Going From New Homeowner To Happy Home: Tips For Recent Homebuyers


Buying your first home is a major milestone. There’s nothing quite like the giddy
rush that comes from knowing you could paint a wall fluorescent pink or cover the cabinets in peanut butter and no one could legally stop you. You’ve also got a new and quite big investment you need to maintain. Weighing the freedom against the responsibility is a delicate balancing act, and doing it successfully is part of what being a homeowner is all about

 

There are a number of upcoming firsts for new homebuyers. Since you’ve just come up with a down payment, you might think your biggest hurdle of financial responsibility is over. However, that’s not the case. Check out these common homeowner situations to help you best prepare for them.
1.) Something major breaks
As a renter, if the refrigerator stopped running, you only had to concern yourself with keeping your food cold until the landlord fixed it or bought a new one. Also as a renter, major plumbing problems in your building can be a hassle, but easily survivable. The first time something major, like an appliance, structural element, or major system breaks in your home, you can be in for a staggering amount of work and stress.
If you’re counting on homeowner’s insurance or a home warranty to cover you, check your policies carefully. Most home warranties end at the walls of your house, and insurance won’t cover damage outside of a disaster. Everyone you might turn to for assistance will be looking for reasons not to help you. If you need to do significant work on your home, like a large-scale plumbing repair, you’ll probably have to pay for it yourself.
Events like these will happen sooner or later. The only way to be prepared is to practice self-insurance. Start building a home repair and renovation fund, and build major expenses into your regular monthly budget. When you spread these expenses out over the course of months, rather than trying to pay for them all at once, they’ll be much more manageable. As a guideline, expect to spend 1-4% of the value of your home in repairs and maintenance every year.
2.) Costs increase
When considering a budget in your new location, it’s tempting to just move the money you were spending on rent into a mortgage payment. However, your housing costs aren’t the only thing that’s likely to go up. If you’re moving from a smaller apartment into a larger house, utility costs will increase. If you’re going from a relatively new apartment building into an older house, appliances won’t run as efficiently, and seals around doors and windows won’t fit as snugly.
It’s not just utilities, of course. Transportation costs may also increase if you’ve moved further away from work or other places you frequent. Having a larger kitchen might encourage you to cook and entertain more, putting pressure on the grocery budget but saving on your restaurant spending. Lawn maintenance and landscaping costs may make an appearance on your budget for the first time. A lot of costs will go up as you transition to a new lifestyle.
Spend your first month in your new locale documenting your expenses. This is the best way to build expectations for what your new living expenses might look like. If, after a month, your expenses are too high, you’ll have a better idea about where you can make cuts.
3.) Tax bills come due
Property taxes are a once or twice a year expense that can really wreak havoc on your budget. While many mortgage companies maintain an escrow account for these costs and include them in your regular mortgage payment, many homeowners are on their own when it comes to tax time. If that’s the case for you, start doing research to determine what your tax bill might look like.
This is another expense that gets manageable if you break it into a monthly cost. The US average property tax bill is just under $3,000. That’s about $250 per month. That might be a challenge to set aside, but it’s still better than being blindsided with the full amount.
4.) Maintenance requirements increase
There are dozens of things around the house that most people don’t think twice about. Items like water supply hoses, smoke alarms and toilet bowl seals all decay with time. Many of these things can cause damage to your house if it doesn’t work properly.
Start making a list of chores that need to be done monthly, weekly or less frequently. Split up those duties to make sure no one has to do it all by themselves. Keep a spreadsheet or some other document so you know the last time maintenance was performed on major items in your home. Remember, an ounce of prevention is worth a pound of cure. Fix little problems before they turn into big ones!
YOUR TURN: What do you wish someone had told you before you bought your first home? Let us know in the comments!

https://www.texasrealestate.com/advice-for-consumers/article/10-maintenance-tips-for-first-time-homeowners

Private Mortgage Insurance – What You Need To Know

Whether you’re a long-time home owner or you’ve just started shopping for your dream house, you’ve seen stacks of papers full of acronyms. Buried amid the dense undergrowth of legalese are three letters that could be costing you more than you think. Be on the lookout for PMI: Private Mortgage Insurance. 

