so in my email, i always see adds for "$300,000 morgages for $484.00 a month" what is the deal with them? They seem too good to be true.

And in going with this, I am 24 years old, and plan on buying my first house in august/september. Right now, my i rent a townhouse, and all bill are in my name, and paid early. I don't have any debt except for $15k in student loans (which i have been paying double the amount required each month, all have been early) and a credit card, about $1k....which will be $0 by the end of the month. I have heard that you don't want any credit card balances when you go for a morgage, as well as no recent credit checks. ANd if shopping around for morgages, do it all within a few days of each other. IS this info correct? And what else can i do? I appreciate all input and information

thanks for the help :cheers

They are too good to be true. They are programs with introductory rates sometimes as short as a month. They are targeted to all of the retards with poor credit.

well poor credit, i dont have. As soon as i finish paying off this card, i plan on getting my score again

ive heard you have a 90 days for mortgage companies to run your credit numerous times with no impact to your score.

as for the 484/mo deal.. its usually an adjustable rate interest only loan. meaning you get a super low rate for up to X years, then it goes adjustable, and potentially fucking your in the ass long term. The payment is so low because you are only paying the interest at the intro rate and absolutely NO principal. so the banks getting their money up front. These types of loans are good for investors and people planning to flip property over before the super high rate kicks in.

those fuckers

lendors :piss

What you want is to pay off all of your debt, save up an emergency fund of 3-6 months of expenses, then save up a nice down payment of 20%. Once that's done, you're looking for a 15 year, fixed-rate loan with no points and no origination fee. This may be referred to as a "par quote". The payment on this mortgage should be right around 25% of your take-home pay. Mortgage lenders will qualify you for much more than this, but don't listen to their ideas about how hard you ought to have to stretch to make the monthly payment. You've got bikes to put fuel in and tires on.

Your broke friends with the interest-only loans (stay in debt literally forever); ARMs (ticking time bombs that are designed to transfer risk from the bank to you); or balloon notes (hey, I'm sure I'll have the money when it all comes due at once); will all laugh at you. But you will be in a house, comfortably making the payments, having money to handle upkeep emergencies, and looking forward to the fact that you'll be totally debt free when you're just over 40 years old, at which point you'll be in the top 10 or 15% of the country in terms of personal wealth. Cool, huh?

What you want is to pay off all of your debt, save up an emergency fund of 3-6 months of expenses, then save up a nice down payment of 20%. Once that's done, you're looking for a 15 year, fixed-rate loan with no points and no origination fee. This may be referred to as a "par quote". The payment on this mortgage should be right around 25% of your take-home pay. Mortgage lenders will qualify you for much more than this, but don't listen to their ideas about how hard you ought to have to stretch to make the monthly payment. You've got bikes to put fuel in and tires on.

Your broke friends with the interest-only loans (stay in debt literally forever); ARMs (ticking time bombs that are designed to transfer risk from the bank to you); or balloon notes (hey, I'm sure I'll have the money when it all comes due at once); will all laugh at you. But you will be in a house, comfortably making the payments, having money to handle upkeep emergencies, and looking forward to the fact that you'll be totally debt free when you're just over 40 years old, at which point you'll be in the top 10 or 15% of the country in terms of personal wealth. Cool, huh?

I mostly agree with everything except for the 15 year note piece of that puzzle. Having a loan on a house is a way to leverage your money. If you want to pay off your home then do a 30 year fixed. If you run the numbers it is quite easy to have your money in the market working for you and beating whatever it costs you in interest. By paying off the house you will cost yourself thousands of dollars in growth over time. The one caveat is that you have to figure out the difference in payments b/w the 15 and 30 year fixed payments and be saving it if you want the numbers to work out. The simple fact of the matter is that your house appreciates at the same rate no matter how quickly you pay it off and the interest cost is next to nothing when you consider tax savings and opportunity costs. Being debt free is a broke mans game long term! You just have to make sure you have functional debt (not cars, credit cards and gixxers) and you still are saving. Use OPM as much as possible when the terms are right! P.S. if you are planning on living in a home for less than 7-10 years it hardly every makes financial sense to do anything except for an interest only note. Want to know why?

