WHY OWN A HOME?
A soft real estate market that has all the conditions that should entice people to purchase a home, still has some renters asking, “Why own my own home?” Low interest rates, lower home prices and an improving economy and job market still have some buyers sitting on the fence. Real estate agents and sellers are finding that they have to work a harder and prospective buyers (current renters) may need a little more “emotional” attention in these market conditions. They should receive a little more education to ensure that they understand the benefits of purchasing a home rather than renting. While deciding to own a home or rent one is very personal, many tend to let fear of the unknown be the driving force in making their decision.
HERE ARE FIVE TOP REASONS TO AT LEAST CONSIDER OWNING YOUR OWN HOME.
1. No more landlords: This may be a highly influential factor depending on a potential buyer’s experiences.Many renters have poured a ton of money into a home that they’re living in to keep it at the standard of living they enjoy, only to find that their landlord is soon planning to sell the home. Their hard-earned cash and money invested into their rented home will then only benefit the seller.
2. Long-term plans tilt the scale toward owning: In a recent Tampa Bay article, the National Association of Realtors said, “For people with long-term plans, the rent vs. buy equation is tilting heavily toward buying because housing affordability is at record highs dating back to 1970, homes are undervalued in many areas and selling for less than the cost of replacement construction; and rents are rising at a faster pace. Many people are considering ownership now as a hedge against inflation.”
3. Giving a home your own personal style: This is much more difficult to do in a rental. Yes, you can make some modifications, but many things that can be done to a home you own can’t be done to one you’re renting. Taking into consideration the home owner, Homeowner’s Associations or planned community development restrictions, owning still provides more control and flexibility over renting.
4. Low interest rates and affordable homes will not last forever: If you’re not ready to buy or simply can’t afford to own a home, even the historically low interest rates and exceedingly affordable, home prices might not move you to take the leap into homeownership. However, understanding that these conditions won’t last forever is important.
5. The costs of homeownership: Of course, with homeownership you won’t be calling the landlord to come fix your toilet or dishwasher. So, having financial reserves is important to carry you through the months when you run into unexpected troubles. Websites such as gov offer price charts that help you compare how much you’ll save by buying or renting. It may help you analyze factors such as how much tax savings you’re likely to receive, how much equity you may gain, and how much you’re rent may increase.
FIRST-TIME HOMEBUYER “DO’S”
If you are ready to buy your first house, this will be an exciting time that can bring you sweet rewards; but it’s also a time that will be full of questions. Here are a few do’s and don’ts to get you started.
Before you begin to shop, you must decide what type of home is best. Are you looking for a condo, with a strong sense of community, easy maintenance, and extra amenities? And are you willing to pay a monthly HOA fee? Would you prefer a larger house in the suburbs, even if it means a longer commute? Are you looking for an older fixer-upper or new construction?
After you’ve made your decision, write down a “wish list”, a list of your wants and needs. This is a time to be honest. Rarely does a potential homebuyer get everything they want in a home; you may need to compromise. For example, you may need 4 bedrooms and a 3 car garage. If push comes to shove, you may have to forgo the 3 car garage and settle for 2 to get the bedrooms.
Be realistic about a home’s price. When you begin to shop, have a budget in mind. While prices are always negotiable, you don’t want to waste your or a seller’s time. Let your real estate agent compile a list of homes to visit that fit your criteria, as well as your budget. As you make your way through the homes, be sure you don’t judge a home until you’ve been through the entire place. There are homes that seriously lack curb appeal, but with a few cosmetic enhancements can be real gems. Pay close attention to what repairs the home may need; and don’t get swept up by fantastic staging. Keep your wish list in mind during the entire shopping process.
Once you have made your decision, it is time to begin negotiations. Desirable homes don’t stay on the market for long and hesitation may translate into missing out on a property that you really love. You must be confident with your decision. Your real estate agent will help you put in an offer. By researching the other homes that have sold or are selling in the area, they can come up with a reasonable amount to pay. How much are you willing to pay for this home? Set a top number in your mind and don’t let emotion push you to buy past your budget; and don’t forget to leave room for closing costs, the down payment, a home inspection and initial repairs if needed.
10 TIPS FOR NEW HOMEBUYERS
1. The Real Estate Market offers historically low interest rates, as well as affordable home prices. Here are 10 steps that buyers can take to make home dreams a reality!
