Getting a Mortgage?

Mortgages are the biggest rip offs in banking history. What do I mean by this? Exactly what I just said. Why? Most people have what I call "tunnel vision" they are only looking at one thing: the monthly payment. What they aren't looking at is the final cost of the house - minus the upgrades and maintenance cost of the house.  

Let's say that a couple decides to make a purchase on a house. The house costs 140,000 dollars. They pay 20% down - 28,000. This brings the mortgage to 112,00. But then you will also have to add in the closing cost of around 3,500 (sometimes the seller agrees to pay). Nonetheless, lets say they have a mortgage of 112,00. They finance the house for 30 years at 4.25%. The monthly payment comes out to be 550.97 a month. Great they say!! We can afford that together. At the end of the 30 years they end up paying drum roll please!! 86,350.16 dollars in INTEREST ONLY!!! The total cost of the house comes to: 226,350.16!! Do you see this is why banks have the biggest buildings in town?! If you live in a home for 30 years you can bet that there will be some types of maintenance costs or repairs. So add that to the list of total cost as well. And, don't forget house insurance and property tax!

So after 30 years do you think the house will be worth that?? Was that really such a great deal? If you don't believe me on this just visit this link put in your info and click on the show/recalculate amortization table button: http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx
Even with a 15 year term the cost of the house comes to 39,659.33 total interest and monthly payment of 842.55 a month. Total cost of home after 15 years: 179,659.33. This is much less but nonetheless quite an amount you are paying in interest.

Keep in mind if you do not pay the 20% down you may be required to pay mortgage insurance. This is an added monthly cost that doesn't go towards interest or principle! And guess what? If you start skipping payments after paying in say 15 years on a 30 year loan your house is gone. That's right foreclosed. The bank keeps your money and the house!!!

Do you see why this is such a rip off now??? So what is the solution then? Well, for one don't purchase more of a home than you can afford. And two don't have "tunnel vision" by looking at the monthly payment.

A couple that doesn't plan on having children would benefit more from a one bedroom house or even an efficiency home. I know that sounds unpopular considering most people want a 3-4 bedroom house or larger. But you have to get out of the consumer mindset. You will be heating extra unused space and have to pay more on property tax as well. Also, consider maintaining the home - like the roof, gutters; heating and cooling costs, insurance etc.. It all adds up!! Think about it. Sometimes wise decisions aren't always the most popular ones to make.

An alternative to a mortgage would be to rent a home or apartment. By doing this you will be able to save your money to have a huge down payment on a home or more importantly pay cash for a house. I know that sounds crazy. But it is possible. Try to find a cheap place to rent to save more money. It can be tempting to rent at the “coolest” apartments in town but end up being the most expensive.

So what type of mortgage will make sense? One of the best options is to find a foreclosed home that is still in decent shape. Yeah it may not be the best at the moment in time but who says living there is set in stone? The less debt you have the more options it will give you. For example, let's say a couple buys a foreclosure home fixes it up and lives in it until it is paid for. The smaller it is the better. They will have less property tax, less insurance costs, less heating and cooling costs, and less maintenance. This adds up to more money in their pocket (savings) or a quicker way to pay it off. After it is paid off or almost paid off depending on the payment you could move into something more of what you desire and rent out the home for extra income. Or you could sell it. This way you will be building wealth over the long run. And before you know it you will be financially independent. Overtime, your peers will still be paying that 30 year mortgage with nothing much to show for it. You however may have several homes that are paid for AND they are giving you a return on your investment. This means you can retire much more early and have the freedom that you want. Remember good decisions lead to a good life!

What about building a home? Yes this can work too. Remember to think carefully about what type of house to build and how big etc... There is a lot of thinking involved in this. And decisions have their outcomes large or small. In some instances building a house may be better than purchasing one. Other times it may make more sense to buy a house because the square footage is cheaper than building one. However, what you will want to do is be the contractor yourself if you choose to build. The first step in doing this is acquiring land and paying it off. Once is is paid off you will then want to save up enough money to build the shell of the house. By shell I mean the exterior including roof, siding, gutters, doors and windows, on a foundation with steps/porches finished. However, the interior of the house it is yet to be finished. Insulation, drywall, electrical, plumbing, cabinetry, flooring, trim, interior doors, showers, and toilets need to be installed. Once you get the shell erected you can then finish it on your own leisure/time frame schedule. Learning new skills can be valuable in the future for subcontracting out yourself to make extra income. Nonetheless, by becoming the contractor you will save quite a bit of money and if you do most of the work yourself (interior) you will also save a substantial amount of money. It's actually easier than you think. For more info see http://www.byoh.com because there is a lot to learn!