I mostly agree with everything except for the 15 year note piece of that puzzle. Having a loan on a house is a way to leverage your money. If you want to pay off your home then do a 30 year fixed. If you run the numbers it is quite easy to have your money in the market working for you and beating whatever it costs you in interest. By paying off the house you will cost yourself thousands of dollars in growth over time. The one caveat is that you have to figure out the difference in payments b/w the 15 and 30 year fixed payments and be saving it if you want the numbers to work out. The simple fact of the matter is that your house appreciates at the same rate no matter how quickly you pay it off and the interest cost is next to nothing when you consider tax savings and opportunity costs. Being debt free is a broke mans game long term! You just have to make sure you have functional debt (not cars, credit cards and gixxers) and you still are saving. Use OPM as much as possible when the terms are right! P.S. if you are planning on living in a home for less than 7-10 years it hardly every makes financial sense to do anything except for an interest only note. Want to know why?

why is that k-man. come on spill the beens

also intersting point on the 15 and 30 year mortgages. You could consistan;t get 10% returns in the market over time. And factoring lets say a 6.5% rate on your mortgage. you could be putting 3.5 % in the bank. Could way of looking at things. Doesn't seam like allote but over those 30 years it adds up. But i do have to make one comment on your comment on debt free living. There is nothing like it. Not having to make anytype of payment every month is a beutifull and this is true freedom. That is my goal by the time im 45 to be debt free.

i have never had anything to put down on a house and am on my 3rd home and 4th mortgage (refied recently). i have done 100% financing on all 3 homes. so you can buy a home with no money down, i've done it 3 times and my rates weren't THAT bad. not the lowest going, but not the highest either. now i have a very low rate because of my refi and lots of equity due to house prices increase.
also, having paid-off credit cards is good, but take that more important step of having the credit limits on them lowered to between 1 and 5 thousand dollars. lenders look at your ability to rack up debt as much as how much debt you have. or so i've been told.
i'd go for a 30 year mortgage so you get the lowest payment you can, then if you want, make one extra payment per year and the house will be paid off in like 20 or 22 years i think.

also intersting point on the 15 and 30 year mortgages. You could consistan;t get 10% returns in the market over time. And factoring lets say a 6.5% rate on your mortgage. you could be putting 3.5 % in the bank. Could way of looking at things. Doesn't seam like allote but over those 30 years it adds up. But i do have to make one comment on your comment on debt free living. There is nothing like it. Not having to make anytype of payment every month is a beutifull and this is true freedom. That is my goal by the time im 45 to be debt free.

i misrepresented my opinion. if you want to be debt free then do it, but don't let it stop you from saving b/c constructive debt allows you to leverage your position. leverage is how business owners make their fortunes and you should think of yourself as a business that is striving for the greatest possible profits.

why is that k-man. come on spill the beens

b/c on a 30 year mortgage they front load all of the interest. in the first 5-10 years of an amortization schedule you put next to nothing into prinicple it is all interest anyway. so, you would be much better off doing something like a 7/1 or 10/1 interest only ARM. your interest payment, since that is all your paying in either situation, will be much lower and you can save the rest. this will leave you with more to put into a new home than a 30 year fixed payment. or you could figure out the difference b/w the 30 year fixed and interest only payments and put the extra towards principle. this will accelerate your amortization schedule anyway. this just doesn't work if you are staying longer than your ARM. that is unless interest rates are similar when you refinance or the 1 year arm starts.

Interest only is good because you get a better tax write off, lower payments, and because vast majority of money that you make in home ownership is the apprecialtion of the property. Interest only would allow you to buy a more expensive home for the same payment. The more expensive property would have a greater appreciation $ amount and that is where you are making your money not in paying on the loan.

A couple of items need clarification:
1. Paying off a mortgage vs. staying invested in the market gets you X% spread.

Different types of investments are comparable to each other only after adjusting for risk. An emerging markets mutual fund (maybe 18%/year) cannot be directly compared to a balanced mutual fund (maybe 10%/year) without correcting for market risk first. Neither can paying off a mortgage be directly compared to staying in the market. Paying off a 6% mortgage is almost as good as earning 6%, and it has no risk whatsoever - it works that way each and every time. A mutual fund in a taxable account (we're not paying early withdrawl penalties and taxes to do this) carries some degree of risk which must be compensated for prior to the comparison. Once this is done, and the capital gains taxes are paid, the spread narrows significantly - in fact it's down to near parity. It's not an apples to apples comparison until this is done.

