Buying a Home

• What is the home buying process?

  The process of buying a home is unique for each homebuyer, but the following steps are recommended.

  • Take a home buyer education class and/or read up on home buying.
  • Resolve any outstanding credit issues and determine what you can afford.
  • Get pre-approved for a mortgage loan.
  • Select a real estate agent and shop for a home in your price range.
  • Make an offer and an Earnest Money Deposit, and sign a Purchase and Sales Agreement (typically it will be 30-60 days from date of signed agreement to closing).
  • Purchase a home inspection and negotiate any repairs (usually within 10 days of the offer acceptance).
  • Complete a formal loan application. The lender will process your application to make sure that you and the house you have chosen qualify for the loan (3 weeks average).
  • Shop for homeowners insurance.
  • Bring your funds to the closing meeting (including down payment and other closing costs) and sign closing documents and receive the keys to your new home!

• How long does it take to purchase a home?

  The length of time it takes to buy a home depends on the buyer and the market. Once the property has been identified and a contract signed, negotiation and loan processing can typically take between 30-45 days, depending on terms and financing choices.

  In some circumstances, closing dates can change. If you are currently in a lease it is wise to give yourself sufficient time to account for a delay. You can help avoid delays by making sure the documentation you submit is as complete and accurate as possible, and by promptly informing your lender, real estate agent and others involved in the home purchase process of any changes.

Is Homeownership Right For Me?

• Should I rent or buy?

  The decision to rent or buy depends on your financial situation, your lifestyle, how long you expect to remain in a certain area, the prevailing mortgage rates and rents in your area, and many other factors.

  If you’re a renter, it can be frustrating to write a rent check every month and have no home equity to show for it at the end of the year. But if you aren’t certain that you’re going to stay put for a few years, it’s probably not the right time to buy—equity or no equity. You should not buy property and automatically assume that you’ll be able to rent it out or sell it when you move.

  Ask your homeownership advisor for his/her assessment. There are also a myriad of tools available online to calculate the financial benefit of renting or buying, depending on your situation. Here are a few that may be useful –  Total Concept does not endorse the content or guarantee the utility of these external sites.

  • Trulia
  • Bankrate.com
  • NYTimes

• How will owning a home change my life?

  Owning a home takes time and hard work and it is perhaps the greatest financial investment you may ever make. It’s essential that you protect your new asset through home safety precautions, sound household budgeting, and regular home maintenance. As you pay down your mortgage over time, you have the satisfaction of knowing that you are building equity for the future. You also will gain pride in ownership, personal stability, potential tax benefits and be a part of building a stronger community.

  
  Practically, you should expect to spend time and money on maintenance and house-related tasks –cleaning, repairs, improvements, landscaping/yard work, and more. Please see  How do I maintain my home? for a detailed list of common maintenance items that will likely need attention on an ongoing basis.

• How much home can I afford?

  The amount of money you can afford to pay for a home depends on many factors, including your income, your debt, your monthly expenses, the amount of money you can contribute to the purchase up front, among other factors. The maximum dollar amount that a bank will agree to lend you should be the upper limit; in most cases, it is advisable to borrow less than this amount.

  There are many calculators available online to help you get a general sense of what you can afford on sites like Zillow, Bankrate.com, and others. At Total Concept we use the financial information you provide to create a home purchase package that is unique to you. The Affordability Range that is shown on your Dashboard is calculated based on your current gross monthly income and your current monthly debt. At Total Concept we consider a monthly housing payment to be genuinely sustainable as long as it is no more than 28% of your gross monthly take home pay. But realistically, most families are usually also making monthly payments on some other kind of debt besides their housing payment (such as a car note or paying down credit card debt).Because of that, we also take a look at your TOTAL debt when calculating what your maximum home purchase price. When looking at your total debt (your house payment plus any other monthly debts you might be paying), we consider your total monthly debt to be sustainable when it is 36% or less than your gross monthly pay.

  Here’s an example – if your gross monthly pay is $4,000, then your monthly housing payment should be no more than $1,120, or 28% of $4,000, and your TOTAL debts shouldn’t exceed $1,440, or 36% of $4,000. Let’s say in addition to your housing payment, you have a monthly car note of $400. We subtract that $400 from the total debt payment allowable ($1,440) to come up with a monthly housing payment that shouldn’t exceed $1,040. So, even though your gross monthly income can support a housing payment of $1,120, once you combine your housing payments with your other outstanding debt (car note), you need to lower your housing budget down to $1,040 in order to stay below the 36% sustainability range for total debt payments. Remember, this is just an example - your homeownership advisor can provide a person-to-person perspective in addition to the financial one. This is designed to give you a personalized recommendation for the mortgage amount you can afford and sustain.

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• How do I know if I’m ready to purchase a home?

  If you are considering becoming a homeowner, ask yourself the following questions:

  • Have you had steady income and stable employment for the past 2 years?
  • Do you plan on remaining in the area for the next few years?
  • Have you created a budget so you know how much you can realistically afford for a monthly mortgage payment?
  • Do you have an established credit history or records of payment to previous landlords and utility companies?
  • Do you consistently pay your bills and your debt payments on time?
  • Do you have some money saved for a down payment and the fees involved in home purchase?
  • If you have had a bankruptcy, was it discharged more than 3 years ago?
  • Is your monthly debt low enough not to limit your ability to qualify for a mortgage?
  • Are you ready to care for and maintain a home?
  • Have you been pre-qualified by a lender, so that you know how much you can borrow based on your income and current debt?
  • Have you looked into the benefits of special financing programs that are available to moderate income, first-time home buyers?

  If you answered “yes” to the majority of questions listed above, you are probably near-ready to buy a home. If you answered “no” to the majority of questions, you probably need more time to get ready to buy. You should consider engaging with a  Total Concept homeownership advisor to develop a plan that will help you to get to a position where you can buy a home.

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Buying a Home: Fees and Costs

Purchasing a home will require that you pay a variety of fees and costs though these can vary based on the market. The costs listed below include the typical costs most homebuyers will encounter during the homebuying process.

• Purchase Costs

  Purchase Price

  The first and easiest cost to understand is the purchase price. This is the amount of money that you are committing to pay for the home. In most cases, a large part of this will be covered by a mortgage loan; the rest will be paid through your down payment.

  Earnest Money Deposit

  In most cases when you make an offer you will commit to contributing some portion of the total purchase price into the transaction. This indicates your intention and ability to buy the home and is called an Earnest Money Deposit (EMD). As a rule, the EMD is generally 1-3% of the purchase price and is credited to your transaction at closing.

  A portion of your down payment is typically placed into escrow at the time that your offer is accepted. The EMD can be almost any sum that the buyer and seller agree to. Although it is generally refundable if the transaction is canceled, there are cases when the EMD may be lost if the buyers are unable to complete the purchase and do not notify sellers appropriately.

  Down Payment

  The down payment is the payment that you contribute to the transaction. Usually just before the close of escrow the buyer (you) will receive an estimate of how much money you need to bring to the closing. This amount includes your down payment and any closing costs, minus the earnest money deposit (EMD) you paid into the transaction.
  
  The down payment typically represents only a percentage of the full purchase price. Typically, this is money you have saved, but for some loans you can use gift funds from family members or other down payment assist programs. Mortgage financing generally covers the remaining amount owed to the seller. In some cases, the EMD is not refundable if the deal falls through and buyers do not notify the sellers appropriately.
  
  It is still possible to buy a home with as little as 3.5% down payment. Providing a small percentage down payment can be a necessity for some homebuyers, but it does mean that you’ll have very little equity in your home when you first purchase. Buying a home with a down payment of less than 20% generally means that you may have to pay private  mortgage insurance (PMI) every month until your equity in the home exceeds 20% of market value. The investment in PMI can be partially offset by the tax benefits of the mortgage deduction but the tax benefit can vary based on individual financial circumstances and IRS rules/deductions can change over time.

• Transaction Costs

  Some fees associated with purchasing a home may be non-refundable if the transaction is cancelled or denied, such as the home inspection and appraisal.
  
