Thursday, June 3, 2010

You didn't miss out on the Homebuyer credit

You didn't throw your money away if you didn't get in on the home buyers credit. The rates just dropped to 4.6% for a fixed 30 year loan. This is down from 5.25%. To break that down if you purchased a home for $100,000.00 at 5.25% with a 30 year amortization your principle and interest (PI) should be $636.11. With the lower rate the new PI would $607.24. Doesn't sound like much but it is a savings of $10,393.20 over the life of the loan!

Also if you make one extra principle payment a year on a 30 year loan you will pay that loan off in 20 years instead of 30. This is another way to make HUGE SAVINGS!The reason this works is the extra payment takes from your principle but your payment is based on 30 years, when the principle gets a little chunk paid down the amortization starts to ramp up, paying more off faster.

We have a new wave of bank owned properties coming on the market. Listen baby boomers who lost some retirement money, this is a chance to make some of that money back! If you are good with home improvements, fixing and repairing things around the house put that talent to work.

If you purchase a bank owned home for $60,000.00 and you use your equity of your present home to purchase it outright. The equity line will be approximately 3.4% depending on what bank you use. This will be a variable loan usually amortized over 15 to 20 years. So lets say it is amortized over 20 years. Your initial PI will be $558.13 a month. Add insurance and property taxes the payment will be $758.13. You rent the house out at $1200.00 per month. That is $441.87 profit a month! What you do is take half of that and pay extra on the loan paying the principle down. If you can convert the loan to a fixed rate after some time all the better. An equity line doesn't cost anything. A regular mortgage costs about $2500.00 to put in place. Most equity loans have a time variable. For instance it can be what is called a 3/5 arm. That means it can go up or down 3% at the time of adjustment every 5 years. Look for this type of term instead a monthly variable. This will protect you from the rate changing and give you a little time to be ready for it by paying down the principle with the extra $200.00 a month. After 10 years you should have the house paid off. The entire amount can now go toward your retirement or you can sell it and cash out.

I can't think of a better way to make money other than winning the lottery! It isn't all bread and butter though. You will need to make sure you are renting to a good reliable tenant. There are some really good companies out there that will do background and credit checks for $30.00. Call me today if this is something you would be interested in.

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