Closing Costs: What You Need to Know

If you’re buying your first home — or it’s been awhile since your last real estate transaction — you might need a refresher on what closings costs are and how they work. Saving for a down payment is often discussed when purchasing a home, while closing costs can get overlooked; but they are an equally important part of any real estate transaction. Keep reading to learn what closing costs are and how they work.
What are closing costs?
The closing point of the transaction is when the property title is transferred from the seller to the buyer. Closing costs are the fees associated with the end of a real estate transaction. Closing costs will vary based on the state in which you live and the property you purchase; they generally make up 3% to 6% of the home’s total purchase price. Closing costs may include, but are by no means limited to: a loan origination fee, escrow deposit, attorney’s fees, title insurance, and inspection & appraisal fees, to name just a few.Who pays the closing costs?
Typically, the home buyer is responsible for paying the closing costs. However, in some cases you may be able to get the seller to contribute up to 6% of the sale price as a closing cost credit. This is a tax-deductible expense for the seller, so it’s definitely worth proposing it during negotiations as one of the terms of the deal.
What if I can’t afford the closing costs?
Many mortgage lenders will allow you to roll your closing costs into your mortgage loan. The drawback here is that you will end up paying interest on the closing costs, so it will cost you more in the long run.
Does anyone get a break on closing costs?
There may be discounts or other closing cost benefits for active duty military personnel, military veterans and members of certain labor unions. These benefits vary from state-to-state, so you’ll want to do your research and make sure your REALTOR® and mortgage lender are up-to-speed on your special circumstances so they can help you find out what you qualify for.
Anything else I should know about closing costs?
Don’t let the thought of closing costs discourage you from your goal of owning a home; they’re just one part of a much larger transaction. If you’d like to purchase a home but are not sure you’re ready financially, Our Pre-Purchase Housing Counseling can help you answer some important questions and outline the necessary steps to help you reach your goal of home ownership.

How to Help Loved Ones with Money Problems

When family or close friends are in trouble, it’s natural to have a desire to help. However, when dealing with finances, you should take a few precautions before jumping in. For instance, do you know lending money isn’t always the right option? The tips below will help you evaluate different scenarios and develop the appropriate course of action:

Don’t Cross Boundaries – Has your loved one reached out to you for assistance, or are you assuming he or she needs assistance? If family members or friends haven’t asked for help, they may not want or need it. They may prefer to climb out of a difficult situation themselves. If you feel assistance is necessary, consider bringing up the topic indirectly. For example, you can comment on a news story about debt or housing troubles, or you can mention a few financial tips you recently received from a friend.

Determine Whether Assisting is the Right Move – It’s not necessary to bail friends and family out of all financial problems. In some cases, it can even be a hindrance. First look at the cause of money troubles. Did your teen run up a credit card splurging at the mall, or has an unexpected injury led to a pile of medical bills? Determine whether there’s a vital lesson that needs to be learned. If the money problems are the result of poor choices, the individual may need to take the time and effort to pay off the bill themselves in order to prevent it from happening again. If financial difficulties were caused by outside sources, such as job layoffs, a financial boost may be beneficial.

Evaluate Your Options – Lending money is one option, but it’s not the only option. You may be able to help your loved ones help themselves. For instance, you can babysit children or clean the house while your loved one works an extra shift or side job. You can also help family and friends develop a workable budget or find professional assistance. Credit counseling is a free service from non-profit organizations like Take Charge America that educates consumers about their options for overcoming debt and saving for the future.

Gift, But Don’t Enable – Gifting money is appropriate if you are willing, in a financial position to do so, and the gift doesn’t enable poor behaviors or make the borrower dependent on you for more cash in the future. Everyone deserves the right to become independent. Gifts that make someone dependent on another can seriously strain personal relationships and ultimately cause more harm than good.

Lend Money with Caution – If you believe lending money is the best option, proceed with caution. First take an honest assessment of your finances to determine whether you’re in a position to lend. Then, put it in writing.

Are You Ready to Buy a Home?

