I’m planning on going to college. I’ll probably have to get a student loan unless I get some scholarships.
i’m also homeschooled and have a flexible schedule to work and get done with high school sooner than most kids.

John answers:

If you are admitted to a four-year college, you should be able to live in the dorm. Costs including room and meals are often around $1000 a month.

Chris asks…

How can I save money for a rainy day?

I am working and never save or budget for anything!

John answers:

Pay yourself first.
Sounds odd, but you make money and you get paid a GROSS amount (the actual amount earned multiplying time by rate), then the government insists on getting paid a percentage of your taxible gross even before you get your money. Lastly, any other deductions are taken out of your gross by your employer for various things. What your left over with is your NET paycheck (the actual amount of money you get to touch, play with, and spend).
What to do next is where most people remain in a rut most of their lives.

The best way to save is think like a savings machine. Look for opportunities to save at every step in the process.

Step 1:
Put money into a tax deferred savings plan (401K, 403b, etc.) if available from your employer. This will help to reduce to taxible portion before the government gets to calculate their portion of your pie. Other pretax savings may be available by setting aside a given amount to pay for medical purposes as well as child care.

Step 2:
If your employer offers it, you may be able to save a given amount out of each paycheck before you even get your paycheck.

Step 3:
Once you have your paycheck, pay yourself first! What? That’s right. Think of yourself as your own business. Pay yourself a “reasonable” amount, then pay your bills. Any money left over can be used to spend on anything else (a movie, dinner with a friend, etc).

Step 4:
Eliminate your consumer debt (if you have any) or avoid it if you don’t. This means credit cards, car loans, etc. Pay interest (especially compound interest) is a good way to never have any money left over every month.

Step 5:
If you rent, try to buy a house. If you are buying a house, try to pay it off early. How? Once you’ve eliminated your consumer debt, you should be able to pay lump sums every few months against your mortgage. You could easily see how much money this would save you with a mortgage loan calculator that also has a feature which shows the amortization schedule and allows you to put “what-if” lump sum payments in any given month.

Steps 3 – 5 could be combined into a coherent plan to allow you to realize progress in all three areas as well as coordinate between them. In order to do this, you will need to create a budget. To create a budget you need to be absolutely brutally honest. Don’t be shy. Don’t leave anything out as being too small. The only one you’d be fooling is yourself. Anywhere money is spent by you goes into a budget. A budget should contain all your assets (things you own that have value, cars, houses (only the actual market value), 401K, checking, savings, investments, etc) in the first catagory, consumer debts in the second catagory ( you could include the mortgage here too to show the amount you still owe as a liability), all your living expenses (food, gass, electricity, phone, garbage, cable tv, etc., that are necessary to live) in the third catagory. Once you’ve done all this work to create a budget, you’ll discover that a budget can only tell you one of two truths. Either you are cash negative or cash positive. Having answered that question, now you are prepared to forge ahead or to make the necessary changes to allow yourself to forge ahead.

Summary:
If you saved in each step above, here is your Savings Summary:
Savings before taxes – $$$ in 401K (or other type of plan)
Savings after taxes, but before paycheck – $$$ that was set aside in a personal after tax savings account by your employer.
Savings after paycheck – $$$ from paying yourself first.
Debt elimination – $$$ saved from not paying interest, finance charges, or fees.
Wealth Building – Big $$$ from building wealth.

A bit long winded, but I wanted to be thorough without being too detailed and to give you a plan to get started with.

Hope this helps…
Mark

Helen asks…

How can I go about buying a home for renovation while living in it?

I am thinking about buying a home, perhaps a CHEAP one like 60,000 that I could fix up. However I don’t have Excellent credit, but it’s not poor either. I don’t have any money for a down payment, and feel it would take too long to actually save for one, (10,000 maybe a few years).

Basically I would like tips and information on buying a home without a down payment or a very low one. And where in the US to buy a cheap home <70,000 to renovate to flip in a few years. And lastly, do you recommend buying w/o downpayment, renovating (on a loan) then selling to buy another home and repeat.

John answers:

Gee, if you can find a house for $60-70k, buy it! Immediately! No $ down will not be an issue. However, your ability to pay the note each month will matter to the lender (and to the seller–so be sure to get a pre approval letter even before you start to look at anything). You just either pick up a major metro sunday newspaper with a real estate section to look at current mortgage rates, then choose 3 lenders/brokers that have essentially the same interest rate and points–these days interest is pretty low and points (one percent of your mortgage amount for one point) are zero. But: figure that with no $ down and a medium credit rating, your interest will be a little higher than what’s stated. If you are not close to a major city (because you will not be able to afford ANYTHING in one), use a search engine hunting for keywords: “current mortgage interest rates state of [your state]”.