PMI in a nutshell 

Close your eyes and imagine yourself as a venture capitalist, like those you may have seen on “Shark Tank.” An inventor comes to you and says they’ve got a killer new product. They need $300,000 now and they’ll repay it with 4% interest over the next 30 years. If they don’t, you can take the manufacturing equipment they’re going to buy with your loan, which is worth about $250,000.

This isn’t a great deal for you – the venture capitalist – since you’re putting the remaining $50,000 on the line, and that’s not considering the cost of selling their equipment! They’re not risking anything. The equipment was bought with your money. You need to know they’ve got something at stake, too. So, they put up $30,000 of their own money. This is a better deal, but you’ve still got more to lose than they do.

This is where an insurance company comes in and says that, for $3,000 a year, they’ll protect the loan. If the inventor fails to deliver, they’ll repay the balance of the loan at that point. Sounds great, but who’s going to pay it? If you do, that just raises the amount you’re going to lose on this deal. Instead, you make the inventor pay it.

That’s how PMI works. The home buyer, in this example, is the inventor, and the lender is the venture capitalist. To make the mortgage an attractive option for lenders where scenarios like this happen, the home buyer needs a way to ensure the lender will be made whole (paid back in full) if something goes wrong. Importantly, PMI is protection for the lender, not the borrower. If you fail to make your mortgage payments, you will still face foreclosure even if you’re paying for PMI. All that changes is the institution that issued your loan can recoup its losses. 

Who has to pay for it? 

Not all mortgages require PMI. In general, loans made where the principal total is 80% or less of the sale price of the home don’t require PMI. If you put 20% down, lenders see that as a sign that you’re a safe risk. You’ve got as much skin in the game as they do.

Home buyers with a down payment of less than 20% may have to pay for PMI. Typically, costs are between 0.5% and 1.0% of the total value of the loan, with riskier loans requiring higher PMI payments. Sometimes, lenders offer loans to these home buyers that exclude PMI, but in order to make the increased risk worthwhile, such loans come with a higher interest rate.

PMI premiums can be made one of two ways. You may notice a line item in your mortgage estimate or statement that identifies your monthly premium for PMI. In other cases, it may be included with the closing costs as a lump sum. Some loans require both a payment at closing and an additional monthly premium. 

When can I stop paying for PMI? 

The 20% rule is a helpful one here, too. Once you’ve paid down enough of the loan to have 20% equity in your home (meaning your loan amount is less than 80% of the home’s market value), most lenders will no longer require PMI. Every month, a portion of your mortgage payment goes to paying interest, and a portion goes to paying the principal. The second part is how you increase your equity. Think of it as gradually buying your home back from the lender. Of course, you can make extra payments beyond the mortgage payment to reduce the principal faster and increase the percentage of home that you own.

Even with a 20% stake in your house, you may have to pay for PMI a little longer. Policies are generally purchased for a year, and monthly payments are held in escrow to cover yearly premiums. You may have to continue paying the premium until the year in which you reach 20% equity ends. Also, if you happen to live in an area where home values have risen, investigate the ability to get a new appraisal if you are paying PMI. If your home has gone up in value enough to get you pas that 20% threshold, you may be able to request cancellation of the PMI on your loan.

While PMI may seem unfair, remember that without it, lenders would be less likely to issue mortgages in the first place. PMI helps borrowers qualify for loans on homes they might not otherwise have been able to purchase. That means it helps put you in a nicer house without saving more for the down payment.