  

  Home Inspection

  Generally, buyers pay for all inspections costs associated with the purchase of the home. The inspections required, and their prices, depend on the age and condition of the home as well as where the home is located. A general property inspection typically costs between $350-500 depending on the size of the home. Roof inspections generally run $100-200. Roof inspections are not included in the cost of the general home inspection. Trade-specific inspections (those by plumbers, landscapers, electricians, etc.) are generally equal to about 1 hour of the usual rate. It is important to comparison shop and/or get recommendations from trusted referrals when selecting a home inspection firm. The key to a home inspection is that the buyer is fully aware of the condition of the home so the more thorough, the better. The information provided by the inspection can also be used as part of the negotiation process with the seller.
  
  Check your state and local guidelines, or with your  Total Concept homeownership advisor or loan officer to see what other inspections are common or recommended in your area. They may include radon, oil tank, sewer scope, lead based paint, termite or other pests, and others. Some regions may require sellers to perform an additional health and safety inspection before they offer the home for sale.

  Appraisal

  An appraisal is an independent evaluation of the property’s value provided to the bank. Appraisals may be paid for directly at the time the service is rendered or billed at the close of escrow and included in the closing costs.

  Mortgage Application Fee

  Lenders may charge a fee for you to apply for a mortgage. This can range from $300-750 or more depending on your lender, and some portions may be non-refundable. There may also be similar fees for a second mortgage or down-payment assistance depending on the program.

• Closing Costs

  This term generally refers to the amount of money that is necessary to bring to escrow to 'close' or complete your purchase – it includes the purchase costs and some of the transaction costs as well as some fees specific to closing.
  
  Closing costs typically include:

  • Loan costs: Lender’s fees typically range from 1-2% of your loan, but can be as high as 5%. Lender fees can include underwriting, processing, recording, and notary fees.
  • Escrow costs: Escrow fees are based on the value of the property being purchased.
  • Title Insurance: Title fees are also based on the value of the property being purchased.
  • Insurance costs: Prior to closing the transaction your lender will require that you select a home insurance provider. Usually the first year’s policy premium will be included and paid as part of the closing costs. The size of the premium depends on the type of property and the insurance you are purchasing.

• Real Estate Commission

  Real estate agents are typically paid a commission by the listing broker, provided the home is listed on the Multiple Listing Service with a broker. At the time of listing, the listing agent working with the seller will negotiate the total commission for the transaction. In most cases, a portion of this is allocated to pay the agent who represents the buyer. The amount of money earned by the agents involved is a percentage of the total purchase price.
  
  For Sale by Owner properties may work differently. Even though the seller is choosing to represent themselves, they may have allocated a commission for the buyer’s agent in the transaction and these details should be negotiated and documented in the Purchase and Sales Agreement. If not, the buyer is responsible for covering the real estate agent’s commission.

• Attorney Fees

  In some regions, an attorney may be involved to facilitate the closing process and provide representation for the seller. In most cases it is not necessary for a buyer to provide their own attorney, but you do have the option to do so, at your own cost. If you decide to engage your own attorney, the cost of services range from $400-$1,200 or more, depending on the length and complexity of negotiations and the attorney you select. Attorneys can be engaged on an hourly basis or with a flat rate.

• Moving & Post Purchase Costs

  Once the home is yours, remember to budget for the additional costs to move your belongings and to turn on all utilities in your name, as well as the regular costs of home maintenance. Buying a home isn’t just a matter of replacing a rental payment with a mortgage payment. There are also maintenance and utility costs, property taxes, and homeowners insurance. Don’t forget about these costs when you are thinking about how much house you can afford.
  
  If possible, ask the current homeowners about their average utility costs and property taxes, get a homeowner’s insurance quote, and budget about one percent of the home’s purchase price for annual maintenance. Then run the numbers to see if you can afford the home.
  
  See  Owning a Home  for more information!

Who's Important in the Home Buying Process?

Most importantly, YOU! One of the most important steps in the home buying process is for you to build the team of professionals who will work with you. You can ask family, friends and coworkers or work with your  Total Concept homeownership advisor for a referral. Your homeownership advisor may also be able to provide you with a list of industry professionals for your review.

• Appraiser

  An appraiser will estimate the market value of a house, make sure that the house meets minimum property standards/requirements and verify that the house is marketable. As a buyer, you will not work directly with the appraiser, but the price you pay for a house is in part based on the value of the home assigned by the appraiser prior to listing or in conjunction with the buyer’s mortgage loan application.

• Attorney

  You may want to work with a real estate attorney in some capacity while buying your home. Make sure you find one who specializes in residential real estate transactions. Their functions may include:

  • Negotiating, creating, or reviewing the sales contract
  • Performing a title search on the property in question
  • Explaining the effect of easements or user restrictions on the property
  • Representing you in a contract dispute with the seller
  • Representing you at closing with the lenders

  Not all states require the use of a real estate attorney; in these states, you may use an escrow agent instead. An escrow agent is responsible for accounting for the escrow funds and ensuring that usage of funds is explicitly for the purpose intended.

• Homeownership Advisor

  Your  Total Concept homeownership advisor is a guide and resource throughout the home buying process. Your homeownership advisor may help you to prepare a budget and get ready for taking the first step towards buying a home and may also work with you to investigate loan programs for which you may be eligible.
  Certain lending programs may require that you complete a HUD-approved Home Buyer Education course. These courses are available online and in-person through  Total Concept . Some organizations may offer realty and lending services in addition to providing homeownership education and advisement – ask your homeownership advisor!

• Home Inspector

  The home inspector performs an in-depth, unbiased inspection of the home in order to give the buyer information about the overall condition of the home prior to purchase. An inspector will evaluate the physical condition of the property, including the structure, construction, and mechanical systems, identify items that need to be repaired or replaced, and estimate the remaining useful life of the major systems, equipment, structure, and finishes.
  
  Inspections are not the same as appraisals. Even if the home looks like it’s in good shape, it would be unwise to skip a thorough inspection by a professional who is specifically trained to evaluate the condition of the home and its systems. An inspector is there to spot the things you don’t know to look for - like if the chimney is in great shape or whether those little cracks in the foundation are a big deal. The inspector will also look for signs of water damage and check the insulation in the attic. If there are conditions that will need repair, you may be able to negotiate with the seller.
  
  Home inspectors are licensed by the state in which you are purchasing. Home inspections are not generally mandatory, but may be required for certain loan programs. The rules regarding home inspectors vary by state – ask your homeownership advisor if you have any questions about the process.
  
  For more information about home inspections, visit HUD.gov.

• Mortgage Broker

  A mortgage broker brings mortgage borrowers and lenders together, but does not use its own funds to originate mortgages. Many banks act as mortgage brokers. The broker often packages and processes loan applications from the borrower and passes them along to the lender; they are paid an origination fee from the lender or the buyer as compensation. Some  Total Concept member organizations are also mortgage brokers.

• Primary Lender

  The primary, or first mortgage, lender is the holder of the primary lien on the house. The first mortgage has priority over all other liens and claims on the property in case of default. This is usually the bank from which you receive your primary mortgage.
  
  The primary lender typically orders an appraisal of the property and lends you the money using a mortgage on the home as collateral. The primary lender may be able to pre-qualify you with an estimate of the amount of money you qualify to borrow, which can be helpful while searching for a home. In some housing markets, or for some specific sellers, a homebuyer may be required to provide a pre-approval or pre-qualification letter from his/her lender at the time an offer is made.

• Real Estate Agent

  A real estate agent acts an as an agent for the sale and purchase of buildings and land. They can act as a listing agent or as a buyer’s agent. You should be represented by a buyer’s agent, since a listing agent works for the seller and will put the seller’s interests first. Real estate agents can be paid a commission based on the final transaction cost, a flat rate, or some combination of the two.
  
  Some  Total Concept member organizations offer realty services and most can provide you with a referral to local real estate agents – ask your  Total Concept homeownership advisor and review the  Realty section of our Resources content for more information.

