I have enough money to put 50% down on my new house. Why would I want to only put 20% down?
You would only want to do this if you believe you can invest the additional 30% and earn a return greater than the interest rate on your mortgage. With interest rates at a historical low, borrowing money is cheap right now; but savings rates are even lower and the stock market is very volitile. A wise investor can make this work to his/her advantage, but just be careful!

What costs can I deduct from my income at tax time?
Everybody's tax situation is different, so be sure to check with your tax advisor. However, in most cases, mortgage interest, property taxes, and points are all tax-deductible. Mortgage interest is deductible in the year paid. Many people make their January payment at the end of December so they can include that interest in their deduction. Property taxes are also deductible in the year paid. Many people pay their 2nd half tax bill in December even though it might not be due until the middle of the following year so they can include that amount in their deduction. Points are a little bit different. The way the deduction is calculated depends on whether they were for a purchase or a refinance. On a purchase, the cost of points is tax-deductible in the year they were paid. On a refinance, the deduction is spread out over the life of the loan. For example, if you took out a 30-year loan, you would be able to deduct 1/30th of the cost of the points in each of the next 30 years. If you took out a 15-year loan, you would be able to deduct 1/15th of the cost of the points in each of the next 15 years. In any event, if you pay off the loan early, the balance is deductible in that year.

Should I make extra payments to pay my loan off early?
Decreasing your debt and increasing your equity has a psychological benefit, but it is not always the best move from a financial management perspective. If you can deposit that additional money into an investment that earns a return greater than the interest rate on your loan, that is what you should do.

Why is the percentage on my Truth-In-Lending Disclosure Statement different than the rate I was quoted?
The number on your Truth-In-Lending Disclosure Statement is the Annual Percentage Rate (APR). The APR is the average cost of funds over the life of the loan, including closing costs, PMI and prepaid interest. If you were to dice those costs into equal amounts for each year of your loan, determine that cost as a percentage of your loan amount, and then add it to your note rate, that would give you a rough estimate of your APR. To make a confusing matter even more confusing, if you have an Adjustable Rate Mortgage, it is assumed that your rate will follow the schedule based on the current Index, your Margin, and the Adjustment Caps, and then stay at the Fully Indexed Rate for the remaining life of the loan. For example, if your Note Rate (the initial Start Rate) is 5%, the Index that your loan is tied to is currently 5%, the Margin you add to the Index to come up with your Fully Indexed Rate is 2.75% and your 30-year loan adjusts every year a maximum of 2% per adjustment, then it is assumed that your rate would be 5% for the first year, 7% for the second year, and 7.75% for the remaining 28 years. Of course, the index will almost certainly go up and down over time, so your actual APR will almost certainly differ from the estimated APR on your disclosure. Also, the APR on the disclosure assumes that you are going to keep your loan for the entire term. If you pay it off early for any reason, that will also affect the actual APR as well.

I just graduated from college and started my first job. Can I qualify to buy a home?
If you can provide a copy of your diploma and verify that your new job is in the field that you studied for, your income can probably be considered. But you must be paid a salary at your new job. If you are paid in the form of commission, chances are that you will have to establish a history of two years to have that income considered.

How can it make sense to pay more in a house payment than I am currently paying in rent, month after month?
Rent is almost never tax deductible, but mortgage interest and property taxes usually are. Also, part of your loan payment goes towards paying down the loan balance each month, which increases your equity. You can look at it like putting that money into a savings account that you can withdraw when you sell the house. Compare paying $825 per month in rent to buying a home with a $1,200 monthly payment ($150 principal + $850 interest + $175 property taxes + $25 insurance). Right away, you can subtract the $150 principal payment from the $1,200, because it is like putting that money in savings. Now, let?s look at the tax benefits of home ownership. Assume you are in the 28% Federal income tax bracket. Deducting the $850 interest payment and the $175 in property taxes from your income means you will pay $287 less in income taxes each month ($850 * 28% + $175 * 28%). Your $1,200 house payment would really only cost you the equivalent of $763 per month ($1,200 total - $150 principal - $287 tax benefit) That's $62 less than your rent payment! To learn more about the advantages of home ownership, check out our "Should I Rent or Buy?" calculator.

Do I need to be able to reduce my interest rate by 2% for a refinance to make sense?
No. That used to be the rule of thumb, but that was before lenders began offering loans with reduced or even no closing costs. Now, if you can refinance with no costs, even the smallest rate reduction makes sense. For more help with determining whether or not it makes sense for you to refinance, check out our "Should I Refinance?" calculator.

Why should I get pre-qualified or pre-approved?
There are two main reasons. First, you don't waste time -- yours or anyone else's -- looking at properties you are not qualified to buy. If you only qualify to buy a $100,000 home, there is no sense in shopping for a $150,000 home. A lender can let you know up front what you can afford to spend. Second, it gives you a lot of buying power when you make an offer on a home. If there is another offer on the property when you make your offer, but you have been pre-approved and the other buyer has not even talked to a lender yet, the seller may be more likely to accept your offer, even if it is for less money.

What is the difference between getting pre-qualified and pre-approved?
Generally, a pre-approval is a more thorough and official form of pre-qualification. When a lender pre-qualifies you, he/she calculates your maximum house payment based on monthly income and debt payments that you state. Generally, they have not run your credit report or looked at all of the detailed factors that go into the final decision of whether or not you qualify. When you get pre-approved, the loan officer takes a full application, collects the required income and asset documentation, runs your credit report, notes all extenualting circumstances and submits it all to the underwriter, who makes the official decision. When they issue the pre-approval, you know for sure how much you can afford to spend. For a general idea of how much you qualify for, check out our "How Much Do I Qualify For?" calculator.

What are points?
Points are a fee paid to the lender when you close your loan. 1 point is equal to 1% of your loan amount. For example, 1 point on a $100,000 loan is $1,000 ($100,000 * 1%). The first point you pay is usually referred to as an origination fee. This is the compensation that the lender receives for originating (processing) your loan. Additional points are usually referred to as discount points. They are called this because you pay them to "discount" your interest rate. Many lenders also offer rebate pricing. If you are willing to accept a higher interest rate, they will rebate some or all of your closing costs. To find our whether or not it makes sense to pay points, try our "Should I Pay Points?" calculator.