SOURCES:

http://www.interest.com/mortgage/news/what-you-need-to-know-about-private-mortgage-insurance/

Your Down Payment On A House

Q: I’m hoping to buy a house in the next few months. How much of a down payment should I have saved up?
A: When you think about your down payment, balance is key. If you think you might sell the house within just a few years of ownership, having a large down payment exposes you to greater risk if real estate prices fall. However, a larger down payment can also mean lower monthly payments.
The value of $1,000 is pretty hard to quantify, especially in a real estate market that might have $30,000 homes and $300,000 homes. Instead of thinking about the amount of money, think about a percentage of the value of the house. When making these decisions, here are three questions to ask yourself.
Can I put 20% down?
A down payment of 20% is something of a magic number. With 20% down, borrowers are no longer responsible for carrying Private Mortgage Insurance (PMI). PMI is a protection most lenders require to cover their investment in you should you not repay your loan. The premiums for this insurance are paid by you, either as a lump sum at closing or included with the mortgage payment, and thus make your monthly payment higher. PMI usually costs between 0.5% and 1.0% of the value of the loan, though prices vary based upon several factors. Using this model, on a $100,000 loan, expect to pay around $83 more per month.
20% is also a magic number for interest rates. Lenders see a 20% down payment as a sign of a responsible borrower. Meeting that down payment amount means the borrower typically has a lifestyle of spending responsibly and saving money, both of which are signs of a solid credit risk. Regardless of your credit score, a 20% down payment can help save on the costs of the loan.
Can I get help to get there?
There are a wide variety of home buyer assistance programs designed to help people reach that 20% threshold. These come in two forms: grants and delayed repayment loans. They’re offered by housing departments at all levels of government and frequently go unused because home buyers don’t think they qualify.
Grants are no-strings-attached checks that you have to use for a specific purpose, in this case, the down payment on a home. Many are limited by income level or region of purchase, but they are definitely worth exploring. Even more options are open to first-time home buyers, former or current members of the armed forces and people in public service-oriented professions.
Delayed repayment loans are similar. These are second mortgages held by an organization for a portion of the total cost of the house. They do not begin accruing interest until after you’ve paid off your primary mortgage, and some of them are forgiven after you’ve owned the home for a certain amount of time. These are available from housing authorities and private organizations all over the country.
One important note: While you can get a lot of help, you cannot use another loan, even one from your parents or relatives, as part of your down payment. Doing so is a federal crime and can get you in serious trouble! In the best case, lenders will be suspicious of large deposits you can’t explain, and may even refuse to issue the mortgage loan.
If you can’t get to a 20% down payment, there are several options. You could make the smaller down payment, understanding that you’ll have to pay higher interest rates and PMI. You could also look at houses in lower price ranges. You might also decide to postpone home ownership and focus on saving so you can get there the next time around.
Should I go over 20%?
Making a very large down payment is an investment. Think of your mortgage like a savings account. You make an initial “deposit” when you make a down payment. A portion of your payment goes into your account each month while the rest goes to cover interest, which is the price you pay for living in your savings account. The return on your investment in the large initial down payment is the lower total interest you’ll have to pay.
When deciding if you want to put more than 20% down, think of your mortgage rate like the rate of return. If you can put another $1,000 down, that’s $1,000 less you’ll need to borrow. If your interest rate is 4%, then the return on that investment is $40 in interest you don’t have to pay. On the other hand, you don’t have that $1,000 to invest somewhere else now. If your retirement account earns 5%, then that same $1,000 will earn $50 if invested there. Making the larger down payment will end up “costing” you $10 in the long run.
As with any other investment decision, weigh the pros and cons. It may have a comparatively low rate of return, but the risk is negligible. Unless the value of your house drops dramatically, you won’t lose your down payment. It can be a smart move to put down as much as you can, but make sure to leave your retirement fund and emergency fund intact.

Financial Lessons Of The Big Short



A friend of mine teaches at a university where the 2008 financial crisis came up during one of his recent class discussions. He asked his students, “If you had one million dollars and a time machine, could you go back to 2008 and make a profit?” The class replied that they couldn’t.  Not one student believed he or she could have turned a profit from the financial crisis. He was troubled by that, so he asked his other classes the same question and no one indicated that they understood what happened well enough to do so. Finally, he asked his colleagues, and even they were stumped.  A few of them had vague ideas or suggested they would just buy stock in Google or Amazon while it was low. Still, none had a firm enough grasp on the events of that autumn to confidently explain how they could have made money. 

