Am I Really Ready to Buy a House?

Young black couple signs paperwork with agentQ: I’ve saved a down payment, narrowed my choices of neighborhoods and drawn up a wish list of what I’m looking for in a home, but I’m getting cold feet. How do I know if I’m really ready to buy a house?

A: It’s perfectly normal to feel hesitant about going through with what may be the biggest purchase of your life. To help put you at ease and to make sure you’re really prepared for this purchase, we’ve compiled a list of questions to ask yourself before buying a new home.

Can I afford to buy a house?
Before viewing properties, remember that purchasing a new home will cost more than just the down payment. Buyers also need to cover closing costs, which typically run at 2-4 percent of the total purchase, as well as moving costs, and possibly new furniture and renovations for their new home.

Can I afford the monthly mortgage payments?
Most lending companies will grant a loan to a home buyer if the monthly mortgage payments do not push the buyer’s debt-to-income (DTI) ratio above the recommended 43 percent. This means that the total monthly debt the buyer carries, including their mortgage, credit card, loan, and car payments, do not exceed 43 percent of their monthly income. You may want to work out the total for your pre-mortgage debt before applying for a loan so you have an idea of how much house you can afford.

When determining whether you can actually afford your monthly payments, though, remember that there’s more to home ownership than a monthly mortgage payment. Be sure to include calculations for taxes, insurance and a possible increase in utility bills. A mortgage lender should be able to provide some of these numbers for you.

Am I ready to settle down?
The average length of time that homeowners in the U.S. live in a house is only seven years. Buyers who don’t plan on staying in their homes long-term may end up incurring a loss. Consider factors like your career, family planning, changing demographics of a neighborhood and more when trying to answer this question. Experts advise buyers to only purchase homes they plan on living in for a minimum of five years.

Does buying a house in my neighborhood make financial sense?
Many Americans view home ownership as a rite of passage into adulthood, but that doesn’t mean purchasing a home always makes financial sense. In some neighborhoods, rentals are relatively cheap while houses sell for far more than they are actually worth. In these neighborhoods, buying a home may not be the logical choice, even if the buyer can easily afford the purchase.

Is my credit score high enough?
A fairly decent credit score is necessary to qualify for a home loan. Most lenders will only grant a home loan to borrowers with a credit score of 650 or higher. A score that doesn’t make the cut can be increased by being super-careful about paying all bills on time, not opening new credit cards in the months leading up to the home loan application, paying credit card bills in full each month and keeping credit utilization low.

Do I have a plan in place for repairs?
When a renter has a leaky faucet, they call the landlord and the problem becomes theirs. When a homeowner has a leaky faucet, it’s their own problem. They can either fix it or hire someone to do the job, but it’s a good idea to have a plan in place before the first thing in a new home needs fixing. If you’re handy enough to handle repairs on your own, you’ll need to be ready and willing to give up some of your free time on weekends to tend to things around the house. Otherwise, it’s best to have a tidy sum put away to pay for necessary repairs before purchasing a home.

Sometimes, an appliance or a system in the house will be broken beyond repair and will need replacing. Homeowners need to have enough money stashed away in their emergency fund or rainy-day account to cover these purchases, too.

Buying a first home is an exciting milestone that only happens once in a lifetime. If you think you’re ready to take this step, first make sure this purchase is the right choice for you at this time on a financial and practical level.

If you’re ready to get started on your home loan application, click or call to hear about our fantastic home loan options.

Your Turn:
How did you know you were ready to buy a house? Share your thoughts with us in the comments.

Learn More:
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creditsesame.com
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All You Need To Know About Home Loans

Close-up of a mortgage application on a desk with a pen and keys on top of the applicationHere at Advantage One Credit Union, we provide a variety of products and services to meet your specific financial needs and in the most ideal ways possible. One such example is our home loans. Let’s take a closer look at this product and how its application process works.

What is a home loan?
A home loan, or a mortgage, enables you to purchase a home without having to foot all the cash out of your pocket when purchasing. You will, however, need to make a down payment, which is typically between 3.5-20% of the home’s appraised value, along with closing costs and some other fees. The lender then finances the rest of the purchase. You’ll repay the loan, along with interest, over the course of (generally) 15 to 30 years.

