5 tips to get financially ready to buy a home

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The ability to pay your bills on time and still have money left over at the end of the month makes you financially solvent, important when considering the future purchase of a home. Being able to save money is vital, whether you intend on paying cash or using a mortgage when you buy. Proof that you pay your financial obligations on time and save money can lead to better loan rates and terms.

Getting back on your feet after a financial disaster takes time. It involves patience, hard work and teaching yourself new habits. The sooner you start, though, the sooner you’ll have the keys to your new house.

Set up a budget

If you don’t have a budget, the time to create one is right now. Yes, it’s time consuming and sticking to it once it’s created is challenging. The creation aspect is easier if you use personal finance software, but a spreadsheet will work as well.

First, determine how much money comes into the household every month. Consider all sources of income from all family members.

Then, get out all your bills and make a list, breaking them down into fixed and variable expenses. The former includes your auto loan payment, mortgage payment (if you have a fixed rate mortgage) or rent payment. The latter group will include utility payments, groceries and incidentals.

Plan on taking a month to keep track of every penny spent, from your bill payments to gas for the car to the latte you pick up on the way to work in the morning. At the end of the month, enter these totals into the budget under “expenses.”

By now you’ll have a picture of where your money goes every month, and an indication of where you may be wasting money. Of course you’ll want to cut out the waste first, directing those funds to the rest of the plan.

Pay off debts

Prioritize your debt and bill payments every month. Along with paying your monthly bills, ensure that secured debts are paid first – such as car or mortgage payments. Pay at least the minimum monthly payment on credit card accounts and unsecured loan repayments, except for the one with the highest interest rate. Pay a little bit more on that one every month until it’s paid off and then start working on the one with the next highest balance. (Financial guru Suze Orman suggests cutting up all of your credit cards except one and to keep that one at home, using it only for emergencies.)

Paying your bills on time, which you will do with the assistance of your budget, and paying off debts helps lower your credit score. Borrowers with a credit score of 760 or above qualify for the best mortgage rates.

Make changes in your spending habits

After a few months of budgeting you’ll find areas in it in which you can cut back on spending. Some of these might include taking the bus to work instead of driving, brown-bagging at lunch time instead of eating out and being a bit more frugal when you shop. Be brutal in your budget cuts because each one will get you closer to being able to afford your new home.

Make more money

Cutting your budget expenditures and paying down debt aren’t the only ways to move quickly down the road toward homeownership. Finding ways to make more money, whether it’s volunteering for overtime hours at work, taking on a part-time job (Uber is always hiring!), selling unused items on Craigslist, the extra cash will push you faster and further down the road to home ownership.

Save Money

Once you have your debt under control it’s time to start saving money. Unless you’ll pay cash for the home, you’ll need money for a down payment and closing costs. Then, there are all the extras you’ll want to purchase for the home after you move in. We recommend that you plan on accumulating at least 3 to 4 percent of the loan amount for closing costs and from 3.5 percent to 20 percent, depending on the type of loan you obtain, for the down payment.

Cleaning up your finances isn’t easy and saving money may be challenging. Just keep that dream home top-of-mind, though and you’ll remain motivated.

Avoid costly plumbing bills by being kind to your toilet

toilet maintenance

Whether you refer to it as the loo, throne, potty or John, your toilet isn’t quite as indestructible as you may think. Sure, “toilets have an unlimited lifespan,” according to the National Association of Homebuilders, but only if the components inside the tank are maintained properly and leaks are attended to promptly.

Let the maintenance slide, however, and you can plan on spending an average of nearly $200 for repairs, according to homeadvisor.com. If you need to replace the whole thing, you’ll have a bill of about $375, but it could run as high as almost $900.

So, add a “potty check” to your list of routine home maintenance chores and then be kind to the contraption. It will save you money in the long run.