The only way to live in a house under construction without going completely crazy is to buy one with a dry, well constructed basement that has at least a little ambient heat coming from the furnace. You will move your appliances down there. Be prepared to buy a lot of visquine (it comes in long rolls)–rather thicker plastic so that you can drape it in two long pieces, one about 8″ over the other, anywhere that you need to reduce dust. Renovation is always a mess.

The point is, where will you get rehab money? You need to investigate a lot of things, especially what materials cost. A good kitchen will run at least $30,000. Baths are very costly too, but give a great yield for the investment.

You need to learn about MARKETS. It’s a buyer’s market now. Your Realtor (r) should have a lot of experience but not be the top seller. Rather, it is much better to get (sorry guys) a FEMALE (because it is for a HOUSE) AGENT that can sit down with you to first explain, to your satisfaction, exactly what “agency” means, single and dual, as well as how the market generally is in the location you choose. About the only houses that i know of in your stated price range are in depressed cities like gary, IN, or detroit, MI, that have so many unemployed people that they cannot afford to even think of buying a house, renovated or not.

You will be best off taking this wisened advice: don’t think of your house as an investment, even if it does increase in value. Your HOUSE is that place where you go to lay down your hat after a long day at work. (and, btw, if you spend more than 40 hours a week at your job, i doubt you will have time to renovate and manage a house all on your own).

The seller’s market probably will not come again, surprisingly, very surprisingly, until at least 2009. It is the PRICE of the houses that has driven the market to he**.

Don’t do this without a LOT of thinking about yourself, your life style, what you would need in a house (helps with what others would need), what type of house, and most definitely, where, you can get for such small bucks that is in good STRUCTURAL condition first.

What has happened to about 90% of my buyers with your ideas for so many years is that once i counselled them, they, due to their work schedule, came to the conclusion that a condo was their best bet. Then when they married, they sold that and the couple bought either a townhouse or best, a single family house.

I wish you good luck and happiness. If you have a specific question, you can write me at the address provided here.

William asks…

Where can I find information about Government first time home buyers programs?

I’m looking into all of my mortgage options. I’ve already been approved for a loan with 100% financing, but not sure I want to go that route. My score is around 630 right now, and slowly getting better. I’ve been at the same job for over 9 years, and at the same residence for 4 years. I don’t have any money in savings, but if I waited a few years I could probably save a little. Would I qualify for a goverment FHA loan?

John answers:

Hello –

I’d need more information to know if you truly qualify for an FHA loan.

Here though is an overview of what involved in getting financed for an FHA loan:

For some reason I’ve found that these nine documents listed below are enough to scare loan officers away from doing FHA loans. When I’m training loan officers who express fear about these FHA application documents, the first thing I ask them is, “Did you read them?” Honestly, in all my years of teaching loan officers, I don’t think anyone has ever answered yes to that question. So the first thing I’ll say to you is, take the time, on a Sunday morning when you don’t have a lot in your schedule, grab a cup of coffee, relax, and just read through every word of these documents. Do it twice if you have to. Do it until you develop a level of comfort and confidence, one that you can use in explaining these documents to your customers.

The nine required FHA documents are as follows:

The Good Faith Estimate
The HUD Addendum, which is a four page document
The Important Notice To Homebuyers
The Home Inspection Disclosure
The Informed Consumer Choice Disclosure
The Assumption Notice
The Amendatory Clause and Real Estate Certification
The Lead-Based Paint Disclosure
The FHA ARM Disclosure, if you are originating an adjustable rate mortgage for your customer.
Let me briefly describe how I highlight the important aspects of these documents when I’m sitting with the customer at application. With the Good Faith Estimate, I never state the dollar amount verbally. I just circle the fees and show them all the amounts associated with that section of the good faith estimate. For example, I’ll point to the origination fee and the appraisal fee and say, “These are the items payable in connection with your loan,” and I’ll just go right down the good faith estimate. I follow the same pattern with the title charges, the government recording and transfer charges, and the reserves deposited with the lender for the tax escrow.

There are a couple of additional items I would like to point out about the good faith estimate and FHA loans. The minimum amount of interest you need to quote for the borrower is fifteen days. Also, it’s a good idea to put in thirteen or sometimes fourteen months for the tax reserves, so that you won’t come up short at closing. In addition, if you’re indicating a seller contribution or down-payment assistance gift in the “total estimated funds needed to close” section, it’s important that you also record that same number in the “details of transaction” on page 3 of the 1003. This will ensure that the amount needed for closing comes out correctly in that section as well.