Are all home loans alike?
Before you get started, you’ll need to choose a mortgage type. A conventional loan will necessitate a 5-20% down payment on the home. There’s also an FHA loan, which only requires a down payment of 3.5%, but necessitates mortgage insurance. If you’re a military veteran, consider obtaining a VA loan, which lets you buy a home with zero down payment.

Once you’ve chosen the kind of loan which is best for your scenario, you may be given a choice of repayment arrangements for that loan. Here are the three common types of mortgages:

  • 30-year fixed-rate mortgage
    The interest rate on this 30-year mortgage will remain fixed no matter the changes to the national rate.
  • 15-year fixed-rate mortgage
    This mortgage will also have a fixed interest rate, but the term lasts just 15 years. The monthly payments will be higher, but the overall interest paid over the course of the loan will be significantly lower.
  • Adjustable-rate mortgage (ARM)
    An ARM gives the borrower a lower interest rate in the early years of the loan, and then a gradual increase (adjustment) in rate over the rest of the life of the mortgage.

What do I need to know before applying for a home loan?
A home is likely to be the largest purchase you will ever make. To qualify for one, you will need to prove that you are living a financially responsible life and that you can afford the monthly payments.

The primary way lenders gauge your financial responsibility is through your credit score. This number is like a grade that tells lenders how you’ve handled your past credit card accounts and other debts. It will include the length of time you’ve had your credit cards and loans open, the timeliness with which you’ve made your payments, the trajectory of your debt and the amount of available credit you might use. Most lenders will only grant a home loan to borrowers with a credit score of 650 or higher. You can check your score for free on Credit Karma. You might also consider ordering a free credit report from all three major credit bureaus once a year at AnnualCreditReport.com.

During the time leading to your mortgage applications, make sure to pay all your bills on time, don’t open new credit cards and work on paying down overall debt. A higher credit score will help you get approved quicker and it will net you a lower interest rate on your loan.

Another crucial factor in determining your eligibility for a mortgage is your debt-to-income ratio, or your DTI. Lenders want to know how big your collective outstanding debt will be in relation to your income if you receive the home loan. Most lenders will only allow a maximum DTI of 36%. Here at Advantage One Credit Union, we allow our members to take out a home loan with a DTI of [XX%].

When should I apply for a home loan?
While you won’t need the loan until you are ready to close on a house, it’s a good idea to start the process before you begin house-hunting. Your lender will let you know whether you can expect to be approved for a loan and will provide you with an estimate of how much house you can afford so you don’t face disappointment later.
When initially applying for a home loan, ask your lender for a letter of pre-approval. This letter confirms you are pre-approved for a home loan up to a specific amount. Having this letter in hand shows real estate agents and sellers that you are serious about buying. Most pre-approvals are only good for 60-90 days, so make sure you’re ready to start house hunting before you get yours.

How do I apply for a home loan?
To apply for a home loan at Advantage One Credit Union, stop by and ask a representative to help you get started. Make sure all of your financial paperwork is in order and hold onto all important financial documents in the months leading up to your application.

To make it easier, we’ve created a list of the information and documents you’ll need:

  • Name of current employer, phone and street address
  • Length of time at current employer
  • Official position/title
  • Salary including overtime, bonuses or commissions
  • Two years’ worth of W-2s
  • Profit & loss statement if self-employed
  • Pensions and Social Security check stubs
  • Proof of child support payments
  • Copies of alimony checks
  • Statements for all checking and savings accounts
  • Investments (stocks, bonds, retirement accounts)
  • Proof of any gifted funds from relatives
  • Car loan information

You will also need to explain any blemishes on your financial record; including bankruptcies, collections, foreclosures and delinquencies.

If you’re ready to apply for a home loan, stop by Advantage One Credit Union today. We’re completely committed to your financial success.

Your Turn:
How did you prepare for a home loan application? Share your tips with us in the comments.