Check the toilet for leaks

One of the most common toilet repairs, according to Ted O’Brien, with O’Brien Plumbing in Kailua-Kona, Hawaii, is replacing the wax ring. “The wax ring is a gasket that seals the connection of the toilet bowl to the floor,” he explains. As the ring ages (it’s life span is typically between five and 10 years), it deteriorates, allowing water to seep from the toilet bowl.

A wax ring is inexpensive – as little as $3.50. Sure, the plumber will charge to install it, but what you’ll pay now is a lot less than if you don’t notice the leak and it continues, rotting the subfloor beneath and around the toilet.

A nasty odor is one of the first signs of a leaking wax ring. Odors can also occur from clogged drains, so further inspection may be necessary to determine the true cause. During your maintenance check, inspect the caulking around the base of the toilet to ensure that it’s still in good condition. Look for stains on the floor and, if the bathroom is upstairs, check the ceiling in the room below for signs of water damage. Step on the floor around the toilet. If it feels spongy, you may have a leak.

Check the tank’s components

The toilet won’t stop running – an all too common complaint that plumbers receive. Truthfully, however, it’s an easy problem to diagnose, according to the experts at familyhandyman.com. “There are really only two main parts: the flush valve, which lets water gush into the bowl during the flush; and the fill valve, which lets water refill the tank after the flush. When a toilet runs constantly or intermittently, one of these valves is usually at fault.”

Figuring out which valve is the culprit is easy as well, they say, and offer a photo tutorial on the website. If water is going into the overflow tube, suspect a defective fill valve. If, on the other hand, “the water level is below the top of the tube, the flush valve is leaking, allowing water to trickle into the bowl. . .preventing the fill valve from closing completely.”

O’Brien recommends that homeowners perform a quick visual inspection of the interior of the toilet tank every six months. Remove the lid and flush the toilet. Watch each component, ensuring that the flapper seals adequately and the fill valve fills to the appropriate water level.

Don’t use the toilet as a trash can

Plumbers find all number of items clogging pipes, from children’s toys to “flushable kitty litter” (which, it turns out, isn’t really flushable after all) and many enter the pipes via the toilet.

Avoid a visit from the plumber by avoiding flushing stuff that shouldn’t be flushed (“flushable” wipes, feminine hygiene products, paper towels, cigarette butts, etc.) Keep toddlers out of the bathroom as they have a habit of throwing things into the “potty” to watch them disappear.

Plumbers recommend that nothing but human waste and toilet paper be flushed down the toilet. “If it doesn’t break down in water, it’s not going to break down in the toilet,” warns Eric Corbett, owner of Larry and Sons Plumbing in Hagerstown, MD.

Feed the drainage system

“Consumer Reports says biological drain cleaners are useful at keeping drains free of organic material as long as pipes aren’t clogged,” according to Karen Gardener of The Frederick News- Post. Enzyme-based drain cleaners help dissolve soap scum, wads of hair and other substances that can build up and cause clogs. You can  find these products online at Amazon.com and also at large home improvement stores.

Routine home maintenance is one of the less attractive aspects of homeownership. Ignore it, however, and you’ll likely end up spending obscene amounts of money to repair or replace what you fail to maintain.

5 things you need to know about home warranties

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One of the biggest fears of most homebuyers is that there is something wrong with the home and it’s waiting for after the move-in to rear its ugly head. It is this fear that brought about the birth of the home inspection industry in the early 1970s. Today’s professional home inspector performs a thorough investigation of a home’s components and systems that are visible to the naked eye. Even the best inspector, however, may miss something, which is why there is so much interested in home warranties.

The idea behind a home warranty is to provide financial protection for homeowners faced with the failure of major mechanical systems, such as the home’s heating and air conditioning. Home warranties provide, most of all, peace of mind.

