Things to Consider
Planning for the Extra Expenses of Homeownership
When deciding how much of a home you can afford, don't forget to factor in the extra expenses of homeownership that extend beyond your monthly mortgage payment, taxes, insurance and utilities.
Home maintenance helps your home run efficiently and keeps your house in good condition. There are a few popular rules of thumb used to estimate how much homeowners will spend annually on home maintenance.
- The 1% Rule: Budget 1% of the purchase price of your home each year to go towards home maintenance.
- The Square Foot Rule: Budget $1 per square foot of your house per year for maintenance and home repairs.
Keep in mind that these general rules for home maintenance and repair budgets DO NOT take into consideration many factors like the age of your home, the location, the weather of the area where you live and the condition of your house. All these factors can affect your yearly maintenance and repair expenses.
Household items for your new home
There are many items that first-time homebuyers may need to purchase for their new home. See below for a list of some of the popular items new homeowners buy within the first few weeks of moving in.
- New locks and keys
- Garden hose
- Lawn mower (if applicable)
- Snow shovel (if applicable)
- Garden tools
- Curtains or blinds for the windows
- Light bulbs
- Tool kit
- Fire Extinguisher
Making sure things like maintenance, repairs, and additional household items are included in your budgeting will help you decide how much home you can comfortably afford. It pays to speak with local experts early in the home buying process so you can focus on the right price range and buy your dream home.
As the weather warms up and summer approaches, our minds are on relaxing and soaking up the sun. However, there are some chores around the interior of your home that you should take care of before you run off to enjoy the outdoors. Keeping up with regular home maintenance can help your home run efficiently. Read on for a checklist of chores you should tackle this spring to make sure your home is in tip-top shape.
- Replace your air conditioner filter. It’s important to replace the air filter in your central heating/cooling system every one to three months to keep it operating efficiently.
- Schedule a service call to have your furnace checked.
- Make sure you switch your ceiling fans to spin counter-clockwise. This forces air down and creates a cooling effect.
- Clean bathroom vents. Removing dust from the covers will help them run quietly and efficiently.
- Clean showerheads and bathroom drains to remove mineral deposits.
- Clean out your faucet traps by unscrewing the ends of the faucets with pliers, remove the small screens and flush out all the debris and mineral deposits.
- Clean all kitchen appliances inside and out, especially your refrigerator and its coils.
- Clean out your garbage disposal with ice cubes and salt to remove build-up of sludge. Then pour a half cup of baking soda into the disposal and slowly pour vinegar on top to remove odor. Flush with hot or boiling water.
- Change your water and icemaker filters.
- Clean your range hood and filter.
- Clean your clothes dryer vent pipe.
- Clean your windows and window sills.
- Test your smoke and carbon monoxide detectors, and replace batteries where necessary.
- Oil your garage door opener and chain, and all door hinges.
- Check your attic and basement for any signs of water leaks, mold or pests.
Taking care of to-do items around the home may not be the way you want to spend a beautiful spring weekend, but it will help keep your home running efficiently and help you maintain your investment in your home!
How first-time home buyers can secure a mortgage
First-time home buyers represent a substantial portion of the property seeking public. Accounting for roughly one-third of sales at any given point in the typical year, according to the National Association of Realtors, every first-time home buyer enters the market with the hopes of realizing the American dream - ideally at an affordable price.
But buying a home on a budget may seem easier said than done. Fortunately, there are a variety of opportunities that you can take advantage of to buy a home you've set your sights on.
What do you need when applying for a mortgage?
After you've taken a look at some of the listings in your area and seen what the prices are, you'll need a mortgage provider so you can apply for a loan. Lenders are quite plentiful, so you'll have plenty of options to choose from. Whoever you go with, they'll need to see some information to determine your financials. Some of the items to gather include your credit report, pay stubs from the last few weeks, a bank statement of available funds and a copy of your federal tax returns.
Your lender will pull a credit report. Your credit report, which you can also obtain from any of the three credit bureaus for free, offers a window into your payment history. They'll be looking to see if you take care of bills on time as well as if you have any debt. The higher your score, the more likely it is you'll be approved. Generally speaking, a FICO score of 740 or above is the ideal. Borrowers are approved with lower scores, but chances are greater that you'll get a lower mortgage rate with a strong score.