• Secondary Lender

  A secondary lender holds a secondary lien on the house, and may be providing down payment assistance or some other loan product.
  
  If the loan-to-value (LTV) ratio of the first mortgage is greater than 80%, the buyer will usually be required to pay private  mortgage insurance (PMI) which is typically an upfront fee plus a monthly fee which is added to your principal and interest payment. In some cases, it is more economical for the buyer to take out a smaller second mortgage to bring the LTV ratio to 80% or less, which will eliminate the need for PMI. This second lien typically carries a higher interest rate than a first mortgage.
  
  There are a number of lower-interest lending programs designed specifically to help homeowners avoid PMI, for which you may be eligible. Ask your  Total Concept Compass homeownership advisor if you might be eligible!

• Seller

  The seller is the entity that is selling the home. The seller is often a private individual. In some cases, such as short sale or foreclosure, the seller may be a bank or the local government.

Budgeting

• What is a budget?

  A budget is a plan for your money. It allows you to track the money going in and out of your household. A budget can also help you prepare for large or unexpected expenses, encourage savings, identify wasteful spending, and help you accomplish financial goals, such as becoming a first-time homeowner, or improving your credit report.

• Why do I need a budget?

  The single most powerful tool to improve your financial situation is to understand your financial situation – where your money is going and how and why you spend it. By laying out all of your expenses and goals, a budget breaks down the steps to financial improvement into day-to-day spending and savings habits. This will let you take control of your finances in order to accomplish your goals.

• How do I create a budget?

  There are numerous resources and tools that can help you construct a budget, such as  mint.com, youneedabudget.com , and others. You can also work with your Total Concept homeownership advisor to create a budget that is right for you.
  
  The basic steps to establish a budget, or spending plan, are as follows.

  • Determine your monthly net income – the amount that you take home each month after taxes, withholdings, etc.
  • Calculate your monthly expenses.
    • Fixed expenses stay the same every month – like rent or a car payment.
    • Periodic fixed expenses are paid periodically for goods and services, like car insurance, water, electricity, etc.
    • Flexible expenses change from month-to-month – groceries, entertainment, and travel.
    • Indebtedness expenses are debt for goods and services bought on credit. Credit card debt, student loans, and car loans are common types.
    • It can be helpful to simply record all of your financial transactions for a month or more, so you can see where your money is actually going. Compare this to the expenses you have calculated.
  • Subtract your monthly expenses from your monthly income.
    • If expenses exceed income, plan to reduce debt and increase income.
      • Flexible expenses are often the easiest to reduce – cut back on discretionary spending for entertainment, meals out, etc. Distinguish between ‘wants’ and ‘needs.’
      • Pay down high-interest debts first, especially on credit cards. These debts cost you more the longer you owe them.
    • If your income exceeds your expenses, begin saving.
      • Start with an emergency fund - enough money to cover your basic living expenses and debts for a period of 3 to 6 months.
      • Retirement savings - 401(k) or IRAs are a good place to save money for retirement.
      • Savings for big purchases, like a down payment on a house, or a new car.
  • Evaluate your plan.
    • Which financial habits/circumstances are easiest to change? Which are the hardest? Is a house worth giving these things up?
    • Are you ready to implement this plan right now, or are there other things you want to do first?

• How should I budget for buying a home?

  If homeownership is your goal and it appears to be within reach, set a savings goal: buying a home. Compare your monthly budget against the upfront and ongoing costs of buying a home.
  
  These can include:

  Upfront Costs	Ongoing Costs
  Down Payment	Mortgage payments
  Inspection	Utilities
  Appraisal	Maintenance and repairs
  Closing Costs	Common charges (for condos)
  Escrows	Emergency funds / saving
  Reserves
  Moving Costs

  Your  Total Concept homeownership advisor can help you to create a budget.

Credit Readiness

• What's a credit report?

  A credit report is a point-in-time summary of historical borrowing and repayment activity that provides insight into your financial status and obligations. It contains information about your credit, some bill repayment history, and the status of your credit accounts. This includes how often you make on-time payments, how much credit you have available and are using, and whether a debt collector is collecting on money you owe. It can also contain rental repayment information and public records such as liens, judgments, and bankruptcies.
  
  Credit reports are compiled by three credit reporting companies from information available publically and provided by specialty consumer reporting agencies. Among other things, lenders use credit reports to decide if they will loan you money, what interest rates they will offer, and whether they think you will continue to meet the terms of the account.

• Where can I find my credit report?

  For a free credit report, go to www.annualcreditreport.com. You can receive a free credit report once every 12 months from each of the three reporting companies. Your free report does not include a score; you must purchase your score directly from the reporting agency.
  
  You should check your report at least once a year to make sure there are no errors that could keep you from earning credit or the best available loan terms. For consumer protection information, go to www.ftc.gov
  
  www.transunion.com
  www.equifax.com
  www.experian.com

• What is a credit score?

  A credit score is a number that is used to predict how likely you are to pay back a loan. It is derived from information about you obtained from your credit report. Most scores range from 300-850. A higher score gives you more loan options and may result in a better interest rate.

• How is my credit score calculated?

  There are a number of different credit scoring formulas that can be used to calculate your score based on the information contained in your credit report.
  
  The FICO score model is the most widely used scoring model. Your FICO Credit score is calculated from the data in your credit report, which is grouped into five categories. Each category has a different level of importance in determining your final score. For the general population, the distribution is as follows:

  • Payment History – 35%
  • Amounts Owed – 30%
  • Length of Credit History – 15%
  • New Credit – 10%
  • Types of Credit Used – 10%

  A FICO score takes into consideration all of these categories of information, not just one or two. No single factor will determine your score. The importance of a given factor depends on the overall information in your credit report. Certain people, like those who have not been using credit very long, may have slightly different distributions.
  
  Your score considers both the positive and the negative information in your credit report. Late payments lower your score, but establishing, or re-establishing, a good payment record will raise your score.

• How good does my score need to be so I can buy a home?

  Your credit score is just one piece of your larger financial profile. Your FICO score only looks at information in your credit report. However, lenders consider many factors, including your income, length of your employment, and the kind of credit you are requesting. Some banks have required minimum credit score for some products.
  
  Banks want to loan money to people who are likely to pay it back in full and on time, so they want to see someone with good credit, balanced spending habits, and the capacity to carry more debt. If you are lacking in these categories, they may charge you a higher interest rate to make up for the perceived increase in risk.
  
  Four main considerations in getting a loan are:

  • Capital: The amount of money that you have available for a down payment, closing costs, and reserves to pay for unexpected expenses (such as home repair).
  • Capacity: Your ability to make the mortgage payments and pay your other bills on time. It is determined by:
    • Current income
    • Income history and future earning potential
    • Existing debt: installment accounts, revolving charge accounts, and other monthly payments
  • Credit: Your credit report and credit score, which help lenders to assess the risk to loaning you money.
  • Collateral: personal property you already own, such as a car or a home. For a mortgage, the home itself will be the collateral on the loan. The home will need to have a value equal to or exceeding the sale price of the home to secure a mortgage loan for the property.

• How do I improve my credit report and score?

  If your credit score is low, it is a good idea to take some time to improve it before trying to get a mortgage. Delaying your purchase for a year or eighteen months, and taking the time to improve your credit, can be of great benefit in the long run, as you may be able to obtain a more favorable interest rate on your mortgage loan. The lower the interest rate, the lower the monthly payments. No one can remove accurate negative information from your credit report. Anyone who claims they can is running a scam. Anything a credit report clinic can do legally, you can do for yourself at little or no cost.
  
  Review your credit report at least once a year to make sure that all of the information is accurate. If there is a false claim on your report, you can dispute it. If successful, this will remove the item that is negatively affecting your score. Note that each credit report bureau may have a slightly different set of items, so it may be worthwhile to pull all three and compare.
  
  If all the derogatory items on your report are true, concentrate on re-establishing a good payment record. Pay debts on time and in full. If you are behind on payments, make paying them off a top priority. It may be helpful to draw up a budget and a repayment plan. Re-establishing good credit may take a while, but in the long run it will be worth it.
  
