Mortgages

Buying A Home? Check This List

March 30, 2018 By Twila Van Leer

Buying a home, for many Americans, is like slipping into a foreign country. Myths about mortgages abound. Go into the process as well prepared as you can by considering these facts:

• Perfect credit is required. Not so. Having a higher credit score is helpful and may get you a lower interest rate, but it is not the only factor a lender considers when you come to borrow money for your home. If you can show that you are able to repay a loan you probably can swing the loan if your credit score is above 670.

• Rising interest will prevent your owning a home. Rising interest rates do, as a matter of fact, affect how much of a loan you can qualify for and the kind of loan you might be offered, but it doesn’t mean you are out of the market. CoreLogic projections show that an 0.85 percent increase in interest will cost the buyer another $100 per month. That may seem like a lot, but it is less than the period of all-time high interest rates in the early 1980s, when a fixed 30-year mortgage rate was at 18 percent.

• You need a 20 percent down payment. Conventional home loans may make this requirement, but there are other options. FHA loans require only 3.5 percent down. VA loans may be financed for up to 100 percent of the price. Lending institutions often have provisions for loans with a minimal amount down, say $1,000. The downside of a small down payment is that you may be required to buy private mortgage insurance.

• Prequalification means you have the loan. Going through a prequalification process determines how much mortgage you can afford by computing your income and liabilities, but it is not a binding agreement. The potential lender will look at additional documentation before you are fully approved.

• A 30-year mortgage is best. It’s the most popular option, but not the only one. A 15- or 20-year loan can save a lot in interest payments. An adjustable rate mortgage starts with a fixed rate then is adjusted according to market factors. That means your payment will fluctuate over time.

Don’t compare mortgage options based on their advertised rates, but look at their annual percentage rate, which lenders are required to advertise, along with mortgage interest rates. The APR includes estimated fees and other charges, giving you a more accurate picture of what you can expect.

Not Buying A Home Is A Mistake

January 23, 2018 By Twila Van Leer

The single largest mistake America’s Millennials are making is failing to buy a home, according to millionaire and finance guru David Bach.

Although there is a school of thought that home ownership is the “American nightmare,” Bach holds to his premise that failure to buy a home limits young earners in their quest for financial well-being. “The average homeowner to this day is 38 times wealthier than a renter,” he asserts. “Buying a home is an escalator to wealth.”

Bach, author of “The Automatic Millionaire,” says he bought his first home in San Francisco. It skyrocketed in value. He then moved to New York, purchased another home and again saw a significant increase in value. He now owns a third home.

You have to live somewhere, he reasons, so why not make an investment in something that will pay you back over time? A renter can easily spend half a million dollars in rent over the years and end up with nothing to show for the expenditure.

“Or you can buy a house and spend the same amount paying down a mortgage and in the end wind up owning your own home free and clear.” As an example, he cites the math: $1,500 rent per month over 30 years equals $540,000 – money down the drain, in his opinion.

If you are considering the pros and cons of home ownership, he advises “Start by crunching the numbers. Do the math, starting with the smallest options. When you’re really clear on your goals, start shopping.

Rule of thumb: Make sure your total monthly housing payment doesn’t consume more than 30 percent of your take-home pay. Save for a down payment of at least 10 percent, more if possible. Don’t go overboard. Your first home may not be your dream home, but it is a step toward that end.

Buying a home puts you in the market, and, according to Bach, “You aren’t really in the game of building wealth until you own some real estate.”

Check Up On Your Personal Finance Planning

March 11, 2016 By Twila Van Leer

The Great Recession that plagued personal finances from 1993 to 2008 had a significant impact on the amount of money Americans were saving. Savings figures for the period were at the lowest levels in recent history.

But by May of 2009, the household savings rate had climbed to 6.9 percent, the highest level since 1993. It took a major financial jolt to get people back on the right track. The effect of the recession, coming on the heels of a period of high borrowing, was a disaster for many. Bankruptcy filings had nearly doubled by the end of 2008.
If you have lingering concerns about the state of your own finances, check your data against these indicators. Make adjustments if necessary.

5 Steps To Financial Health

Credit Scores

1. Check your credit score. In a range of 300 to 850, the higher your score, the better your financial health. Lenders use this score to determine if they want to do business with you. To get a credit score without cost, contact one of the three primary credit bureaus, TransUnion, Equifax or Experian. If your score is below 600, try to improve it by paying down debt, satisfying outstanding judgments or curb your use of credit cards.

Savings

2. If you are saving less than 5 percent of your income, it isn’t enough. In 1993, the rate, at 7 percent, was the highest it had been. Since then, too many earners began dipping into savings to see them through the recession, rather than adding to their savings cushion. The trend now is up and if you haven’t joined the savers, now is the time. Don’t look at it as an immediate thing, but as part of the retirement you hope to have. If your savings backup is niggardly, it may disappear entirely in the event of a medical emergency or any other of the many financial challenges that can bite when you aren’t prepared. Make savings of 10 percent of income a goal.

Credit Cards

3. You can be pretty sure you are in over your head if you carry credit card balances from month to month or if you are paying only a small amount to the principal. This is a major cause of financial stress for many people. Ideally, you use a credit card only in emergencies, or charge only what you can pay off in a month. Then you start whittling away at the total, paying whatever you can over the expected monthly payment. Only $5,000 in credit card debt requires a minimum $200 a month and can ultimately cost $8,000, taking up to 13 years to pay off.

