Real Estates Questions & Answers

Should Friend Buy Instead of Rent?
Q: I have a friend who is trying to decide if he should buy a house or continue to rent. He has less than $5,000 for a down payment, and his gross income is around $42,000 a year.
He doesn't want to keep throwing his money away on rent. Another reason he is thinking about buying is that he has two friends coming in from out of state who will need a place to rent. One of his friends will be here at least two years and the other, at least a year. What advice would you give to him? -- Mary

A: As a rule, if a renter like your friend can afford to buy, he should. Home ownership affords many benefits, among them the equity buildup and the interest deduction.
If your friend has excellent credit and few debts, he should be able to afford a $110,000 house. He can use Homestore's Home Affordability Calculator to find out the monthly payment and the size of the loan he can obtain.
His plans to have friends live with him and, presumably, contribute to the mortgage payment, won't help him obtain a mortgage. A lender will not consider his friends' income or future rental payment because these friends will not be co-owners.
For the bottom line on whether you can save money by owning a home, go to our Rent vs. Buy calculator and plug in the numbers.

Negotiating with Builders & Lenders
Q: I'm a first-time homebuyer who wants to purchase a new home. I need a payment of no more than $1,200 per month, but the house I want is a few thousand dollars over my budget.
If the builder is willing to pay closing costs, the lender said he could buy down the interest. Should I go that route, or would it be more beneficial to just make the builder a lower offer and hope that we could meet in the middle? -- Mark

A: These days, most builders are willing to pay the closing costs, but it's unusual for builders to lower the price of the home. Instead, they are more inclined to throw in some extra amenities such as a fireplace.
Often, builders are willing to "buy down" the interest as an incentive to the buyer. In your case, you say the lender is willing to buy down the rate. This is how it works: If the mortgage rate is 8.25 percent, the lender can make the rate 7.25 percent for a year by putting up the difference in an account. Check with your lender to make sure that it is indeed the lender, not you, buying down the rate.
It might be useful to make an offer and see whether the builder will lower price. Failing that, you can try the other route.

Discounted Home Sales
Q:I heard that when buying a home, employees at my company might be able to get a discount on the purchase price, just as when buying a car, we get a discount for working at a GM plant. Where can I get more information? -- Michelle

A: Many cities have housing authorities that promote home ownership. These agencies work with local non-profit housing groups and mortgage lenders to develop programs to help people buy their first home. Often these programs involve creative financing, such as the city or a bank providing a portion of the down payment for a homebuyer.
Other assistance might include the lender lowering the interest rate, with further assistance from the city or another non-profit group that gets money from Fannie Mae, Freddie Mac or other foundations.
In addition, homebuilders might offer discounts on listed prices or additional amenities. Lenders might offer to "buy down" the interest rate for a certain period. If you are a veteran, the Veterans Administration offers loans with no down payment.
Check with your employer about any partnerships with housing agencies or non-profits. Then check with local non-profit housing groups. If your city has a housing agency, call that as well.

Pay Your Mortgage Off Early
Q: I am 56 years old and I just obtained a 15-year mortgage at 7.125 percent interest. I would like to pay this off before I retire at 62 years old.
Can I pay off my mortgage sooner? How much will it cost me per month? I want to increase my monthly payment, but I don't want to pay a fortune. (I am paying $950 a month now.) -- Jeff

A: You can certainly pay off your mortgage early. But you should check your related documents to see that there are no prepayment penalties.
To answer your questions in full, I need to know your principal amount balance and whether your payment includes tax and insurance before I can give you accurate figures. But you can get the numbers yourself by using the mortgage calculator on this page.
In the meantime, let's assume that you have a mortgage balance of $100,000 and that that figure includes principal, insurance, tax and interest. In addition to your current payment of $950 a month, you will need to pay an extra $750 per month to retire at 62. That will cut your number of payments from 180 to 76. In the end, you will save $38,840.85 in interest.

Get Money Out of Your Home
Q: What are my options on a reverse mortgage loan? Are there many disadvantages? -- Andrea

A. A reverse mortgage allows homeowners--age 62 and up--to convert their home equity into cash without selling their property or giving up their title. (The lender pays you, the borrower, thus the term "reverse mortgage.") There are additional side benefits. Borrowers needn't meet income nor credit requirements to qualify. And the closer you are to paying off your home, the greater the loan amount can be.
Here's how it works. A borrower can receive the money in a multitude of ways: as a one-time, lump-sum payment; as a line of credit; or as fixed monthly payments. Generally the loan can go unpaid until you move out permanently, sell your home or until the last surviving borrower dies. If the borrower passes away, their heirs can pay off the mortgage and still keep the home.
That said, given the age of reverse mortgage borrowers and the potential financial burden they could pass onto their families, most experts agree the loans are not worth the trouble. Unless you can guarantee that you will stay in your home for at least two years, they advise against the mortgages.
If you are still interested, the government's Home Equity Conversion Mortgage and Fannie Mae's Home Keeper reverse mortgage are among the most popular programs.