  For more information on protecting yourself from credit scams and improving the accuracy of your report go to  www.ftc.gov

• How does my debt impact my ability to buy a home?

  When you apply for a loan, a lender will consider your gross monthly income and your existing monthly debts to determine how much of a loan you can afford. There is an inverse relationship between how much consumer debt you have and how much house you will be able to afford. The amount of debt you carry will impact the amount a lender will lend you as well as the monthly mortgage payment you can afford. More debt = less house, less debt = more house!

• What type of debt is included in my debt-to-income ratio?

  Lenders refer to the relationship between your debt and your income as your “debt to income ratio.” Lenders calculate your total debt ratio by comparing your future home loan amount with your monthly consumer/creditor debts.
  
  Monthly debts may include:

  • Car Payments
  • Student Loan Payments
  • Minimum Monthly Credit Card Payments
  • Personal Loan Payments
  • Alimony / Child Support
  • New Total Monthly Home Payment (includes principal, interest, taxes, homeowner’s insurance, mortgage insurance, and homeowner’s association dues)

  Daily living expenses are not included in your debt-to-income ratio. They may include:

  • Phone / Internet / Cable
  • Gas
  • Electricity
  • Water
  • Food
  • Insurance
  • Childcare
  • Entertainment

  It’s important to remember that, in most cases, you will continue to have your existing daily living expenses after you buy your home (you will still need to eat, pay for utilities, etc.). Keep that in mind when you are evaluating if what the lender says you can afford is realistic for you!

• How can I improve my debt ratio?

  Sometimes it makes sense to take some time to pay down consumer debt before buying a home. If your debt ratio is too high, it’s best to seek advice from your Total Concept Compass homeownership advisor or your loan officer on what would be best for you before taking on a mortgage. Typically, decreasing debt and/or increasing your income will improve your debt ratio.

LendingLending

• How do I find the right loan for me?

  Finding the best interest rate on a loan is a matter of presenting yourself as a ‘safe’ risk to the lending institution. Banks want to loan money to people who are likely to pay it back in full and on time, so they lend to people with good credit, balanced spending habits, and the capacity to carry more debt. If you are lacking in these categories, they may charge you a higher interest rate to make up for the perceived increase in risk.

  • Capital: The amount of money that you have available for a down payment, closing costs, and reserves to pay for unexpected expenses (such as home repairs.)
  • Capacity: Your ability to make the mortgage payment and pay your other bills on time. It is determined by:
    • Current income
    • Income history and future earning potential
    • Existing debt: installment accounts, revolving charge accounts, and other monthly payments
  • Credit: Your credit report and credit score, which help lenders to decide how much of a risk you are.
  • Collateral: personal property you already own, such as a car or a home.

• What are the benefits and risks of having a co-buyer?

  There are several common misconceptions about co-borrowers. Some people think that it's a requirement to have a co-borrower, or that if you are married then both spouses must be on the mortgage loan. However, neither of these scenarios is true. It's never required that you have a co-borrower, and, if you are married, both spouses do not have to be on the loan to share title to the home.

  Depending on the person's financial profile, adding a co-borrower could help or hurt you. If you as the borrower have a low credit score, adding a co-borrower with a higher credit score won't help you, since lenders typically consider the lowest credit score of all borrowers on the loan. However, adding a co-borrower with a much lower score than yours will hurt you, since your lender will use the lowest credit score in determining credit worthiness.

  It can be beneficial to add a co-borrower if you need additional income to be able to lower your overall debt to income (DTI) ratio. Lenders generally require borrowers to have a DTI ratio of 36% or less (meaning that a maximum of 36% of your gross monthly income, including your house payment, should be dedicated towards debts you owe). If you have a very high debt to income ratio, it could help to add a co-borrower since their income could lower the DTI ratio – as long as that borrower doesn't also have a lot of monthly debt that he or she is paying for each month.

  Here's an example. Let's say Bob has a gross monthly income of $4,000 and a proposed monthly debt obligation (including housing payment and other obligations, such as a car note) of $2,100. That puts Bob’s DTI at 52.5%, well over the 36% allowed by most lenders. Bob then asks his wife, Linda, to be a co-borrower on the loan. Linda makes $3,000 a month, and has no additional monthly debts other than Bob’s. Their combined income of $7,000 lowers their DTI ratio to 30%, which is well below the 36% DTI ratio allowed by most lenders. In this example, it would make sense to add Linda to the loan application.

  Deciding whether or not you need to add a co-borrower to your mortgage loan application depends a lot on your personal financial circumstances.

  Total Concept will work with you to determine what your needs are, what you can afford, and whether or not adding a co-borrower to a loan will either strengthen or weaken your application.

• What documents do I need in order to apply for a mortgage loan?

  You will need to provide documentation that will let the lender assess your financial situation and credit risk. The exact documents required depend on your city, state, and particular situation. The list of documents needed by your lender is likely to include:

  • A completed loan application
  • Federal tax returns for 2-3 previous years
  • Paystubs, including the most recent
  • Bank statements
  • Credit report authorization
  • W-2s and 1099s
  • Copies of your driver's license and/or social security card
  • A Homebuyer Education Certificate (optional, depending on where you are applying)
  • Other documents as required based on your individual circumstances

• Which loan is right for me?

  The ‘right’ loan is the one that best fits your particular situation and plans, and there are many factors that go into this calculation. These include:

  • How long do you plan to own the home?
  • Is your financial situation likely to change significantly over the life of the loan? How?
  • Do you fit the eligibility criteria for any special loan programs, such as FHA, VA, or down payment assistance programs?
  • Are interest rates high or low right now?
  • How much home can I afford?

• What kinds of loans are there?

  There are a number of different kinds of loans you may be applying for in buying a house. For more information regarding various types of loans currently available, please visit consumerfinance.gov
  
  

  Conventional Loans

  Conventional loans are the most common type of mortgage. They are offered by a private bank or other financial institution and are not insured by the government, which makes them a slightly higher risk for the bank offering the loan. As such, qualifications for these loans are more strict, such as requiring a higher down payment or a lower debt to income ratio. These loans adhere to Fannie Mae guidelines, which set the maximum loan amount and requirements for borrowers.

  Non-Conventional Loans

  Non-conventional loans are insured and guaranteed by government agencies such as FHA, the FmHA and the VA. First-time homebuyer loans, VA loans, and other federal or local mortgage programs typically offer easier qualifying guidelines than convention loans, such as lower down payment requirements or higher debt to income ratios.

  Federal Housing Administration (FHA) Loan

  
  The government-insured FHA loan allows buyers who may not qualify for a conventional home loan to obtain one with low down payments, low closing costs, and easier credit qualification. The size of your loan may be limited, however, and FHA loans are only available to those meeting eligibility requirements. For more information, please visit www.HUD.gov.
  

  Veterans Administration (VA) Loan

  
  A VA loan is a guaranteed loan for eligible veterans, active duty personnel, and surviving spouses. These loans offer competitive rates and low or no down payments. The size of the loan may be limited, however, and you must meet eligibility requirements. For more information, please visit www.VA.gov.
  
  

  Balloon Mortgage

  A balloon mortgage is a fixed rate loan with relatively low payments for a fixed period. After the initial low-payment period is over, the entire balance of the loan is due immediately. This type of loan may be risky for some borrowers. It is generally appropriate for those who intend to sell the home soon after they purchase it. If the value of the house remains the same or goes up, the owner can use the proceeds of the sale to pay the balance of the loan, without having paid much in interest while they owned the house.

  Interest-Only Mortgage

  With an interest-only mortgage, the borrower pays only the interest on the loan in monthly payments for a fixed term. After an initial period, the balance of the loan is due. This could mean much higher payments, paying a lump sum, or refinancing. This type of mortgage would appeal to a similar kind of buyer as a balloon mortgage, above. It can be very risky for the typical or first-time borrower.