Mortgages

4. If housing consumes more than 28 percent of your income, you are in trouble. Almost certainly you will have to cut back in other areas of your budget to handle that load. When the housing market was thriving, the mortgage lenders were allowing people to buy homes that absorbed up to 35 percent of their income, but with the country just coming out of the housing slump, they are edging back to the 28 percent figure. Give some serious thought to downsizing if possible.

Cut Back

5. If your non-housing bills are going crazy, you can assume you need to do something to restore balance. Succumbing to the temptation to buy items on time, you end up paying what seem to be relatively small amounts on a dozen or more products or services. Then relative small quickly becomes over-large and you’re suddenly in the category in which the required outgo is larger than the income. Assess your situation by putting all the bills on the table and seriously discussing them. Identify what you can trim or do without and then do without it. Just one for-instance: Do you really need a 500-channel cable TV package if you are using only a few of the channels? Do you really need a land line if you have cell phones? Etc. etc. etc. An honest look may help your family regain control of its resources without any really painful sacrifices.

Do what you can to avoid become part of the dismal foreclosure and bankruptcy statistics. Keep tabs on your finances and move toward a better distribution of what you have for the sake of the future as well as the present.

Reverse Mortgages Not All Positive

June 24, 2015 By Twila Van Leer

Is a reverse mortgage worth it in the long run?

Older Americans who watch television are besieged by ads that promise a reverse mortgage is the answer to all their financial problems. Often, the ads are touted by such celebrities as actor Henry Winkler, whose old Fonzi character from Happy Days still resonates with the older crowd. Or the messages are given the aura of respectability when they come from someone like Fred Thompson, a former U.S senator.

Don’t be too quick to accept all that the ads lead you to believe, the Consumer Financial Protection Bureau warns. They may not be telling the whole story.

The federal agency conducted a study that showed some older homeowners are increasingly complaining that they were given false impressions about reverse mortgages.

Such mortgages are offered to people over 62, some of whom believe they are a government-sponsored benefit that will ensure that they can stay in their home until death. Not so, says the CFPB. They are loans that must be repaid – with interest. In some instances, they result in the loss of the home. Many seniors, long retired and on a fixed income, can’t afford such a financial arrangement.

A scary 10 percent of those who take out a reverse mortgage default on the loan, about twice the rate of defaults on conventional mortgages.

The idea of receiving cash or a line of credit that taps the equity in the home seems attractive to many cash-strapped seniors. They may see the reverse mortgage as a way to pay off debt or to remodel their older homes. They have no loan payments on a monthly basis. But over time, the loan balance increases and it comes due when the borrower dies, moves or sells the home or if it defaults on other obligations such as insurance or taxes. That may come as an unpleasant surprise to survivors.

Most reverse mortgages are insured by the Federal Housing Administration, but they are not a risk-free benefit, something that many of the borrowers do not understand and which the ads don’t warn them of, the CFPB study showed. Too much “fine print” confuses many of the elderly and leaves them vulnerable, the agency warned. Often, they are oblivious to the fact that the loans carry interest, that there are repayment terms and other crucial requirements that may well rear up and bite those who sign on the dotted line without understanding all the relevant factors.

As part of its review of reverse mortgage practices, the CFPB held interviews with some 60 homeowners over age 62 during focus group meetings or in individual sessions.

Spokespersons for the National Reverse Mortgage Lenders Association, on the contrary, say that they have a code of ethics that includes a requirement for accurate advertising. The association, which presents the companies that supply reverse mortgages, says it is committed to educating consumers about the pros and cons of their product and trains lenders to be sensitive to client needs.

Bottom line: no matter what “the Fonz” says, it is wise to make a thorough study of how reverse mortgages work and match the information very carefully with your particular financial situation before acting. It may be the lifesaver you are looking for, but it may be risky enough that you’ll want to look at other options.

Mortgage Rates Are Down

May 12, 2014 By Twila Van Leer

Anyone who has ever ventured into the world of home buying has learned something about the interest rates that are an integral part of the deal. They yo-yo up and down almost daily. In early May, they hit the lowest level they have been for awhile, at 4.21 percent for a 30-year fixed rate house loan. That was a decline from 4.29 percent the previous week. For a 15-year loan the rate 3.32 percent, a drop from the 3.38 percent of the previous week. The 15-year option is popular for those refinancing existing mortgages.

These rates were the lowest since last November.

The question for most lay folk not privy to the ups and downs of the housing market, the question is: What causes the swings? Why do they rise and fall so consistently and so fast?

Believe it or not, such things as global unrest and a weak U.S. economic recovery from the recent recession are major factors. What happens in Africa and Russia and China sends shock waves into the American economy and affects transactions at the most basic levels. The old saying that it’s a small world is especially true when it comes to the fluctuations in the American housing market.

Negative economic effects in other places on the globe contribute to the ongoing bid for Treasury debt, which drives yields down, with a subsequent dip in mortgage rates as well, financial gurus say. That’s good news for those in the market for a home. The practical effect is a lower house payment. For instance, on a $200,000 home with a 30-year fixed rate mortgage, the monthly payment would be $979 a month at rate of 4.21 percent. At the norm of 6 percent, the home buyer could expect to shell out about $1,200 per month. Though the fractional increases or decreases in the interest rate seem negligible, they make a big difference when you’re making a long-term loan.

There are, of course, other factors at play. Stricter lending standards have to some extent limited the impact of the lower interest rates, according to data compiled by the National Association of Realtors. A high credit score can even the effect. But for those with lower scores, credit is still very tight, the association reports. Many of those who would like to jump into the housing market can’t find financing, despite the attraction of a lower interest rate.

The best solution for those whose credit is marginal is to work on improving the credit score to make themselves more appealing to those who made loan decisions.