Owning a home remains one of the components of living the American Dream. But as the recent housing crisis illustrates, jumping into homeownership without being adequately prepared for everything it entails can be the start of a financial downfall. Owning a home is about much more than having a down payment and being able to pay the mortgage every month. Here are several things to consider to help you determine if you are ready to buy a home.

Your Current Financial State — You need to take a deep dive into your finances before deciding to buy a home. First and foremost, you must have enough money saved for a down payment and be earning enough to cover the monthly mortgage payment. You also need to check your credit score and review your credit report to ensure it is accurate. If you’re already carrying a high debt load, you will want to pay off a good portion of it before applying for a mortgage. If you’re not sure where you stand financially, Home Ready counseling is a great place to start.

Your Financial Future — While we can never predict the future, you should have some idea in mind of what your financial future holds. Is your job secure? Are you receiving regular raises or bonuses? Do you have a “plan B” in mind if you were to lose your job or were asked to relocate? Do you have emergency savings to cover your living expenses for 3-6 months? These are all questions you need to ask yourself before making the commitment to buy a home.

Ongoing Costs and Maintenance — If you’re used to renting an apartment, you’re responsible for paying your rent every month and that’s it. When you own your home, you’re responsible for everything that has to do with the property including yard maintenance, home repair, property taxes and homeowner’s insurance. Not only is owning a home potentially more costly, it’s also a bigger time commitment. Ask yourself if you’re really ready for the additional responsibilities before taking on the lifestyle of a homeowner

How Long You Plan to Stay — There was a time when conventional wisdom dictated that staying in a home two years was long enough to recoup your initial investment and make a profit, but that has changed. Experts now recommend staying in a home for a minimum of 3-5 years before considering selling. Of course, there’s no way to accurately predict how the housing market will fluctuate year-to-year, but if you’re someone with wanderlust who gets bored easily, buying a home may not be for you.

Turned Down for a Mortgage? Prepare to Apply Again.

More prospective homebuyers are eager to enter the market as the economy improves. Yet in this post-recession world, many borrowers are finding it difficult to navigate stricter lending requirements and successfully reapply for a loan after being turned down.
If you’ve been turned down for a mortgage and want to know how to prepare to apply again, start with these tips.Evaluate Your Cash Flow: One of the primary roadblocks to obtaining a mortgage is cash flow. At a minimum, you need a 3-percent down payment and about $1,500 for closing costs. You’ll also need to take moving and ongoing maintenance costs in account, including utility deposits, appliances, a lawn mower, home furnishings and other miscellaneous expenses. As a general rule, prospective homebuyers should have at least $10,000 saved before shopping for a home.
Build Your Credit: Many young people today haven’t used credit, aside from student loans, so lenders have difficulty assessing their ability to pay back the home loan. Borrowers who fall into this category need to focus on building a positive credit history with three trade lines, such as a credit card, auto loan and signature loan, for at least two years before attempting to reapply.
Avoid a “House Poor” Lifestyle: Many consumers assume if they can qualify for a loan, they can afford a house; but that’s not always the case. With lenders approving 31 percent of gross salary for a house payment and 43 percent for all debt service, it’s easy to buy a house one can’t afford. It’s important to remember the mortgage is only part of the financial commitment of owning a home. You should also consider ongoing costs, such as commuting, utilities, HOA fees, landscaping and general home maintenance. It’s wise to limit house payments to 28 percent of gross income, and all debt service to no more than 34 percent.