Learn More:
thebalance.com
rubyhome.com
thelendersnetwork.com

Should I Buy A House During The Holidays?

Close-up of the front of a Colonial style house with a navy blue front door decorated with holiday wreath.Q: I’m in the market for a new home and wondering if I should push off my search until after the holidays. Is it a good idea to buy a new home during Christmas?

A: While spring and summer tend to see the highest volume of home sales, it doesn’t mean they’re the only time to buy a house. Let’s take a closer look at some of the myths and lesser-known facts about timing the purchase of a home and explore the pros and cons of buying during the holidays.

The myth about buying in the spring
Contrary to popular belief, springtime can be the worst season to purchase a home. While the longer daylight hours do make it easier to check out the exterior, shopping for a new house during the hottest real estate season can mean facing all kinds of drawbacks and difficulties.

First, and most importantly, sellers tend to mark up their prices when they see heightened demand for their homes. Also, the flooded market can lead to expensive bidding wars with buyers who are also interested in the same property. Plus, if your search is successful and you find a new home during the spring, the closing process can drag out much longer than necessary as title companies, inspectors and movers may not be able to service you in a timely manner during their busiest season of the year.

Why Christmas can be a better time to buy
Shopping for a home during the winter, and especially during the holidays, offers the following advantages:

  • Homes are priced to sell
    Most of the houses you’ll find on the market during the late fall and early winter will be holdovers from the spring and summer season. At this point, homeowners may be desperate to sell and get their property off their hands. Alternatively, the houses may have just been put on the market because of the owner’s sudden and urgent need to relocate due to unforeseen factors like a job change, divorce or another life-altering event. In either case, the owner is looking to sell quickly, and will likely be more willing to compromise on their original asking price than homeowners selling in the spring and summer. In fact, according to The Wall Street Journal, home prices can drop to a 12-month low in December.
  • Holiday spirit makes people more agreeable
    People tend to be in a more generous frame of mind around the holidays. Let this factor work in your favor by shopping for a home during the holiday season. You can walk away with a dream home at a dream price, and you may even be able to negotiate some extras, like furniture or a fresh coat of paint, into the selling price.
  • Fewer buyers on the market
    With more people looking to relocate during the spring and summer months, you’ll have less competition when house-hunting around Christmas time. This will give you an edge in bidding wars and it will make it easier for you to negotiate to bring down an asking price on a home.
  • Professionals of the field are more available
    December is usually the slowest month of the year for home sales. This can work to your advantage if you choose to buy a home around the holidays. Your real estate agent will likely have plenty of time to show you around since fewer other people are looking to buy during this season. The various professionals you’ll need to hire during the home-buying process-including an attorney, home inspector, underwriter and mover-will likely be able to service you promptly as well.

Before you go house hunting
While buying a house during the holidays can be a great idea, keep these factors in mind before you give your agent a call:

  • Daylight hours are short during the winter, giving you a small window of opportunity to search.
  • You won’t be able to see a home’s property in its full glory during the winter months.
  • Some sellers may not be too keen on throwing their homes open to viewers during the holidays.
  • Unexpected inclement weather may delay some parts of the home-buying process, like the inspection or even the closing.
  • You’ll have fewer homes to choose from when house-hunting during the winter, as a cooler real estate market means slimmer pickings.

Shopping for a new home during the holidays may not be conventional, but it can mean finding your home sweet home quickly, easily and for a far better price.

If you’re in the market for a new home, make sure to stop by Advantage One Credit Union to ask about our home loan options. We’ll help you move into your dream home with the most favorable terms.

Your Turn:
Have you bought a home during the holidays? Tell us about it in the comments.

Learn More:
fitsmallbusiness.com
thebalance.com
freddiemac.com
loans.usnews.com
blog.nationwide.com
thebalance.com
realestate.usnews.com

Best Ways to Save for Your Mortgage Down Payment

Four simple methods to get the ball rolling on your down payment savings
Buying a home is ajanuaryfeatured_saveforhome huge step in life and begins with a huge hurdle: the down payment. Fortunately, by starting early and thinking things through, you can get a solid jump on saving. Here are some easy ideas to get you started.

