FHA vs Conventional Loans

next-homefor-sale-300x190

There are many different kinds of mortgage loans available in today’s market. How do you know which one is right for you? Your financial institution will have the most up-to-date rates and information regarding specifics for you, but if your dip into the home-buying pool has just started, here is some helpful information about the 2 most common types of mortgage loans: FHA and Conventional.

Conventional loans are issued by a bank or mortgage lender (usually a bank) and your interest rate (variable) is dependent upon your credit score and history. Your income and banking history are also taken into account for your pre-approval amount and ultimately what you will be allowed to borrow. Your interest rate can range anywhere from 3.49% to 3.62 for a 30 year fixed (not variable) mortgage. The less time it takes you to pay it off, the higher interest rate is usually going to be. a conventional 15 year mortgage can range anywhere from 3.87% to 4.12%. Down payment for Conventional loans usually doesn’t falter far from 10%. You will need to verify income with pay stubs as well as bank statements. Pay stubs usually go back about 6 months, bank statements around 2 years. They want to be sure you’ve got a good history with your bank account(s), and rightfully so as only .36% of mortgages went into foreclosure last year. Most banks offer some sort of payment deferment if you do run into financial trouble, they don’t want to foreclose on you! They want to help! If your credit is above 640 and you’ve got a good employment and bank history, you should try for a Conventional mortgage, as even a 1% difference in a mortgage rate means about $30,000 over the course of a 30 year loan.

FHA loans are backed by the Federal Housing Administration and are actually still issued as mortgages from a financial institution, but they’re guaranteed through the FHA. That means if you default on the loan, the FHA will step in and pay the bank on your behalf. You may still be foreclosed on, but the bank will be protected. And the foreclosure procedures are much more lenient than with a Conventional mortgage, which basically means they will do anything and everything they can to get you back on track to avoid a foreclosure. FHA loans also require a lower credit score and potentially a lower down payment. If your credit score is between 500-579, you will still be required to have 10% down, but a credit score of 580 and above qualifies you for only 3.5% down! Although you may get a break on a down payment, FHA loans are always fixed and the rate is almost always higher than that of a Conventional loan. Rates as of today on a 30 year mortgage are 4.969%, but for a 15 year mortgage, they are 3.997%. If you’re in a position to afford a 15 year over a 30 year mortgage, it will ultimately save you tens of thousands of dollars. FHA loans also require much more strict inspection requirements, although you will have the chance to fix them (or have the seller fix them!) but EVERYTHING must be up to code by closing date, no exceptions. If you’re interested in the requirements, this article can explain further.

Bottom Line: If your credit score allows, try for a Conventional loan. If not, FHA is there for borrowers who need it! Either way, buying a home is the quintessential adult thing to do and it’s closer than you think.

Winter Cleaning!

house cleaning    Pro Tip: If you clean and organize your home during Winter, when Spring gets here you won’t have to do it! Plus, who wants to be stuck inside cleaning when the birds start chirping and the sun starts shining past 4 o’clock?! Not I. So! Without further ado, here are the best (100% FREE!) tips for cleaning and de-cluttering your home today.

  1.  Get rid of things you don’t use! Your local shelter will take all that stuff off your hands and give it to people who need it, assuming it’s in usable condition. An easy way to decide whether or not you need something is if you’ve used it in the last year. With your clothes, you can turn all the hangers around backwards and whenever you wear something, turn the hanger back and after a year, you’ll see just how much you don’t really wear!
  2. No Junk Drawers. Drawers are so easy to stuff things in. Out of sight out of mind, right? Try using a drawer organizer, or put a non-slip liner in and use small decorative bowls and plates!
  3. Always work from Top to Bottom.  Clean ceiling fans and ceilings first, it will prevent you from having to dust or clean things twice. Vacuum last, and always use a HEPA filter.
  4. Wipe Everything Down. Walls, windows, kitchen cabinets, shower tile, appliances, TV’s, try one of these household cleaners.
  5. Wash (or Dry) everything.  Wash the bedding, the extra blankets, the curtains if labels allow, throw the pillows in the dryer for 15 minutes. Sprinkle some baking soda on your bare mattress and vacuum it up after 15 minutes. I promise you’ll sleep better tonight.
  6. Set Limits! Nobody needs forty-two different size screws and throw that magazine away, you’re not going to read it. Let your space allow for limits, if you can’t find a place for it that’s practical, get rid of it.

