Archive for the ‘Home Ownership’ Category

I’m Buying a Home, What Do I look For?

September 19, 2012

By Robin Landsman, Wake County Extension Agent

This is the third installment in three-part series about homeownership and will cover successful strategies for purchasing a home that will meet a family’s needs.

“I’m buying a home; what should I look for?”  This is a question many Agents have probably heard over the years.  Determining housing needs and wants according to affordability before shopping, can help homebuyers avoid the disappointment of looking at houses they can’t afford or don’t need.  The homebuyer’s lifestyle, and any special circumstances, should factor into the selection.  As the homebuyer begins this process, he or she may find the assistance of a realtor to be very valuable.  The help of a good agent will save time, allowing the homebuyer to take notes and ask questions while sorting through the hundreds of homes currently on the market.  Here are some tips to share with potential homebuyers.

First, determine what you can afford.  Lenders determine mortgage qualification by assessing one’s credit report.  If you know that you have had some late payments and a history of high consumer debt, it is best to postpone looking for a mortgage until you have a satisfactory credit record.

A home is more than the bricks and mortar that make up the square footage and rooms.  There are several concerns that must be taken into consideration before you select your future home: price, location, size, and amenities.  Taking time to proactively examine what you want in a home will save you lots of effort when it is time to actually see potential homes.

Your price range depends on the amount of down payment you have saved and mortgage amount that the lender is willing to loan.  Remember, just because the lender approves you for a loan amount, doesn’t mean you can afford the mortgage.  There are lots of considerations, including other financial obligations that could impact your housing budget.

Location is crucial in your decision to purchase a home.  Schools, shopping, services and commuting distance are all fundamental elements that will require your consideration and prioritization.

The size of your family and what home features and benefits you seek are the criteria that you will need to use to determine your wish list for today as well as anticipated changes in the future.  The needs of a married couple with no children will be different from a bachelor looking to enjoy the single life, or the single mom with three teenagers.  A son caring for his disabled father may need to think about spacing for wheelchair access, the ability to add a ramp to the front entrance, or having a bedroom on the first level.  In thinking about your needs, you will need to make allowances for any special circumstances that may exist.

Many experts recommend making a list of what you and your family must have, would like to have, as well as what you don’t want and prefer not to have.  It is important to find a home that fits with your particular lifestyle.  The responsibility of yard maintenance may not work well for the businessman who spends 50 percent of his time traveling.  The convenience of a townhouse or condo with a small patch of green grass at the entrance may work better.  If you are environmentally conscious, finding a home with energy efficient features and appliances is a must.  Or as a parent who enjoys spending time outdoors with your children, a home in a neighborhood with a playground, walking trails or a community pool would be very desirable.

Your list of “wants” in your new home can be endless.  It will help to do a bit of research so you can identify some of the amenities that you prefer.  For example, you may prefer hardwood floors versus carpeting or vinyl siding versus brick.  Note that certain features may be standard in certain price ranges of homes.  Some of your desired amenities can be added, such as new appliances and cosmetic upgrades after you purchase the house; whereas location and lot size are fixed assets.  Thinking about all the dimensions to a home will provide greater understanding of the purchase.  Again, a realtor can be quite valuable in providing you with this information.

As you create the profile of the place you will eventually call home, remember, you are about to make a big investment in your future and that of your family.  Take time to think about those things that are important to you and that add to the quality of your life.  To ensure your overall satisfaction of your home purchase, look for homes that address your needs, accommodate your wants and complement your life style within a comfortable price.

Resources:

http://rebac.net/homebuyer_resources.cfm

www.nchfa.com  North Carolina Housing Finance Agency

National Core Competencies discussed in this post:
Borrowing, spending

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Home Ownership – What Are The Costs?

September 12, 2012

By Robin Landsman, Wake County Extension Agent

This is the second is a series about homeownership and covers the costs associated with homeownership.   The next and final installment in the  series will provide tips for making a smart purchase.

