Blog :: 04-2014

Get Your Finances in Order: To-Do List

 

The first step in the home buying process is pre-qualifying for a mortgage. In order to do so, your finances need to be airtight. Pay special attention to the following items to set your self up for a successful experience:

  1. Develop a household budget. Instead of creating a budget of what you'd like to spend, use receipts to create a budget that reflects your actual spending habits over the last several months. This approach will factor in unexpected expenses, such as car repairs, as well as predictable costs such as rent, utility bills, and groceries.
  2. Reduce your debt. Lenders generally look for a total debt load of no more than 36 percent of income. This figure includes your mortgage, which typically ranges between 25 and 28 percent of your net household income. So you need to get monthly payments on the rest of your installment debt -- car loans, student loans, and revolving balances on credit cards -- down to between 8 and 10 percent of your net monthly income.
  3. Look for ways to save. You probably know how much you spend on rent and utilities, but little expenses add up, too. Try writing down everything you spend for one month. You'll probably spot some great ways to save, whether it's cutting out that morning trip to Starbucks or eating dinner at home more often.
  4. Increase your income. Now's the time to ask for a raise! If that's not an option, you may want to consider taking on a second job to get your income at a level high enough to qualify for the home you want.
  5. Save for a down payment. Designate a certain amount of money each month to put away in your savings account. Although it's possible to get a mortgage with only 5 percent down, or even less, you can usually get a better rate if you put down a larger percentage of the total purchase. Aim for a 20 percent down payment.
  6. Keep your job. While you don't need to be in the same job forever to qualify for a home loan, having a job for less than two years may mean you have to pay a higher interest rate.
  7. Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills, too. Pay off the entire balance promptly.

 

7 Reasons To Own Your Own Home

The 'American Dream' has always included owning a home. For many, having a space to call their own is not only tradition, but a sign of personal success.

Here are a few of the many benefits that come along with home ownership:

  1. Tax breaks. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, your property taxes, as well as some of the costs involved in buying your home.
  2. Appreciation. Real estate has long-term, stable growth in value. While year-to-year fluctuations are normal, median existing-home sale prices have increased on average 6.5 percent each year from 1972 through 2005, and increased 88.5 percent over the last 10 years, according to the NATIONAL ASSOCIATION OF REALTORS®. In addition, the number of U.S. households is expected to rise 15 percent over the next decade, creating continued high demand for housing.
  3. Equity. Money paid for rent is money that you'll never see again, but mortgage payments let you build equity ownership interest in your home.
  4. Savings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.
  5. Predictability. Unlike rent, your fixed-mortgage payments don't rise over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will increase.
  6. Freedom. The home is yours. You can decorate any way you want and benefit from your investment for as long as you own the home.
  7. Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.

Online resources: To calculate whether buying is the best financial option for you, use the "Buy vs. Rent" calculator at www.GinnieMae.gov.

 

5 Feng Shui Concepts to Balance & Restore Your Home

 

Feng Shui is the Chinese art of arranging objects, buildings, spaces to achieve maximum harmony and balance. The theory is that the world is driven by unseen forces which can be channeled to allow for the best energy flow possible, therefore practicing Feng Shui within your home is meant to align your living environment with your goals for your life.

Here are some tips to bring peace and clarity to your home:

  1. Pay special attention to the front door, which is considered the "mouth of chi" (chi is the "life force" of all things) and one of the most powerful aspects of the entire property. Abundance, blessings, opportunities, and good fortune enter through the front door. It's also the first impression buyers have of how well the sellers have taken care of the rest of the property. Make sure the area around the front door is swept clean, free of cobwebs and clutter. Make sure all lighting is straight and properly hung. Better yet, light the path leading up to the front door to create an inviting atmosphere.
  2. Chi energy can be flushed away wherever there are drains in the home. To keep the good forces of a home in, always keep the toilet seats down and close the doors to bathrooms.
  3. The master bed should be in a place of honor, power, and protection, which is farthest from and facing toward the entryway of the room. It's even better if you can place the bed diagonally in the farthest corner. Paint the room in colors that promote serenity, relaxation, and romance, such as soft tones of green, blue, and lavender.
  4. The dining room symbolizes the energy and power of family togetherness. Make sure the table is clear and uncluttered during showings. Use an attractive tablecloth to enhance the look of the table while also softening sharp corners.
  5. The windows are considered to be the eyes of the home. Getting the windows professionally cleaned will make the home sparkle and ensure that the view will be optimally displayed.