2. Tax writeoffs are extremely valuable.

This is one of the most misunderstood of all personal finance issues. Here's the math: if you have a $150,000 mortgage balance at 6%, the interest paid is the outstanding balance times the interest rate. Mortgages aren't "front loaded" by the way, this calculation is the same on Day One as it is in Year Thirty. But I digress. $150,000 x .06 = $9000 interest paid this year. But if you itemize deductions, you can write off that $9000 thereby reducing your taxable income by $9000. Now, if you're in the 28% tax bracket, your taxes on that money would have been 9000 x .28 = $2520. So those who advocate keeping a mortgage (or getting a bigger mortgage and keeping it longer, or forever in the case of an interest only mortgage) for the "tax benefits" or the beneficial tax write-off are endorsing a plan in which you sign up to send the bank $9,000 in order to avoid sending Uncle Sam $2,520. Tell you what, I'll double Uncle Sam's "good deal": send me $9000 and I'll send you $5,040 back. Absurd, isn't it?

By the way, if you're still absolutely determined to reduce your taxable income, you can give that same $9,000 to your church and get the exact same tax benefit.

An extremely large percentage of first generation (didn't inherit it) millionaires say that the single most important thing they did to become millionaires was "to get out of debt".

By the way, if you're still absolutely determined to reduce your taxable income, you can give that same $9,000 to your church and get the exact same tax benefit.

An extremely large percentage of first generation (didn't inherit it) millionaires say that the single most important thing they did to become millionaires was "to get out of debt".[/quote]

ok well since you have the whole tax thing figured out can you figure out how i can send $9000 to the suzuki dealership and get the deduction b/c that would be great, and that way i would have something to show for it. also, you must be talking to millionaires who make large incomes in the form of a salary b/c very few business owners care to be debt free unless they are no longer concerned with growth. also, you mentioned capital gains, and if you are investing for the long term like 30 years or so if you are comparing your investment to a mortgage. then at the most you pay 15% in captial gains if you hold onto the investment for more than 1 year. if your tax break is small enough then it will be 5%. neither one of those numbers hurts you too bad. at 10% growth you still net 8.5% in the higher tax brackets. if you are paying 8.5% for a mortgage you need your head examined. so you can take the time to figure out what an extra 2% annually would do to your portfolio, but i can tell you that it would virtually double it over a 30 year period. it would actually take 36 years to completely double it.

You still haven't corrected for risk. And yes, I was giving the calculation the benefit of using the 15 vs 28% cap gains rate. Use the short-term 28% rate (get rich trading stocks!!) and it looks truly ugly.

And your comment about not being able to grow a business without debt is just wrong. Ever heard of Analog Devices? 3Com? StrideRite? No debt at all. Microsoft, Harley-Davidson, Southwest Airlines - extremely low amounts of debt. Conversely, the single quickest killer of small business startups is debt, be it SBA loans, personal credit cards, or home equity lines used for "capital infusion".

"Millionaire" refers to wealth, not income, so I'm confused why you mentioned salary. Most millionaires say becoming and staying debt free is the single most important thing they did to get there. Most millionaires in this country own their own businesses. Same goes for most decamillionaires (10,000,000+ net worth).

why would i want to lower my credit card limits lower? And is it better to wait a few months after being debt free to apply for a loan? Or doesn't the time matter?

thanks

You still haven't corrected for risk. And yes, I was giving the calculation the benefit of using the 15 vs 28% cap gains rate. Use the short-term 28% rate (get rich trading stocks!!) and it looks truly ugly.

And your comment about not being able to grow a business without debt is just wrong. Ever heard of Analog Devices? 3Com? StrideRite? No debt at all. Microsoft, Harley-Davidson, Southwest Airlines - extremely low amounts of debt. Conversely, the single quickest killer of small business startups is debt, be it SBA loans, personal credit cards, or home equity lines used for "capital infusion".

"Millionaire" refers to wealth, not income, so I'm confused why you mentioned salary. Most millionaires say becoming and staying debt free is the single most important thing they did to get there. Most millionaires in this country own their own businesses. Same goes for most decamillionaires (10,000,000+ net worth).