2. Savings. You may already know how much monthly payment you can support (experts recommend no more than 40% of your monthly income), but the buying process will also include upfront costs, such as a down payment and closing costs.
3. Down payment options. Do you qualify for down payment assistance programs? Will you be able to get an FHA loan and pay 3.5 percent down? Do you have a relative that would like to make a down payment gift? Many financial experts recommend a down payment of 20 percent to allow you to purchase without the costs of Mortgage Insurance, so be sure to explore your options!
4. Check your Credit Report. Your credit report says a lot about you. Lenders use it to evaluate your risk potential and to inform themselves on how responsible of a borrower you are. They use this report and subsequent score to figure your interest rate. The better your report, the better your score and thus the lower your interest rate. Be sure to check your report for accuracy, and report any errors to the credit reporting agencies.
5. Get Prequalified. It’s time to talk to a lender. Pre-qualification will give you a ballpark figure of how much the bank would be willing to lend you. Are you looking for a $100,000 house or a $300,000?
Get Preapproved. This is the official letter from the lender that says they will be willing to lend you money. Many sellers look for buyers who are preapproved.
6. Affordability. The bank may tell you that you can afford a home worth $300,000. This does not mean you want to borrow to your max. A more modest home may fit better in your financial plans.
7. Housing Criteria. You have a budget, now develop a list of what you need and want. This can include anything from “must have 3 bedrooms” to “hardwoods” or “granite”.
8. Neighborhood choice. Location strongly affects prices. A 3,000 square foot home in rural Kansas costs a fraction of one in New York City. Decide what neighborhoods and areas are the best fit for you and your family.
9. Hire an agent. An agent can help you navigate the entire process from searching, putting in offers, to where to hire an inspector or general contractors; and their commission is usually paid by the seller of the property.
10. Start the search! The MLS is a wonderful place to begin your search. Eighty-four percent of buyers now start their search online.
SETTING A BUDGET
We all know we should have a budget but few have taken the time to get started, and very few actually have one, and even fewer manage to live within it. Why is it so intimidating? Maybe it seems like such an overwhelming task that you don’t even want to think about it; or maybe you don’t know where to start. Maybe you think that it will require hours and hours to do. Maybe you’re afraid and it seems to pretty much rule your life; you may get up thinking about it and go to bed thinking about it. Whatever your reason, now is the time to start!
Step 1: Where to Start
There are two essential things that you need to know when preparing a budget: what comes in and what goes out. It seems like an oversimplification, but that’s all a budget is… income and expenses. Start by assembling past paycheck stubs, dividend receipts, etc., to determine your income. A survey of the previous three months is usually good enough to establish this. Next assemble two to three months’ worth of expenses. Get all of your bills together, your bank accounts and/or checkbook register and receipts.
Step 2: Determine the Time Frame
Decide if you want to budget weekly, by the paycheck, monthly, quarterly, etc. How often you get paid may heavily influence this decision. Most people just budget by the month. Remember that you may have some expenses that happen quarterly, semi-annually, or even annually, things like insurance or car registration.
Step 3: Choose a Tracking Method
Choose a method for tracking expenses (and income, if desired). There are several software packages available, and they are an easy and user friendly way to track expenses; and are also good tools if you are pretty computer literate. You can also set up a spreadsheet program if that’s something you enjoy doing. You can even use pen and paper. Do whatever will be easiest for you to maintain.
Step 4: Establish Categories
Select categories that fit your needs. Some people like just a few, some use a multitude of categories, other use subcategories. It really depends on how detail oriented you want to be. General categories might include: auto, house, food, medical, insurance, utilities, etc. Specific categories (usually best as subcategories) could include: auto-insurance, fuel, maintenance; food-groceries, takeout, dining out; etc. You can always add or remove categories or subcategories later. If you are self-employed and file a schedule C on your tax returns, start there.
Step 5: Establish Spending Amounts
Review the income and expenses that you gathered. Put the expenses into the categories you have established so you can see where you’ve been spending. Total them and compare them to your income. If you’re overspending, determine where you can cut. Establish new budget amounts for the time period you have chosen based on past expenses; also remember to budget for quarterly, semi-annual, or annual expenses. (Example: you pay your car insurance every 6 months; divide that payment by 6 and budget that amount every month; put it aside where it won’t be spent). Budgeting every last penny you earn may not be the best course because there are always unpredictable expenses. Be sure to budget some savings, even if all you can save is $5 a month. It’s great to get into the habit of paying yourself first.
