Are You a Twenty-Something Wanting to Buy a Home? Here’s What to Know

Twenty Something- 150x150Low interest rates and home prices have always attracted many young first time home buyers. Especially now, after the recent housing market crash, people who are looking to buy a home also have the option of buying foreclosed and distressed properties, which can still be bought for much cheaper than regular homes. But the housing market crash has also caused people to be more reticent when it comes to buying a home. First time home buyers are being especially careful before making such a large purchase, who may not be as stable financially or as sure as to how long they will be living in one location.

Home ownership when you are in your twenties, if you can afford it, can also be very beneficial in the long run. You will avoid wasting money on renting a place with no potential for equity and will also have much longer to pay off your mortgage before your retirement years. You will also build equity in your home when home prices are low, an advantage that you won’t get if you are renting. However, many young home buyers are afraid that they can’t qualify for a mortgage loan, or at least one that won’t have a very high cost. Being a twenty-something home buyer is the same as buying a home at any age. The most important factors will be your credit score, your income, and the size of your down payment. The actual problem that you might encounter is that you might be a bit young to have a perfect credit score, a large income, or enough money saved up to make a large down payment, but that can happen at any age. In this article, we will take a closer look at each of these three factors and how they can affect young home buyers.

Your Credit Score

A young person will probably be worried that he or she didn’t have enough time to build a good credit score, and the lenders will automatically reject their mortgage loan application. In reality, your credit score will probably be better than you think, and easy to boost. You are in your twenties, so you shouldn’t have any large debt or dark spots on your credit report. Also, if you don’t have credit, you can establish it fairly quickly, in a couple of years. Just having a credit card that you pay on time can help your credit score reach the “perfect” range very easily.

Because you are young and maybe haven’t found a stable job, you may have some unpaid bills that you think will affect your credit score. The most important thing is to pay them as soon as possible, but, unless they are referred to collection, they won’t affect your credit score in any way. You will probably have to pay a late fee if you are late on a credit card payment, but as long as you make the payment within 30 days, your credit score won’t suffer.

Your Income

Lenders have to make sure that your income is large enough to accommodate your monthly mortgage payment, which also includes the obligatory homeowners insurance and property taxes. Lenders usually require that your monthly mortgage payment is less than 30 percent of your monthly income. Also, the total money that you owe each month, including debt such as student loans, should not be higher than 43 percent, or even less for some lenders.

Lenders will also require that you have a stable job, meaning that you have held the same job in the same organization for at least two years. Self-employed home buyers will have to provide tax returns and other records for the past two years in order to qualify for a mortgage.

Your Down Payment

Your credit score will affect how much you will have to put down when buying a home. Typically, if you have a very good credit score, you will only have to make a 10 percent down payment. But you should also keep in mind that, if you put less than 20 percent down, you will have to pay a Private Mortgage Insurance (PMI), which will make your mortgage loan more expensive overall.

An alternative can be a Federal Housing Administration (FHA) mortgage loan, which require a much lower down payment, sometimes as little as 3.5 percent. FHA loans require a larger insurance payment, but also have lower interest rates, making them a good alternative to conventional loans. Active or retired military personnel can apply for a U.S. Department of Veterans Affairs (VA) mortgage loan, which requires no down payment. People who wish to live in a rural area can apply for a mortgage loan backed by the U.S. Department of Agriculture (USDA), which has many benefits over a conventional loan, but a longer waiting period.

Buying a home in your twenties is not harder than buying a home at any age, but it may be harder to qualify for a mortgage. Because you are just starting out in life, usually fresh out of college and with some debt, you might find it more difficult to come up with the large down payment or have a good enough income. But if you can do it, buying a home when you are twenty-something will be more beneficial than waiting until you are in your thirties or forties.

Thinking of Buying a Home? Ask Yourself These Questions First!

Thinking of Buying a Home-Ask Yourself These Questions First- 150x150Low home prices and interest rates might seem very attractive to you, and you might want to buy a home before these prices and rates start going up. However, your financial situation might make it difficult for you to buy a home at the advertised price, while paying a low interest rate. Interest rates that are advertised by lenders are usually reserved for home buyers with stellar credit score, so you might end up paying significantly more on your loan than you were expecting to.