Well the millionaires and decamillionaires that I know or work with all have debt when their business is growing. Some of the wealthiest people I know have the most debt of anyone I know. Leverage is a fantastic tool that business owners, assuming that they are not independently wealthy before hand, have to use to grow. It is true that there are some companies like the ones you mentioned and others that don't carry much debt but most of them are now cash cows. I can almost guarantee you that when starting the business they had no choice but to have debt. This is a pointless argument anyway b/c I am arguing about individuals and you are talking about large companies. Also, when I mentioned large salaries, I was pointing out that some people save their way to being wealthy. They don't create the wealth within a business. I am very familiar with the difference between being wealthy and rich and just earning a high income b/c of what I do for a living. So, after you read another book about the wealth and the largest companies in the world I will expect another reply that has absolutely nothing to do with the original argument.

Jimmy 2-Times,
You want to pay your credit cards off. And close the accounts. If you're a lender, and you look at Jimmy's credit history, and see he has had credit cards with balances, and he has paid them way down, you see a strong possibility of exploding debt for repairs, upgrades, furniture, window treatments, etc., which jeopardizes Jimmy's ability to pay you back. If, on the other hand, you see credit cards paid off and accounts closed, and a healthy down payment, coupled with a history of paying a landlord on time, two years on the the job, and not buying too much house - you see a guy who's responsible with money and bankable for a traditional mortgage.

Don't do a bunch of moronic borrowing to attempt to raise your credit score in order to qualify for a mortgage. Beacon scores are mortgage underwriting for lazy morons. You may have to find a mortgage lender who will do what's called "manual underwriting". That's where they look at Jimmy's actual life and likelyhood that he'll repay vs. glancing at a beacon score and using that as an excuse to dump you into the sub-prime lending market so they can make some real money off of you.

kc,
"Debt is a fantastic tool" until it turns around and bites you. When your best idea turns out to be not so great, or you slightly miscalculated how many widgets you're going to sell, or a broken water pipe stops production for a couple weeks, or... You see my point is not that the debt is going to burn you every single time. It's that it adds tremendous amounts of RISK. Entrepreneurs are aggressive risk-takers and often don't think twice about this risk, but it is there nonetheless. Finance professors without a pot to piss in can pontificate at great length about debt being "a tool" or "a lever", but they never include the increased RISK inherent in pledging your future income to someone else. Because when bad stuff happens and plans go astray or your competitor just flat does it better than you, THE PAYMENTS STILL MUST BE MADE. It doesn't matter that there was a trucker's strike and your product never made it to the stores - Pay Me. It doesn't matter that the levee broke because the city didn't maintain it and McCafferty's Pond emptied into your warehouse - Pay Me. It doesn't matter that you decided to open a French themed wine, canape', and brie shoppe in Jasper, Alabama and never sold one thing - Pay Me, or I take your house.

The additional risk is there, it is real, it burns real live people all the time, and it continues to be ignored by the "debt is a lever, a tool" crowd.

he said widgets.....that brings back the econ classes i took in college :D

btw, dorkfish, what do you do for a living?

i agree that leverage means added risk. however, one of the reasons i am such a proponant of leverage is b/c i see so many people who want to pay off everything before they ever start saving and they cant afford that strategy. they either need to downsize or they need to compromise. if you can afford to pay things off and save what you need to, then buy all means pay it off. however, while leverage means added risk, risk typically means added reward if you stick to a long term strategy. but you have to remember that the average savings rate was negative for americans not to long ago, and not saving even for a short amount of time will compromise your future exponentially. so i see your point, and for the right people i agree completely. but, we are debating the exception rather than the rule. so i guess we will have to agree to disagree and debate something else:cheers

Actually, kc, we're not all that far off on the home buying front. Paying off a house without first setting in place a methodical retirement savings plan pretty much guarantees you'll end up at age 65 with a paid-for house and no money to live on.

You seem a fan of delayed gratification to accomplish bigger ends long term and that's what works - every time it's tried. But it does go against the current conventional wisdom, which is "buy it now, you deserve it, figure out how to pay for it later". The absolute ease with which we can borrow money to do any and everything now days coupled with the extremely aggressive marketing of debt as a solution to every problem has transformed our culture from savers in our grandparents' generation into a bunch of broke, Keeping Up With The Joneses, leased car, financed furniture, 401k loan, home equity spending, lottery playing, no savings, hyper-leveraged losers. High income, no money. Never more than two paychecks away from bankruptcy.