Step 6: Track Your Income and Expenses
Whether it’s daily or weekly, or just every few days, you need sit down and enter your expenses into your tracking method. If you put it off too long it will become too overwhelming and you’ll give up. Devoting just a few minutes a day is a lot better than three hours at the end of the month! Keeping close track of your expenses will also help you to stay in line with your budget. You’ll be more aware of your money and more careful not to spend what you don’t have. Remember to collect receipts for everything, especially things you buy with cash. This will make tracking a lot easier. If a receipt has purchases that fall into more than one category, divide them up accordingly.
Step 7: Revisit the Budget Often
Revisit your budget periodically. Review your expenses. See what’s working and what isn’t. Rework the numbers as necessary. If you are single, this should be pretty easy. However, if you are married, you may have one or two incomes in your household; both people should know where the money is going, regardless of who is earning it. Finally, remember that you are in control, not your money, and make it a goal to live within your budget.
LEARN HOW CREDIT WORKS
Have you ever wondered what makes up your credit score? The three major credit reporting agencies, Experian, Trans Union, and Equifax, use a number of factors to calculate your score. Credit scores range from 300 to 850 and are a buyer’s key to attaining loans. From cars and homes to everything in-between, if you need a loan, you need good credit. The way it works is simple. A high score is a door to lower interest rates and larger sums of credit. The higher your score, the less of a risk your pose to a lender, and therefore the more likely they’ll be to approve you for a loan.
The score is compiled by analyzing the following:
1. Length of Credit History
The longer you’ve had credit the better. The agencies will be looking at the time that’s passed since accounts were opened, the time since account activity, and then the time passed since accounts were opened based on what type of accounts (myfico.com).
2. Payment history
Do you make your payments on time? Have you missed payments or filed for bankruptcy? If you’ve defaulted on an obligation, your credit score will drop. On the other hand, if you pay faithfully each month, your credit score will rise to reflect it!
3. Percent of Credit Used
You have two lines of credit open with credit limits of $5,000 each. That means you are able to use a total of $10,000. If you have a $2,000 balance on one card and $3,000 on the other, you are using 50 percent of your available credit. The smaller percentage you are using the better; fifty-percent is high. Many people ask if they should close an unused card, but that could be a mistake. If you are paying monthly or yearly usage fees to the credit card company for a dormant card, then the answer is probably yes. But keep in mind, if you close one of those $5,000 credit limit cards, your new credit limit is just $5,000. If you now are using $3,000 of your $5,000 limit, you are using 60 percent of your available credit. This does not help your score; and on top of this, how much do you owe total? If you are carrying a large amount of debt, banks and lenders may see you as at risk for default.
4. New Credit
Have you recently opened several new accounts? This is a red flag of risk to lenders. They’ll wonder if you’re on a spending spree and will ask about other lines of credit you may be opening alongside theirs.
5. Types of Credit
According to some experts, it is good to have more than one type of credit open. This means to have some credit cards, a mortgage, and installment loans. (Major credit cards may be looked at more favorably than the higher interest rate department store cards).
6. Settlements
Did you default on a loan? Did you modify a past mortgage? Have you filed for bankruptcy or foreclosure? Did you reach a settlement with a credit card company? These factors will lower your score dramatically, as they show you are a risky borrower.
7. Errors
From identity theft to clerical errors in reporting, mistakes on your report are common and can cost you. You are allowed to view your report three times a year at www.annualcreditreport.com. Check it often to ensure accuracy. A low score will not haunt you forever. Your credit score is in a constant state of change depending on your changing credit card balances, as well as the monitoring of how long you are making timely payments and how long it’s been since your last derogatory payment. It will rise if you are a responsible spender and make your payments on time. Your credit score truthfully reflects your credit history; and you have the power.
Disclaimer
The information contained here has been prepared by an independent third party and is distributed to consumers for educational purposes only. The information is not guaranteed to be accurate and does not represent the opinions of OGI Mortgage Bankers.