Many first-time home buyers are so blinded by the low interest offers advertised by lenders, that they forget all about the large down payment needed in order to avoid paying for Private Mortgage Insurance, and about the fact that their credit score will have a big impact on the interest rate that they will actually be paying. Here are a few questions that you should ask yourself before thinking of buying a home.

Is This a Good Time for You to Buy a Home?

Buying a home is very expensive initially. If you wish to receive better rates and not be required to pay for Private Mortgage Insurance, your down payment will have to be at least 20 percent of the total loan amount. That can mean several tens of thousands of dollars for an average priced home. Besides the down payment, you will have to pay for inspections, and various closing fees, which can come up to a few thousands of dollars, as well. There are several alternatives to making a large down payment, but you will probably end up having to spend more elsewhere, and maybe end up spending more than you would have on the down payment.

You might think that the large initial cost is the only expensive part of buying a home, but you also need to keep in mind that you will have to pay tax on your property and homeowners insurance. The upkeep of your home can also be very expensive, but this depends on many factors. Your home might need an expensive roof, plumbing or electrical repair, unexpected expenses that might take you by surprise.

Do You Have Good Credit?

You can probably qualify for a mortgage loan with a less than good credit score, but you will have to pay a much higher interest rate. A perfect credit score will most likely guarantee you the best current mortgage rates, but anything less and you will start to see those rates climbing. The difference won’t be that high, unless your credit score is lower than 700, but, over time, you will feel the difference in your wallet.

If your credit score is lower than perfect, you might want to take a little time to try and improve your credit score before getting a mortgage loan. You can start by paying off other debt, and making sure that all your payments are on time.

Is Home Ownership for You?

Some people buy a home and end up feeling that they have made a mistake, that renting was better for them. Being a home owner comes with larger responsibilities, like taking care of the house, making repairs and maintaining it. Sure, you can hire someone to do it for you, but hiring someone for every little task will become very expensive, so you’ll be better off learning how to do most minor repairs and maintenance work yourself.

If you are looking for a home that needs less maintenance and has a smaller chance of needing major repairs, then you should look at apartments. You will still be responsible when something breaks, unlike when renting, but it will be fairly low maintenance compared to a house.

Are You Going to Live There for a Long Time?

Like we’ve mentioned earlier in this article, buying a home comes with some pretty high closing costs. If you plan on moving in the near future, you will recover the money that you put down and the monthly payments, but not the closing costs. However, to build equity in your home, you will need to live there for a longer period of time. The monthly payments that you make in the first years will go more towards the interest, so the equity will build up very slowly. Selling your home after a short period of time can result in you losing money.

Becoming a home owner is a dream come true for most people, but it comes with great responsibility, and a large number of expenses. Ask yourself the questions listed in this article before you start looking for a home, and find out if home ownership is for you, or if you would like to postpone it for a few more years.

Making an Offer on a Home? Here’s How!

Making an Offer on a Home-Here's How- 150x150Making an offer on a home can be somewhat confusing for most first time home buyers. Before making an offer, most people inevitably ask themselves if maybe the offer is too low or too high. Unfortunately, there is no set in stone rule when making an offer on a home. There are several factors that you should take into consideration before contacting the seller with an offer. These factors can make it easier for you to tell how much the seller might be willing to accept for his or her home.

Whatever your offer ends up being, keep in mind that a verbal promise is not legally enforceable. You will need to make an offer in writing, which will also include the terms and conditions of the purchase. Your offer will only be the first step of the negotiation process. The seller will, most likely, get back to you with a counter offer, which you can take or try to negotiate further.

Deciding on How Much to Offer

When making an offer on a home, you will have to make sure that the offer is not too low, which can result in the seller feeling insulted. Also, you have to make sure that the offer is not too high, because that will be more money out of your pocket. So the solution is finding a middle ground, a price that will satisfy the seller, and one that you can live with. Before making an offer on a home, you should do some research, which will help you better evaluate how much the home is actually worth, and give you information to back up the price you offer.