Buying a home is the biggest investment that most consumers will make and is a major achievement.  Home ownership is also a major financial responsibility.  Proper planning and money management are key to making wise choices when it comes to buying a home. Understanding the upfront and ongoing costs of homeownership is a critical part of the decision process.

There are significant expenditures to be anticipated before and after home purchase.  The upfront costs of purchase include closing costs, which are the out-of-pocket expenses comprising the appraisal, survey, loan application, home inspection, legal fees, title insurance, title or deed registration fees to record your ownership, and any other payments to professionals assisting with a home purchase.  These fees are in addition to the cash required for down payment.  The total upfront costs associated with a home purchase will depend on the type of loan and whether the purchaser qualifies for any special programs, of which are available in North Carolina.  The availability of programs to assist with the costs of owning a home can greatly reduce out of pocket expenses.  On average, total closing costs can range from two to seven percent of the purchase price of the home.

The minimum amount needed for a down payment is determined by the lender and represents the buyer’s first investment in a home.  Closing costs are often paid in advance of closing or payable at the time of closing.  Escrow, is an account established by the lender to hold funds to pay on the homeowner’s behalf, the homeowners annual insurance premium and periodic property taxes.   An escrow account is typically funded at closing in an amount equal to the initial two or three month payments of taxes and insurance.  However, as much as six months might be required, ask your lender about their procedures.  Be sure you know the tax rate in the area where you plan to purchase.  Homeowners’ insurance cost can vary from insurer to insurer, call a few insurance companies and ask for an estimate based on the type of property you plan to purchase.  Knowing your costs and the lender’s escrow account rules will assist you in estimating how much money you will need at closing to fund the escrow account.  A lender may require mortgage insurance, hazard insurance (typically for rental property) and/or flood insurance (be aware of the flood zone rating for the property you are considering).  Additional insurance requirements increase the monthly costs to the new homeowner since these are in addition to the mortgage (principal and interest) and taxes.

After signing on the dotted line and receiving the keys, the ongoing costs of home ownership begin with moving in.  Whether hiring a moving company or fitting all of one’s belongings into a car, it costs money to move.  Additionally, some utility companies require a deposit to open an account.  It is a good practice to request a history of expenses from the previous owner to estimate the total monthly cost of living in the home, including water, energy bills, garbage removal, etc. to better estimate monthly out-of-pocket expenses.  As a new homeowner, estimating the monthly costs, including mortgage payments, insurance and increased utilities payments, is only one piece of the budgeting process.

New homeowners also need to save for those unexpected repairs. When the first day of summer brings 90-degree heat and a broken air conditioner, a new homeowner learns the first lesson of homeownership.  Prepare for those expected and unexpected expenses by having a reserve fund. It is a good idea to have a ballpark estimate of what it will cost to maintain the home.  Housemaster.com estimates that homeowners should spend between 1 and 3 percent of the value of the home for maintenance and repairs.  All homes are different, and new homeowners should create their own ballpark estimate and include it in their monthly budget.

Owning a home is still the American dream, even with the changing economic factors that have added a few challenges to the process.  New homebuyers can set realistic goals by assessing their credit and getting pre-approved (not pre-qualified)  for a mortgage before seriously looking at property.  Being focused and planning carefully by understanding the costs involved lead individuals and families to successful home ownership.

There are many resources to guide consumers to make smart choices to buy, maintain and keep their homes:

http://hud.gov   US Department of Housing and Urban Development

www.homebuyinginstitute.com

www.consumer-action.org

www.money-wise.org

National Core Competencies discussed in this post:

Borrowing, spending, protecting

Is Homeownership Right For Me?

September 6, 2012

By Robin Landsman, Wake County Extension Agent

This first in a 3-part series on homeownership will cover the consideration of renting versus buying a home, the costs associated with homeownership, and tips for making a smart purchase.