Next is the HUD Addendum, also known as the 92-900-A. Make sure that you are using the one that’s dated “4 of 2004”. That’s the most recent version of this form. This is a four-page document that’s often overwhelming to loan officers because it is so long. Most of it only pertains to the lender, and I’m going to point out here the sections that actually pertain to the borrower.

On page one of the HUD addendum, the borrower is only responding to box 18, which asks whether they’re a first-time home buyer or not, and box 20, which identifies the purpose of the loan. In most cases, it’s going to be “purchase existing home, previously occupied.” The bottom part, part two, is a lender certification. I do advise that you read it so that you know what you’re certifying. You will then need to sign that section.

On page two, the borrower is really only certifying a couple things. In item twenty-two, they are answering whether they’ve had an FHA mortgage in the last sixty months or not. In item twenty-five, they’re acknowledging whether they know the value of the property as determined by an FHA appraiser. The borrower signs at the bottom of page two.

Page three is solely for the direct-endorse underwriter, and you don’t have to have this document signed. At the top of page four, the borrower is certifying that they have not taken out any other mortgages in connection with this property and that they will occupy the property within 60 days of closing. Once again, the bottom is a lender’s certification and you should take the time to read that as well. The borrower should sign at the top, and the lender should sign at the bottom.

The next document we will discuss is the Important Notice To Home Buyers, otherwise known as the HUD 92-900-B. This document was recently updated in December of 2004, so make sure that your company is using the current version of the form.

There are four main things that this two-page document covers. The first page indicates that the FHA does not warrant the condition of the property. It also points out that HUD does not regulate the interest rate or the discount points and that the lender does. It further advises the borrower not to commit loan fraud and identifies the penalties for doing so. On the second page, information is provided about a possible refund of some of the monthly mortgage insurance premiums that are financed into the loan. Finally, page two should be signed by the borrower.

Our next document is entitled “For Your Protection, Get A Home Inspection.” This form was updated in December of 2004 and is also known as the HUD 92 564-CN. This document is disclosing to the borrower that the FHA does not warrant the condition of the property and that they should obtain a home inspection on their own. The only update made to this document was the FHA states that not only do they not warrant the condition of the property, but they do not guarantee the value as well.

We will now examine the Informed Consumer Choice Disclosure. What this item does is compare FHA financing to the closest conventional financing available. What I tell my borrowers is that this is the closest conventional product there is. However, it really doesn’t compare to the FHA program because the credit scores required are higher, the mortgage insurance monthly is much higher, and it requires a larger down payment.

The next document is the Assumption Notice. This item explains to the borrower that if someone wants to take over their mortgage payments, this needs to be done in a formal manner. This will ensure that they are legally released from the liability of making those mortgage payments back to the lender. I express to my borrowers that if someone does want to take over their mortgage payments, they need to call the current lender to get instructions on how to legally perform this task.

The two documents we will review now are normally combined into one in most loan origination software programs. The first is the FHA Amendatory Clause. This states that if the home does not appraise for the value on the purchase agreement, then all deposit moneys will be returned to the borrower, and they are not required to fulfill that purchase transaction. The next item is the Real Estate Certification. On this form, the borrower, seller, listing agent, and selling agent are all acknowledging that the terms and conditions of the sales contract are true to the best of their knowledge and that any other agreements have also been included in the purchase agreement as well.

The next required document is the Lead-Based Paint Disclosure. Most often this item will come to you from the real estate agent, along with the contract and any other addendums. Any properties that were built prior to 1978 will require this disclosure.

The last document on our list is the FHA Adjustable Rate Mortgage Disclosure. This is just like any other standard ARM disclosure. It includes the ARM loan terms, the initial interest rate, the margin, and discount points. It’s important that borrowers understand how this product works. Most first time home buyers are generally uneducated about mortgage loans, and they need to fully understand that their mortgage interest rate may increase in the future.

In closing, I want to make you aware that FHA does put restrictions on the fees that can be charged to borrowers. In addition, there are certain state requirements. So please consult with your FHA underwriter for a list of FHA allowable closing costs. This will benefit you greatly when it comes to structuring your loan correctly.

Please let me know if I can be of any further help.

Sharon asks…

Will mortgage advance payment lower current payment schedule?

I am thinking for refinance now. The mortgage loan agent says whenever I do mortgage advance payment, my next month’s mortgage will be recaculated based on the new princial (old prinicial – the total of advance payment)

Is that true?

John answers:

YES IT IS,AN ADDITIONAL PAYMENT ONCE A YEAR CAN CUT YOUR LOAN’S LIFE BY 8 YEARS.ONLY IF YOU HAVE A FIXED LOAN AND IS NOT INTEREST ONLY. TRY TO PAY 13 PAYMENTS EVERY YEAR AND YOU WILL SAVE SO MUCH AT THE END.

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