1. Home warranties aren’t insurance

One would think that with all the hoopla surrounding health insurance, the average American would be well-versed on the subject. Insurance, however, be it health or homeowner’s, is a complicated subject and therefore confusing to many. In a nutshell, your homeowner’s insurance policy covers the home’s structure and certain personal belongings from financial loss due to theft, fire and other calamities. If your water heater is stolen, your homeowner’s policy should cover it. If it breaks down, that’s on you.

Home warranties, by the way, aren’t actually warranties either – at least according to the federal government’s definition: A warranty comes with the purchase of a product and the cost is included in the purchase price.

Since the home warranty is purchased separately from the home and it costs an additional fee, it is best described as a service contract.

2. Typical coverage

Home warranty companies offer a variety of plans and typically the more you pay, the more your plan will cover. Most of the basic warranties – known as “first tier” and “second tier” plans – cover the homes major systems, such as HVAC (heating, ventilation and air conditioning), plumbing (some plans cover outdoor plumbing, such as a sprinkler system) and electrical (typically covered in tier one and tier two plans). Major appliances, including the refrigerator, garbage disposer, range, water heater and washer and dryer are also covered.

3. What’s not covered under a home warranty

Anything that isn’t covered under the home warranty is known as an “exclusion,” and you’ll find these vary between companies.

Most home warranty contracts won’t cover breakdowns due to normal wear and tear. They also exclude anything damaged due to deferred maintenance, insect or vermin damage and acts of God. Structural problems, such as a leaky roof and cracks in the wall are typically not covered, although you may find a company willing to cover these for an additional cost.

4. You can buy optional coverage

Speaking of additional cost, home warranty companies offer optional coverage at additional cost. This includes coverage for a septic system, well, pool, spa and central vacuum system.

5. Are home warranties worth the cost?

The average cost of a home warranty, nationwide, is $969, although most Americans spend as little as $243 and as much as $1,702, according to HomeAdvisor.com. In the event a covered component fails, the warranty provider will send a technician to your home to investigate the problem. You will be required to pay a $55 service fee each time a technician visits your home.

Whether or not home warranties are worth the cost depends on whom you ask. Many real estate professionals feel that purchasing one during the first year of homeownership, when folks are strapped for cash, is a wise move. Some consumer organizations, however, feel otherwise.

In fact, Consumer Reports cautions that “We recommend avoiding service contracts . . . far too often, warranty claims are denied because the company says the problem was pre-existing. Or, the claim is denied because the consumer can’t prove that a broken item was properly maintained.”

If you decide to purchase a home warranty, check the company’s record with the Better Business Bureau. Then, keep impeccable home maintenance records. The home warranty company may demand to view your records if you try to enforce a claim.

Get rid of kitchen clutter

kitchen clutter

 

I think it’s a safe bet that just about every home has a junk drawer. You know, that place you throw things because you can’t figure out where else to put them. Before long, the drawer is overflowing with rolls of tape, bag clips, pens, thumbtacks and other assorted odds and ends. NPR’s Linton Weeks calls them our “accidental time capsule[s].”

While a Moen Consumer and Market Insights Group survey claims that the garage is where Americans stash most of their clutter, the kitchen comes in second, tied with the home office. From stacks of mail to small appliances, respondents complained that their counters resembled their junk drawers.

We took some time to research what organizing experts have to offer by way of tips to unclutter the kitchen. Even if you’re not thinking of selling your home in the near future, these tips will help make life a whole lot easier.

Good clutter vs. bad clutter

The Moen survey finds that there is good clutter and bad clutter. The former includes cutting boards, scrub brushes and, yes, even the random small appliance. Yet professional organizers say that seldom-used kitchen appliances belong in the cupboard, not on the counters. Not only does this create a less cluttered kitchen, but frees up counter space as well.

“Coffee makers are typically used every morning, so it makes sense to have it out all the time,” recommends professional organizer Helena Alkhas. “On the other hand, you may only use your crockpot once a week so the best place to store it is in a cabinet.”

Once you’ve determined what will stay on the counters and what must go, it’s time to devise a decluttering system and Alkhas pares the duration of hers down to 15 minutes.

