Simple savings

Have you given any thought towards putting additional money toward your monthly mortgage payment?  Sometimes spending a little more money actually will save you a lot of money in the long run. 

“That doesn’t make sense,” you say.  Let me show you.

To set up my example let me give you some upfront information.  Let’s say you just bought your home and financed $100,000 for the next 30 years at a rate of  5%.  If you have access to a mortgage calculator, you would agree with me that equals a monthly principle and interest payment of $536.82.

Here is what your amortization table would tell you that you received at closing:  if you make your payment on time for the next 30 years, you would repay a total figure of $193,255.78.  Which means, it will cost you $93,255.78 in interest to borrow the $100,000 for 30 years.  It got you the house of your dreams, but I will agree, that is a lot of money.

Here is how you can beat the amortization table. . . . 

By adding an extra $100 to your monthly payment (re: the example above instead of $536.82 you send $636.82) and identifying that you want it applied to the principal, it changes the total repayable to $162,675.53.  That is a difference of $30,580.25.  Not a bad savings for applying an extra $100 towards your monthly mortgage payment.  This same example would also allow you to own your home in just under 22 years.

Or

Instead of electing the 30-year mortgage note, consider a 15-year note.  By substituting a 15-year term in the example above, the monthly payment would be $790.79, and the total repayable on the mortgage note would be $142,342.85.  Again significantly less interest over the life of the loan compared to the 30-year option.

Mortgage rate trends

If you have seen the news on TV or read a newspaper in the past 2 weeks you have noticed that mortgage rates are trending upwards.  Many national and global events affect how mortgages are offered and, with all the activity lately, rates are up.

Nevertheless, mortgage rates still are at historic lows so don’t be disillusioned by headlines when there are great opportunities at your fingertips to find a home that is right for you, and obtain financing at a great rate.

For those of you who are First Time Home Buyers, Maine State Housing’s (MSHA) note rate is still at 4.375% for those that qualify (please call for details).  They also still have funds available for the Gift of Green, which is a grant offered by MSHA of up to $2500 to be used towards closing costs, AND doesn’t need to be repaid.

My goal is to make sure you understand the mortgage process from application to close, and that you get the product that best suits your needs.  Knowing that there is no way to predict the future of rates, go with what you know today and find your dream house.

Below is a table from www.freddiemac.com to show you the recent history of the 30-year fixed rate. 

	2009	2008	2007	2006	2005
	Rate	Rate	Rate	Rate	Rate
January	5.05	5.76	6.22	6.15	5.71
February	5.13	5.92	6.29	6.25	5.63
March	5	5.97	6.16	6.32	5.93
April	4.81	5.92	6.18	6.51	5.86
May	4.86	6.04	6.26	6.6	5.72
June	5.42	6.32	6.66	6.68	5.58
July	5.22	6.43	6.7	6.76	5.7
August	5.19	6.48	6.57	6.52	5.82
September	5.06	6.04	6.38	6.4	5.77
October	4.95	6.2	6.38	6.36	6.07
November	4.88	6.09	6.21	6.24	6.33
December	4.93	5.29	6.1	6.14	6.27
Annual Average	5.04	6.03	6.34	6.41	5.87

Home inspections, surveys & tests

When you are purchasing a home, there are a variety of tests and assessments that you can conduct on the property to protect yourself from “surprises” later on.  The most common of which is a home inspection.  Most buyers choose to get a home inspection before purchasing a house or condominium, and in some cases, financing is contingent on the inspector’s report.  Home inspections include different items depending on the property or the state in which you are purchasing your home, but it will generally involve a review of the home’s structural elements, roof and attic, plumbing, systems and components, electrical, appliances, garage (if applicable), and some exterior elements such as the exterior paint, driveway, fences, and drainage.

I have many borrowers ask me about home inspections and why they are necessary, especially if the person is purchasing a condominium or a newly constructed home. Even in these cases, it is important to make sure that you have all the information you can before purchasing your home.  Your real estate agent can help you find an inspector who is best suited for the property you are considering, but your best bet will always be to find an inspector who has certification by the National Association of Certified Home Inspectors (NACHI).

In addition to inspections, there are other tests that you may want to have completed.  A survey is an important one.  A survey uses measurements and town records to map exactly where your yard or land begins and ends.  Especially in the rural parts of the state, there can be confusion about where a property line begins and ends, so it is often a good idea to have this done, and again, some financing programs will require it.