There are financial lessons to be learned from many movies and figures in popular culture, and The Big Short is no exception. Obviously, we haven’t seen the film, but the Michael Lewis book from which it is based, provides the single best explanation of how the financial system crashed. Like Lewis’ other books, including The Blind Side, Moneyball, Boomerang, and Liar’s Poker, it’s an immensely readable book because Lewis is a gifted writer who can explain difficult concepts because Lewis starts with people rather than statistics.  The people in The Big Short are some of the most interesting characters he could have chosen: He profiles the people who made an enormous profit from the financial crisis, even though they didn’t have a time machine.
Here are a few of the lessons the book (and hopefully the movie) has to offer:

Don’t avoid risk, particularly with your home.  While a generation of would-be homeowners let the financial crisis scare them away from homeownership – a surprising number of Millennials say they’d prefer not to own a home, even if they had the money. The real lesson of the financial crisis is that it’s better to be in a home than not.  It’s scary to see people lose their homes; evictions are terrible and it’s easy to see why young people who saw the wave of Americans losing their largest investments, jobs and nest eggs would be spooked.  However, the people who had taken out loans that they could afford didn’t lose their homes.  That was incredibly important, because … 
If you own your home, it’s a lot easier to lose money on paper. Lewis reports that, during October 2008, Americans lost a combined one trillion dollars.  The thing about that trillion dollars is that it was everywhere we looked: The federal government had a shortfall, so it passed it to the states, which passed it to the locals, so it cut back all government services. Look no further than spending on higher education and tuition costs.  People stopped retiring at the rate they had been, which was rough for Boomers, and it also meant that they weren’t opening up spots for Millennials in the workforce.  Even the divorce rate plummeted because people couldn’t afford to split up a household.
In the end, that trillion dollars became three trillion in government spending to start the economy back up. That is an insanely large amount of money.
But, and this is the key, most individuals who kept their jobs and homes didn’t actually lose money. In a lot of cases, they lost future income and they lost some value in their homes, but unless they cashed out of the stock market or sold their homes for less than they put in, they didn’t lose actual money; they lost money on paper.  It’s not like losing money on paper is fun, but in the worst financial crisis in nearly a century, owning a home was still the best way to keep safe.  If you lost some of the value of your home, but waited the recession out, you’re probably back to where you were before 2008, if not ahead. That’s as safe as it gets.
Something that’s equally as secure is saving your dollars at Destinations Credit Union.  We’re insured by the NCUA, so there’s very little risk and your money isn’t being invested in high-risk/high-reward propositions like mortgage-backed annuities, which brought down the economy in 2008. 

One trillion dollars is a lot of money. If you’d like to imagine that, think of a heist movie where the protagonist walks off with one million dollars in a duffel bag.  Now, imagine there are one million duffel bags, each with one million dollars in them.  Or, if you’d prefer, think of the Dallas Cowboys, who were valued at $1.7 billion in 2009, one of the few NFL franchises to gain value during the year after the financial crisis.  That same year, Cowboys Stadium, now known as AT&T Stadium, opened with a price tag of $1.2 billion.  As the most valuable NFL franchise playing in the most expensive stadium in the country, both could be had for just shy of $3 billion.  So, America lost as much money that month as it would take to purchase the entire NFL 10 times. 

Sometimes, it takes a psycho. One of the most striking things about the profiles in The Big Short is that the people involved all made big bets against the entire rest of the world.  They refused to accept common wisdom, they didn’t listen to their colleagues and investors who thought they were crazy, and they bet on an event which had never happened before and required an orchestrated failure at virtually every level of the American economy.  