Automate Your Savings
At your usual financial institution, open a savings account specifically designated for your down payment/mortgage. Not only will this allow you to conveniently transfer funds from one account to the other, it will also allow you to automate transfers or directly deposit part of your paycheck into the specified account.

Make a Budget
Create a spreadsheet that lists all of your monthly expenses and monthly net income. Not only will this tell you how much you can put into savings, it can also help you discern what monthly mortgage payment you can afford. If the buffer between expenses and income is already too small, this is an early red flag that you will have to start doing some things differently to afford your mortgage.

“Given that income and expenses are closely matched in many households, the only way to get ahead is to bring in more money or change your spending habits (meaning spend less) and avidly look for new savings sources,” says Peter Miller, The Simple Dollar contributor.

Invest Your Funds
If you are looking to buy a house within the year, Kathryn Vassel of CNN Money recommends keeping your money liquid; but if your plans are more long-term, it is a good opportunity to invest in order to boost savings. If you are looking at a 10-year time frame, stocks could be a good option for you, Vassel writes. If you think you’ll buy a house in five to seven years, consider investing in bonds: 50 percent in longer-term bond funds or individual bonds and 40 percent in short-term bonds that mature in one to three years, plus 10 percent in cash. Finally, try higher-interest CDs if you are still two to four years from buying a home.

Research Home-Buying Programs
One of the first steps toward saving for a mortgage is setting a goal. A general rule of thumb for the down payment is 20 percent of the home’s selling price, but many available government programs also offer lower down payments, down payment loans or grants, or housing discounts. For lower down payments, look into GSE loans or loans through the FHA, VA or USDA.

Whether you choose one of these savings methods or all of them, they will help you come up with the down payment for the home you’ve always wanted.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Should You Keep Renting?

How to determine when to stop renting and buy a home
If you are planning onRentVBuy_Featured moving in the near future, you are likely wondering about the comparative benefits of renting and buying.

Here are a few things that you should consider when trying to determine if you should keep renting — or say “sayonara” to your landlord and purchase your own property.

Benefits of buying
If you are a renter, your landlord could decide to sell the property, raise your rent or change the terms of your lease at the time of renewal. Buying a home, on the other hand, gives you stability in knowing that no unexpected moving situations will be forced on you in the future.

In addition to stability, you also gain a sense of autonomy as a homeowner. You don’t have to ask permission to decorate or renovate, so you can create an atmosphere that matches your style and personality. After years of renting, many people become tired of not having the freedom to decorate as they please, which can be incentive enough to consider buying. Furthermore, you can change the landscaping to suit your taste and needs, even adding a vegetable garden to improve your recipes and reduce your food budget.

In addition to these personal and emotional advantages, there are many financial benefits to buying. New homeowners are often surprised by the size of the tax benefits they receive.

“As a homeowner, you are able to deduct many home-related expenses,” states Taylor Schulte, CFP®, founder and CEO of Define Financial, in an article on Kiplinger.com. “And, unless you owe more than $1 million, all the interest you pay in your mortgage payment is tax-deductible.”

You also build equity as a homeowner as you pay down your mortgage, and paying it off completely is a great way to keep costs reasonable in retirement. Building equity gives you the option to seek a reverse mortgage in the future and can help you get a better loan rate on a personal loan, should you need one for renovations, starting a business or purchasing a car.

Benefits of renting
While buying gives you stability, renting gives you flexibility. If you are considering changing careers, flexibility can allow you to seize the perfect opportunity, without having to wait to sell your home if the commute is too long. Renters can also easily move to a less expensive area or property if they need to cut costs while job searching or starting a business.

While a monthly mortgage payment may be comparable to or less than what you would pay to rent, homeowners quickly discover that purchasing a home includes many more costs and fees, such as those associated with obtaining a mortgage and working with a realtor.

There are also ongoing costs, including property taxes, homeowners’ insurance, and maintenance costs associated with the landscape and physical property. A renter is also not likely to be held responsible for unexpected expenses such as broken pipes, roof repairs, damaged driveways and gutter maintenance, just to name a few.