A place for everything

There is another school of thought, however and that one includes removing everything from every drawer and cupboard, sorting it, disposing of what you never use, storing what you seldom use and placing frequently-used items in an easily accessible spot.

Since we love real estate, cookbook author and pastry chef Alice Medrich’s system especially appeals to us. We also prefer the more relaxed pace of her system and her recommendation to “do it in small bites, an hour at a time, over several weeks.”

In it, she divides the kitchen into three regions:

  1. The space in the kitchen where you do the most work. This includes the counters and cabinets that are easily reached. Medrich calls this region “prime real estate.”
  2. The suburbs in your home are those storage areas closest to the kitchen, such as a pantry or closet.
  3. What we call “rural,” Medrich refers to as the “outlands.” Picture the basement, garage and any cupboards in which you need to stand on something to reach them.

Everything in its place

Although you can begin wherever you choose, Medrich suggests that the prime real estate in the kitchen is best tackled first. You will be able to enjoy the fruits of your labor sooner than if you were to begin in the suburbs or outlands and this instant gratification may help incentivize the rest of the project.

After you’ve cleared everything from the cupboards, begin putting each item away according to how often it’s used. Common sense suggests that seldom-used appliances and gadgets go in the back of cupboards while those items you use more frequently go in the front. Anything that is used annually, such as that huge turkey roasting pan, should be placed in the outlands.

Use storage space wisely

If kitchens sell homes (and they do), pantries sell kitchens. Our buying clients agree that a roomy pantry is a must, but even a smaller one can be put to good use.

Again, break the space within the pantry into zones. These can be anything that makes sense for you but some of the more commonly used by professional organizers include baking, snacks, canned items, breakfast items and pasta and rice. Just as you did with the cupboards, place items you rarely use toward the back of the pantry shelves, allowing easy access to food items you use daily.

Another helpful tip from organizers is to use baskets to keep like items together, such as one for sandwich bags, foil and plastic wrap, another for chips, pretzels and other snacks and a larger one for pet items. Woman’s Day offers up several suggestions to whip the pantry into shape.

When you’ve finished the pantry, consider other clever ways to store frequently-used items that don’t involve stashing them on the counter. House Beautiful, for instance, offers a brilliant idea for storing cutting boards and we love this storage idea from Real Simple for those annoying but useful plastic containers that end up all over the kitchen.

Lose out on the home of your dreams? Don’t hesitate to make a backup offer

backup offer

In a sellers’ real estate market when there are few homes available and a large pool of ready and willing buyers, many of those buyers get left in the dust. It’s aggravating to fall in love with a home only to learn that there are several other offers on the seller’s table. Competition, in this instance, isn’t healthy.

Just because someone else got his or her feet in the door first doesn’t necessarily mean it’s a done deal. There are many potential pitfalls on the road to closing that may just derail that particular transaction. If you make a backup offer, you’re in prime position if that comes to pass.

What you need to know about the backup offer

A backup offer puts you in line to buy the home should the primary offer fall apart. We’ll get into some of the reasons this might happen in a moment. The backup offer is a binding contract (an offer to purchase), once all parties accept and sign it, so ensure that you are approved for the amount you’re offering and fully prepared to follow through on the purchase.

If the seller’s current buyer backs out for any reason, your offer is already accepted, so there is no renegotiation. Make sure that when you submit the backup offer you’ve included all contingencies that are important to you, such as one for approval of the home inspection. We will walk you through this, every step of the way.

So, why might a sale fall through, leaving a great big opening for you to step into? Let’s take a look at some of the most common hazards.

Loan problems

Many homebuyers don’t understand that most lenders will perform what is known as a “soft pull” of their credit reports just before closing. This is done to ensure the lender that none of the borrower’s financials have changed.