Beyond the Mortgage – Additional Costs of Homeownership

In addition to a monthly mortgage payment, owning your own home involves a number of additional costs and expenses you need to plan for in your budget. Some of them will be recurring expenses, others you won’t see coming – but you’ll need to be prepared for them nonetheless.
Recurring Expenses
Utilities – If you’re moving into a larger space than you’re used to, remember it means your utility bills will be larger as well, particularly the heating and cooling costs. If your utility company offers it, consider going on a plan that “equalizes” your bills over the course of the year so you’re always paying close to the same amount. It will make budgeting for utility expenses much easier.HOA – If you live in a neighborhood with a homeowner’s association, there will be monthly or annual HOA membership fees. There may also be fines assessed if you violate HOA rules, so be sure to learn what they are and stick to them to avoid paying the price.
Homeowners Insurance – Homeowners insurance protects your home, its contents, and other assets in case of fire, theft, accident or other disaster (certain geographical areas may require additional coverage for events such as floods or earthquakes).
Your homeowners insurance should cover the cost of rebuilding and refurnishing your home. Most policies allow you to pay annually or month-to-month. You may be able to save a bit by paying for a full year up-front. Plus, you won’t run the risk of coverage lapsing due to a missed monthly premium payment.
Property Taxes – If it’s not already included in your house payment, you will receive an annual bill for property tax, which is determined by the county in which you live, and based on the assessed value of your home. It’s a good idea to save a little bit throughout the year to go toward your property taxes, so you don’t have to come up with the full amount all at once.
Long-Term Expenses
Routine Maintenance and Repairs – Every homeowner must plan to perform routine repairs and maintenance. These expenses increase as homes age, but even new homes require regular upkeep to ensure they increase in value over time. In fact, neglecting basic home repair and maintenance can actually cause homes to decrease in value.
On average, homeowners spend one to four percent of the total value of their homes on maintenance and repair each year. Some years you’ll spend more, some less, but you’ll always spend something.
We recommend setting up a savings account devoted to home maintenance and contributing to it regularly to ensure you have the funds ready when you need them.
Emergency Repairs – In addition to routine maintenance, every homeowner will eventually face a major repair or replacement, such as an air conditioning unit or hot water heater. This is when having emergency savings ready comes in really handy.
We recommend establishing an emergency savings account (separate from the home maintenance account) that’s strictly reserved for catastrophic events, including major home repairs. By having emergency savings as a safety net, you can avoid going into debt by having to charge a big-ticket item.

Too Much House? Tips to Simplify and Save Cash

Homeownership is considered a cornerstone of the much-desired American dream. However, we each embark on a path toward fulfilling this dream at different rates, surrounded by different circumstances. If we get caught up in chasing a dream that’s not within our current means, then we run the risk of serious financial hardships in all parts of our lives.
You may have heard of the phrase “buying too much house.” This refers to consumers who purchase a home that they cannot afford to maintain. It’s important to remember that a mortgage only represents a portion of the costs associated with homeownership. You also need to account for regular upkeep and maintenance, utility costs, insurance, taxes and association dues.
For most Americans, a home purchase will be their largest investment. It’s central to their safety, security and livelihood. In order to help protect this investment, we’ve compiled five tips for reducing home-related costs that could save you thousands of dollars.

Be Mindful of Utilities – The larger the house, the higher the utility costs. When house hunting, take mental notes of the room size, window placement and locations of the AC and heating units. Would it be difficult to heat or cool the entire home? If you’re already established, you can reduce your utility bills by using energy efficient light bulbs, sealing cracks around windows and doors, and unplugging electronics that aren’t in use, such as cell phone chargers. To reduce water costs, only run the dishwasher or clothes washer when you have a full load. You can also reduce outside watering costs by replacing grass or plants with rock and gravel gardens.
Get a Roommate – Getting a roommate is a quick way to reduce your rent/mortgage and utility costs. If you place an ad for a roommate, check their credit report and perform a background check. The fee associated with these reports will be well worth the peace of mind and potential hassles in the long run. In addition, a roommate should always sign a lease. This protects both parties.
Refinance – If you’re financially stable, have a good credit rating and have at least 20% equity in your home, then you should consider refinancing. This can reduce monthly mortgage payments, and in some cases, eliminate mortgage insurance. The amount of money you can save depends on your total refinancing costs, whether you plan to sell your home in the near future and the effects of refinancing on your taxes. Talk with a lender or credit counselor before making this move.
Barter for Services – Maintenance and upkeep can be quite expensive. Consider bartering for these types of services with your own time, talent and experience. For instance, you can trade babysitting or yard work for plumbing. You can also barter house cleaning for house painting. Use your imagination. What do you need? How can you benefit others?
Sell & Downsize – If you are already suffering hardships from “too much house” or perhaps the kids have moved out, it may be time to reevaluate your housing needs as opposed to your housing wants. Do you need a pool? Do you need two guest rooms or a separate office? Is it easy to maintain the yard? If not, examine the current real estate market to determine whether it’s the right time to sell and downsize. You could use the profit from a home sale to pay off debts or reinvest into a savings or retirement account.

