Are Bi-Weekly Mortgage Payments Worth the Time and Effort?

In most cases, yes! It’s essentially a process by which you make extra payments on your mortgage. That way, you save interest costs and pay off the loan faster.

How Does It Work?

You make a payment to your lender every two weeks instead of once a month. This means that each payment is equal to half of the monthly amount due. The result – you’re paying the equivalent of 13 full payments rather than the usual 12.

It gets even better! The full amount of the extra payment is applied toward the principal. And because the principal balance is the amount on which interest is calculated, paying down principal results in a reduction in accrued interest!

Let’s look a traditional payment monthly schedule vs. a bi-weekly schedule so you can see exactly how it works.

Example 1: Traditional monthly payments

Let’s assume you have a loan balance of $250,000 with a 6 percent interest rate and a 30-year loan term. In this example, your monthly payments are $1,498.88. So, over the life of the loan, you’d pay a total interest of about $289,595.

Example 2: Bi-weekly payments

Using the same loan balance and terms described above, the difference would be the following:

• $749.44 paid every two weeks

• About $225,490 paid in total interest

• This results in a savings of more than $64,000 in interest!

• In addition, the loan is paid off in 24 rather than 30 years

Bi-monthly payments are still a good strategy if you’re an individual who doesn’t plan to keep your house for 24 or 30 years. Why? Because bi-weekly payments still reduce principle, even over a short period of time.

For example, in the first year, the principle is reduced by nearly $1,600. And, at the end of the fifth year, the principle amount has been reduced by about $9,000!

How Do I Arrange Bi-Weekly Payments?

The first task is to contact lenders to find out if they do offer a bi-weekly payment schedule.

If they offer one, ask what the participation requirements are. In typical situations, lenders require you to have payments automatically withdrawn from your bank account since they dislike processing checks every two weeks.

Often, it’s the case that a one-time fee is charged for this service. The fee can be minimal or be in the several-hundred-dollar range, depending on the lender.

So, after all these benefits, how can there possibly be disadvantages to bi-weekly mortgage payments?

Well, the first disadvantage relates to a situation I mentioned above - the lender’s fee is very expensive for the service provided. In such a case, the costs may outweigh or cut down your overall savings.

A second disadvantage occurs when paying bi-weekly is too hard on your budget. Upfront, you need to make sure that you have the money available for the increased payments.

The final potential disadvantage relates to the length of time you plan to stay in your home. That can affect your overall savings on interest.

I recommend that you weigh the pros and cons of bi-weekly mortgage payments by using one of the many online calculators. Just enter your numbers and the calculator will give you a comparison.

If you’d like the assistance of an expert on the subject, contact us immediately!

What Are FHA Loans and How Do They Benefit Me As A Consumer?

The Federal Housing Agency (FHA) doesn’t directly offer loans. Instead, its purpose is to provide mortgage insurance for Americans to purchase or refinance a principal residence.
To put it another way, the mortgage loans are funded by private lending institutions (mortgage companies, banks, savings and loan associations, etc.), and those mortgages are then insured by FHA/HUD.

The Benefits of FHA Loans

If you qualify as a prospective homeowner, these loans have three great benefits. First of all, your down payments are lower. Second, closing costs are also lower. And, finally, it’s easier to qualify for credit.

Who Qualifies?

FHA has programs for:

• First-home buyers
• Seniors
• Fixer uppers
• Manufactured housing and mobile homes
• Energy efficiency, etc.

If you’re a first-time home buyer, a FHA loan can be a good deal for you. See the eligibility requirements below. Later, I’ll cover the fixer-upper category requirements. Check with the FHA on other programs.

First-Home Buyer Programs

These programs have the following eligibility requirements:

• You must meet standard FHA credit qualifications (judged by the individual’s credit record).
• You’re eligible for approximately 97% financing.
• You’re able to finance the upfront mortgage insurance premium into the mortgage.
• You’re also responsible for paying an annual premium.
• Within this category, the eligible properties are one-to-four unit structures. As of this writing, the highest maximum FHA mortgage is $362,790 while the lowest maximum amount is $200,160.