  Reverse Mortgage

  A reverse mortgage allows the homeowner to convert the current value of their home into cash. The homeowner must be at least 62 years old, have enough equity in the home, and have the capacity to continue paying their financial obligations. They will not need to pay back the loan or interest as long as they live in the house.
  
  Reverse mortgages are often subject to aggressive lending practices and are popular with predatory lenders – check to make sure that the loan you are offered is federally insured. When the holder of the mortgage dies, their heirs must assume the loan and will generally need to sell the house to pay it off, assuming the property has held or increased in value. If it has declined, the debt is essentially just passed on to one's heirs.
  
  The Department of Housing and Urban Development also offers a reverse mortgage program called the Home Equity Conversion Mortgage.

  Down Payment Loan

  A down payment loan is a secondary loan intended to assist the buyer in making the down payment on a property. It is generally used to avoid paying mortgage insurance – an extra fee that is added to your mortgage payment if you are borrowing more than 80% of the value of your home. There are many different kinds of down payment assistance loan programs available from lenders and nonprofits, with varying eligibility requirements. Check with your  Total Concept homeownership advisor to see if you might qualify for one of these programs! For more information regarding points, please visit consumerfinance.gov

  Loan Features

  Both conventional and non-conventional loans typically include one of two features regarding interest rates:

  Fixed-Rate Mortgage

  The interest rate stays the same over the entire term, usually 15, 20, or 30 years. This is good if your mortgage is originated at a lower rate, but if interest rates fall, you could be stuck paying a higher rate. You would usually need to refinance to get a lower rate. This is the most stable type of mortgage.

  Adjustable-Rate Mortgage (ARM)

  An ARM usually offers a lower initial rate of interest than a fixed-rate loan. However, after an initial fixed period, your loan rate will fluctuate over the life of the loan. When interest rates rise, so will your loan rate and thus your loan payments. If you are considering an ARM, make sure you understand how your loan payments could be affected by changing interest rates over the entire life of the loan, not just the first few years.

• How does a lender calculate a mortgage payment?

  Lenders use an amortization calculator to calculate your monthly mortgage principal and interest payment. The variables include the duration of the loan (the term), the interest rate, and the total loan amount. This payment only includes the loan costs; other costs that may be included in your monthly payment are property tax and homeowner’s insurance payments.

• How do I qualify for a mortgage?

  To apply for a mortgage, you complete a loan application and submit it with the required financial documents to the bank’s loan officer for review. Your loan officer will review your income, assets and run your credit before submitting the loan to a loan processor. The loan processor will help to collect and verify all required documentation for the loan prior to submitting it to underwriting for final approval. The underwriter reviews the file thoroughly to make sure your income/assets/credit meet the minimum guidelines for the loan. Once they approve your file, you are issued a credit approval, which it lets you know how much you may be able to borrow.

• What is a predatory loan?

  Predatory lending is the practice of unethical mortgage companies or individuals making loans designed to benefit the lender through excessive interest rates and fees. Often these lenders will target unsuspecting borrowers, offering loans that they may not be able to pay back. Borrowing from a predatory lender can have a significant negative impact on a borrower's financial health as these loans are often inappropriate for the their situation, are grossly over-priced or both. There are many resources available to borrowers to report mortgage fraud and predatory lending available through the US Department of Housing and Urban Development.
  
  Here are some red flags to watch out for:

  • Steering and coercion
  • Excessive fees
  • Adding unnecessary insurance and other unnecessary products
  • Abnormal prepayment penalties
  • Loan flipping – offering to refinance you many times
  • Mandatory arbitration

  For more information on how to avoid loan fraud, please visit HUD.gov.
  

• Questions to Ask your Lender

  Be an informed borrower! When applying for a loan, you should ask the following questions to help find the best overall mortgage loan for you.

  What is the interest rate and monthly payment on this mortgage?

  You need to know the interest rate to know exactly how much you will pay over the term of your loan. Interest rates change frequently and if your credit is less than perfect you may not be offered the lender's best rate. Depending on the type of loan you get, your interest rate may be fixed, change at certain points in the term, or change depending on the current rate. You need to know what the monthly payment is to make sure that the home will be affordable and sustainable.

  How many discount and origination points will I pay?

  Lenders may charge prepaid mortgage interest points to lower your interest rate. This means that you can pay cash up front to lower your overall interest rate. This is also referred to as ‘buying down the rate.’ Find out what you will be expected to pay, and what kinds of points they will be. For more information regarding points, please visit

   http://www.consumerfinance.gov/askcfpb/136/what-are-discount-points-or-points.html.
  

  What are the closing costs?

  Mortgages come with fees for various services provided by lenders and others involved in the transaction. You should find out what these fees will be as early as possible. Lenders are required to give you a written Good Faith Estimate of closing costs within three days of receiving your loan application. For more information regarding closing costs, see Buying a Home: Fees and Costs - Closing Costs

  When can I lock the interest rate, and what will it cost me to do so?

  Your interest rate may change between the time you apply for the loan and the time you close. To keep it from going up, you may want to lock the rate or points for a specified period - lock fees may apply.

  Is there a prepayment penalty on this loan?

  A prepayment penalty is a fee charged on some loans to a borrower who pays it off before it is due. Some lenders offer lower interest rates to buyers who accept such penalties. Some penalties are 1% of the loan amount, others are equal to 6 months of interest; some apply when you refinance or reduce the principal balance on your loan by more than 20 percent, and some when you sell your home. Find out the duration of any penalty period and how it will be calculated. Make sure you understand if there is a pre-payment penalty on the loan products you are considering.

  What is the minimum down payment required for this loan?

  The rate and terms of your loan are based on a down payment figure – usually 3% to 20% of the purchase price. If you can put more money down, you may be able to lower your rate and improve your terms. If the amount you are borrowing is more than 80% of the purchase price, you will likely be required to get mortgage insurance which will increase your monthly payments.

  What are the qualifying guidelines for this loan?

  These requirements can include information about your income, employment, assets & liabilities, and credit history. First-time homebuyer loans, VA loans, and other federal or local mortgage programs typically offer easier qualifying guidelines than convention loans. Ask your  Total Concept homeownership advisor if you might qualify for any of these programs.
  
  

  What documents do I have to provide?

  Most lenders require proof of income and assets before approving your loan and many require other documents as well. For more information regarding documents typically required during the home buying process, please see What documents do I need in order to apply for a mortgage loan?

  How long will it take to process my loan application?

  This can vary due to underwriter loan volume. When underwriters process a large number of loans, verification and appraisals take longer, and other bottlenecks may develop along the loan pipeline. Lenders may say two weeks, but 30-60 days is more realistic in most cases. Ask for their best guess to determine whether to lock in the interest rate on your loan.

  What might delay approval of my loan?

  If you provide complete and accurate information, the loan process should run smoothly. If you do not disclose credit problems, debts, or other information, or you do not submit a complete application, the underwriter will discover it and the process will stop until you can provide that information. Let your lender know ahead of time if you plan to change jobs, increase or decrease your salary, take on additional debt, or change marital status between the time you submit an application and the time the loan is funded. It is advised that borrowers not take on any new debt while their loan application is under review as new debt may impact loan approval.

Realty

• What’s the difference between a REALTOR® and a real estate agent?

  Both REALTORS® and real estate agents are licensed to help consumers buy and sell commercial or residential property. Anyone earning a real estate license can be called a real estate agent, whether that license is as a sales professional, an associate broker, or a broker. REALTORS® are real estate agents who belong to the National Association of REALTORS® (NAR), which means they must pay an annual licensing fee, abide by a strict code of ethics, and uphold the standards of the Association. Home appraisers, property managers, real estate counselors and real estate brokers can also be members of the NAR, earning them the title of REALTORS®.

• Where do I find a real estate agent?

  Like finding any good professional, the best way to find a real estate agent is through recommendations from friends, family, or coworkers – especially those who have bought or sold homes recently. Some  Total Concept member organizations offer realty services and most can provide you with a referral to local real estate agents – ask your  Total Concept homeownership advisor for more information.
  
