Mortgages

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.

Rent-To-Own? It Can Be Done

December 11, 2014 By Twila Van Leer

Renting with the option to purchase the house can benefit both renter and seller.

Home ownership is out of the grasp of many Americans today who face a vastly different market from that of a few years ago. That puts leasing with option to buy near the top of the possibilities list for many.

But look before you leap. It’s possible, but not always an easy approach to obtaining a home. Know what is at stake before signing on the dotted line.

There are different variations of the rent-to-own option, but basically it involves an agreement between a potential buyer and a landlord/owner that is expected to lead to a purchase. Such agreements usually are for two to three years. During this time, the owner sets aside a part of each month’s rent into an escrow account. If payments are made as agreed, the money in the escrow account can be used at the end of the lease time as a down payment and the purchase proceeds from there as usual.

In another version, the seller the two parties would agree to a lease for a set time with no portion of the “rent” going into an escrow account and the seller offering a discounted price at the end of the lease. This obviously would be advantageous to a seller who is under pressure.

Both parties to such an agreement have potential benefits. The renter is forced into saving for a down payment and the owner gets a monthly return on his property without waiting for a sale.

Yael Ishakis, a senior loan officer at First Meridien Mortgage in Brooklyn, N.Y., offers a for-instance: A client put $5,000 down on a home and signed a lease for $1,800 monthly rent, of which $600 per month went into an escrow account. On the regular market, the home would have rented for $1,600 per month, so the seller also was contributing to the agreement. At the end of the lease period, the client had $14,400 in the escrow. With the initial $5,000 down payment, plus some $10,000 the buyers had managed to save, they had about $30,000 for a down payment.

The pitfall may come if, in the end, the potential buyers are not able to complete the agreement. They then lose the escrow money, and possibly paid more in rent than they might have done otherwise.

Those owners willing to enter into rent-to-buy agreements usually are motivated by a sluggish market or have had their property on the market for a long time. In areas where the real estate market is thriving, there are likely to be fewer opportunities for renting with intent to buy.

Sometimes a potential buyer can work a deal with someone who is selling, but most often the seller will advertise his intentions. Some agencies specialize in rent-to-own properties. RentMACK is one such agency and there may be others you could find by researching in your own neighborhood.

Be forewarned that at the end of the rental period, you still must qualify as a purchaser. Bad credit will still be a problem. Rent payments are not often considered in building credit. Learn what your credit rating is and what is likely to be required when you try to finance. Try to improve your credit by using a secured or regular credit card, ideally paying it off each month. Or, if possible, get a car loan and make payments faithfully. If you can’t arrange financing, you may lose the escrow money. Take advantage of the lease time to prepare for the purchase. Be sure you understand at the outset what the full down payment will be and work toward it.

Get expert advice. There are dangers on both side of rent-to-own arrangements and often, after looking at the possibilities, people decide not to pursue this approach to home buying. State laws surrounding rent-to-own vary. Be sure you know what they are where you live.

From the seller’s viewpoint, if the potential buyer defaults, but there is money is escrow, a court could rule that the tenant has a property interest.

Involving attorneys on both sides is a good idea. Having legal advice on the proposed agreement may save difficulties if things don’t go as expected.

Set Emotion Aside During a House Sale

August 28, 2014 By Twila Van Leer

A home seller who is making decisions based on emotional feelings about their property may find the going very slow, real estate experts say. Failure to look at the sale as a financial transaction (although a very important financial transaction) may thwart efforts to consummate the sale. Cold, hard decisions should be made without sentimentality getting in the way, they say.

The experts offer these suggestions to avoid pitfalls related to emotion:

Don’t expect a potential buyer to see the value you attach to certain features of your property. They are not likely to pay a premium for something that has special value only in your mind. Don’t’ let your emotional attachments lead you into setting an unrealistic price. Remember, too, that the price you paid for your property is not likely the price that it will bring. While an older property may have escalated in value, if you bought at the market’s peak a few years ago, you may find the asking price will be adjusted downward.

