When you get your mortgage, you will be asked (if your loan officer is honest) if you want to put the money for homeowner's insurance and taxes in escrow. Most people do not understand what this means.
Your mortgage company will determine how much you will have to pay for homeowner's insurance and in taxes at the end of the year. They will then divide this amount into 12 and add that to your monthly payment. At the end of the year, they will make the payments to the insurance company and to the tax collector for you.
Isn't that nice of them?
NO!
They only do this to protect themselves. If you forget to pay the homeowner's insurance bill and the house burns down, they can't foreclosure on you. Or if you do not pay the taxes and the government takes the house away, the mortgage company is left out in the cold. There is nothing they can do to get the house back and they lose the money they lent you.
By putting taxes and homeowner's insurance payments into escrow your monthly payments to the mortgage company will increase. They will hold your money for you to pay for the yearly taxes and to renew the insurance.
Why should they hold your money, when you can keep it until you need to pay. Even if you have money just lying around you can keep it in an investment and earn interest on it until it is time to pay your bill. The less of your money other people have the better.
So let's say your taxes and homeowner's insurance add up to $5,000 a year. If you take that $5,000 and put it in an investment account that earns 10% interest for the year, you will have $5,500 at the end. You then pay the insurance and taxes and you still have $500 left over!
When you pay homeowner's insurance and taxes in escrow you allow the mortgage company to put that money in THEIR savings account and they earn the $500 a year instead of you!
So if you want to make your monthly mortgage payment smaller and even earn some interest for free, then do not put your money into escrow.
Please note that homeowner's insurance is not the same as mortgage insurance. If you have a loan that is higher then 80% of the value of the house, the lender will require you to pay mortgage insurance. You have no choice in the matter. Mortgage insurance protects the lenders incase they have to foreclose on you. Homeowner's insurance protects the house incase something gets damaged. You choose the homeowner's insurance company you want. The lender will choose the mortgage insurance company they want.
An inventory home is a brand new home built by the builder but without an owner. Either the person who wanted the house built backed out of the contract or the builder built it as a way to keep his staff working, or a model, or a way to add built homes to the neighborhood.
Whatever the reason of the inventory home, it can be a bargain for you. Builders hate having empty houses sitting around. They try to build as fast as possible and move to the next area. If a home is already built and sitting empty it is called an inventory home.
Builders often have specials on these homes. They offer great deals to get the home sold. But most do not offer the deals to people without Realtors representing them. So check to see if a Builder you like has any inventory homes and get your realtor to negotiate for you.
Builders get loans to build houses. The longer a home is sitting there empty, the more payments and interest the builder has to pay on that house. So the builder wants to unload it, quickly. And to do this, the builder will reduce it several thousand dollars. It will cost much less than having the builder build you the same model from scratch.
The only drawback is that the appliances will already be installed and you will not get to pick the model or lot. But if you happen to like an inventory home, there is no difference between it and any other home the builder builds. In fact, if it was an inventory home, you know that everything in the house works, and it will have the best of the best upgrades.
If there is anything you do not like about the home, you can ask the builder to replace it or change it at no cost. For example, my wife and I went to look at a condo complex recently. They only had one left. And it had wood floors. I prefer carpet, so the builder was more than willing to take out the wood and put in top of the line carpet, at not cost. The condo also had the best appliances as well. If we had bought this same condo earlier and chosen the top of the line carpet and the same appliances we would have paid thousands in upgrade charges.
Buying an inventory home or condo is a great deal. You get to see what the house will look like when you move in, the builder is desperate to sell it, and you get a brand new house or condo for less than what your neighbors paid. That is instant equity!
If you are looking to buy a new house or condo from a builder, an inventory home is a great way to save you several thousand dollars. And you can have an agent represent you and save thousands on the commission like I discussed in Tip #1. You get the best of both worlds: you save several thousands of dollars and get a brand new house.
Ameen Kamadia has sinced written about articles on various topics from Home Buyers Guide, Foreclosure Help and Home. Abby Kamadia, is a mortgage consultant, and real estate broker in Houston Texas. For the 69 other free articles on saving money when you buy a house visit Abby's