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What is a Reverse Mortgage

A reverse mortgage, otherwise known as a Home Equity Conversion Mortgage, (HECM) is a loan, using your home as collateral, and where payments on the loan are not required monthly or at all. Instead the loan becomes due and payable only after the last homeowner either dies, sells the home or stops living in the home for 12 consecutive months. With a reverse mortgage, unlike a conventional mortgage, where you make payments regularly and the balance on your loan slowly goes down each month and the equity in your home increases; with a reverse mortgage, you do not make regular payments so the balance on your loan actually increases every month and the equity in your home decreases. Most of these loans are backed by FHA Mortgage Insurance and are designated as non-recourse loans. This means that at no time will the homeowners or their heirs ever owe more than what the house ultimately sells for when the loan becomes due.

The requirements for this mortgage are simply that all persons who will be listed as homeowners on the mortgage are at least 62 years of age. Also no other loans can be listed ahead of this loan so generally any other mortgages would need to be paid off from the proceeds of this loan. This means, in order for you to get a reverse mortgage, there must be more than enough equity to pay off any existing mortgages on the home.

The amount available to borrow is dependent on the fair market value of the home as well as the age of the youngest borrower. The older the borrower, the larger the percentage of the home value is available to be borrowed. The formula for determining this is maintained by the FHA. You can never borrow the full amount of the equity because of the non-recourse nature of these loans so as a result not all seniors will actually have enough equity get a reverse mortgage.

The loans can either be taken as fixed rate or adjustable rate loans. When the borrower elects to take an adjustable rate loan they will have a choice to take the loan out as one lump sum payment, or to take regular monthly payments. Further, the borrower can take a combination of lump sum and monthly payments, and still leave some of the funds in a credit line, available to take whenever needed. All these choices have advantages and disadvantages that need further explanation.

These loans can be very expensive with fees and other costs, especially if the homeowner does not intend to stay in the home for very long. It is due to the complexity of the loan and the costs, that the Department of Housing and Urban Development has mandated that anyone interested in obtaining a reverse mortgage must go through a counseling session with a HUD Certified HECM Counselor before applying for a loan. The purpose of the counseling is to insure the borrower understands how the loan works, what the implications to the equity in the home are, how it will affect your heirs, tax implications, what other alternatives may be available to the borrower to help with their financial situation and what to look for when evaluating different lenders’ loan products. A list of HUD Approved Counselors is available on the HUD website but if you are interested you may call Take Charge America at 1-866-750-9618 to be connected to a HUD Approved HECM Counselor.

Housing Crisis Programs

The home-mortgage crisis in the United States has spawned problems in the mortgage, real-estate and banking industries, and many consumers now face mortgage-payment increases in the coming months that could cause the number of foreclosures to climb even higher. Here are two valuable resources for consumers in need of help with their mortgage situation.
Hope Now
Hope Now is an alliance between large banks, counselors, services, and other critical industry supporting organizations with the sole purpose of trying to keep people in their homes and to mediate any foreclosure threats. The Department of the Treasury and HUD supported the formation of this alliance to encourage responsible business practices and to help avoid further down turns in the housing market.

This program began at the end of 2007 and is designed to assist customers with sub-prime mortgages who can afford their current payment, but will struggle or not be able to afford the mortgage payment when the rate adjusts on their ARM.

The plan will allow these homeowners to: refinance an existing loan to a new private mortgage, move to a FHA secure loan or freeze their current interest rate for 5 years.

Applies to mortgages issued 1/1/2005-7/31/2007 with scheduled increases from 2008 to mid-2010.
Borrowers must live in their home.
Borrowers must be current on their payments and not have missed more than one payment in the past 12 months.

Project Lifeline
Project Lifeline is the newest program developed in conjunction with mortgage lenders to help homeowners who are facing foreclosure. The initiative is a step-by-step approach for homeowners who are 90 days or more behind in their mortgage payments; a circumstance that already puts them in serious risk of losing their homes. The program is not a solution to the housing crisis but is considered a “pause” in the foreclosure process, giving homeowners an extra 30 days to work out a payment or modification program.