How To: Pay Off Your Mortgage Faster

What images does the year 2044 bring to you? Hover crafts...discovery of life on Mars...your mortgage payoff date? Taking out a 30-year mortgage can feel daunting, but not to worry, there are other options!

You don't have to choose, or adhere to, a 30-year repayment schedule. Here are a few smart ways to pay down your mortgage more quickly.

 

1. Refinance into a 15 or 20 year mortgage.

Typically, a 30-year mortgage is the default schedule most home buyers choose, but it is not your only option. Choosing a 15 or 20 year schedule instead will mean that a larger portion of your monthly payments will be applied directly toward the principal of your loan instead of interest.

Don't fall into the trap of believing that a 15 year mortgage will DOUBLE your monthly payments. That is not the case. Your payment WILL be larger, but it will not be twice as much. Here's why- your mortgage payment is applied to 4 different things: Principal, Interest, Taxes and Insurance. Your property taxes and insurance will remain the same regardless of the length of your loan. The only variables are the principal and interest.

By accelerating your schedule, a larger portion of your payment will go toward the interest and principal. While your monthly payments therefore will be higher, the amount of interest you pay over the life of the loan will be substantially because 1) you will be paying down the principal more quickly and 2) 15 and 20-year loans are usually granted at a lower interest rate.

2. Increase your payments as though you've refinanced.

Refinancing is not going to be an ideal solution for every homeowner. The obvious advantages to refinancing to a 15 or 20 year mortgage include being forced to pay down the principal faster (due to making larger monthly payments), and lower interest rates on the loan.

There are drawbacks to refinancing though. You'll have less flexibility for making payments if some extenuating circumstance such as medical bills or a job loss occur. You'll also have to pay a second round of closing costs, which could be a few thousand dollars. If you aren't able to pay the closing costs up front, they will be lumped into the refinanced loan. As a result, you will be also be making payments toward those closing costs in addition to the principal and interest of your loan for several years before reaching the "break even" point when refinancing will save you interest money.

If you're nearing the end of your mortgage, or are financially able to make larger payments to close the loan out within a few years, refinancing will not make sense for you as you'll never reach the "break even" point.

If you are concerned about the lack of financial forgiveness associated with refinancing, or feel that you could pay down the mortgage within a few years, don't refinance. Instead, focus on making larger monthly payments to pay down the loan faster while maintaining your flexibility.

3. Refinance for the same time frame at a lower rate.

If you are currently paying a higher interest rate than what is being offered to new home buyers, you may be missing an opportunity to refinance at a lower rate--even if you keep the 30-year term.

If you have solid credit and a low debt-to-income ratio, contact your lender about refinancing at a lower rate. If you are able, refinancing to a 15 or 20-year loan is ideal, but if you are not, a 30-year loan at a lower interest rate is still a great option.

Refinancing to a 30-year mortgage at a lower interest rate will actually decrease your monthly payments and could possibly extend your payoff date. However, it is smart to continue making the same payments you were at the higher interest rate to allow the extra monthly payment to go toward your principal. This way you'll be paying off far less interest through the life of the loan and shortening the overall payoff time!

4. Research cheaper Homeowners Insurance.

By reducing your insurance premiums, you will also lower your monthly mortgage payments (remember that insurance is one of the 4 parts of a mortgage payment).

Can you bundle your home and auto insurance? Can you increase your deductible? Both will help lower your premium.

If you are able to lower your insurance payments, your monthly mortgage payment will drop as well, but continue to make the same payment to decrease your principal more rapidly and expedite your payoff date.

5. Monetize or downsize.

If you are in a hurry to be free from your mortgage, you could consider downsizing to a less expensive home. You could use the proceeds from your sale toward the purchase of a new home and finance a much smaller portion.

That option will not appeal to everyone. You could also consider renting out a room or converting your basement, or space above a garage, into an apartment for extra income.  Having extra "roommates" is not necessarily ideal, but having a fully paid mortgage could be worth the short-term hassle.