Any change, whether it is a new job, loss of a job, piling up debt on a credit card (wait until escrow closes to buy that new furniture), may result in the buyer’s mortgage being denied – even at the last minute. Naturally, if this happens, your backup offer automatically steps up to primary position.

Low appraisal

If the buyer in first position is obtaining a mortgage, the lender will want the home appraised to ensure that it isn’t lending more money than the home is worth. If the appraiser determines that the home is worth less than he or she offered, it will deny the mortgage.

In this case, the buyer can dispute the appraisal, request that the seller lower the price, opt to pay the difference between the offering price and the appraised value in cash, negotiate with the seller to pay half of the difference or walk away from the deal.

Again, if he or she walks, you win. But, keep in mind that your bank’s appraiser may also come in lower than the asking price, so think about the aforementioned options.

Problems with the home inspection results

The home inspector is responsible for pointing out problems in the home that are visible. In other words, he or she cannot tell a homebuyer what’s lurking under the floorboards or behind walls.

Most professional inspectors take their jobs quite seriously, and will note even the smallest of details, however. Large photos of a small crack in a wall can be alarming to some buyers, and larger problems may cause the entire deal to fall apart.

Buyer’s home sale falls apart

Many homebuyers are also home-sellers and create a contingency in the purchase agreement that states the purchase is based on the successful sale of their current homes. It’s a tricky process – trying to time the sale of one home to purchase another – and it frequently causes the death of the purchase. Their loss, however, is your gain as you will move into first position.

Backup offers don’t always get the home, but enough of them do that, if you love the house, you should consider submitting one.

The new homeowner’s essential tool kit

homeowner's essential tool kit

Just when you think the drain on your savings couldn’t get any worse, you close on your new home, unlock the door and move in. All is right with the world.

Experienced homebuyers understand, however, that it takes living in a home for a few weeks to notice all those items that need fixing and those you simply wish to change. The last thing to want to do right now, however, is spend even more money. But, spend you must if you hope to make the home comfortable. Remember, you no longer have a landlord to call for repairs; you’ll need to either make them yourself or call a professional.

If you’re handy and you have the tools required, many routine repairs are DIY projects. If you don’t have the tools, it’s easy and inexpensive to assemble a basic tool kit and the other items you’ll need to tackle the small repairs around your new home.

The new homeowner tool kit

No, you don’t need to own every tool you’ll find in a contractor’s inventory. Even the basics will get small jobs done. Purchase a hammer, a measuring tape, both a Phillips and a standard screwdriver, adjustable wrench, utility blade and a pair of pliers.

If you have extra money, consider some power tools, such as a drill and sander.

Miscellaneous items

  • A 6-foot ladder is an indispensable item for all homeowners. Many HVAC filters and smoke alarms are set high in ceilings and only a ladder will help you reach them.
  • Duct tape – it’s a miracle product. Sure, people laugh about it, but there are so many uses for the stuff, from removing dust from a lamp shade to taping wires together after splicing them.
  • Paintbrushes in an assortment of sizes – the small ones are handy for light touch ups so include those along with the standard-sized paintbrushes.
  • Flashlights – and batteries. Every home should have more than one flashlight, not only to use in case of a power outage, but also to inspect those dark areas of the home. Don’t forget a hands-free type.
  • Stud finder – you’ll get a lot of use out of this when it comes time to hang shelves.
  • Level – a level will help you hang the shelves straight and it’s indispensable when hanging artwork.

Where to buy your tools to save money

Obviously the best bargains can be found at yard and garage sales and on Craigslist.org. Be careful, though, when purchasing anything other than hand tools; buying used power tools requires a bit more research. Check that the cords aren’t frayed and that all the safety features are intact and functioning. Check the battery compartment on cordless tools and pass on any that contain rust or corrosion and any that don’t come with a charger.

While they are a hot commodity at Habitat for Humanity ReStores, you may find some good bargains on used tools at these nonprofit home improvement stores and donation centers. The bonus when shopping at a ReStore is that all proceeds go back into the community.

