Home arrow Resources arrow AJC Articles arrow Frequently Asked Questions Worth Answering - 2004-08-15

Your Cart

Show Cart
Your Cart is currently empty.

Login

Frequently Asked Questions Worth Answering - 2004-08-15

I was reminded recently that home ownership is one of the primary means of wealth accumulation in America today. In general, owning your own home is typically a pretty good investment, especially if you plan on staying in the house for more than a short period of time and if you plan to take good care of the home over the years.

That sounds pretty simple. But if you have never owned a home before, or if you come from a family that has no tradition of home ownership, the whole prospect of spending an extremely large sum of money on housing can be somewhat scary.

One of best ways to overcome fear is to have a clear understanding of the subject, so it might be helpful for me to review some of the questions I have been asked most often over the years.

If you have owned a home before, these answers might seem basic. But if you are new to the process, take time to understand each answer.

Q: How much home loan can I afford?

A: You may have heard that you can afford about two and a half times your annual gross income. Like most rules of thumb, that is a helpful shortcut, but it does not take into account a number of factors that lenders use to help determine your borrowing capacity.

The easiest way to get a good estimate of how much you can afford to borrow is to talk with a mortgage loan counselor. They will ask lots of questions about your personal finances, determine what your monthly income is and compare that with your monthly financial obligations. Then they can calculate the maximum amount you would qualify for under a fixed rate loan program.

In addition, they may suggest other types of loans that might allow you to borrow more dollars. At this stage, I recommend that you stick to a thirty year fixed rate, and that you ask the lender for a written "good faith estimate" of amount, rate and closing costs for the particular loan they recommend. This is called a loan "pre-qualification" and should cost you nothing.

Q: Exactly what is a mortgage?

A: It is a loan made for the purpose of buying real estate, and it not only requires that you qualify for the loan, but also that you post the real estate as collateral for the loan. Under this arrangement, if you fail to pay for the house, the lender can take the house away from you and sell it to pay off the loan.

Q: Why should I offer my house as collateral?

A: Because the lender will offer you a much better rate on your loan if he has the strong collateral of the house to fall back on. If you could qualify at all for a personal loan to buy a house, it would likely be short term and carry a high interest rate. In contrast, mortgage loans are among the most attractive loans available for any purpose, and typically have extremely low interest rates when compared to other forms of financing.

Q: How does a mortgage loan work?

A: The lender provides the bulk of the money you need to buy your home, then asks that you repay the money in equal monthly installments. Each installment consists of principal, which is used to repay the original loan, and interest, which is the rent you pay on the money you have used for the previous month.

While there are many types of home loans available, the most popular is a 30-year fixed rate loan. Under this program, the lender determines a standard monthly payment amount based on a loan amortization formula, then requires the borrower to make that fixed monthly payment every month.

If you make the minimum required payment every month, it will take exactly 30 years for the loan to be repaid in full. However, if you pay more than the minimum required with any monthly payment, the surplus is used to lower the loan balance, and that causes the loan to be repaid faster. That can save you money in interest charges.

Q: What happens to the loan when I sell my home?

A: In most cases, the lender will require that you pay off your remaining balance when you sell your home. That amount will be deducted from the selling price, and you will receive the difference at the settlement. Usually, an attorney will handle all the details of this transaction.

If you decide to buy a replacement home, you would typically apply for a new loan at that time.

Q: How can I determine what my monthly payment will be?

A: By using a loan amortization program, such as the one at my website. Visit www.money99.com and click on ADDITIONAL RESOURCES and FREE CALCULATORS. You will be asked to enter the number of payments, the interest rate, and the loan amount. Each of these has a direct impact on the size of your monthly payment.

Next week, we’ll look at ways to make your monthly payment more affordable.

 
< Prev   Next >

Upcoming Events

John Adams Presents


LANDLORD SURVIVAL TRAINING

with John Adams
Tuesday, February 28th

Being a landlord can be a rewarding experience. It can also be a difficult one if you don't have the knowledge and understanding of what the process requires.

Few schools offer degrees in property management, so most landlords learn "on-the-job" through acquired knowledge and on-the-job experience, essentially re-inventing the wheel. This is an expensive and depressing way to learn anything.

Whether you're a full-time landlord or just getting ready to purchase your first rental property, whether you are a licensed Georgia real estate professional or an accidental landlord, this seminar will help you improve your property's value, increase your cash flow and decrease your expenses, from attracting (and retaining) good tenants to maintaining your property to understanding your rights and obligations under the law.

For more details and to register click HERE

PROPERTY TAX REDUCTION WORKSHOP
with John Adams
Tuesday, March 27th

One of the significant annual expenses faced by any Georgia property owner is ad valorem property tax. Depending on where you live, it can be as high as three percent of the property's fair market value, and it must be paid year after year after year.

As a result, efforts to minimize this expense are not only worthwhile, they are encouraged by Georgia law. The phrase "ad valorem" means that each property is taxed based only on its value, and no one is required to pay a penny more than the minimum the law demands.

At the Property Tax Reduction Workshop, real estate expert John Adams will review the system he has used for over thirty years to reduce valuations and assessments in Georgia counties and municipalities, saving himself literally hundreds of thousands of dollars over the years.

In this 3 hour information packed seminar, John will teach you how to:

1. Understand the legal process of Property Tax Assessment
2. Meet the newly uniform Tax Deadlines
3. File your own Property Tax Return with a realistic valuation
4. Document your PT-50R with facts to support your case
5. Proactively meet with your Appraiser to reach an agreement
6. Protest your Notice of Assessment in an Intelligent manner
7. Give the Assessor an Opportunity to Save Face
8. Appeal to your Board of Equalization, in person or by mail
9. Make Your Case to the BOE
10. Take Your Case to Superior Court if necessary

If you are not doing all these steps now, you are likely costing yourself hundreds or thousands of dollars a year. If you own just one house, you could easily save over a thousand dollars over the next three years. If you own properties valued collectively over a million dollars, you are literally throwing away your profits year after year.

For more details and to register click HERE