  • Find out how much other comparable homes have sold for recently. Your real estate agent can probably help you with finding out how much other homes like the one that you are prepared to buy have sold for in the past few months. Try to find homes that are as similar as possible, in the same area with the same number of rooms, similar amenities and appliances.
  • Find out if the local demand for homes is high or low. Finding out if there’s a high or low demand for homes in the area is really important and can help you significantly in coming up with an offer. If the demand for homes is high in the area, then prices are going up because it’s a sellers’ market, and you will probably have to compete against other bidders for that home. If the demand for homes is low in the area, then you probably won’t have any competition, and it will give you more room to negotiate.
  • Find out if other buyers are interested in the home. Having competition means that you will probably have to outbid other buyers in order to purchase the home. This is not a good situation to be in, so your first offer should be closer to the asking price. This will increase your chances of being the one that wins the bidding war, but it is up to you to decide if paying close or even exactly the asking price is worth it.
  • Find out if the owner is in a hurry to sell. The seller might need to move quickly or need the money from the sale for a new home. Knowing this means that you can negotiate more aggressively, especially if there are no other buyers involved.
  • Find out what condition the property is in. It may cost you a few hundred dollars, but having the home professionally inspected before signing a contract can save you a lot of money and headaches in the future. Based on the results of the inspection, you can also decide how much to offer.

Making an offer on a home is not as easy as it looks. But researching your purchase and knowing what you are looking for can put you in a position where you know how much you can negotiate, and better estimate how much the seller is willing to accept. Remember that making an offer that is too low is almost as bad as making an offer that is too high. The price will usually be the maximum that the seller expects to receive for the home, but that doesn’t mean that they will go much lower than that. Based on the factors listed above, you should be able to come up with the perfect offer which the seller will hopefully accept.

Building a Home: Should You Lock-In Your Mortgage Rate?

Building a Home-Should You Lock-In Your Mortgage Rate- 150x150New homes sales have rose significantly in the past few months, but it looks like the numbers are based on signed contracts instead of closings. This means that some of these homes that are recorded as sold may have not even been built yet, and may never be. Contracts were signed with interest rates at record lows, buyers were unable to lock in the interest rates, and are now watching interest rates increase. This will probably result in a significant number of cancellations.

Why Lock-In Your Mortgage Rate

When locking-in interest rates, most home buyers try to find the best time to do it so they get the best deal. While interest rates cannot be accurately predicted, there are trends that you can keep your eye on in order to better approximate which way the rates are going.

If you decide against locking in your interest rate, and would like to wait, there is a chance that the rate might go down, but there’s also a chance that it might go up. Interest rates don’t normally increase significantly over a short period of time, but a lot can happen until closing, and you could end up with a much higher rate on your mortgage loan. Also, depending on your financial situation, even that really small increase in interest can make it much harder to keep up with mortgage payments over time.

Locking-in your mortgage interest rate will guarantee that the interest rate you and your lender agreed upon will be applied to your mortgage loan, regardless of the changes in mortgage rates that will happen until closing. What many borrowers don’t realize is that they are not tied to that particular lender if they lock-in their interest rate. If rates decrease before closing, the borrower can go to a different lender. The threat of losing a customer might even determine your current lender to renegotiate a lower interest rate.

If you are satisfied with the current mortgage rates today, you should lock it in. This will protect you against any future interest rate increases and give you more peace of mind than if you would choose to risk and not lock-in your mortgage rate.

Locking in the Mortgage Rate When Building a Home

On regular mortgage loans, the interest rate can be locked right after the application is approved. The closing will usually be one or two months later, so there won’t be any major changes in interest rates, unless something extreme happens with the United States or global economy.

Locking-in an interest rate on a home that is not built yet or currently being built is much harder because the lender will not know precisely when construction will end. Borrowers apply for a mortgage, but are only able to lock in their mortgage several months later. Interest rates can fluctuate significantly in several months, putting borrowers at a great risk of paying significantly more on their mortgages. In order to lock-in interest rates, you will most likely have to pay points on the mortgage, which can add up to thousands of dollars.

The conclusion is that you should lock-in your mortgage rate when building a home if you are satisfied with the interest rate that is offered to you. You might not be able to lock-in the rate unless you pay mortgage points, so you have to decide if you want to spend that money to lock-in the rate or invest it somewhere else. Locking-in the mortgage rate when building a home will give you peace of mind, but you should always look at all the factors before deciding whether you should do it or not.