The plan will delay foreclosure proceedings for 30 days allowing homeowners to have time to contact their lenders and see if they can catch up on the past due payments, refinance, short sell the home or modify their loan.

Homeowners must be at least three months past due.
Not just for people with subprime loans.

To Rent or Buy a Home? 4 Factors You Need to Consider

To rent or to buy? It’s a question most consumers ponder at one time or another, yet the correct answer varies as much as individual life circumstances do. While your financial state is a major factor, it’s not the only factor you need to consider. Let’s take a look at the big picture:
Financial Readiness
Are you prepared financially to purchase to home? Your ability to make a monthly mortgage payment is only one aspect of financial readiness. You also need a large down payment and a good credit history if you plan to take out a loan. There are other housing costs to consider as well, such as utilities, insurance, repairs and maintenance, and possibly HOA fees.

Additionally, you shouldn’t drain an emergency savings fund to support the down payment of your home. An emergency fund with three to six months of living expenses can become essential at a moment’s notice, whether you own a home or not.

You must also take your personal debts into account. Your monthly debt payments should not exceed 15 percent of your gross income. If you are financially prepared to purchase a home, there is a great tax advantage. You can deduct mortgage interest, private mortgage insurance and property taxes, potentially saving you thousands of dollars a year.

To learn more about your individual situation, check out our To Rent or To Buy calculator.
Personal Readiness
Before purchasing a home, you need to take your goals, values, needs and wants into account. Homeownership may offer a sense of pride, independence and stability. However, there is greater responsibility than renting. In addition to reaping the benefits, homeowners assume all risks. They are responsible for all repairs and maintenance, and they take the risk their investment may not turn as planned if the real estate market swings.

Carefully examine your needs and wants, and those of your family. Your personal readiness will likely fluctuate with your life circumstances.
Real Estate Market
The real estate market can have a large impact on whether you should rent or own. Look at current prices, as well as the history of purchase prices in the areas you would like to buy. Ask yourself: is it a wise time to buy, based on your current needs, wants and goals? Are you likely to get a better or worse deal if you wait a few months, or even a few years?
Location, Location, Location
The adage is true; it’s all about location. If you are ready to buy, is an affordable home available in your desired neighborhood(s)? If so, you may want to jump on it. If not, you may want to wait it out, even if other factors point to buying now. A home is a long-term commitment. If you can’t see yourself in a specific home or neighborhood for at least three to five years, renting may be in your best interest until the right home becomes available.

Additionally, if you don’t know where your job or family circumstances may take you in the next several years, renting can offer flexibility that homeownership can’t. Those purchasing homes should be confident in the location, property type and available amenities.

How to Avoid a FORECLOSURE: Three Steps that Can Save Your Home

The recession has challenged homeowners from all backgrounds and all parts of the nation. Many are struggling to meet their mortgage payments and the threat of foreclosure is looming. This situation can be scary and confusing, so it’s important to fully understand all of your options.

Many lenders are willing to negotiate loan modifications, but these opportunities become much more limited as the months pass. The sooner you take action, the better. Fortunately, you don’t have to go through this process alone. Free assistance is available, and it all starts with an open dialogue.
Call Your Lender to Explain the Situation
If you have fallen behind on your mortgage payments, call your lender as soon as possible to explain your current financial situation. Many homeowners have been hindered by unexpected bills and higher living expenses. Your lender may be able to accommodate. An honest discussion is the first step. That’s when you’ll be presented with potential options based on your individual circumstances.
Meet with a HUD-Approved Housing Counselor
Homeowners who want one-on-one guidance and support can meet with a housing counselor from a non-profit agency for free.

In order to protect yourself against potential scams, only seek out housing counseling agencies approved by the U.S. Department of Housing and Urban Development (HUD). All HUD-approved agencies have specially trained counselors who can help you understand your rights and aid the negotiation process.*
Educate Yourself About the Foreclosure Process
Your lender or housing counselor can provide educational resources to help you understand the short and long-term impact of foreclosures. You can also find trustworthy information from the following online resources:

MakeHomeAffordable.gov
HUD.gov

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