Is there a program for first-time home buyers?
Would-be buyers - regardless of whether they're first-time or not - come to the process with unique needs. Understanding this, there are many mortgage options to choose from. One of the more popular types for first-time buyers - including low-income families - are FHA loans. Backed by the Federal Housing Administration, FHA loans are often ideal if you're a new buyer because down payment requirements are lower.
For example, borrowers for other loan programs and products may need to spend 20 percent of the home's value as the down payment, as may be the case for a jumbo loan. Not so with FHA loans. Down payments as low as 3.5 percent are available. Additionally, FHA loans can be worthwhile to people with less-than-sterling credit.
Of course, conventional mortgage loans shouldn't be overlooked. There are conventional loan programs that allow for down payments as low as 3 percent.
Another option are VA mortgage loans. The Veterans Administration issues these through private lenders and as their name suggests, they're exclusively for active and former members of the armed services. Applicants don't need to come up with a down payment, nor do they need private mortgage insurance. Typically, mortgage insurance is necessary when down payments are less than 20 percent.
The path to homeownership is paved with possibilities. Getting your finances in order and understanding some of the terminology - such as loan-to-value ratio and debt-to-income ratio - can help you reach a successful destination. Your mortgage lender can help you understand this kind of terminology.
There are even more first-time home buyer options available than mentioned above, and great tools to help you discover what kind of mortgage program is going to work best for you. Reach out to your favorite loan officer today to ask your questions and get started!
What does “escrow” have to do with my mortgage payments?
“What does it mean when my mortgage lender says my mortgage is going to have an escrow?”
Your mortgage lender is referring to the account that will use a portion of your monthly mortgage payments to pay your property taxes, homeowners’ insurance, and if applicable, private mortgage insurance.
A little while back, we examined the meaning of “escrow” in the context of earnest money deposits and settlement funds. An escrow account is a third-party account that holds money safely and distributes it to the right place at the right time. That can also apply to money you need to earmark for taxes, insurance, and any other managed expenses after you have bought your house.
In the case of the escrow account attached to your mortgage, the payment you make each month gets separated out. The principle and interest owed to your mortgage servicer is paid right away while the amount set aside for taxes, homeowners’ insurance and mortgage insurance (if applicable) waits in your escrow account. When it comes time to pay these bills, that amount has been accounted for, and is paid directly from your escrow account.
What if too much or too little was set aside?
Each year, your escrow account is reviewed for overages or shortages and a new estimation is set for what you’ll need for the next year. If an overage is found, the excess money is sent back to you. If a shortage is found, your mortgage servicer lets you know and typically gives you the option of paying the difference or raising your monthly payment over the next year to compensate.
Can I get a mortgage without an escrow account?
Yes. And this may be where the myth about a home buyer having to hand over a 20% down payment was born. In general, for instance, if you’re looking at a conventional mortgage loan, the mortgage lender is going to require an escrow account if you borrow more than 80% of the property’s worth. From a lender’s perspective, an escrow account is good sense. Everything gets paid accurately and on time.
Other mortgage programs have their rules about escrow and down payment sizes, so it’s always a good idea to take questions about this to your trusted mortgage loan officer. There can be pros and cons, if you’re weighing whether using an escrow account with your mortgage makes sense for you, so you’re going to want to bring all the facts of your situation when you seek guidance. A loan officer is going to be familiar with the mortgage products available to you, and will be able to educate you on what that means for you specifically.
If you do get a mortgage without an escrow account, you’re going to want to make sure to pay your property taxes, insurance, etc. on time. Failure to do so can jeopardize your ownership of that property.
The next time you’re talking with your mortgage lender, and they refer to your escrow account, you can nod sagely and say with full confidence, “I understand.”
Now get out there and find the home of your dreams.
Things to Consider
How to find REO properties
No matter where you are along you're homeownership journey, you've likely come across many new or unusual terms and phrases. One of them is typically expressed as an abbreviation: REO.