  You should interview several real estate agents, and ask for references before you decide on one. Check to see if they are a member of the local, state and national trade associations for real estate agents which have ethics requirements.

• Why should I work with a real estate agent when buying a home?

  Your first home will probably be the single biggest purchase you have made, so expert advice and guidance is invaluable. A real estate agent is an expert on the real estate market. They can provide detailed information about transportation, local taxes, property values, and community characteristics, and provide you with resources to research schools, neighborhoods, and other amenities. They can work with you to identify available properties that fit your budget and lifestyle.
  
  A real estate agent can also help you in negotiation by comparing the asking and selling prices of homes in the neighborhood, providing experience with disclosures and procedures, and serve as a point of contact between you and the seller.

• How long does it take to purchase a home?

  Although every market is different, a recent nationwide study found that buyers are spending an average of 10 weeks before they identify their preferred property. Once the property has been identified, negotiation and escrows typically last from 30-60 days, depending on terms and financing choices.
  
  If you are currently in a lease, keep in mind that closing dates can be, and often are, delayed. It is wise to give yourself sufficient time to account for potential delays. You can help avoid delays by making sure that the documentation you submit is as complete and accurate as possible and by promptly informing them of any changes.

• How are real estate agents paid?

  Real estate agents are typically paid a commission by the listing broker, provided the home is listed on the Multiple Listing Service with a broker. At the time of listing, the listing agent working with the seller will negotiate the total commission for the transaction. In most cases, a portion of this is allocated to pay the agent who represents the buyer. The amount of money earned by the agents involved is a percentage of the total purchase price.
  
  For Sale by Owner properties may work differently. Even though the seller is choosing to represent themselves, they may have allocated a commission for the buyer’s agent in the transaction and these details should be negotiated and documented in the Purchase and Sales Agreement. If not, the buyer is responsible for covering the real estate agent’s commission.

• How do I hire a real estate agent?

  Hiring an agent is easy. Once you decide with whom you would like to work an agency disclosure form is typically signed. The agency agreement form is simply a disclosure that states that you (the buyer) are authorizing your agent to work on your behalf. In some cases an agency agreement contract may be signed. This typically means that you commit to only working with them for a stated period of time. It is not required to pay a real estate agent a retainer fee in order for the agent to work with you. In most cases, this would never happen.

• Can I terminate my real estate agent?

  Yes, real estate agents can be terminated. Before you sign any contract, review the Exclusive Right to Represent Agreement. Some contracts cannot be terminated so it’s important to understand what you are signing.

• What is a broker?

  While both a broker and salesperson are in the business of selling real estate, the relationship between them is akin to that between a doctor and nurse. A salesperson may believe a transaction has been prepared correctly but the broker may find valid reasons to amend the contract.

• What is broker commission?

  Unlike other professionals who bill their clients at hourly rates or present an invoice at the end of a project, real estate professionals are paid at the end of a sales transaction. The broker commission is the payment that is made at closing after the transaction goes to settlement.
  
  Technically, the total commission is always paid by the seller at the settlement table, where the fee is subtracted from the proceeds of the home sale. The commission is then split between the listing agent’s brokerage and the buyers’ agent brokerage; real estate agents are paid directly via their brokers.

• Am I required to conduct a property inspection?

  Although you are generally not required to conduct a property inspection it is highly recommended. You should know the condition of the home you are purchasing before you commit to buy it. In some cases your lender will require a property inspection if particular loan types are being used to minimize the risk of expensive unforeseen repairs.

Insurance

• Why do I need insurance?

  Insurance is protection. Having a homeowner’s insurance policy will save you money in the event that something happens to your home or belongings by reimbursing for your lost or damaged property. If applicable, earthquake and flood insurance will protect you in the case of a natural disaster.
  
  Without insurance, these events could cause you to lose your home or enter major financial straits. If your home is destroyed, and you decide not to rebuild, your mortgage lender will be paid the balance on your mortgage. Some policies will also protect you from being liable if people are injured while on your property. In addition, most mortgage lenders require that you purchase homeowners insurance to borrow money through them.

• What are the different types of insurance I need to know about as a homeowner?

  Homeowner’s Insurance

  Homeowner’s Insurance covers your home and its contents against damage and theft and protects you, as the owner, if someone is injured while on your property. This does cover damage by pets and most major disasters, as well as living expenses if you are unable to live at home after an insured disaster. Homeowner’s insurance does not cover damage caused by general wear and tear or poor maintenance. Protection from floods and earthquake damage will require separate policies.

  The amount of coverage you need is also called the liability limit, and it is based on the amount of money it would cost to rebuild your home. This is not the same as the purchase price of your home, which includes the value of the land. Structures apart from the main house are usually covered for 10% of their liability limit, and personal belongings for between 50 and 70%.

  Other things to consider:

  • If an insurance company pays a claim for damage to your home, your mortgage lender will often need to sign off before you cash the check.
  • Some insurance companies require that you maintain your property and will do drive-bys or ask to do periodic inspections.

  How much does insurance cost?

  Premiums vary widely. The cost of your plan will depend on your area, the value of your house, your liability limit, the type of plan, your credit score, and many other factors.

  There are three levels of coverage, from least to most expensive:

  • Actual cash value covers the house plus the value of your belongings minus depreciation (how much your property is worth, not what you paid for it).
  • Replacement cost is the actual cash value without the deduction for depreciation – so you will be able to repair or rebuild your home to the original value.
  • Guaranteed (or extended) replacement cost – pays for whatever it costs to repair or rebuild your home, even if it is more than your policy limit.

  Regardless of the initial price you are quoted, do comparison shopping, and follow the tips in the next section. While price is important, you should make sure that your provider is legitimate and creditworthy. Ask friends, relatives, co-workers, or your Total Concept homeownership advisor for referrals.
  
  

  Flood Insurance

  Flood protection is generally not included in standard homeowner’s insurance. If you live in an area prone flooding, you can and should purchase flood and/or other disaster insurance separately. If you are in a high-risk flood area, the purchase of flood insurance will be mandatory. You can check your risk with FEMA issues flood maps  available online.
  
  Consider buying flood insurance even if you live in a moderate- or low-risk area. Nearly 25% of National Flood Insurance Program (NFIP) flood insurance claims are filed by those living outside of high risk areas. Even when you qualify, disaster assistance is usually a loan with interest. Having an insurance policy payout in the event of a disaster is financially smart and psychologically helpful.
  
  If you live in a Special Flood Hazard Area (SFHA) and have received disaster assistance in the form of a federal grant or loan, you must cover the building for flood insurance for as long as you own it and must inform any new owners of this requirement. Failure to carry flood insurance could result in the denial of future federal disaster assistance.
  
  The NFIP has an arrangement with private insurance companies to sell and service flood insurance policies. A list of private insurance companies that sell and service NFIP flood insurance policies is available on the  FEMAYou may also contact your insurance agent or company to find out more about federal flood insurance.

  Other Disaster Insurance

  Other types of natural disasters, including earthquakes, hurricanes, blizzards, and tornadoes, may not be covered by your insurance policy. If that is the case, and your area is vulnerable to these sorts of events, you may want to purchase additional insurance to protect your home.

• How can I save money on insurance?

  You may be able to save money on homeowner’s insurance by shopping around, or by following the advice found on usa.gov:
  

  • Check with your lender.
  • Consider a higher deductible. Increasing your deductible by just a few hundred dollars can make a big difference in your premium.
  • Ask your insurance agent about discounts. You may be able to get a lower premium if your home has safety features such as dead-bolt locks, smoke detectors, an alarm system, storm shutters or fire retardant roofing material. Persons over 55 years of age and current customers may also be offered discounts.
  • Insure your house NOT the land under it. After a disaster, the land is still there. If you don't subtract the value of the land when deciding how much homeowner's insurance to buy, you will pay more than you should.
  • Don't wait till you have a loss to find out if you have the right type and amount of insurance.
  • Make certain you purchase enough coverage to replace what is insured. 'Replacement' coverage gives you the money to rebuild your home and replace its contents. An 'Actual Cash Value' policy is cheaper but pays back only what your property is worth at the time of replacement, not what you originally paid for it.
  • Ask about special coverage you might need. You may have to pay extra for computers, cameras, jewelry, art, antiques, musical instruments, stamp collections, etc.
  • Remember that flood and earthquake damage are not covered by a standard homeowners policy. The cost of a separate earthquake policy will depend on the likelihood of earthquakes in your area. Homeowners who live in areas prone to flooding should take advantage of the National Flood Insurance Program.
  • If you are a renter, do not assume your landlord carries insurance on your personal belongings. Purchase a separate policy for renters.