Now that you have the tools, it’s time to learn how to do some of those upgrades and repairs. Visit The Family Handyman or Bob Vila for some affordable home improvement ideas.

Thinking of becoming a landlord?

for rent sign

Landlords are a bit like dentists; folks typically try to avoid them as much as possible. But, it’s the dentist and the investment property owner who have the last laugh, all the way to the bank. For the latter to actually make bank, however, requires careful planning and a tried-and-true system. We’ll try to help you out with both of those.

Types of residential income property

When you make the decision that you’d like to invest in rental property the next step is to determine what type of property you want. If you’d rather deal with just one tenant then you’ll want to look at single-family homes, townhomes or condos. If you don’t mind dealing with multiple tenants, or hiring someone to do it for you, a multi-unit property, such as a duplex, triplex or apartment building might be for you.

Each has its benefits and drawbacks. While the income for multi-unit properties is typically higher, you will be dealing with multiple tenants (and their multiple problems) which can become a time suck.

Consider the tax benefits of an income property

Tax laws change, so speak with your accountant to find out just what tax benefits you’ll realize. Basic rental investment property-related tax deductions include:

  • Interest – Interest deductions include mortgage interest and credit card interest, as long as the card is used solely for your landlord expenses.
  • Depreciation – Landlords recover the cost of income-producing property through yearly tax deductions ― deducting some of the cost each year on their tax returns.
  • Repairs and maintenance  – Deductible expenses include plumbing and other system repairs, replacing a malfunctioning appliance, repairing broken locks and windows and other routine repair and maintenance costs.
  • Travel – Travel expenses, both local and long distance, to deal with your income property, are deductible.
  • Insurance – The cost of most insurance premiums, including Private Mortgage Insurance are deductible.
  • Legal and professional services – Fees paid to an accountant, attorney, investment advisor, property manager and other professionals are operating expenses so they are deductible on your tax return.

 Disadvantages to becoming a landlord

The life of a landlord is full of pitfalls that many first-time investors aren’t aware of. These include:

  • Operating expenses may take up to 45 percent of your gross rent receipts. This is important information when considering cash flow on a particular property.
  • Mortgages for investors typically carry higher interest rates and higher down payment requirements than those for owner-occupied homes
  • Although vacancy rates are low now, that may not always be the case. Will you be able to cover the monthly nut during vacancies?
  • Evictions are a nasty fact of life for landlords. It’s a lengthy, expensive and emotionally draining process.
  • Maintenance emergencies happen and for some reason they tend to occur at the least convenient time.
  • It may cost more to insure the property than it would if it were owner-occupied.

What to look for in investment property

That old real estate mantra “location, location, location” matters as much, if not more so, when considering rental property as it does for your personal residence. Tenants initially look at properties in their price range in a preferred location. Then, there are families, who – if they can afford it – prefer to live near the best schools. Your first consideration, then, is to find a property in what tenants consider an attractive location.

If yours will be a vacation rental, think about your ideal tenants and what will appeal to them. Whether they are families or singles, they’ll have their hot buttons, especially when it comes to location and amenities. The tax treatment for vacation rentals is different than for other investment properties so a conversation with your accountant is crucial before deciding on this option.

After you’ve found the right property in the right community, hire a professional home inspector and, if you decide to purchase it, be ready to address the home inspection results to ensure the home is in safe and habitable condition.

Finally, it’s just as important to know when to sell your income property as it is when to buy. When the property costs more money to own than you make from it, sell it. In the meantime, reasonably priced rentals are in short supply, while rents continue rising, so it’s the ideal time to get into the landlord business.

Should I get a C.L.U.E.?

should i get a c.l.u.e. report

In the information age the chances are pretty good that your personal information is in at least several databases that you may not even be aware of. Auto and homeowner insurance companies, for instance, have a handy tool to help them make underwriting decisions – a database of previous insurance claims. The Comprehensive Loss Underwriting Exchange, also known as C.L.U.E., is generated by LexisNexis® and insurers will base the yay or nay of your insurance application, at least partially, on what they find in the C.L.U.E. report.