The kind of person who can make a bet like that is a little bit crazy. Sometimes, that’s what it takes. As we think about The Big Short, it makes sense that all of those professors and students don’t know how they could make money in the recession, because making that money would require major antisocial and counter-intuitive behaviors. That’s why it’s important to believe in oneself, but even more important to look at the cost of being right: No one involved actually seemed to be both happy and well-adjusted. And we have to wonder: what’s the point of making a profit without that?
Sources:

Three Questions, Then Three Questions


As 2015 draws to a close, it’s time to figure out if you’re in your best possible financial shape.  While performing a self-audit can seem a daunting task, we’ve created a simple way to get started. Below, we ask three questions about where you are now compared to where you were a year ago. Your answers should help you understand if you made the right choices in 2015.  After that, we’ve got three more questions to help guide your 2016. 

2015:  Do you have less debt than a year ago?

2016:  Could you pay off your credit cards this year if you had to do so? 

December can be a rough month for our credit card statements, so you might already be dreading the daily arrival of the mail just as much as your kids eagerly anticipate it.  But debt is part of life, and the kids can’t unwrap a copy of the family credit score, so you grit your teeth and swipe.  Don’t let the fact that you have credit card debt be a source of guilt or shame, and definitely don’t assume that burden even if you are carrying some credit card debt into 2016. Instead, take a look at where you are now, then compare it to where you were a year ago.  Have you reduced your debt in 2015?  If not, why not?  Maybe you had an emergency you needed to cover.  Maybe this was the year you installed the home theater you’ve been wanting.  The important thing to ask yourself is whether you’ve reduced your credit card debt, and if not, is what you bought with that debt worth it to you now?

With other forms of debt, the questions can be more complicated. While you’d like to have a smaller outstanding balance on your mortgage or car note, reducing the amount you owe might not be the best idea.  After all, mortgage rates are incredibly low right now, so turning your credit card debt into a home equity loan is a smart move (provided you don’t rack up new credit card debt!). You might have a new debt balance that you didn’t have at this time last year if you bought a new car, upgraded the kitchen, or went back to school. 

If it’s time to clear up your debt, try one of our home equity or personal loans. Or, if you have higher rate credit cards, transfer the balances to a lower rate Destinations Credit Union MasterCard Credit Card.  If you reduce your rate and make the same payments, your debt will dwindle more quickly. 

2015:  Do you have more money saved than you did a year ago?

2016:  What would happen if you didn’t get paid next month? 

Again, the best way to determine your financial position today is to compare it to where you were a year ago, and savings is important.  If you have more saved this year than you did last year, it means your budget is working and you’re headed in the right direction.  If you have less saved than you did a year ago, try to determine why that is.  Did you have to dip into savings to pay the down payment on a long-term purchase?  Did you have to cover a gap in employment?  Just like with debt, figure out how much less you saved, compare it to what you bought, and determine whether or not the purchase was worth it.

Just like with debt, however, simply looking at the bottom line probably isn’t enough to tell you if you’re making the right moves.  Having an emergency fund that represents six months of your income is incredibly important for easing your family’s mind and protecting them if something unfortunate happens. But having an emergency fund much larger than that isn’t necessarily better.  You don’t want to be a dragon, sleeping on a hoard of gold simply because it’s pretty. Instead, put that savings to work for you in the form of a retirement fund, college savings or even the down payment on a second home to use as a rental property.

If you’re looking to add to your savings, check out our savings plans (hint: if you want to earn a really high rate, attach a Kasasa Saver to a Kasasa Rewards Checking and earn more every month you qualify!). To save for a child’s education, take a look at our Coverdell IRA Plan. 

2015:  Is your credit score higher than it was a year ago?

2016:  What will you do this year to improve your life? 

These questions might not look like they go together, but they do.  This is the section where you take a big-picture look at your financial world. If your credit score is improving, then you’re probably making the right choices overall.  If not, it would be good to find out why that is the case.  Make sure all of the charges on your credit report are accurate, work to tackle your debt, and try to bring in more income.  If you work to improve your credit score, you’ll almost certainly have to improve your overall financial standing. Destinations Credit Union Members can get unlimited free financial counseling to help you with this through our partnership with Accel.

But your credit score isn’t your life.  What are you going to do this year?  Are you going to take a trip to Europe?  Get started in a new career?  Buy a vacation home on the lake?  Learn a new language? What is it you’d like to actually do?

