home mortgage

Can I Pay the Mortgage with a Credit Card?

September 16, 2015 By Will Lipovsky 1 Comment

Credit cards are handy and becoming increasingly popular for paying regular bills. Some are even using credit cards to make their mortgage payment when it’s an option. Doing so is tempting, but is it smart?

Credit Card Options for Paying a Mortgage

First off, most mortgage companies often refuse to accept credit as a form of payment because of processing fees. Those that accept them usually charge a fee, which could negate the rewards you would earn. Even then, the mortgage company might process the transaction as a cash advance, which begins accruing interest from the day of the purchase, adding interest to the expense. The preferred method for earning points on your rewards card by paying your mortgage involves a few extra steps these days.

Paying Bills by Credit Card Is a Process

Many people use prepaid cards that include bill pay services such as Target’s REDcard, Wal-Mart’s Bluebird or AMEX Serve to assist in the process. These cards allow you to pay bills and you can load them if you have a PIN-enabled credit card. So, you have to use your rewards card to purchase VISA or MasterCard gift cards that include a PIN feature first. You can then load your prepaid card with the gift card and then pay your bills. But that adds more expense because these cards charge an activation fee of $5 to $7. Since these typically come in maximum amounts of $500, the fees quickly add up, eating into any rewards you might gain.
Even the best rewards cards limit your bonus rewards to $2,000 per quarter at best. Those cards must be bought within the bonus categories, so you’d have to buy them at a grocery store during a bonus period that includes groceries in the bonus category. Office supply stores might be an option as well. Just matching up these opportunities is a challenge.

Even when you’ve done that, you would earn $100 cash back at most, but have to spend about $30 activating the gift cards you use to make it happen. That may be sensible… but only if you have a lot of time on your hands and can match up your spending categories. If you don’t have the option of buying gift cards through a bonus rewards category, you would only earn one percent back, or $10 for every $1,000 you spend. That’s far more than the cost of the gift card activation. If all of this seems like a lot of work… it is.

Look for Cash Back Tied to Your Mortgage

Your best option for cash back on the mortgage payment is to look for a bank that issues cash back rewards onto the mortgage itself. This gives you cash back that reduces your mortgage balance with the least effort.

The 3% Home Loan Down Payment is Back

December 9, 2014 By Kendra Smith 3 Comments

Sallie Mae and Freddie Mac bring back 3% down payments on loans

Saving for a down payment on a home loan can take years, especially when most lenders want a minimum of ten percent down. That’s still a lot less than the 20% which used to be normal. This makes the dream of owning a home out of reach for many Americans. As a result, there’s excessive inventory and a buyers’ market in most of the country. Under the current circumstances, the government has usually stepped in to try and right the ship.

Until now…Freddie Mac and Fannie Mae have announced that the three percent down payment is back. So if you can’t quite save up ten to twenty percent, you are in luck. Like most programs, no one really knows how long this one will last.

To take advantage of the program while it’s here may be easier said than done. It appears that with the resurgence of the loan backed by Fannie and Freddie, there are tighter requirements to protect both agencies, and with good reason.

For starters, this is only available for those who have good credit. If your credit score is below 620, they will not allow you into the program. Be sure you know what your score is before walking into an institution. There are plenty of places to check your credit score, many of them free of charge.

On top of a relatively decent credit score, the loan must be through a private lender, and the applicant must have full documentation of work, salary and assets. If that wasn’t secure enough, the added catch of premium mortgage insurance might turn some buyers away. Even with mortgage interest rates still low, mortgage insurance can bump a payment up by as much as two hundred extra dollars a month.

This isn’t to discourage first-time home buyers and those looking to refinance. In fact, just the opposite. The new program is designed to assist in helping those just out of reach of a home loan at the moment. Fannie will begin backing the lower down payment mortgages on December 13, 2014, and Freddie will follow in March 2015.