Your real estate agent will be able to help you decide what other types of tests you need for your home.  Examples include radon (which is advisable if the home is built in an area where there is lot of ledge), water (advisable if you have a well), lead (in an older home), septic system, mold, or asbestos (again, in an older home). 

Again, your real estate agent will be able to help you decide whether you need certain tests completed and/or whether you should make the purchase of the home contingent on the results, but below are a few links that my help you.

Home Buyers’ and Sellers’ Guide to Radon

Maine Drinking Water Program 

Well Types

Your Septic System

Get Rid of Mold 

Lead hazard prevention

Recovering from a major credit event

The current economic climate has put turmoil in the lives of many citizens.  If you have had to choose between paying a bill or buying food, you are not alone.  Based on current data, it appears positive affects from Economic Stabilization are starting show.  If you have been affected by the poor economy and are now looking to buy a home, below are some general ideas of how long to wait after a major event impacted your credit.  Please note, it is not a guarantee if you wait the appropriate time that you will be granted funds to buy a home, they are just general rules that most Government Lenders - Underwriting Guidelines adhere to.

Bankruptcy – Most lenders require a minimum of 2 -4 years after the discharge of the bankruptcy along with re-established credit.  “Re-established credit” refers to to a minimum of 3 accounts reporting to the credit bureau reflecting no late payments, and the trade lines are provided a minimum of 12 months worth of payments.  All three Credit Bureaus will need to reflect a good credit score (680 or higher would be desired). 

Foreclosure Sale – Most lenders will require a minimum of 3 – 4 years from the transfer of title of the foreclosed property.  Written evidence will need to be provided to validate the foreclosure was beyond the borrower’s control.  Re-established credit with 3 or more trade lines with a minimum of 12 months worth of history, along with a good credit score (680 or higher would be desired).

Late Payments – Most lenders require that there be no more than 2 payments that are 30 days late within the most recent 12 months.  The borrower would have to explain and validate the late payment(s) were beyond their control.  There can be no more than 1 payment that is 60 days late within the most recent 24 months.  A good credit score would need to be reflected by all three Credit Bureaus (680 or higher would be desired).

The regulations and guidelines for mortgage lending tend to change quite often to adapt to National Economic Data, so please give me a call when the time is right to review your current situation. 

Getting a mortgage close to home-the credit union difference

When looking for a mortgage you can go to a number of different types of lenders (the places that lend you the money to buy your home): banks, mortgage brokers, or credit unions are the most typical lenders. 

What’s a credit union?  The research continues to show that many people – particularly those under the age of 40 – do not know the difference between a credit union and a bank.  There are several overall differences that I won’t go into a whole lot of detail on here in this post, but if you’re not sure, I recommend this link.   This short video explains the big differences very clearly – and comically!

What I’d like to talk about here is the credit union difference, as it applies to mortgages or home lending.  Some of the unique characteristics of a credit union are that we are local and owned by our members (as customers are called in the credit union world).  In addition to offering competitive rates, our structure makes us particularly strong in providing excellent service.  When you are shopping for a mortgage, working with a lender that’s knowledgeable, accessible, and “hands on” is incredibly important, especially if you are a first-time home buyer.

Another distinct feature of many credit unions in Maine is our product offering.  I mentioned the “CU Promise”  program in a previous post with respect to the flexible down payment options.  However, there are other great features to this product, such as guaranteed same-day decision making, guaranteed local servicing, and guaranteed on-time closing.  And believe me, based on my years’ of experience in this business, you’ll be especially glad for the on-time closing feature! 

As you think about where you want to get your mortgage, think about the features that are most important to you in a lender then research various institutions.  It is likely you will find that credit unions offer the characteristics that you value.

Know your rignts

The home buying experience is a very rewarding timeline of events that lead to the “American Dream.”  I can assure you that many valuable lessons will be learned about you as a person and a better understanding of personal finance will be achieved along the way. 

As a homebuyer, you have rights. Understanding your rights at the start of the home buying experience is the first step towards preparation.

Here are some helpful links from the U.S. Department of Housing and Urban Development that are in place to protect YOU, the homebuyer:

Borrowers’ Rights - http://www.hud.gov/offices/hsg/ramh/res/resborwr.cfm

Real Estate Settlement Procedures Act (RESPA) - http://www.hud.gov/offices/hsg/rmra/res/respa_hm.cfm

HUD’s Settlement Cost Booklet - http://www.hud.gov/offices/hsg/rmra/res/settlementaug17english.pdf

Another important step is to find out if home buying is the right choice for you.  Use the valuable link below to compare your current renting scenario versus how much you would like to borrow to buy a home.