The database includes basic information on folks who have filed claims, including name, date of birth, address and, of course, the actual information about the claim filed (date filed, type of claim and the amount of money it took to satisfy it).

For instance, if a tree fell on your home during a wicked storm, causing roof damage, and you filed an insurance claim, it may appear in the database along with information pertaining to whether or not you were reimbursed for the damage. All claims reported, by the way, paid for or not, remain in the C.L.U.E. database for seven years.

Not all insurance companies contribute to C.L.U.E.

Have you ever visited one of the big real estate listing aggregator websites such as Trulia or Zillow? Did you know that not all of the nation’s Multiple Listing Services supply listing information to them? The same holds true for the C.L.U.E. database. So, just as you aren’t getting the whole story on the number of listings of homes for sale in our area from one of those big sites, so too you’re not getting the entire claims history from C.L.U.E.

Do I need a C.L.U.E. report?

While the report may not contain all of a home’s claim history, you may still find some valuable information in it. Michelle Lerner with Money Crashers suggests that even a basic report may give hints about ongoing problems with a home, “particularly claims that involve water damage,” she said. “For example, if a home has had even one claim involving water, investigate the existence of mold or perhaps explore the need for flood insurance,” she continues.

Other clues you may find in a report include multiple reports of burglary, which might indicate a crime problem in the neighborhood. More than one house fire may be an indication of electrical problems in the home.

The amounts of money required to remedy the claim are also worth a look as these indicate how severe the problem was.

What if the home I want has a long claim history?

 It’s not the length of the claim history that matters, it is the dispensation of the claim you want to pay attention to. For instance, in the aforementioned roof damage claim, if the homeowner’s insurance company replaced the roof, the home “becomes more desirable to an insurance company,” according to Michael Barry of the Insurance Information Institute in New York. You may even receive a break on the price of your premiums (depending on the insurance company, of course).

Even repeated burglaries or vandalism need not be deal breakers, but merely a tip to install a robust security system if you’re head-over-heels and must have the home.

How to get a C.L.U.E. report

The C.L.U.E. database is available to insurance companies, lenders and homeowners. As a buyer, you’ll need to request a report from the homeowner who is entitled to one free copy per year.

If you’re a homeowner and would like to get your hands on a copy of your C.L.U.E. report, call LexisNexis® at 866-312-8076 or visit personalreports.lexisnexis.com. Like your credit report, it’s possible that your C.L.U.E. report contains errors, so inspect it and file a dispute with LexisNexis if you find any.

Hooray for the FHA!

hooray for the fha

In case you missed it, last summer Congress passed H.R. 3700, The Housing Opportunity Through Modernization Act of 2016. By the way, the bill passed unanimously in both the House and the Senate– not an easy feat, right?

This law, among other aims, is supposed to help ease homelessness and improve “ . . . low-income tenants’ access to low-poverty areas with less crime and well-performing schools,” according to Barbara Sard, vice president for housing policy with the Center on Budget and Policy Priorities.

While those aspects of the Act are certainly worth a look, one is of particular interest to folks hoping to purchase a condo using an FHA-backed loan. These buyers typically include older Americans, those with low incomes and first-time buyers, so making condos easier to finance makes the dream of home ownership a reality to these groups of Americans.

The U.S. Department of Housing and Urban Development (HUD) offers condo communities a complex and lengthy process to become FHA-approved. It is so challenging, in fact, that many homeowner associations don’t bother pursuing it. Therefore, there are not as many condos available to FHA buyers as the industry would like to see. Because of this, FHA condo lending has been steadily down trending over the past few years. In fact, it fell an additional 8.6 percent during the first quarter of 2016.

