It’s Time to Buy a House
Historically, there have been large amounts of money made by investors who are considered Contrarians. They ignore the hyperbole on the news and focus on the value of a given deal. These days, it seems the real estate market and the housing crisis are on every channel and in every newspaper. There are numerous anecdotal horror stories of evaporating value and billions of dollars in losses. In this article we will not be exploring the reasons for the collapse of the credit markets and the deflation of value. We will be looking at the value of the deals that are available and look at methods to “get in at the bottom”.
This is a buyer’s market. If you are positioned to buy, and buy right, you will be handsomely rewarded in the next few years. Sellers are motivated, prices are artificially depressed, and mortgage rates remain at historic lows. Creativity will maximize your ability to buy and minimize your downside risk.
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Are Option ARMs an Option?
The Options Adjustable Rate Mortgage is an Adjustable Rate Mortgage (ARM) and like most ARMs it consists of taking an index, most commonly the MTA (12 month Treasury Average), CODI (Cost of Deposit Index), and COSI (Cost of Savings Index), then adding a margin to total the final interest rate.
Unlike other traditional mortgages, where the payment is calculated from the total of the index and margin, the Options ARM offers 4 monthly payment options every month, giving you the opportunity to choose which payment to make. This monthly payment option is where the Options ARM derives its name. The typical four payment choices are:
THE MINIMUM PAYMENT OPTION - This allows you to make a small monthly payment usually equivalent to a 30 year mortgage at 1% interest, or about half of your interest cost for the month. This unpaid interest expense increases the principle balance of the mortgage.
INTEREST ONLY PAYMENT - This covers all of the cost of the interest for the month. Choosing this keeps the mortgage balance from increasing or decreasing.
30-YEAR PAYMENT - Standard principle and interest payment that will pay the loan off in 30 years
15-YEAR PAYMENT - Standard principle and interest payment that will pay the loan off in 15 years
Now that we have define the Option ARM, we need to answer the questions, “Is it an option (pun intended) for me?” As with most things in life, there are positives and negatives.
Lets start with the good news. Option ARMs exist because there is market for them. They do some things better than other mortgage types. For example:
Low payment - there is no mortgage option that give a lower payment on a given principle balance. If you choose the lowest monthly payment you are not even required to cover the cost of the money. Clearly, the downside of this will be discussed later, but if, for a variety of reasons, you need a low, low payment, an option ARM cannot be beat.
Automatic payment adjustment - Though not unique to option ARMs, having the payment automatically decrease with a principle payment can come in handy. For example, you finally sold your old house and want to use that equity to lower the amount of money you owe on your new house. When you make that large principle payment, your monthly payment will automatically drop accordingly. You do not need to refinance and pay loan and title fees to take advantage of your new lower balance.
High loan amounts available - In our current credit climate, many of the ALT-A products that used to exist are gone. The lenders that offer the option ARMs tend to be some of the few remaining sources that will give higher loan amounts, higher LTVs, and lower required documentation for their loans. If the traditional mortgage cannot get approved—-and you really need the loan—the option ARM may work.
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It Is Easy Being Green - A Guide to Having a Green Home
The term “green” is thrown around frequently these days. Concerns over global warming, the increasing costs of fuel and utilities, chemicals and preservatives used in foods, poor air quality and dwindling forests and animal habitats are causing many consumers to think twice about the choices they make, proving the “green” lifestyle isn’t just for outrageous environmentalists.
So what really is green? Green means being healthy, sustainable, and environmentally and socially responsible. Green living can translate into almost any aspect of your life; from where you live and what car you drive to what you wear and eat or where your next pet comes from.
Green building is becoming increasingly popular in new homes and construction, and many homebuyers now expect green features when purchasing a new home. Whether you’re building new or remodeling an existing home, there are many ways green building practices can be easily applied to housing, creating healthier indoor atmospheres while reducing your carbon footprint.
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