Owning a Home

Owning your own home brings not only the personal satisfaction of reaching your goal of a place of your own, but also presents new obligations and financial advantages. Luckily, you are not on your own!  Total Concept is your partner in homeownership.

Owning a home takes time and hard work, and is perhaps the greatest financial investment you will make, so it is essential that you protect your new asset through home safety precautions, sound household budgeting and regular home maintenance. As you pay down your mortgage over time, you have the satisfaction of knowing that you are building equity for the future.

• How do I budget?

  Owning a home means that you should be prepared to spend money on various recurring and unexpected expenses. Here are some helpful budgeting tips to keep in mind as you plan for homeownership:

  • Know where your money is going: keep receipts, look for ways to economize, and itemize your cash flow on a daily basis so that you get an accurate financial picture.
  • Have a monthly payment schedule for all bills – set up automatic payments if your utility company allows.
  • If you can, apply for an “average payment plan” with your utility companies based on the history of gas or electric use in the home. The company calculates an estimated annual cost and divides that figure by 12 months.
  • Plan for regular maintenance and unexpected repairs. Try to save one percent of the purchase price of your home each year.
  • Pay yourself first! Stick to a regular savings plan: 5% is suggested by budget planners.
  • Begin a reserve or emergency fund (generally 3-6 months of your living expenses) for future financial needs and emergencies.
  • Take advantage of all homeowner tax benefits. IRS publications or your tax accountant are good resources at tax time.

• How do I maintain my home?

  Owning a home is a big responsibility and comes with many maintenance needs, depending on the type of home and its location. Ask your homeownership advisor if they can recommend any post-purchase programs that cover the basics.

• General Guidelines

  • Post a list of emergency numbers on the refrigerator.
  • Install and monitor safety devices (fire extinguishers, smoke alarms, carbon monoxide detectors, etc.).
  • Plan for regular maintenance and unexpected repairs. Try to save one percent of the purchase price of your home each year.
  • Take classes in maintenance, home improvement, gardening, weatherization, décor, or carpentry – whatever helps you maintain or improve your home.
  • Develop a long-term plan for home improvements; include a savings plan to pay for them.
  • Address issues as they arise. Deferred maintenance can lead to costly repairs.
  • Evaluate when it makes sense to hire a professional and work with licensed contractors.

• Maintaining the interior of your home

  • Twice a year, check smoke and carbon monoxide detectors and replace batteries.
  • Inspect caulk around bathtubs, showers, sinks, and toilet base; replace when needed. Caulk prevents moisture from seeping into walls and floors.
  • Occasionally flush water down seldom used showers and sinks.
  • Check basement, attic, and crawl spaces for moisture or leaking water and damage.
  • Inspect wall surface and ceiling for damp spots, mildew, discoloration, cracks, or bulges caused by leaks and condensation.
  • Check ceilings at exterior edges and windows for water damage or ice buildup during winter months.
  • Check dryer vent for proper connection.
  • Remove dust from the kitchen range vent and the condensing coils on the refrigerator.
  • Inspect exposed wiring, cables, and plugs for damage and wear. Replace at first sign of damage.
  • Test ground fault circuit interrupter outlets in the kitchen, bathroom, and basement. Test by pushing “T” and then reset by pushing “R”.
  • When in use, replace furnace and air conditioner filters monthly.
  • Heating systems should be cleaned and serviced annually.
  • Check fireplace firebox and flue, inside the chimney, for creosote buildup. If it is more than 1/8 inch thick, the chimney needs professional cleaning.

• Maintaining the exterior of your home

  • Inspect windows for damage and loose putty. Clean windows and install screens.
  • Check roof and have missing, loose or damaged shingles replaced.
  • Check the fascia, soffit, and edge of the roof for rotting wood or flaking paint.
  • Clean gutters and downspouts.
  • Inspect and touch up exterior paint.
  • Inspect exterior walls for peeling paint, cracks, loose siding, or stucco damage.
  • Repair cracking and deteriorating foundation
  • Check and repair steps, sidewalks, and railings.
  • Treat exterior wood for splintering, decay, and insect damage.
  • Check grading (dirt) for proper slope away from foundation walls.
  • Remove small trees and other seedlings growing near foundation and in sidewalks. Remove vines clinging to the side of home.
  • Remove fallen leaves, dead plants, and lawn debris.
  • Trim trees and shrubs, especially those touching the exterior.
  • Keep grass cut and watered. Longer grass in the hot months will reduce need for watering.

• Foreclosure

  What is foreclosure?

  Foreclosure is a legal procedure in which a mortgaged property is sold in order to pay the outstanding debt of a borrower in default. Due to their failure to pay the mortgage on the property, the borrower’s rights to the property are forfeited. If the owner cannot pay the outstanding debt or sell it via a short sale, the property will be sold in a foreclosure action. If the property is not sold at auction, it becomes the property of the lending institution.

  What are the different kinds of foreclosure?

  Source:  www.HUD.gov
  
  
  Although most homeowners understand that several missed mortgage payments will lead to foreclosure, it is difficult to predict what will happen once the foreclosure process begins. Foreclosure procedures are different in every state, including the notice and scheduling requirements that lenders must adhere to during the process. In addition to understanding their state’s laws, homeowners should know that there are three common methods used to foreclose on a property.

  Strict Foreclosure

  Mortgage defaulters living in Maine, Vermont and Connecticut should be familiar with strict foreclosures, since lenders in these states are among the few that can use this type of foreclosure process. A strict foreclosure requires lenders to get approval from the court to recover property so that they can put it up for sale. One of the requirements to obtain approval is that the property must be worth less than the mortgage balance. When the court approves a strict foreclosure, it gives the homeowner a deadline to pay back the mortgage debt. If the homeowner fails to pay by the set deadline, then the lender immediately regains ownership of the property.

  Non-Judicial Foreclosure

  In a non-judicial foreclosure, lenders enforce their right to foreclose on a property without a court’s approval, as long as it is carried out under the terms of the power of sale clause featured in the deed of trust and the state’s foreclosure laws. States such as California, Texas, Massachusetts and Michigan allow lenders to use this streamlined foreclosure process. In a non-judicial foreclosure, the lender may be required to only send the homeowner one or two notices before their home is sold in a foreclosure auction. Consequently, homeowners have only a small window of time to make arrangements and possibly keep their home.

  Judicial Foreclosure

  The judicial foreclosure process may be used by lenders in states all across the country. This type of foreclosure requires the lender to rely on the court to foreclose on the property. The lender must file a lawsuit and a lis pendens notice against the homeowner in order to obtain a judgment for the amount owed. Homeowners are given proper notice of the lawsuit and an opportunity to pay back what is owed. However, failure to pay the debt will result in an order from the court allowing the property to be sold in a public auction held by a representative of the county court or sheriff’s department.

  I’m having trouble paying my mortgage – what can I do?

  Here are some tips to avoiding foreclosure.

  Contact your lender as soon as you have a problem

  Rather than hide money problems from your lender, it is best to call your lender/servicer and ask them to modify your loan so that the payments are affordable. Some lenders have workout options to help you keep your home. However, these options work best when your loan is only one or two payments behind. Contact your mortgage lender as soon as you realize that you are unable to make your payments. The more behind you are in your mortgage, the harder it will be to stay in your house.
  
  If you do not initiate contact with your lender, your lender will try to contact you by mail and phone soon after you stop making payments. It is very important that you respond to the mail and phone calls offering help. If your lender does not hear from you it is likely they will start legal action leading to foreclosure. This will substantially increase the cost of bringing your loan current.