One of the criteria for a condo community to become approved is that 50 percent of the units must be owner occupied. H.R. 3700 changes that requirement to 35 percent, opening up many more communities to possible FHA approval, providing more condos for buyers.

That was then. . .and this is now

While all of the above changes took place several months ago, there was even more good news released recently. If you obtain an FHA-backed mortgage you will be required to pay both an upfront mortgage insurance premium and a monthly premium for the life of the loan. Not, that’s not the good news.

The good news is that the amount of the premium is going down. As of January 26 of this year, FHA’s MIP will be cut from .85 percent to .60 percent of the base loan amount.

HUD estimates that this will create at least 250,000 new homeowners and save them, on average, $900 per year (or $75 per month). Sure, that may not sound like much, but for the buyer on a tight budget, that $75 a month helps buy groceries or put gas in the tank.

The reduction in the cost of the mortgage insurance premium applies only to loans with case numbers assigned on or after January 26, 2017. So, if you recently closed on a home, using an FHA-backed mortgage, it won’t apply to your loan. The only way for current homeowners with FHA loans to receive this reduced MIP is to refinance.

Questions? Get the answers, here, or speak with your lender.

The Pros and Cons of the USDA Guaranteed Loan

pros and cons of usda mortgage

If you can’t pay cash for your new home you’ll need a mortgage and, if you’re not in the market for a luxury home, you’ll need a mortgage created for those with a more modest income.

Thankfully, the United States government offers several programs, including the VA loan, the FHA-backed loan and the USDA Rural Development guaranteed loan. If you aren’t a current or former member of the military, you’ll have only the FHA and USDA products to choose from if you want a government-guaranteed loan. While both products have advantages and disadvantages, let’s take a look at those of the USDA guaranteed loan.

Advantages of the USDA Guaranteed Mortgage

If you are short on cash and long on the desire to own a home, you’ll be glad to learn that the USDA loan was created specifically for low-to-medium income homebuyers. It requires no down payment and the borrower can use gift money to cover closing costs and even accept up to 6 percent of the sales price from the seller in the form of closing cost concessions.

These are, of course, compelling reasons to consider using the USDA mortgage program, but there are other advantages as well:

  • The government’s repayment guarantee (should the buyer default) allows lenders to be more generous with interest rate offerings and more lenient credit standards than they would be on a comparable conventional loan.
  • There is no pre-payment penalty for a USDA-backed loan.
  • The mortgage can also be used to purchase some manufactured homes.
  • The USDA loan can be used to refinance a home as well.

Disadvantages of the USDA Guaranteed Mortgage

Taking the bad with the good may be the name of the game if you’re interested in participating in this zero-down loan program, so let’s get to the “cons” of the USDA guaranteed mortgage.

While the fact that you must earn a low-to-moderate income to qualify for the USDA guaranteed loan may be considered an advantage, it may be a disadvantage if you earn over the maximum allowable income (see your lender to determine the current limits).

There are also eligibility requirements for the property you hope to purchase. Chief among these is that it must be considered “modest,” without luxury features, such as a swimming pool. The home must also be located in an area designated as “rural” by the USDA.

The USDA defines rural areas as “open countryside, rural towns (places with fewer than 2,500 people).”

If you hope to use the home as a rental, you won’t qualify for the program—it’s open only to those borrowers who intend on living in the home.

Here are a few other “cons” of the USDA Guaranteed Loan program.

  • There is an upfront fee of 2.75 percent of the loan amount. Now, there is a bright side to this – it will be added to the loan so it’s not money you’ll need to pay out-of-pocket.
  • There is another fee, amounting to 0.50 percent, that is similar to the mortgage insurance premium for FHA loans or private mortgage insurance on conventional loans. This fee stays in force for the life of the loan and is paid annually.
  • Both the lender and the USDA subjects the loan to underwriting so expect closing to take a few weeks longer than other loans.

There is more to know about this program and we aren’t lenders but we are happy to put you in touch with the appropriate professional.