Another financial benefit of renting is the ability to build credit. So if you aren’t able to qualify for the interest rate you desire, continuing to rent is a great option.

“While renting doesn’t boost credit the same way owning a home often can, creating a history of on-time rental payments can, in some cases, help build your credit to qualify for a mortgage down the road,” states Schulte. “This history can be created when (and if) your landlord reports your payment data to the credit agencies.”

Other considerations
“The arguments in favor of ownership are persuasive, particularly for people who expect to stay in place for at least five to seven years but probably more,” according to Tara Siegel Bernard in a 2016 article for the New York Times. “A mortgage acts like a forced savings plan, even if you’re paying the bank hundreds of thousands of dollars in interest for the privilege of building equity.”

This point was illustrated in a 2014 study from HelloWallet, a unit of Morningstar. It created a financial model for the housing markets of 20 major cities in the United States, projecting how hypothetical families with moderate income levels would fare financially if they bought a house versus if they rented.

“The study projects that median-income families, or those who earn about $50,000, will often end up with more net wealth if they rent versus own over the 10 years from 2013 to 2022,” states Siegel Bernard. “But any number of variables can quickly shift that calculus, including the price of the home relative to the rent, whether the family is affluent enough to benefit from tax savings, and the time spent in the home.”

If you are still stumped, talking to someone at your financial institution can help you assess what type of mortgage you could currently qualify for and what type of home you can expect to find with that mortgage. Comparing that with your current renting situation may help tip the scales in one direction or the other.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Should You Buy a Home if You Still Have Student Loans?

What to consider before adding a mortgage to your educational debt

Becoming a homeowner is a hugeCHomeStudentDebt_Featured life step, especially on the financial front, and it should not be taken lightly.

And if you are one of the 43.3 million Americans still with student loan debt, according to the Federal Reserve Bank of New York, it’s an even bigger decision. There are many factors to take into account before taking the plunge and adding a mortgage to your educational debt.

Here are a few of the main points to consider:

Debt-to-income ratio – The biggest hurdle you may face if you try to buy a home while maintaining a balance on your student loans is what is known as the debt-to-income ratio. The DTI ratio is how lenders judge your likelihood of defaulting on a mortgage. It compares your total household monthly debt payments to your total income. Lenders generally prefer that number to be less than 43 percent, according to the Consumer Financial Protection Bureau.

As Real Estate Columnist Kenneth Harney of the Washington Post reported, new rules from the Federal Housing Administration (FHA) could make it tougher to qualify for a low-down-payment mortgage through the FHA, as well as restrict down payment gifts. Previously, student loan debt was not taken into account in the DTI ratio, but now lenders are required to include 2 percent of student loan debt when computing the number. Considering the average class of 2016 graduate has a student loan debt of $37,172 according to Student Loan Hero, that 2 percent could drastically change the chances of getting approved for the FHA loan.

FHA Spokesman Brian Sullivan explains why the new requirements, though tougher, make more sense.

“Deferred student debt is debt all the same and really must be counted when determining a borrower’s ability to sustain both student debt payments and a mortgage over the long haul,” he says. Sullivan also adds that the agency’s primary goal is to put first-time home buyers “on a path of sustainable homeownership rather than being placed into a financial situation they can no longer afford once their student debt deferment expires.”

Down payment woes – With down payments as low as 3.5 percent, according to an article on CNN Money, whether or not you qualify for the FHA loan will determine how much of your saved money will have to be used up front. This is important because higher down payments lower your monthly payments as well as your interest rate. At the same time, you can’t put all your savings toward the down payment because you have other home-buying needs such as closing costs, moving expenses, homeowners insurance and home furnishings.

Renting vs. buying – Some renters feel as though they are “throwing away money” by paying a landlord each month rather than investing that money in an asset all their own. However, rushing into buying a home for that reason alone is a mistake, especially if you still have student loan debt, as a mortgage would just add to your debt, possibly to the point that it cannot be surmounted.