The 203(k) Program for Fixer-Uppers
The 203(k) program issues loans to allow you to buy or refinance a property. In the loan, you can also include the cost of making the repairs and improvements.

The loans are provided through approved mortgage lenders nationwide, and they’re available to buyers wanting to occupy the home.

The down payment requirement for an owner-occupant (or a nonprofit organization or government agency) equals about 3% of the acquisition and repair costs of the property.

There are several steps to obtaining such a loan:

• You find a fixer-upper and sign a sales contract after doing a feasibility analysis of the property with a realtor.
• The contract should state that you’re seeking a 203(k) loan. It should also state the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
• You then select an FHA-approved 203(k) lender and arrange for a detailed proposal showing the scope of work to be done. The proposal should include a detailed cost estimate on each repair or improvement of the project.
• The appraisal determines the value of the property after renovation.
• If you pass the lender's credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs.
• The amount of the loan also includes a contingency reserve of 10% to 20% of the total remodeling costs. It’s used to cover any extra work not included in the original proposal.
• At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
• The mortgage payments and remodeling begin after the loan closes.

You can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it’s estimated to take to complete the rehab.

• Escrowed funds are released to the contractor during construction through a series of draw requests for completed work.
• To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines there will be no liens on the property.

Whew, somewhat complicated, isn’t it? Well, we’re dealing with a government program! But, FHA loans can be a good deal for you, and I’m available to guide you throughout the entire process. Just give me a call today!

How to Be a Wise House-Shopper in a Great Buyer’s Market!

There’s no doubt about it – there are a great many bargains in the real estate market today if you’re a person looking for a new home. However, we highly recommend that you don’t get dazzled by all the opportunities and make a potentially expensive and poor decision. To that end, I’d like to offer you some common-sense guidelines to follow.

Guideline 1: Pay Attention to Your Budget
Before beginning your search for that new home, sit down and come up with a monthly payment you can handle with ease and then look for the house that fits that budget.

Guideline 2: Save Up for a Down Payment
Due to the “mortgage meltdown,” lenders are currently much more cautious about giving out money. Depending on the situation, they may insist on a minimum down payment of 10% or one that’s all the way up to 25%. So, start saving!

Guideline 3: Improve Your Credit Score
A good credit score is a great way to make the whole process easier when you apply for a loan. Today’s lenders scrutinize such scores more closely today than in the past. If you don’t have a good score, work hard to get it up into an acceptable range. It’ll save you money on interest charges and down payments in the long run!

Guideline 4: Get a Pre-Approved Mortgage Loan
If you’re a first-time home buyer or simply a buyer who wants to make sure you stay within your means, it’s a wise idea to get a pre-approved mortgage.This is simply the process of applying for a mortgage and getting approval for the loan prior to buying a home.

A “pre-approval” is an indication that the lender is ready to extend a mortgage to you once you’ve located the right property.  And it has several benefits. First of all, it saves time and energy. Once you have a pre-approved loan amount, you’re required to stay within the limits of that loan in terms of the price you’ll pay for a house.

First, when working with a realtor, ask him or her to limit the choices to those stated in the loan. This prevents the agent from showing you properties which are out of your range. By the way, they’ll really appreciate those parameters because it’ll help them zero in on properties with the best chance of sale! 

Second, you can spend more time looking at homes you really like and, simultaneously, not wasting time on houses that aren’t within your budget. This allows you to focus on the details of the homes you do like in order to make sure you select the right one; for example, kitchens, baths, garages, etc.

Third, you can bargain more effectively with sellers once they know you’re pre-approved. In the current market, that’s a great relief for many sellers because they realize they have a reasonable certainty of selling their property when working with a pre-approved buyer.

Fourth, you can close faster with a pre-approved loan because there’s no time lost in the usual processing period for loans. For example, an appraisal can be ordered right away, and you have the potential to cut a 30-day closing to two or three weeks.

Finally, the seller will prefer to deal with you, particularly if he or she needs to move quickly.

Now, you have some common-sense guidelines to follow when seeking a new home in today’s market! You can learn even more by contacting us today.