Home Buyer Likens His Monthly Payments to Forced Savings Plan
QUESTION: May I give a little advice? About five years ago my wife and I bought our first home. We had been saving $500 per month toward a down payment, but didn’t seem to be making much progress because home prices and mortgage interest rates seemed out of our reach. But at least once a month we spent Sunday afternoons looking at houses.
We had a good time, but in more than a year of looking we never made an offer to buy. Finally, we met a sweet old man who must have been about 70. He was the best realty agent we encountered. I think he liked us because he showed us how to buy the home we both liked. He talked us into offering our entire savings as the down payment, assuming the existing first mortgage and the seller carried back a large second mortgage. The seller took our offer.
My wife thought we were taking a big risk, but I finally convinced her buying a home would be like a savings account. She understood that. At first we worried about making the monthly mortgage payments, but after I got a job promotion we didn’t worry anymore. Our down payment was only $12,000, including closing costs. Since then, our home equity has grown to at least $35,000. My advice to all your readers who write asking if they should buy a home is yes, but look at the home purchase as a forced savings account.
ANSWER: Thank you for sharing your success story. It will persuade more home buyers than I can that it is possible to buy a home without much cash and handle the “budget stretching” that most first-time home buyers encounter.
Where to Get FHA and VA Loan Details
Q: Please send me full details on FHA and VA home loans.
A: By the time you receive such details, they will be out of date. The best place to obtain information on FHA and VA mortgages is from a local FHA/VA-approved lender such as a bank, S&L; or mortgage broker. You will find them listed in your phone book yellow pages under “real estate loans.”
How to Earn Interest on Earnest Deposit
Q: We plan to buy an expensive home and realize we must make a substantial earnest money good faith deposit. However, we hate to lose interest on this deposit for the 60 to 90 days it will take to close the sale. Is there any way we can continue earning interest on our deposit?
A: Yes. Just specify in your purchase offer bid that the earnest money deposit shall be placed in an interest-bearing account with the interest to be credited to you.
Neighbor’s Tree Is at Root of Two Problems
Q: Some time ago I wrote to you about a neighbor’s tree that overhangs my driveway. You said I can trim it back to the property line, which I did. Now its roots are causing my driveway to develop significant bumps. What can I do?
A: Just as you are entitled to trim back overhanging tree branches, you are also entitled to cut roots from a neighbor’s tree that encroach on your property. Ask your real estate attorney to explain further.
How to Find Name of a Missing Homeowner
Q: The house next to ours appears to be abandoned. When we moved here about 12 years ago, there was a nice old man living in the house. Several years ago he moved away, but we never saw anyone move into his house. It is now very badly overgrown with weeds and bushes. Several times my husband has cut the weeds but he is getting tired of doing this work for free. How can we find the owner of this property as we might like to buy it?
A: The local tax collector’s office will give you the owner’s name and address where the property tax bills are being sent. They can also inform you if the property taxes are paid.
You may also want to check with the suppliers of water, gas and electricity to learn if they have information about the current owner of the house next door.
Buyer Should Consider Advantages of Leverage
Q: Recently, several readers have questioned your sanity in advising home buyers to make minimum down payments and obtain maximum mortgages when buying a home. You are absolutely correct. However, your reasoning is only partly right. You say the 1987 tax law changes allow deductions only on a home acquisition mortgage plus a $100,000 home equity loan. That is right. But you missed the biggest advantage of a low down payment. It’s leverage. If I make a $10,000 down payment on a $100,000 house that appreciates 10% next year, that $10,000 profit is a 100% return on my $10,000 investment. Why don’t you emphasize the leverage advantages of a low down payment?
A: Shame on me. You are absolutely correct that in addition to the income tax deduction for acquisition home mortgage interest, the buyer receives the leverage advantage as the home appreciates in market value.
Unfortunately, many home buyers want to make big down payments to reduce their monthly mortgage payments. But they overlook the opportunity to invest that money elsewhere, thus increasing their profit potential by spreading their risk among several investments.
Can Owner Prevent Mortgage Assignment?
Q: We bought our home almost a year ago. Our mortgage loan was from a local S&L; with an excellent reputation where my wife’s family has done business for many years. But about four months after we closed the purchase, we received a letter from a Texas S&L; that our loan had been sold to them and we now must make our payments in Houston. Since then we have had nothing but trouble. The new lender doesn’t understand we want to pay $100 extra each month toward the principal. When I call on their toll-free phone line, it is constantly busy. Is there anything we can do about this bad situation?
A: You and thousands of other mortgage borrowers, including myself, have been shocked to receive letters notifying us that our loan was sold to an out-of-state lender. I share your frustrations with incompetent loan servicing.
Because of complaints like yours, Congress is now investigating the billion-dollar loan servicing industry where virtually no regulations presently exist. You should immediately write your congressional representative and senator to let them know you think regulation is necessary to establish minimum mortgage loan servicing standards.