Jimmy 2-Times,
I'm a pilot. I'm not a very good pilot, but at least I'm bald.

Actually, kc, we're not all that far off on the home buying front. Paying off a house without first setting in place a methodical retirement savings plan pretty much guarantees you'll end up at age 65 with a paid-for house and no money to live on.

You seem a fan of delayed gratification to accomplish bigger ends long term and that's what works - every time it's tried. But it does go against the current conventional wisdom, which is "buy it now, you deserve it, figure out how to pay for it later". The absolute ease with which we can borrow money to do any and everything now days coupled with the extremely aggressive marketing of debt as a solution to every problem has transformed our culture from savers in our grandparents' generation into a bunch of broke, Keeping Up With The Joneses, leased car, financed furniture, 401k loan, home equity spending, lottery playing, no savings, hyper-leveraged losers. High income, no money. Never more than two paychecks away from bankruptcy.

Jimmy 2-Times,
I'm a pilot. I'm not a very good pilot, but at least I'm bald.

you are right i do believe in delayed gratification...i also make enough money to be able to though...it just drives me crazy b/c people who are about to retire think that they will be able to live on a quarter million dollars for the rest of their lives when they want 50k a year to spend...:wtf ...but they are happy because they have had their expensive ass house paid off for years....all i know is that i save about 25% of my wife and I's household income and I still wish I could do more....but I don't like to delay gratification that much lol...im going to post a thread about savings and I want to know your opinion so keep your eyes open:punk

ive heard that you shouldn't close out credit cards, but if you are going to it should be newer ones, not long time established ones.

ive heard that you shouldn't close out credit cards, but if you are going to it should be newer ones, not long time established ones.

Correct, the long established cards as long as they don't have any lates on them will make your credit scores higher. You should always keep one or two good cards open whether you have a balance or not on them. Keeping a small balance on a card will be better for your credit score then kleeping a card with a zero balance.

As for the adjustable rate mortgages, it all depends on yourself. The idiots who take the MTA loans or adjustable rate mortgages because they can't afford a house are only getting themselves in trouble. If your using it to leverage your money and equity in your house and convert it to a fix mortgage down the road then it is worth it, but be careful with the way the prime rate is going. I would in the mortgage business dealing with REITs and I am starting to see the deliquency increase dramactically and even more so in the future when all those adjustable rate mortgages start to adjust after the fixed period.

Lots of good discussion here. The original question about the too-good-to-be-true loan rate is probably a negative amortization "teaser" rate. That means you're actually paying less than the full interest payment and your principal balance is increasing over time. Scary stuff. It can work if the housing market is going up in value and you're able to refinance with a fully amortized loan in the near future. Usually, this can only happen if you know you're going to get out of the house with huge equity increases in a short time. Six or seven years ago, this was a good strategy and good tool for implementing the strategy. The housing market right now, however, makes this a lot more risky. There IS a balloon payment due in short order and you could get screwed. Proceed with caution.

Credit scores are very complicated. They depend on a lot of factors. One thing to point out is that closing accounts is not a good idea. Creditors like to see that you have available credit that you are NOT using. However, you shouldn't go opening up a bunch of accounts right before you apply for a home loan. Beyond that, look up some articles on Google, etc. to find out how credit scores are calculated.

Regarding debt. Consumer debt is almost always bad debt. Business debt can be bad or good. What's the determining factor? If your debt brings you more money than you pay out, it's good debt. If it brings you nothing or less than you're paying out, it's bad debt. The easiest example is this: if you buy a house and rent it out, your debt can be considered good debt if you're bringing in more in rent than it costs you to own the house, including mortage total, property taxes and other out-of-pocket costs. The opposite makes it a bad debt. If your tenant moves out and it takes you a month to rent it out again, then you have a month of bad debt which you may or may not convert to good debt when you relet the place.

Businesses function similarly. They can borrow money and know that they will make more than they pay out in loan costs. It can turn upside down on them. But it's a matter of how well you can sleep at night.

As I alluded to above, it's rare that consumer debt can ever be considered good debt. I suppose that if you take $1,000 on your credit card and loan it to your brother AND he pays you back plus interest you paid plus a little bit more, then it could be consindered "good" debt. It's just highly risky.

Just some thoughts.

--Wag--