To Buy an Existing Home or a New Home, That is the Question

To Buy an Existing Home or a New Home, That is the Question- 150x150There may come a time in your life when you will want to stop paying for rent or living with your family or friends and become a home owner. One of the most basic dilemmas that most people who are looking into home ownership have is whether to buy an existing home or a new home. Finding the answer to this dilemma is surprisingly difficult because there are many factors that you will have to take into consideration when buying a home. Both choices have plenty of advantages and a few disadvantages, which should be carefully looked into before deciding which way to go.

Advantages to Buying an Existing Home

Buying an existing home may not seem that beneficial for you at first glance, when compared to buying a new home or building your own. But there are some clear pros to buying an existing home and they shouldn’t be overlooked. Here are the most important:

  • Location. Existing homes are most likely built closer to major metropolitan areas, which will make your work commute and shopping significantly less difficult and cheap. Many new homes are built at the edge of the city or town, so your commute will be longer, which means that you will be spending more gas and time on the road every day. Check out the most expensive housing markets as well as the least expensive housing markets to help make your decision.
  • Build quality. Both construction materials and labor were less expensive in the past, which means that even if the home is a few years older, it’s very likely that it was built stronger and with better materials than a home built recently.
  • Appliances. Many existing homes are sold with included appliances, such as stoves, refrigerators, or even television sets. Buying a new home or building means that you may have to buy all or some of these appliances which can end up being quite expensive.
  • Better curb appeal. Most existing homes have mature trees around them and landscaping. You probably won’t get that with a new home, and, depending on which area the new home is built in, you may have to wait years until your home’s surroundings will be complete with mature foliage and finished construction projects.
  • The neighborhood. Most existing homes are located in already established neighborhoods, so it will be easy for you to find out if you are moving into a good or a bad neighborhood. You can also find out what your neighbors are like before buying the home. When buying or building a new home in an unknown area, you can end up having some unwanted developments built right next to your home.

Advantages to Buying a New Home

Buying a newly built home or building your own home also has plenty of advantages and, depending on your situation, might be the better choice. Here are the pros to buying a new home:

  • Location. While this can also be considered a disadvantage, living on the outskirts of a city, where new houses are often built, can also be a blessing for those who want to live away from the noise and agitation of a large city. If you’re looking at rural areas, you can potentially apply for a USDA mortgage loan.
  • Less maintenance. A newly built home will need repairs and maintenance much less than an existing, older home. Many parts of the home may even be covered by a few years of warranty. Serious and expensive repairs to things like the roof or the electrical system will be much cheaper or even free if they are covered by a warranty.
  • More modern. People’s taste in homes changes over time, which means that you will probably like a new home, with bigger rooms and a more modern design. On the other hand, older homes may have certain unique architectural elements that you my like.
  • More energy efficient. Because new homes are made with newer materials, they may be better insulated, making your energy and heating bills much lower. Existing homes usually cost more to heat or cool, but it generally depends on the age of the construction.
  • Amenities. Many new homes may offer amenities that are not usually offered when moving into an existing home. These amenities can include a swimming pool, jogging trails, or playgrounds for your children.

Buying an existing home or buying a new home may seem like an easy decision, but it is actually a very serious and difficult decision. Whatever your budget and requirements are, you should not dismiss either option before taking a closer look at what each has to offer. Additionally, renting a home may be an option to consider. You might be set on buying or building a new home, only to find that it will be much cheaper and convenient to buy an existing home that will satisfy all your needs.  Alternatively, you may also find that buying a new home over an existing home can be more beneficial for your situation.

Buying Your First Home: The Process from Start to Finish

Buying Your First Home-The Process from Start to Finish-150x150There may come a time in your life when you decide it’s the right time to stop renting or living with your parents, and look for a place of your own. Whether you are looking for a house or an apartment, buying a home for the first time can be an intimidating process, and you are probably afraid not to make a mistake that will cost you more money or jeopardize your chances of becoming a home owner.

Finding the right home, obtaining a good mortgage loan, and moving into a new neighborhood are all steps necessary to becoming a home owner, but there’s nothing to be afraid about. By simply doing a little research, and getting to know all the steps, you will realize that this whole process is actually pretty straightforward. Here’s what the home buying process involves, from start to finish.