The program may entice many first-time buyers to jump into the market knowing that they no longer need to save a large down payment to qualify for a loan. As with the previous loan programs, anything purchased with an FHA loan is slightly more expensive. The interest rate is taken up 1.5 to 2 points to include mortgage insurance for the life of the loan.

With the new program, mortgage insurance can be dropped after the principle left on the loan drops below eighty percent of the value. Cancelling this insurance could potentially save new homeowners tens of thousands of dollars over the life of the loan.

(Photo courtesy of Dan Moyle)

I Am Homeless

January 27, 2011 By Jeffrey Strain 18 Comments

I choose to be homeless. I am what is often referred today as a digital nomad. I travel full time although I do have a few “home bases” with family and friends where I’ll stay for a week or two in between my travels to new places.

Most people who meet me for the first time are surprised to find out I don’t have a home. Just like not having a cell phone and not having a car, this has been a conscience decision I made taking into account what is best for my personal situation. While I could certainly afford to purchase a home if I wanted one, the truth is that for my current lifestyle, goals and finances, owning a home makes little sense.

The choice really wasn’t a difficult one to make. I work on the Internet so as long as I have an Internet connection, I am able to work where ever I may be. There is no need for me to be in one city where I need to go into an office to work each day. Given the choice, I would much rather be in a new place where I can explore rather than in the same room day after day. The only question was whether I could travel full time for about the same amount of money that I could own a home so that I could make sure that I spent less than I earned.

Most people assume that traveling full time would be much more expensive than owning a house. If I simply looked at the cost of the mortgage payment compared to the cost of traveling full time, then the statement would be correct. However, I know that this comparison is incorrect because I have owned a house in the past, and I know that the cost of a house is much more than just the mortgage payment.

When I add in the cost of furnishing the house (no need for furniture, TVs, beds, refrigerators, dishwashers, etc), utilities (water, gas, electric, garbage, cable), homeowner’s insurance, home maintenance, property taxes and landscaping & yard work to a mortgage payment, it becomes quite easy to spend less traveling than owning a home. This is especially true when I choose to stay are relatively inexpensive hotels. In addition, I do quite a bit of house sitting which allows me to stay in different areas for free. While traveling does entail its own set of expenses, these still end up costing far less than if I actually owned a home.

I’m not trying to imply that going homeless is right for everyone. I know that for many people, it most definitely is not. It does show that when looking at your own situation, what is promoted by financial experts as a good financial move may not always be your best choice.

Dave Ramsey Financial Peace University Review: Week 12

May 6, 2010 By Maggie Ellis 1 Comment

This week we tackled Baby Step 6: Pay Off Your Home Early. Or I should say that was what the lesson was supposed to be about. Instead we got the most boring lesson of the bunch, and one of the longest. I was looking forward to some creative and sound ideas for paying off a mortgage early but what I got was a laundry list of things to do when buying and selling a home. Almost nothing in this lesson had to do with paying off a loan early. The only thing mentioned was that you can make your mortgage payments bi-weekly (but never pay a fee to the bank for the service because you can do it yourself), which will add up to one extra payment per year, allowing you to pay off the balance sooner.

I understand that this list of do’s and don’ts could be valuable information for someone who has never bought or sold property before. But it was like Dave was trying to cram so much into this one lesson that he had to read it like a list. There was very little humor and very few of his amusing anecdotes here. This was strictly a listing of do’s and don’ts that can be found in any book or on any website about real estate basics. (If this recap reads like a list, I apologize. But there’s just not else much to do with this material.) I don’t think I was the only bored person there. I noticed quite a few people get up and leave during the video, something that I’ve seen very little of in previous lessons. So be warned: If you already know a little a bit about buying and selling a home, this might be the one lesson you want to skip.

Dave begins by discussing what to do when you want to sell a home. He advises you to think like a retailer and spruce it up. Make it as perfect as you can by fixing things, cleaning up, sprucing up the yard, and painting. You’ll get more money from a house that looks good than one that looks like it’s been abused. He also urges you to make certain your home is listed on the Internet, since 77% of buyers now do research on the Internet. You should also get a good realtor who has a lot of experience. A good realtor can bring in far more for your home than you can get on your own, thus offsetting their commission.