Once you know what you want to do this year, figure out what it’ll take to make it happen.  Can you save for it?  Will you need a loan?  Is your credit score too low for a second mortgage?  Whatever is in your way, make that your next financial goal.  Get your savings and debt into good positions, and then try to live your life.  After all, that’s what the money is for.  

How Boomers Can Retire The Way Millennials Work


You may have noticed a surge in the number of ponytails and slightly exposed tattoos around the workplace water cooler. Or perhaps you find you now need to get to the office earlier if you plan to land a space for locking up your bike. Maybe you’ve had to make peace with the fact that the kid in your meetings who doesn’t look old enough to ride solo on a roller coaster is not an intern, but an actual employee!  Face it, millennials are a force in the American labor force. In fact, by 2020, they’ll represent more than half of all workers in the country.  In spite of what you’ve read, those pesky youths can actually teach us experienced folks some important lessons about money, some of which might make you rethink part of your retirement planning.  Here are some of the things they’ve figured out that the rest of us might want to consider:

1.)  Don’t be afraid to move.  USA Today recently reported that one-third of all employees in America are freelance, by-the-job workers.  In many cases, these jobs are being handled by young people, many of whom commute over Wi-Fi from home or a coffee shop, instead of 45 minutes of bumper-to-bumper on I-695.  In fact, many of those young people would need an airplane ticket to come into the office.  An increasing number of young people live a “digital nomad” lifestyle, living in the cheapest cities and working wherever they feel most inclined.  It’s easier to make ends meet living in San Antonio, where the median home price is $150,000, than it is in San Francisco, with a median home price six times as high.
The same logic works for retirement.  There’s no reason to keep living in a pricey neighborhood just because it’s a convenient drive to the office you’re not visiting any longer.  In fact, many retirees are following the digital nomads abroad, retiring to Asia and Central America, where the cost of living is pennies on the dollar.  In Belize, for example, a couple can retire with a budget of around $13,000 per year. That’s below the poverty line in the United States! How many flights could you buy for the grand-kids with that kind of savings? Would they love to visit you on the beach?  You bet they would!
 2.) Know what to rent … know what to buy.   It used to be that every young person’s living room looked the same:  futon from the curb, coffee table from Ikea and an enormous corner bookshelf filled to the brim with DVDs. Before that, the DVDs were LPs, the coffee table was a spool table and that futon was probably the same futon from the same curb, just 20 years earlier. But if you ask millennials how many DVDs or albums they own, they’ll respond with a confused look.  Why would anyone own movies or music?  Paying $20 for one movie or album doesn’t make sense when you can get all of Netflix for $8 per month or Spotify for free. 
The same is true for a lot of the things you might want in retirement. Is it time to replace that car? Borrow at the lowest rates possible.  Do you want to own that house forever?  Why not create a leaseback arrangement? Do you own a timeshare?  Sell it and put the proceeds into a high-yield money market account.  It’ll go a long way toward paying for your vacations, wherever you choose to go. 
3.)  Get connected.  Young people can do just about everything through social media, even when they’re otherwise not technologically inclined.  I recently had a millennial ask me what use anyone could possibly have for Excel, which was stunning by itself, but then she proceeded to arrange a meeting over Instagram on her phone at the drop of a hat and on a Saturday afternoon, which was even more shocking.
Make your social media work for you.  Go through the social media apps on your phone, see what you use them for and why you have so many.  Then ask young people why they have apps you don’t. Do those apps sound useful?  If so, get them. If not, try them out anyway. While you’re at it, follow the businesses you use most often, so you can find news and deals.  It’s better than email, faster and easier to interact.  

Most importantly, if you’re not following us on Twitter and Facebook, now’s the time.  We put out a lot of great info to help you with your finances, and you can shoot us a question. With just a couple of clicks, you can see the questions other people have.  You might even learn the answer to a question you didn’t even know you needed to ask!  
Sources:

http://money.usnews.com/money/blogs/on-retirement/2014/04/16/the-worlds-9-most-affordable-places-to-retire