Find Out How Much You Can Afford to Pay

The first thing you need to do after you decide to buy a home is find out how much you can afford to spend on your first house or apartment. Having a budget is very beneficial, as it will help you in your search for a home, and it will keep you from spending more than you can afford, without even realizing it. Mortgage calculators can be very helpful in finding out how large of a monthly payment you can make and how big of a mortgage loan you can take out. Keep in mind that you will have to pay interest which, depending on several factors, can make your overall loan value much higher. Also, remember that you will probably have to make a hefty down payment and pay closing costs, which are also expensive.

One of the main factors that will affect how much you’ll be paying in interest is your credit score. You are entitled to one free credit report check per year, so you should make sure everything is in order before applying for a mortgage loan. The higher your credit score will be, the better mortgage loan and interest rate you will qualify for.

Find a Good Lender

The only way to find the right lender is by shopping around, asking your friends and family, or simply talking to various lenders. There’s a tough competition between lenders, so you would be surprised at how much some of them are willing to negotiate in order to get your business. Ask them plenty of questions in regards to the mortgage loans that they are offering, and only decide once you have found a lender that you feel comfortable with.

Once you have found a good lender, try to get pre-approved for a mortgage loan. This will make buying a home much faster once you find the right one, minimizing the chances that the seller will sell to someone else. Being pre-approved for a mortgage loan will also make you look more trustworthy in the eyes of the seller.

Find the Right Home

Knowing what you are looking for before you start to shop around for a home will surely help you narrow down your options, and find the right home faster. Depending on your budget, you might have to make sacrifices in certain areas, but you shouldn’t stop searching for a home until you find the one that is the closest to what you are looking for.

Besides looking at what the property has to offer, also pay close attention to the neighborhood that the home is located in, the proximity to schools or stores, and the length of your commute to and from work. All of these factors can help you better decide if that is the right home for you and give you more reason to negotiate.

Make an Offer

Most home sellers will set their asking price higher than the home is worth, which means that they are probably expecting you to make a lower offer. The best way of finding out how much you should offer is by looking at what comparable houses in the same or similar areas have sold for recently.

Once you have decided how much you want to offer, contact your real estate agent and proceed with making the offer. Most likely, the seller will make a counter-offer, but that doesn’t mean you cannot make a new offer. Going back and forth too much can cause problems, so it is better to meet the seller half way.

Obtain the Right Mortgage Loan

Depending on your budget, you will have to decide between a fixed-rate and an adjustable-rate mortgage loan as well as the loan term. If you can’t afford a large monthly payment, your best choice is to get a 30-year mortgage loan. However, you should keep in mind that the shorter the loan term is, the less you will be paying in interest overall.

You might also qualify for different types of loans that are designed to help those with lower incomes, such as an FHA or a VA loan. These types of loans are geared towards certain people, so you should do a little research before applying for one of these loans to be sure that you fit the criteria.

Close on Your New Home and Move In

Before closing on your mortgage loan, you should get a home inspection to make sure that there are no major issues with your new home. This is one place where you wouldn’t want to try to save money, because finding a problem like roof damage before it’s too late can save you a lot of money in the future. Closing costs will be fairly high, but you will only have to pay them once.

After everything is paid and signed, you can start to move in. You can use a moving company, or just do everything yourself with the help of your friends and family.

Buying a home is not a scary process once you get to know the basics. Of course, you can always encounter some unpleasant surprises along the way, but a little research goes a long way when buying your first home.

The Reality of Being a Home Owner: It Costs How Much?!

The Reality of Being a Home Owner- It Costs How Much-150x150Many people who pay hundreds or even thousands of dollars each month on their rental home dream of becoming home owners. Using the rental money to pay for a mortgage is a much better alternative. In some cases, your monthly mortgage payments will be the same as your rental payment, but many home buyers fail to understand that there are many other costs associated with home ownership besides the mortgage payment. In reality, owning a home will usually cost more than renting, but it also has its advantages.

Especially when prices and interest rates are low, most people tend to overlook the majority of costs associated with owning a home, only looking at the monthly payment. The temptation to become a home owner can be very strong, especially for those who have been living in a rental for a while and have gotten married or are ready to start a family with children. In this article, we will take a look at how much it actually costs to be a home owner and which factors will influence these costs.

