The Advantage Advisor

 

 

With foreclosures climbing at an alarming rate, it’s readily apparent that prospective homebuyers need to be aware of what they can afford. While foreclosure may come about as a result of developments beyond one’s control, anyone looking to buy a home should take several important criteria into account before making a commitment.

Housing expenses (your mortgage, property taxes, insurance and primary utilities) should realistically account for no more than 35 to 40 percent of a household’s net (take home) income.

  In evaluating home and mortgage options, it’s important to remember all the expenses that come with owning a home.  Beyond a regular mortgage payment, homeowners may be responsible for property taxes and homeowner’s insurance (if not included in escrow), private mortgage insurance (which protects lenders if the down payment on the home is less than 20 percent of the total balance), home maintenance, and fees for membership in groups such as homeowner’s associations.

Next, evaluate your expenses. Construct a thorough and realistic budget that includes secured debt like car loans, variable expenses like food, clothing, and recreation, and periodic expenses such as medical costs, car repairs, and gifts. Compare average monthly expenses to a conservative estimate for monthly income and see what’s left over.

Beyond all of the previously mentioned expenses, homebuyers are likely to face a variety of up-front costs when the home is first purchased. Depending on the mortgage lender and the type of home being purchased, the down payment required may range from as much as 20 percent of the total balance to as low as 1 percent. Be aware that mortgages involving lower down payments will often require homeowners to pay for private mortgage insurance, a form of insurance that may be costly and provides no benefits for the buyer. Homebuyers should also anticipate paying a variety of closing and settlement costs as well as expenses associated with moving to the new residence.

 

 

Q: Should I get my credit report and score prior to shopping for a home loan, or should I let my lender do it? I’ve heard it looks bad if there are too many inquiries for your credit report/score. Is that true?

 

A: You should definitely check your credit report and score before you start shopping around for a mortgage.  ACCS recommends you check both six months before you’re ready to apply for a loan.  That way, if there are any errors on your credit report, you’ll have enough time to get them taken care of before you go to a lender.  You can check your credit report as often as you would like and it won’t affect your credit score because it doesn’t count as an inquiry when you are the one obtaining the report.  Remember, you are entitled to one free credit report (excluding the score) every 12 months from www.annualcreditreport.com. 

If you want additional reports you will be charged a nominal fee by the credit bureaus.  Good luck!

 

 

You’ve moved into a new house. Congratulations!  Now you’ve got to decorate and make it feel like your home.  Decorating can be pricey or it can be affordable. Here are some tips to decorate without breaking the bank.

·        Set a decorating budget. You could set an overall budget or budget a little money each month for decorating. Remember, you don’t have to decorate your entire home at once.

·        Be creative. If you have skills such as sewing or carpentry, put them to use to make your own curtains or covers for homemade end tables.

·        Check out estate sales, flea markets and yard sales.

·        Look for sales, especially at the end of seasons. You can find many home furnishings and decorations at deep discounts.

·        Shop discount retailers like T.J. Maxx or Marshall’s. These stores often carry designer home items at a fraction of the original cost.

 

 

Buying a house for the first time can leave potential homeowners with a lot of questions.

Buyers may wonder how their credit score will impact their home loan interest rates or how much money they really need to purchase a house. They may wonder if they can afford the upkeep of a home or what kind of insurance they need.

It is extremely important for people to be educated as they go into the home buying process. This will help to ensure you buy the house that is right for you, have the ability to pay your mortgage and maintain your home into the future.

A good start for first-time buyers is to go through a pre-purchase counseling session or to attend a first-time homebuyers’ workshop with Advantage CCS.

The counseling session and workshop explain the home buying process and the various ways to finance your home. You will also learn about shopping for a home and the loan application process, in addition to life-long money management tips.

With a housing counseling session, you can also learn if you are likely to meet the basic criteria to qualify for the mortgage you want based on your credit history, credit score and other factors. If you do not qualify, the counselor will make suggestions to help get you on track to qualifying for the mortgage.

Another good step, which can be accomplished during a housing counseling session, is to figure out how much house you can afford. (See “How much house can you afford?” on the front page.)

The next step is to understand the many different types of home loans. Different loans work for different buyers, depending on your individual situation.

Here are a few of the most common types of mortgages:

·        A traditional, fixed-rate mortgage. This means your loan is taken out for a set amount of time, commonly between 15 and 30 years. During the course of this loan your interest rates and house payments will remain the same, unless your property taxes or insurance increase.

·        An adjustable-rate mortgage, or ARM. After an initial period of a low interest rate on your loan, the interest will increase based on an interest rate index. The increase in interest will mean a higher monthly mortgage payment.

·        A balloon mortgage. You make a smaller monthly payment for a shorter loan term, usually five to seven years. But, at the end of that period you owe one large payment to pay off the balance of the loan, often requiring the borrower to refinance.

Buyers may also qualify for loans through the Pennsylvania Housing Finance Agency, which offers home loans with below-market interest rates or through the Federal Housing Administration. Veterans may also qualify for a VA loan.

It is also important to understand the difference between subprime loans and predatory lending. Subprime loans are typically given to buyers who have poor credit or a limited credit history. These loans often carry higher interest rates.

Predatory lending refers to lenders knowingly giving a borrower a bigger loan than he or she can afford, encouraging the borrower to lie about their income or money available for a down payment, or pressuring the borrower into higher risk loans like balloon mortgages.

While all subprime loans are not predatory loans, some predatory loans can also be subprime.

Going through a housing counseling session or homebuyers’ workshop can help eliminate any confusion where home loans are concerned.

 

 

Pennsylvania Housing Finance Agency: www.phfa.org or (800) 822-1174.

Federal Housing Administration: www.hud.gov or (800) 569-4287.

U.S. Department of Veterans Affairs: www.homeloans.va.gov or (800) 827-1000

 

 

Reduce your utility consumption.

There are many ways to reduce your utility usage. Take a look around your home for ways to cut back.

Forgo air conditioning for open windows and fans in the warm weather. Make use of wood burners or fireplaces in the winter if possible. Keep your hot water heater set at 120 degrees for significant savings. Wash full loads in the dish washer or washing machine, and wash clothes in cold water to reduce your energy bill even further. In dry weather, hang your clothes out to dry.

If you are still having difficulty paying your utility bills and need help with budgeting, call Advantage CCS.

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