Interest rates are at historic lows and the housing market is a veritable buyers’ smorgasbord.  So everyone who can purchase is running out to purchase, right?  Not necessarily.  Homeownership is not for everyone.   Is the “American Dream” for you?

There are several things to consider when trying to decide if buying a home is the right choice.

First, consider advantages that homeownership offers:

Stability of monthly payments:  When locking into a fixed rate mortgage for 15, 20 or 30 years, you are guaranteed that your principal and interest payments will never go up.  However, taxes and insurance, when added into your mortgage through an escrow account, may cause your house payment to fluctuate over time. By comparison, rental costs over this same 15, 20 or 30-year period will almost certainly increase.  To help in this process, Missouri Extension has a very helpful on-line calculator.  You may find this useful as you work with clients as they make this decision:  http://extension.missouri.edu/p/GH5002

Tax benefits:  The interest you pay on your mortgage, along with the property taxes you pay each year, are deductible from your taxable income. As always, it’s best to talk with a tax consultant to get your full benefits.

Home equity:  Equity represents the portion of the home that you own and increases as you make monthly payments that reduce the outstanding loan balance. Over time, the home’s appreciation can increase the home’s market value your and help to increase your equity in the home. This equity can be used to secure a loan for other purposes, or can be converted to cash if you decide to sell.

Now let’s consider the downside to homeownership:

Maintenance:   The monthly cost of maintenance and utilities are normally more costly to the homeowner than to renter.  You are now the responsible party for maintenance and repairs.  As a renter, if you awake to find that there is no hot water for your morning shower you could call the landlord.  As a homeowner, it is now your responsibility to repair or replace the hot water heater.  There are costs in both time and money to maintaining the inside and outside of the home as well as the yard.

Relocating:   You may find it more difficult to relocate with the responsibility of a home.  Renters have the luxury of giving proper notice at the end of a lease, and they’re off.  When you own a home, it takes time to sell, or even rent, your home in today’s market. Additionally, you may find it difficult to find a lender in your new area willing to extend a loan for your next home without first selling or renting your current home.

Value:   And finally, there are no guarantees when it comes to the increase in value of your home. Unstable market conditions, wear and tear on the property and other factors could contribute to a decrease in value. Remember, you are primarily making a decision to buy a home in which to live rather than making a financial investment.

Homeownership is personal choice, and it is not for everyone.  To weigh the advantages and disadvantages these questions will help you determine your next move:

  1. Do you know what you want in a home?  Have you thought about what you need?  Taking the time to learn about the steps involved in the buying process will help ensure that you purchase a quality home at a price you can afford.
  2. Have you decided where you want to live?  Will you still want to live there in three or five years?
  3. Are you ready for the financial responsibility?  Is your income secure?  Will your income change in the near future?  Consider whether your employment situation or occupation stable such that you expect steady income.
  4. Is your financial house in order?  Do you have the down payment and closing costs saved?  Do you have an emergency savings account as well?
  5. Have you done your homework in learning mortgage basics?  Do you understand the differences between fixed and variable mortgage rates and the implications of those differences?
  6. Can you afford it?  Even if you have been pre-approved for a mortgage, you may not be comfortable with monthly mortgage costs for the approved loan amount.  The rule of thumb is that your total housing costs (mortgage, insurance, taxes) should not consume more than one third of your income.  It is perfectly fine to accept a mortgage loan in an amount that is less than for what you were approved.
  7. Are you ready to take care of repairs and ongoing maintenance?

Homeownership is not a decision to make easily, even in a buyer’s market.  Being prepared by knowing what you want will help you make the decision that is right for you.

Resources:
http://www.Realtor.org / National Association of Realtors   “Field Guide to Buying vs. Renting

National Core Competencies discussed in this post:
Borrowing, spending

What is foreclosure?