One Time Costs

Unlike renting, buying a home can have a very high initial cost. Unless you qualify for a no down payment mortgage loan, here are the costs associated with buying a home:

  • The down payment. Most conventional mortgage loans require a 20 percent down payment, or you will be forced to purchase private mortgage insurance, which can be very expensive. The higher the down payment, the lower your interest rate and loan value will be, meaning that your monthly payment will also be lower.
  • Closing costs. Closing costs can be as high as a few thousand dollars, and must never be overlooked when applying for a mortgage loan. Some lenders allow you to finance the closing costs into the loan, but that will make you monthly payments larger and require you to pay interest for the closing costs.

Monthly and Annual Costs

The largest cost of owning a home will be your monthly mortgage payment, which will be higher or lower depending on several factors. Besides the obvious monthly mortgage payment, there are several other costs that you should be aware of when trying to find out how much home ownership will cost you.

  • The Homeowners Association (HOA) fee. Depending on what type of home you purchase, you might have to pay a monthly HOA fee. This fee generally covers insurance, maintenance and garbage services, but can also cover higher-end amenities, such as pools or fitness centers.
  • Property taxes. Property taxes are based on how much your property is worth and its location, and are generally paid annually. Property taxes are paid to the municipality or town in which you reside, and are due even after you have paid off your mortgage.
  • Homeowner’s insurance. This type of insurance is also based on the location of your home, its size and value. Other factors which may have an influence on how much you will be paying in homeowner’s insurance are your home’s age and if it’s located in an area where floods or hurricanes are common.
  • Utilities. Gas, water, heating, electricity are some of the utilities that may have been included in your rental payment. When owning a home, you will have to pay all utilities each month, and that can prove to be a burden, depending mostly on your home’s size. For example, heating a small apartment can be very cheap compared to heating a two-story house.
  • Maintenance. Keeping your property in good shape will also be your job, as opposed to a rental, where this is usually the landlord’s job. Trimming the hedges and cleaning gutters can be time consuming, or expensive, if you hire someone to do it for you.
  • Repairs. When you were renting and had a problem, such as a leaky faucet or a broken appliance, you would just call the landlord and had it repaired or replaced. When owning a home, you will have to do these repairs on your own, or hire someone and suffer the cost. Damages to your roof or electrical and plumbing systems can be very costly, especially if they are not resolved in time.

As you can see in this article, owning a home won’t necessarily be a better choice over renting. There are more costs and risks associated with home ownership vs. renting, but the benefits of owning your own home certainly exceed the downsides. It is up to you to research what owning your own home involves, how much it will cost, and decide if it’s a step that you can take without suffering financially and ending up regretting your decision.

Home Warranty vs. Homeowners Insurance: What’s the Difference?

Home Warranty vs. Homeowners Insurance- Whats the Difference- 150x150Buying a home is a big part of the American dream, and many people make becoming a home owner one of their primary goals in life. Being a home owner comes with a few responsibilities, one of which is making sure that your home is protected from damage that might occur over time. Home warranties and homeowners insurance may sound like they are very similar, but there are actually several significant differences between the two. For example, home warranties generally cover appliances, plumbing, electrical, and heating and air conditioning systems. Homeowners insurance, on the other hand, covers damage that occurs mostly to structural parts of your house, such as the foundation or the swimming pool.

Both home warranties and homeowners insurance are designed to protect your home, but in different ways. Deciding between the two or choosing both to cover your home is up to each home owner’s individual preference.

Home Warranty

After becoming a home owner, the last thing that you want to happen is to spend more money because something is broken or is malfunctioning in your new home- that’s where home warranties come in. Especially if you’re a first time home buyer and have no experience maintaining and repairing a home, buying a home warranty will not only give you peace of mind, but possibly save you a large amount of money if something expensive in your home breaks.

When buying a home, the home warranty could already be paid by the seller. Some home sellers in a buyers’ market choose to pay for the home warranty themselves in order to give more confidence to the buyer and to avoid being called by the buyer after closing because something in the house is broken or is malfunctioning. This differs from one seller to another, but you may also receive the home warranty from the real estate agency, as a gift, which is always a nice surprise.

Depending on the chosen plan, home warranties can cover various systems, such as plumbing, electrical, and heating  as well as appliances, such as stoves, ovens, and refrigerators. Home warranty companies have a group of contractors that they use when something in your home breaks. If the appliance or system cannot be repaired, the contractor will replace it and charge the home warranty company.