Buying vs. renting - http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH

Home Buying: Get Educated

Doing your own research before attempting to step into the home buying process is a great idea - you don’t buy a car before learning how to drive, right?  To make your dream come true, there are many steps within the home buying process and many different professionals that you will interact with along the way.

A great start to becoming educated is to attend a home buying course.  This will give you an overall scope of what to look for - and what to look out for - during your home buying adventure.  In a home buying course, you will learn more about:

• Budgeting for a down payment
• Understanding Credit reports
• Shopping for the right loan
• Shopping for a home
• Mortgage process from A – Z

Another important feature of these courses is to help you understand who will be involved in your home buying experience, which includes:

• Realtors
• Loan Officers
• Appraisers
• Building Inspectors
• Title Companies

Some courses will cost money (roughly $30-$50) but usually come with a Certificate.  This Certificate is good for 2 years and might be associated with closing cost assistance if you are qualified through Maine State Housing Authority.

 For more information and to find course schedules, visit the Homeworks website.  This particular site is affiliated with Maine State Housing, and offers course certificates that are valid for two years.  If you complete this course and finance through Maine State Housing Authority, you will also qualify for the Gift of Green (while supplies last).  The Gift of Green is a grant (that doesn’t need to be repaid) of $2,500 to be used towards closing costs.

What to do when you have less than 20% down payment

I get a lot of questions from members about down payments and how much they will need.  Typically, 20% of the purchase price is the recommended standard, but there are circumstances where that might not be possible or it may be in a homebuyer’s best interest to put down less than 20%.   In today’s post, I’d like to discuss an option for people that wish to put down a smaller down payment.

There is a new mortgage product called “CU Promise 90” that is being offered by select credit unions in Maine, such as Ocean Communities.  With CU Promise 90, you do not need Private Mortgage Insurance (PMI) as long as your down payment is 10% of the sale price. Normally PMI is needed if you financing more than 80%, but now you can keep your hard earned money in your savings account with your favorite Credit Union!

The CU Promise 90 program is designed so that you can put less money down and still have the lowest monthly payment available.   If coming up with a 10% down payment might still be difficult, the CU Promise 90 Program also allows for gift funds to be used as your down payment.  

How much house payment can I afford?

Here is a simple calculation to help you find out how much of a house payment you can afford.

a. Gross Monthly Income                    __________

b. Multiply by .36                                   __________

c. Other current monthly bills          __________

d. Subtract c. from b.                             __________  

Line d shows your available monthly housing total.

Please keep in mind that your available housing expense needs to include your monthly Principal, Interest, Taxes, Insurance, and PMI* obligations.

As a homeowner you will also want to make sure you have set aside reserve funds for times in which you need to replace something in your new home, or even for those long winter months where you will need fuel to heat your home.

* - PMI stands for Private Mortgage Insurance, and is needed for any Real Estate Lending Transaction where the loan amount exceeds 80% of the current market value of the property.  This monthly premium is paid to a Mortgage Insurance Company to supply coverage to satisfy the Lender in case of default on your loan. 

Earnest money- when to use it & how not to lose it

by Denis Knox

Last week I mentioned “earnest money” as one of the expenses that you should plan on when saving money to buy a house.   Here is a little more information on earnest money. 

When you make an offer on a home you are asked to give about 1% - 2% of the offer in cash right away.  This cash is called earnest money and shows that you really are serious about buying the house.  Before signing a contract for the house, make sure the contract includes wording that will let you get your earnest money back if something happens and the sale falls through. Remember: 

• Always read the contract your real estate agent gives you very carefully 
• You can often a change a contract before it is signed- but not after 
• Do not sign anything you are not comfortable with.  If you have questions, ask your real estate agent before you sign.

Understanding down payments

by Denis Knox

Typically, the first step to home buying is to start saving for a down payment. A down payment on a home is the amount of cash that you will be able to put toward the house before taking any loans (i.e., a mortgage).  

Online financial calculators sometimes ask for the down payment/ prepayment as a percentage.  To find out the percentage of your down payment remember the simple percentage rule: multiply your down payment in dollars by 100 (or just add two 0’s) and then divide by the total cost of the house.  This will give you your down payment percentage (%).  

The larger your down payment is, the less money you will need to borrow to buy the house. (But when figuring out how much cash you should save to purchase a home be sure to save extra on top of the down payment for costs such as earnest money, an inspection, and closing fees!)  

There are mortgages programs for people with little or no money for a down payment.  For example, in Maine CU Promise Loans and other mortgages offer a number of options for home buyers.