May 23, 2012

By Jayne McBurney, Johnston County Extension Agent

Changes during the economic recession, rising fuel process and job loss have all made money management difficult. For homeowners, protecting assets in the wake of economic uncertainty has been especially trying; unfortunately, some have had to face foreclosure. What exactly does that mean?

When a prospective homeowner signs on for a mortgage, it is important to be sure that the household budget will support of paying the mortgage every month with each payment on time. Missing mortgage payments is not an option for a homeowner, and doing so could cost the homeowner more than just a place to live if the bank chooses to foreclose the loan. Foreclosure proceedings take place after a number of missed monthly payments have occurred. Missing just one payment will make you delinquent, but if you do not remedy the situation quickly, the bank can take back ownership on the home, that is, they can foreclose the loan.

Homeowners should let their lender, or loan servicer, know as soon as possible when they are unable to make a mortgage payment. Lenders are currently being strongly encouraged to try to work out loan delinquency with mortgagees and there are many incentives for lenders to modify and rework loans for homeowners. Government programs, such as www.makinghomeaffordable.gov can help homeowners who have been unsuccessful working directly with their bank.

If a homeowner is unable to make mortgage payments at all, or resolve difficulties in paying their mortgage, the bank might try to encourage a “short sale,” which gets the house on the market and hopefully sold before a foreclosure takes place. It is possible for a homeowner to remain in the home while the house is on the market (or is listed for sale).

Once a foreclosure is initiated, the owner loses possession of the home as well as any equity they might have in the home. A foreclosure may seem like an immediate answer to money worries, but these former homeowners will end up with a long-lasting negative mark on their credit report, appearing for several years. Foreclosure will significantly lower the former homeowner’s FICO score also. It is very important that current and prospective homeowners make their mortgage payment an inflexible monthly obligation in their finances.

The North Carolina Housing Finance Agency offers good advice for homeowners having difficulty making a mortgage payment:

  1. Don’t ignore the problem.
    The further behind on payments you become, the more difficult it will be to reinstate your loan and the likelihood of losing your home increases.
  2. Open and respond to all mail from your lender and the North Carolina Housing Finance Agency.
    The first notices you receive will offer good information about foreclosure prevention options. Later mail may include notice of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
  3. If you have requested a modification or other workout plan with your servicer, please confirm that your servicer has received all of the documentation required. If you are already in a trial modification, please verify that your servicer has received the updated income, expenses, and financial hardship information that are required to convert the trial modification into a permanent modification.
    If you are missing documents, submit them as soon as possible. Create a system to track the date documents were submitted and when calls were made to your loan servicer and other entities. Remember to write down the name of the person with whom you spoke. A calendar and lined notebook paper is all you need to create your record system. Homeowners who miss deadlines may lose their eligibility.
  4. Read your loan documents so you know what your lender may do if you can’t make your payments. If you meet with a housing counselor, bring these documents.
  5. Prioritize your spending.
    After health care, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payments. Look for optional expenses: cable TV, memberships, entertainment, etc. that you can eliminate.
  6. Use your assets.
    Do you have assets, such as a second car, jewelry, or a whole life insurance policy that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don’t significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home. It is not recommended that you use retirement savings, however.
  7. Avoid foreclosure prevention companies and foreclosure recovery scams.
    If any firm claims it can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD-approved housing counseling agency.

You also should not have to pay fees for foreclosure prevention help – use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee for services that are offered for free through HUD-approved housing counseling agencies.

Any program that requires you to pay upfront fees to help you avoid foreclosure is illegal. The Office of the N.C. Attorney General provides help identifying and combating foreclosure scams.

Foreclosures that took place between Jan. 1, 2009 and Dec. 31, 2010 may be eligible for review. The deadline to submit a request for review was April 30, 2012. For more information, click here

Resources:

http://www.ncforeclosurehelp.org/

http://www.makinghomeaffordable.gov

National Financial Management Core Competencies discussed in this post:

Borrowing, protecting, spending, earning