About the Boomerang Generation

Boomerang generation is a term used to describe the millions of young adults who, after graduating from high schoolresize or college and living on their own, return to the family home to live with their parents.

This ongoing trend occurs for a variety of reasons. Some young adults make the move simply because they want to, but most often it’s due to financial difficulties caused by things like job loss, a lack of financial skills, a relationship breakup, an inability to secure a high-paying job, increased debt, a lack of affordable housing, and costly student loan debt.

Recent studies suggest that young adults who have not completed college specifically are at an increased risk to boomerang back into the family home. So while college completion can lower their boomerang risk, high cost tuition and student loan debt can raise it again.

Sharing household expenses with parents provides adult children an opportunity to save money for their future while allowing parents an alternative to providing supplemental income to their children.

Reentering the home requires communication though and a great deal of thoughtful planning. It also requires young adults (and their parents) to change and adapt to new roles in the household as adults- no longer as children.

With the ultimate goal of financial independence, a predetermined plan should take into consideration the following:

By how much will household expenses increase with another occupant?
Where will the adult child be employed?
How much rent will the adult child be expected to pay?
How much will he put away into savings?
What rules might be implemented regarding risky social behaviors?
Who in the home will be responsible for which household tasks?
Will the adult child require a financial adviser, a credit counselor, a psychiatrist, or any other professional services?
How will the individuals within the home maintain their privacy?
Is this arrangement short or long term- what is the move out goal date?

Although these conversations may seem awkward or uncomfortable, communication is critical for the arrangement to be successful. Effective communication and planning will establish the boundaries and expectations for everyone involved so futures can be planned accordingly. Communication and planning can preserve the relationship between parent and child and pave the way for an adult child’s future financial success.

Building Home Equity

Because of depreciation, many assets lose value over time or when you pay them off. Homes, however increase inHome equity value over time so building equity in your home is a great strategy for building wealth and financial security.

 

 

What is home equity?
Home equity is often considered a homeowner’s largest asset. It can be calculated by subtracting the total home loan(s) balance from the home’s market value. For example: if your current debt on your home is $200,000 and your home’s current market value is $250,000, you have approximately $50,000 in equity.

Why is home equity important?
Home equity is an asset so it’s part of your net worth. Having home equity can be extremely valuable as it can be used for:
– Making home improvements
– Purchasing another home
– An emergency fund
– To pay down other high rate loans such as credit cards
– To invest

How is home equity built?
In order to build equity, a home’s loan balance must go down and the home’s value must go up.
To reduce loan balance:
– Make a large down payment
– Make extra loan payments
– Consider a 15 year mortgage vs 30 year
– Consider a refinance at a lower rate or for a shorter term

To increase the home’s value:
– Maintain the home properly
– Make high return on investment home improvements (indoors and outdoors)

Getting the Most from a Home Warranty

Warranty houseUnlike homeowner’s insurance that offers protection against perils such as weather and other natural disasters, home warranties offer protection against major home system failures.

The protection of home warranties can offer homeowners peace of mind against major repairs and unforeseen expense by assigning the repair risk over to the warranty provider.

Resale homes, in particular are great candidates for home warranties as the used systems and appliances they contain already have wear and tear and often times limited life remaining.

Here are three important tips in getting the most out of a home warranty:

Know your coverage
Know what is covered and what isn’t. Home warranty coverages differ and the providers that offer them differ too. Most home warranties cover all major systems within a home including central heating and cooling systems, electrical components, plumbing systems, clothes washers/dryers, and kitchen appliances.
Home warranty providers offer coverage at an annual premium, but they also include deductibles and service call fees. Knowing what those costs are can help you to weigh the benefits of one plan over another.

Perform routine Maintenance
Home systems must be “properly maintained” so knowing what a provider deems as proper maintenance is crucial in identifying any potential policy exclusions. Your maintenance performance as well as that of the previous homeowner before you will be evaluated by service technicians and relevant to your policy.