Furthermore, you have to think about non-monetary aspects as well. For example, are you in a place in your life where you want to put down roots in one particular area?

“Low mortgage rates and high rents make buying an attractive option, but you should be ready to put some roots down,” says CNN Money. “If you’re planning to stay in a home for at least two years, buying is more financially advantageous than renting in 70 percent of housing markets, according to a recent report from Zillow.”

Homeowners’ responsibilities – Another aspect that differentiates buying a home from renting is the fact that with a home all the responsibilities are your own. You’ll likely need a lawn mower, and other landscaping tools. If the dishwasher breaks, you will have to contact a professional and pay for their services. You have to be ready, willing and able to take on those responsibilities — which all come with costs up front. Will you have the funds for that?

If you are set on buying a home despite your student loan debt, you do have some options to make it more manageable financially. Come talk to us today to find out if you can afford purchasing a home.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Hidden Costs of Home Buying

The biggest expenses first-time buyers don’t expect

You’ve been savingHiddenHomeCosts_Featured up for years. You found the home of your dreams and negotiated a price that works for you—you even saved enough for a 20 percent down payment! A big weight likely feels lifted from your shoulders. But don’t get too comfortable. First-time home buyers are often vulnerable to surprise costs for which they did not budget. Don’t be caught off guard; familiarize yourself with these five common hidden expenses:

Home inspection: So you submitted an offer on a home and the seller accepted. Now you’re all set to move in, right? Wrong. Would you buy a used car without checking under the hood first? Similarly, hire a certified home inspector to pore over the entire property before you close on the house. If any structural or mechanical issues are uncovered, you can ensure the seller repairs them before closing or negotiate the price down for you to cover the costs of repair. Without a home inspection, you will be solely responsible for anything that should need fixing once you move in.

Even though a reputable inspector charges between $200 and $600 depending on your location, it is money well-spent up front in comparison to a potential home repair that costs you thousands down the road.

Appraisal fee: Your mortgage lender wants to make sure that the home you are about to buy, with his or her help, is worth every penny. That’s why the financial institution will charge you an appraisal fee. This money, charged directly to the borrower by the lender, goes toward an independent certified appraiser, who will assess and document the home and its property value. Be prepared to shell out an additional $250 to $600 for this necessity.

Closing costs: After you seal the deal and sign the papers, you’ll need to fork over an additional 2 to 5 percent of the home purchase price to cover closing costs, which can include everything from a loan origination fee and attorney fees to homeowners association dues and taxes. On average, you’re looking at $6,000 to $17,000 in closing costs, based on the average sale price of a new home in mid-2015, according to the U.S. Census Bureau.

Escrow account: Many first-time home buyers don’t fully know what an escrow account is, despite its being mandatory with some mortgage agreements.

“The money that goes into the account is used by the lender to pay certain ongoing property-related expenses on the homeowner’s behalf, such as homeowner’s insurance premiums, private mortgage insurance (PMI) premiums and property taxes,” explains Andrea Browne of Kiplinger’s Personal Finance magazine.

Escrow accounts are mandatory for buyers who make a down payment of less than 20 percent and for buyers who take out certain types of loans, such as FHA loans. You may be asked to make an initial deposit into escrow at closing, and then you will pay extra to the mortgage lender each month in addition to your house payment. Without escrow, you will be responsible for paying all insurance and taxes on the home and property on your own throughout the year. With it, you and the lender are both protected because these critical home ownership expenses are sure to be paid in full and on time. Escrow is a blessing; you just have to be prepared for its upfront costs.

Home maintenance and repair: Even though you had an inspection done, things do need to be repaired after normal wear and tear. As a homeowner, you are responsible for upkeep of the property, including everything from mowing the grass to fixing the garbage disposal. While these aren’t costs you can expect to pay before you close on the house, they will arise inevitably and can be quite high, so having a nest egg for such purposes is a good idea.

Now you know around how much more in “surprise” costs and fees you will need to foot before moving into your dream home. Even if you weren’t expecting to pay this extra money, hopefully at least being aware ahead of time helps soften the blow.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.