If you have marked emotional feelings about the property, please let the realtor conduct showings. Make arrangements to be absent, says Renee Weinberg of Petrey Real Estate in Long Beach, N. Y. , in a Bankrate.com article.

Having the seller at hand becomes sensitive when a potential buyer finds flaws in the property, agreed Karyn Anjali Glubis of The Real Estate Expert in Tampa, Fla. When the seller takes comments personally, the sale is jeopardized. The seller must remember that the comments relate to the property, not to the person, she said. The involvement of the seller may hamper the free flow of conversation between the prospective buyers and the realtor. Better that the parties do not meet until there is a serious proposal for purchase.

Those who are selling need to be aware that the most interest will come during the first two weeks. The longer a property is on the market, the worse the offers are likely to get, the experts know. Sellers worry that they may have underpriced their property, but waiting for a better offer may keep the property on the market longer. The market tends to make reasonable adjustments over time.

Taking the whole process personally is a mistake, said Fiona Dogan, a realtor in Rye, N.Y. “Sellers need to become emotionally detached very quickly from their homes. By its nature, a real estate transaction is aggressive and confrontational since the seller wants the highest price and the buyer the lowest.” Negotiations usually will mean that the would-be buyer will point out flaws and the seller could be offended. But such nit-picking means the buyer is genuinely interested, Dogan said. To pass up the sale because of such feelings defeats the purpose in a big way.

First-Time Home Buyer? Do It Right

July 14, 2014 By Twila Van Leer

Get The Best Mortgage Loan For Your Home

Making your first investment in a home is a big deal. A combination of angst and anticipation on a steep learning curve. At the moment, the inventory of possible buys is low and lenders are being selective. Be aware and be wary. The better prepared you are the greater your chances of success.

Even if you have the burden of student debt, now at an all-time high average of $30,000 per graduate, it can be done, but it requires an astute approach. On the plus side, interest rates continue to be relatively low, so now is the time. A suggested timeline for home-buying includes:

A year in advance:

Get serious about the figures. Trulia.com has a “rent-or-buy” calculator that would help you decide if buying is in the cards or whether it would be wiser to continue renting. At the moment nationwide, buying is 38 percent cheaper than renting. Feed in your data and see how you score. Get your finances in order. Spend the year saving money and, if possible, paying down debt. An FHA loan requires at least 3.5 percent down. Conventional mortgages call for 10 percent to 20 percent. Are your jobs stable? The potential mortgage institution will want to know. Be studying the housing market to learn what appeals to you. Browse the Internet listings and save the ones that you think you’d really like to see.

Six months to go

Order free credit reports and eliminate any mistakes before they come to the attention of a potential seller. Pay your bills on time and if you have a few bucks left at the end of a pay period, apply them to debt. Don’t take on new debt. Approval for mortgage applicants requires a minimum credit score of 755. Zillow.com has an online calculator that will help you estimate what you can afford for a new home, based on income, savings and debt. Look at tax rates in the target area you propose. Don’t court disappointment by overestimating what you can afford. Try to forecast future expenses. Maintenance on a home adds, on average, 1 percent to the cost of home owning.

Three months out

You’re ready, armed with the information you need. Now determine what type of mortgage you want to pursue. Fixed mortgage rates, now at about 4.4 percent, could go up to 5 percent this year, according to industry forecasts. A 7/1 adjustable-rate loan carries interest of only 3.5 percent now. For the sake of that lower rate, however, you run the risk that you could stay in the home longer than seven years and face a sharp interest rise. That’s why 92 percent of mortgage borrowers stick to fixed-rate loans. Many banks will pre-approve a mortgage loan based on income and credit. That’s a huge advantage when the actual search for a home begins.

Time to go

Find a realtor in the area where you want to buy. Screen to be certain the person you select will serve the best interests of your home purchase. Good questions to ask: How does the realtor go about finding listings and how are potential bidding wars handled?

That’s it. Happy house hunting!

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.