Choose a reputable warranty provider
Some warranty providers are prompt and professional and some are not. Researching a provider’s reviews as well as its service history is important to identify a reliable company. Home warranty providers typically have data available to reflect its performance and claim history. Use that data to compare and choose the provider that will offer you the peace of mind you deserve.

Is Mold Making You Sick

Mold is a type of fungus that grows in moist areas, both indoors and outdoors. For someone with a mold allergy, Moldyexposure to mold can cause the immune system to overreact resulting in uncomfortable symptoms.

The good news is that even if you have a mold allergy, mold is not likely to kill you. The bad news, however, is that it can make you extremely uncomfortable and potentially cause long term health problems such as asthma.

So… how do you know if mold is making you sick?

What are your symptoms-
Allergic reactions to mold are similar to those of other allergies and include symptoms like headache, sneezing, runny nose, throat irritation, itchy watery eyes, cough/congestion, skin rashes, and hives.

What are the conditions-
While mold is available year round, it’s more prominent during warm, humid conditions and is often found in wet or damp areas. If you have experienced any type of recent flooding, the conditions are ideal for mold growth which can happen very quickly. Any damp area within a home or commercial building should be properly cleaned and dried immediately.

Have you been tested-
Doctors can perform blood tests to look for antibodies in your immune system after exposure to mold. Skin tests are also available which include pricking or scratching the surface of the skin to identify mold allergies.

Many people can be exposed to mold with no effect, while many others can suffer significantly from its exposure. If you believe you or a family member may have a mold sensitivity or allergy, take precautions within your home by preventing the growth of mold.

– dry all wet areas immediately
– monitor indoor humidity levels and maintain sufficient air flow
– ensure proper slope and gutter drainage
– consider investing in mold resistant home products

Stigmatized Properties

Every home has a past and as the term ‘stigma’ signifies a mark of disgrace, a stigmatized property is essentiallySpooky house one that Buyers may shun for reasons other than its physical condition.

Most stigmatized properties are usually associated with some type of event that leaves a psychological condition on the home. Some good examples of stigmatized properties include homes with a history of hauntings, suicide, violent crime, or other similar types of event.

There are also many circumstances which could be considered a possible stigma including a home with a neighbor who is a known hoarder or a registered sex offender.

The disclosure requirements for Sellers regarding stigmatized properties vary by state. Many states do not require disclosures be made to Buyers on properties with psychological stigmas as it is considered not pertinent to the home’s physical condition. Some states however, do require the disclosure by the Seller of any material fact that could impact what a Buyer is willing to pay for a property.

Caveat emptor is a Latin phrase which translated means “buyer beware”. In many states, the burden is on the Buyer to do his due diligence and fully examine a property and satisfy all concerns before he purchases.

It makes sense that Sellers can be fearful or reluctant to reveal a home’s negative past, however disclosure is recommended to avoid any potential legal consequences or claims of misrepresentation. If a Seller is questioning whether a particular disclosure is required, he should contact an attorney.

Although stigmatized properties may be shunned by Buyers, the history they share can also be viewed as interesting. Some listing agents will use creative marketing strategies to accentuate the home’s unique history in hopes of appealing to Buyers with an appreciation for the macabre or unusual while other listing agents prefer to take a more timid approach.

A good rule of thumb for Buyers concerned about the history of a home is to do your research and ask a lot of questions.

What Every Buyer Should Know About Home Inspections

Home Sellers are often encouraged to have a home inspection performed prior to listing time so that any potentialMagnifying glass issues can be addressed and resolved prior to an offer being submitted. This often does not occur however, leaving the Seller and the Buyer to discover the condition of the property through the course of the home purchase.

So- what exactly is a home inspection? A home inspection, quite simply, is an assessment made to determine the home’s condition. A home inspector is chosen by the Buyer, taking into consideration his credentials, tools/technology used, and years of experience.

Although it’s considered ‘optional’, real estate agents recommend Buyers hire a professional inspector to assess the property they wish to purchase so the Buyer has a full understanding of the condition of the home before the transaction is finalized.

The Buyer’s written request for a home inspection is included in the purchase agreement, which states how many days the Buyer has to have the home inspection completed. To protect his interests, a Buyer must have the home inspection completed within the time frame established in the accepted contract.