Dave then switches to buying a home. Owning a home is a good idea, he says, for three reasons. First, it’s a forced savings plan. Second, it’s an inflation hedge. And, third, it grows virtually tax-free since you pay zero tax on much or all of your gain as long as you hold the home for two years. When buying you should get title insurance and a land survey to protect you from disputes. Also get the home inspected to protect you from unpleasant surprises. Always buy with an eye toward the day you will sell. You should buy at the bottom of your desired neighborhood’s price range because you will have an easier time selling the less expensive house. Get a great location, with a view if possible since houses in good locations and with great views sell for more than those in less desirable locations. Never buy trailers, mobile homes, or timeshares since these are all depreciating assets.

Next it’s on to a list of mortgage do’s and don’ts. Dave argues that you shouldn’t take out a mortgage at all and instead pay cash. If that’s just not realistic, you can take out a 15-year, fixed mortgage with at least 10% down and pay it off early. But you should never buy a home until you are debt free and have a fully funded (3-6 months of expenses) emergency fund. Saving for a down payment becomes, in essence, Baby Step 3b. After you’ve saved your full emergency fund, but before you start saving for retirement, you should save for your down payment. Dave points out that there’s nothing wrong with renting while you save up and get your financial house in order.

When you’re ready for the mortgage, never take out an ARM, interest only, or reverse mortgage. They are all bad ideas. You don’t want a rate that will adjust or a mortgage where you never pay any principal. Get a conventional mortgage if at all possible. FHA and VA loans are available if you can’t get a conventional loan, but they are likely to be more expensive and carry more fees than a conventional loan.

However you go about financing your home, don’t let it become a financial nightmare. Your payment should be no more than 25% of your take home pay. Buy only when you’ve saved up a good down payment, have a fully funded emergency fund, and you have no other debt. Don’t buy just because everyone else is, or because your financial advisor is telling you that you need to own a home, or because there are tax incentives available.

I know many people don’t listen to Dave’s advice and I’m not certain I’d take it to the extreme of saying you have to have all your debt paid off before you buy. If that were the case, people with student loans might not own a home until they are 40 or older. If you’re making a good salary you can carry some debt and own a home, as long as the debt is not overwhelming or detrimental to the mortgage payment. I do agree that too many people rush into home ownership and don’t do their homework. They get into payments that are too big and too much given all their other obligations. Or they get sucked into a bad mortgage that comes back and bites them later. Maybe you don’t have to follow Dave’s advice exactly, but you do have to take the time to do research and educate yourself so you don’t get in over your head. A home is likely the biggest purchase you’ll ever make. It deserves careful thought and number crunching.

Homework roundup: Now that we’re nearing the end, there is very little work left to do. We only had to complete the last part of our Financial Snapshot which we’ve done every three weeks. The only change on mine over the last time is that I’ve gained about $4,000 more in savings. That means that during the thirteen weeks of this class my grand total added to savings was about $9,000. Granted, some of that was from tax refunds and some was from some unexpected freelance work, but it’s pretty good. I would have saved a good portion of that anyway since I use automated payroll deductions, but while in the class I was much more conscientious about funneling extra money to the savings to see how fast it would add up.

Our other homework assignment is to plan a graduation party for next week. We’ll see what my group comes up with…

Lastly, if you can’t attend the class yourself, think about buying the Dave Ramsey Financial Peace University DVD Home Study Kit (9 Week Course) 2012 Release. It retails for between $185.00 and $200.00 on Amazon and allows you to learn at your own pace.

Next: Dave Ramsey Financial Peace University Review: Week Thirteen

This is a series of posts about what you will find in Dave Ramsey’s Financial Peace University course. You can find the previous posts here: week one — week two — week three — week four — week five — week six — week seven — week eight — week nine — week ten — week eleven