If you're looking to buy a home for sale at an affordable price - which can be said for most people in the real estate market - it can really pay off to know more about what REO properties are and where you can find them.
What's an REO property?
Short for real estate owned, REO properties are essentially foreclosed homes. When homeowners are unable to make their mortgage payments on time for a few months or longer, they receive a notice of default and, if payments continue to go unpaid, their houses go into foreclosure.
This means that the financial institution that provided the original loan assumes ownership. Much like homeownership itself, foreclosure is a process that can take several months to finish. REO is a shorthand way of indicating the transferral in ownership is complete.
During the financial crisis and the recession that followed, REO properties were fairly common in the U.S., with foreclosure starts topping 2 million nationwide back in 2009, according to ATTOM Data Solutions. They're nowhere near as prevalent today, thanks in large measure to the economy being in better shape and more rigorous mortgage approval standards.
Fewer than 500,000 homeowners were foreclosed upon last year, based on the most recent annual available from ATTOM. They continue to fall on a year-over-year basis, with nearly 55,000 default notices, scheduled auctions and bank repossessions recorded in February. That's the eighth consecutive month in which foreclosure filings fell on an annual basis.
The fact that REO listings are less common is an encouraging development, mainly because it's an indication that more Americans are in sound financial shape and paying off their monthly mortgage bills on schedule. Going into foreclosure can wreak havoc on one's credit score, making it more difficult for them to borrow money at an affordable rate of interest.
Why should you buy a REO or foreclosed property?
The one positive aspect about REOs, particularly for those who are in the market for the first time, is that once they go to public auction, they typically sell at price points well below market value.
Lenders do this in order to make bank-owned properties more appealing to buy and because foreclosures may not be "move-in ready," perhaps in need of some refurbishing to get them back in tip-top shape.
Thus, a single-family residence that originally sold for $250,000 may be listed for $200,000 as a foreclosure. Sometimes the price is more, perhaps even less. As with most aspects of residential real estate, what you spend is largely contingent on the circumstances of the moment and the local marketplace.
How do you buy a REO or foreclosed property?
Going about finding foreclosure listings is fairly similar to the process for the typical housing hunt.
Mobile apps, real estate listing websites and other online search tools will often categorize foreclosures as their own separate entity so shoppers can identify them more expeditiously by checking off the appropriate boxes.
Alternatively, many real estate agents specialize in foreclosed homes. Getting in touch with them can provide you with leads about new units in public auction and what you should be mindful of should you decide to purchase the property.
Much like existing, recently renovated or brand new houses, you never know when the next REO property will become available, but you can be sure they will. They're more common in certain portions of the country than others.
For instance, New Jersey currently has the highest foreclosure rate, accounting for 1 in every 1,006 housing units in February, according to separate analysis from ATTOM Data Solutions. Second to the Garden State was Delaware at one in every 1,008, followed by Maryland (one in 1,193), Florida (one in 1,365) and Illinois (one in 1,465).
As with any home purchase, buying an REO property should not be taken lightly. Although they usually sell for less, it quite possibly could be the most money you'll ever spend on a single purchase, so it's important to enter the process fully informed.
Here are a few things to keep in mind:
Understand your mortgage options
Generally speaking, you should be able to finance an REO, assuming you have the appropriate qualifications and are creditworthy. However, if the property you're interested in is not in livable condition - usually due to poor upkeep by the previous tenants - traditional financing may not be an option. This means that you may only be able to buy it with cash. It's another reason why your best move is to go through a real estate agent; they can fill you in on all the details that you may miss by going it alone.
Know what you're up against
Because demand currently outstrips supply, you may be in competition with others for the real estate owned property. Some of these individuals may be investors, who buy the listing with cash and then resell it after making various strategic renovations. This shouldn't dissuade you from making an offer, but it's always good to enter the process knowing what you're up against.
Have house inspected
Home inspection is standard operating procedure before buying a house, but it's especially important prior to finalizing a deal on a foreclosure. There may be structural issues that need to be addressed before you sign on the dotted line.
Talk with a trusted real estate agent or lender to learn more about REO properties - they just may be the pricing opportunity that you've been waiting for.