Home inspection costs are typically an out of pocket expense and vary anywhere from approximately $200-$500, depending on the size of the property and the scope of the inspection to be completed. Some inspectors offer varying service levels, but most inspections take several hours to complete and include a review of:

Heating and cooling systems

Plumbing and piping

Electrical and wiring

Roof coverings

Attic (if accessible)

Exposed insulation

Foundation and structural integrity

Walls, ceilings, floors, windows, and doors

Appliances

 

When a home inspection is completed, the inspector will prepare and provide a report to the Buyer including his opinion as to the condition of the home and its components. Sometimes- an additional inspection by another inspector who specializes in areas such as pest, chimney, sewer, or septic systems may be necessary. These additional inspections may be optional or they may be required by the lending institution financing the Buyer’s mortgage. While the costs are a separate charge from the general home inspection, these additional specialty inspections are often included with the Buyer’s closing costs.

When a Buyer has ordered a home inspection, it’s important for him/her to understand that the home inspector will find ‘problems’- which may be minor- and may be major.

Most often times a minor repair(s) needs to be made or a minor component(s) needs to be replaced. In these instances, the Buyer and Seller, who share a mutual interest in proceeding to closing, work together to determine the associated repair costs and execute a specific plan of resolution.

Other times, a major issue is discovered during a home inspection that may dramatically impact the Buyer’s desire to complete the transaction. In these instances, if the Seller is unwilling to 1. proceed with satisfactory remedies for the newly discovered defect or 2. reimburse Buyer for the related expenses so Buyer can execute the remedy, the Buyer has the opportunity to “walk away” from the deal and have his/her earnest money returned to him.

Buyers are encouraged to discuss home inspection results and concerns with their real estate agent, who has experience in home inspection resolutions and is familiar with the Buyer’s purchase contract.

When You Can’t Pay Your Mortgage

If you’ve recently suffered a financial hardship- possibly a job layoff or death of a family member- the pressure ofMan with empty pockets making your mortgage payments each month can be very frightening.

If you’re unable to make your house payments, the worst thing you can do is do nothing. Below are some relief options available which can help you avoid foreclosure.

1. Refinance-
If your credit is good, you may be able to qualify for refinancing for a longer term or at a lower interest rate.

If you have not yet missed a payment, visit with your lender to see if refinancing can save you money.

2. Forbearance-
If your financial hardship is only temporary, this may be an option for you. Forbearance includes working with a lender to reduce or suspend your payments so you can get caught up.

3. Loan Modification
A loan modification is simply a change in the terms of the original loan, which can help you to achieve a lower, and more manageable monthly payment.
It’s important to ask a lender about potential affects to your credit score before pursuing a loan modification.

4. Sell your home-
If you can sell your house and net more than the amount you owe, selling your home might be the solution for you. It’s best to visit with a real estate professional to determine the market value of your home as well as the expenses you can expect to incur from a sale. Use those figures against your current mortgage payoff to calculate whether this option is for you.

5. Short Sale-
If the amount you owe on your home is greater than the home’s worth, a short sale may be an option.
With short sales, a homeowner suffering a financial hardship may be eligible for “forgiveness” for some or all of the deficiency.
In most short sale situations, the lender accepts a sale price and a non-collateralized loan for the shortage amount.
The specific terms of the short sale will ultimately determine the degree of impact to the consumers credit history and his credit score.

6. Bankruptcy-
Although not a desirable option, filing bankruptcy can offer debt relief and abruptly stop the foreclosure process. In exchange for a fresh start, those who choose bankruptcy will have their credit score and credit history damaged severely and for a long time.
Bankruptcy may be a desirable option for those suffering severe financial hardship.

7. Deed in Lieu of Foreclosure-
This is a title transferring document signed by a homeowner giving his ownership interests to the bank. Lenders are not obligated to offer a deed in lieu of foreclosure, but may do so after a loan modification or short sale have been denied.
It is extremely important to obtain legal advice prior to accepting a deed in lieu of foreclosure.