  Check the following sources for lender contact information:

  • your monthly mortgage billing statement;
  • your payment coupon book; and
  • the web links or customer service numbers on HUD.gov.

  Typically, lenders need the following in order to help you:

  • your loan account number
  • a brief explanation of your circumstances
  • recent income documents (e.g., pay stubs or benefit statements from social security disability, unemployment, retirement or public assistance)
  • a list of household expenses

  Expect to have more than one conversation with your lender. Typically, your lender will mail you a “loan workout” package. This package contains information, forms, and instructions. If you want to be considered for assistance, you must complete the forms and return them to your lender quickly. The completed package will be reviewed before the lender talks about a solution with you.

  Talk to a housing counseling agency

  It is best to speak with a HUD-approved housing counseling agency, such as  Total Concept , and arrange an appointment with a homeownership advisor. A homeownership advisor will help you assess your financial situation with regard to purchasing a home, determine what options are available to you and help you negotiate with your lender.
  
  A homeownership advisor will be familiar with the various workout arrangements that lenders will consider and can recommend which course of action makes the most sense for you and your family, based on your circumstances. In addition, the homeownership advisor can call the lender with you or on your behalf to discuss a workout plan. By meeting with a homeownership advisor before your mortgage payments are too far behind, you can protect yourself from future credit problems. A good homeownership advisor will help you establish a monthly budget plan to ensure that you can meet all of your monthly expenses, including your mortgage payment.

  Prioritize your debts

  Prioritize your bills and pay those most necessary for your family: food, utilities, and shelter. For the unemployed, getting by will require a new, tightened budget. Failing to pay any of your debts can seriously affect your credit rating. However, if you stop making your mortgage payments you could lose your home. Whenever possible, any income available after paying for food and utilities should be used to pay your monthly mortgage payments.

  Beware of Scam Artists

  Predatory lenders often target people in financial distress. They try to lure you into paying fees for their “helpful” services, making financial problems worse and increase your risk of losing your home. They may try to get you to sign your house over to them in return for paying your mortgage. Do not give money to anyone saying they can modify your mortgage or help you pay your bills, or sign the deed to your house over to someone who promises the same. If an offer sounds too good to be true - it is.

• Refinancing

  All material adapted or taken from Federalreserve.gov

  What is refinancing?

  When you refinance, you pay off your existing mortgage by taking out a new mortgage. You may also be able to combine a primary mortgage and a second mortgage into a single new loan.

  Why might I want to refinance?

  There are a number of different reasons why refinancing might be a good choice for you. These include:

  Lowering your interest rate

  The interest rate on your mortgage is tied directly to how much you pay on your mortgage each month–lower rates usually mean lower payments. You may be able to get a lower rate because of changes in the market conditions or because your credit score has improved. A lower interest rate also may allow you to build equity in your home more quickly.

  Adjusting the length of your mortgage

  You may want a mortgage with a longer term to reduce the amount that you pay each month. However, this will also increase the length of time you will make mortgage payments and the total amount that you end up paying toward interest.
  
  Shorter-term mortgages generally have lower interest rates. Plus, you pay off your loan sooner, further reducing your total interest costs. The trade-off is that your monthly payments usually are higher because you are paying more of the principal each month.
  
  Refinancing is not the only way to decrease the term of your mortgage. By paying a little extra on principal each month, you will pay off the loan sooner and reduce the term of your loan.

  Changing from an adjustable-rate to a fixed-rate mortgage

  If you have an adjustable-rate mortgage, or ARM, your monthly payments will change as the interest rate changes. With this kind of mortgage, your payments could increase or decrease.
  
  If you are worried about your rates going up, you may want to consider switching to a fixed-rate mortgage which will have a steady interest rate and monthly payment. You also might prefer a fixed-rate mortgage if you think interest rates will be increasing in the future.

  Getting an ARM with better terms

  If you currently have an ARM, and you believe that the next rate adjustment will increase your monthly payments substantially, you may choose to refinance to get another ARM with better terms. For example, the new loan may start out at a lower interest rate, or offer smaller interest rate adjustments or lower payment caps, so that that the interest rate cannot exceed a certain amount. For more details, see the Consumer Handbook on Adjustable-Rate Mortgages

  Taking out equity on your home

  Home equity is the dollar-value difference between the balance you owe on your mortgage and the value of your property. When you refinance for an amount greater than what you owe on your home, you can receive the difference in a cash payment. This is called a cash-out refinancing. You might choose to do this if you need cash to make home improvements or pay for a child’s education.
  
  However, when you take out equity, you own less of your home. If you need to sell your home, you will not put as much money in your pocket after the sale. If you are considering a cash-out refinancing, think about other alternatives as well. You could shop for a home equity loan or home equity line of credit instead.

  Why shouldn’t I refinance?

  There are a number of reasons why it might not be a good idea to refinance. Talk to your  Total Concept homeownership advisor or a financial advisor before you go ahead with the any refinancing plan.

  When you’ve had a mortgage for a long time

  In the later years of your mortgage, more of your payment applies to principal and helps build equity, and less of your payment goes to paying off interest each month. By refinancing late in your mortgage, you will restart the amortization process, and most of your monthly payment will be credited to paying interest again and not to building equity.

  When you have a prepayment penalty

  A prepayment penalty is a fee that lenders might charge if you pay off your mortgage loan early, including for refinancing. If you are refinancing with the same lender, ask whether the prepayment penalty can be waived. You should carefully consider the costs of any prepayment penalty against the savings you expect to gain from refinancing.
  
  Paying a prepayment penalty will increase the time it will take to break even once you account for the costs of the refinance and the monthly savings you expect to gain.

  When you are planning to move soon

  The monthly savings gained from lower monthly payments may not exceed the costs of refinancing–a break-even calculation will help you determine whether it is worthwhile to refinance, if you are planning to move in the near future.

  How do I know if I can refinance?

  Determining your eligibility for refinancing is similar to the approval process that you went through with your first mortgage. Your lender will consider your income and assets, credit score, other debts, the current value of the property, and the amount you want to borrow. If your credit score has improved, you may be able to get a loan at a lower rate. On the other hand, if your credit score is lower now than when you received your current mortgage, you may have to pay a higher interest rate on a new loan.
  
  Lenders will look at the amount of the loan you request and the value of your home, determined from an appraisal. If the loan-to-value (LTV) ratio does not fall within their lending guidelines, they may not be willing to make a loan, or may offer you a loan with less-favorable terms than you already have.
  
  If housing prices fell between when you purchased and when you want to refinance, your home may not be worth as much as you owe on the mortgage. Even if home prices stay the same, if you have a loan that includes negative amortization (when your monthly payment is less than the interest you owe, the unpaid interest is added to the amount you owe), you may owe more on your mortgage than you originally borrowed. If this is the case, it could be difficult for you to refinance.

  How much does it cost to refinance?

  It is not unusual to pay 3-6% of your outstanding principal in refinancing fees. These expenses are in addition to any prepayment penalties or other costs for paying off any mortgages you might have.

  Refinancing fees vary from state to state and lender to lender. Here are some typical fees and average cost ranges you are most likely to pay when refinancing:

  • Application Fee
  • Loan Origination Fee
  • Points
  • Appraisal Fee
  • Inspection Fee
  • Attorney review / closing fee
  • Homeowner’s Insurance
  • Title search and title insurance
  • Survey fee
  • Prepayment penalty

  What about “no-cost” refinancing?

  Lenders often define “no-cost” refinancing differently, so be sure to ask about the specific terms offered by each lender. Basically, there are two ways to avoid paying up-front fees – but either way costs something in the end.
  
  The first is an arrangement in which the lender covers the closing costs, but charges you a higher interest rate. You will pay this higher rate for the life of the loan.
  
  The second is when refinancing fees are included in (“rolled into” or “financed into”) your loan--they become part of the principal you borrow. While you will not be required to pay cash up front, you will instead end up repaying these fees with interest over the life of your loan.