8. Renting
Homesharing is an option if you’re looking to earn extra money to help pay the monthly mortgage. This can be done in a couple of different ways-
– by renting the home out exclusively to a reliable tenant (and you live elsewhere)
– by renting most of the home exclusively to a reliable tenant and you remain in a room of the home in exchange for a small fee
Homesharing involves a great deal of risk and potential liability. If you as the homeowner become a landlord and you continue through the stages of default on your mortgage, you could find yourself in significant financial and legal trouble.

A Basic Guide to Homeowners Insurance

Whether you’re a current or a future homeowner, it’s important to know some basic information about homeownersHomeowners Insurance insurance to ensure you have the proper coverage in the event you need it.

A “peril” is any type of event that causes damage to your home or belongings, such as a tornado or a fire. (Most policies do not include flooding). The perils covered by your insurance are stated in your homeowners insurance policy.

Add-ons or “endorsements” are offered as extra protection to policies which may be lacking. A few examples include: sewer backup, earthquake, or home business coverage.

The different types of homeowner insurance policies available are called “forms”. While you’re reviewing your current policy or shopping for a new one, make sure you understand exactly what is and is not covered.

Here are some general guidelines:

HO-1 Basic form

The HO-1 form is the most basic policy and provides coverage for only the following, basic perils:
Fire and smoke
Hail, windstorm, and lightning
Explosion
Vehicles and aircraft
Civil commotion
Vandalism
Theft
Volcanic eruption

It is a policy often used for catastrophic loss only and is not available in some states.

HO-2 Broad form

HO-2 is a broader type of policy than the HO-1, which covers the same perils as HO-1 plus the following:
Falling objects
Weight of ice, snow, or sleet causing damage
Accidental discharge or overflow of water or steam
Sudden and accidental tearing apart, cracking, burning, or bulging
Freezing of plumbing, heating, A/C, sprinkler system, or appliance
Sudden and accidental damage from artificially generated electrical current

The HO-2 broad form only covers damage resulting from a named peril so any unnamed perils occurring outside those listed are not covered. Personal property may be listed at replacement or actual cash value. HO-2 generally excludes coverage for damage relating to water backup, foundation, or slow leaks.

HO-3 Special form

HO-3 is more comprehensive and is often referred to as an “all risk” policy because it includes “open, unnamed perils” and does not limit coverage to only named perils. HO-3 includes:
The dwelling and private structures connected to the dwelling
Unscheduled personal property on and away from the premises
Loss of use
Personal liability coverage and medical payments

HO-3 is probably the most common policy today. Its coverage applies to the home for open (unnamed) perils, but to the personal property for only named perils. Coverage is additionally excluded for the following:
Ordinance of law
Earth movement
Governmental action
Nuclear hazard
Power failure
War or military action
Water (flood)
Inherent defects
Vermin

HO-4 Tenant’s form
Also referred to as “renter’s insurance”, the HO-4 policy is for tenants and can be written as either an actual cash value or replacement cost policy. It includes coverage for personal property- but not for the dwelling itself. Actual cash value policies use a method of depreciation which means you will only be reimbursed in a claim for the value of the item when it was purchased- not for the cost to replace it.

Most renter’s insurance policies include an amount of liability coverage for legal or medical situations.

HO-5 Comprehensive form
HO-5 is a more elite type of policy that includes a broader protection and higher coverage limits than a typical policy. Not all homes/homeowners qualify for this type of policy. Its coverage applies to the home for open, unnamed perils and to personal property for open, unnamed perils.

HO-6 Condo form
This is a policy designed specifically for condos and most often includes coverage for the walls, floors, and ceiling of the unit. Coverage includes for the interior of the unit and the personal property inside.

The homeowner’s association policy typically includes the rest of the building structure.

HO-7 Mobile home form
An HO7 is similar to that of an HO-1 or HO-3 policy, but is designed specifically for mobile or manufactured homes that don’t meet the requirements for typical homeowner’s insurance policies. It includes coverage for the mobile home structure and adjacent structures as well as most personal belongings. Liability coverage may also be included.

HO-8 Older home
HO-8 is a very basic policy designed specifically for older homes that would be difficult to replace if destroyed- particularly historic homes and landmarks.

Unlike other policies that use the replacement cost method to determine the cost to repair or replace, HO-8 uses “common construction” materials and methods to determine the cost, leaving insurance companies with flexibility in determining what they pay out on claims.