When buying a home warranty, home owners must carefully read all of the documentation and find out what is covered by the warranty and what isn’t. Some policies may cover certain appliances, while others may charge extra for the coverage or don’t cover them at all.

Homeowners Insurance

Homeowners insurance mainly protects your home from damage caused by rain, floods, fire, and wind, as well as vandalism and theft. Homeowners insurance may also help you deal with the financial consequences of injuries occurring at the property, particularly when the injury has occurred due to something being defective on the property.

Homeowners insurance is generally required when you purchase a home with a mortgage loan. Lenders use homeowners insurance to protect themselves should a hurricane, fire, or other hazard occur and cause substantial damage to the property.

Not all homeowners insurance policies are created the same, so they may cover your home for only certain things, while charging you more for extra protection. Some policies, for example, do not cover damage done by what is considered an “act of God”, like earthquakes or floods.

It is up to each home buyer to choose between a home warranty and home owners insurance, unless they want to have both  or are required by the mortgage lender to have the home insured. Having you and your home covered by both a home warranty and insurance will not be cheap, especially if you want to cover everything, but it will give you peace of mind and, should something happen to your home, maybe save you some money. Nature can be cruel and cause substantial damage to your home, so it’s always better to be safe than sorry. Being a home owner is expensive enough without having to worry about unforeseen events messing up your financial situation.

 

Current Interest Rates for Home Loans- Is it Time for You to Apply?

Current Interest Rates for Home Loans- Is it Time for You to Apply- 150x150Mortgage interest rates were at a record low last year and have slightly increased since then. This seems like the perfect time for you to become a home owner. The housing market struggled to recover for the past few years, but it seems that it is on the right track now.

Whether you are looking to buy a new home or your home has lost some of its value over the last few years, making it impossible for you to refinance, it looks like 2013 is the year when the home buying activity will see significant increase, making it the perfect time for you to buy a home.

Current Interest Rates

Current mortgage rates today for mortgage loans are around 3.5 percent for a 30-year fixed-rate mortgage. This rate is pretty close to last year’s historic low of 3.31 percent, but it is still a very low rate, that you should take advantage of.

The housing market is recovering, with home prices slowly increasing, and inventory decreasing more and more. The building industry is also slowly recovering, but they aren’t able to satisfy the demand for new homes yet.

Because mortgage interest rates are currently low, you will pay a lot less over the life of your loan. This makes current interest rates for home loans very attractive to home buyers, which will most likely lead to a rise in mortgage interest rates in the near future. Some economists predict mortgage rates as high as 4.4 percent by the end of the year.

Should You Apply for a Mortgage Loan?

Mortgage interest rates are low right now, but so are home prices. Statistics indicate that prices for homes are rising, and could go up by as much as 5 percent in 2013 only.

Many industries are recovering from the economic crisis, which will result in a decrease in unemployment rates, creating more and more home buyers. Also, new construction is on the rise, as the builders are starting to regain confidence. New homes will see, according to predictions, a 20 percent increase in 2013.

With mortgage interest rates near historic lows and the economy recovering, this may just be the perfect time to buy a home. If you decide to wait for lower prices and interest rates, you could end up having to pay a lot more for a mortgage loan. These are just predictions, but common sense also dictates that mortgage interest rates should not go lower than they were last year, especially since they have already started to rise since the beginning of 2013. Ultimately, it is up to you to do your homework, read the facts and the predictions, and decide if this is the right time to become a home owner.

How to Avoid Ridiculous Private Mortgage Insurance Rates

How to Avoid Ridiculous Private Mortgage Insurance Rates- 150x150When buying a home, you will usually have two choices: you can make a 20 percent down payment if you have the available funds, or you will have to pay private mortgage insurance (PMI). The private mortgage insurance will protect the lender in case you default on your loan.

Paying private mortgage insurance may sound like a simple way to buy a home if you can’t afford a hefty down payment, but you may actually be better off opting against PMI.

Reasons to Avoid Private Mortgage Insurance

Private mortgage insurance makes great sense for lenders, as it protects them in case you can’t afford to make your mortgage payments anymore. But for you, the home buyer, it has a few big disadvantages, which should determine you to try and pay the 20 percent down payment instead. Here are the reasons why you should avoid paying PMI:

  • The cost. Private mortgage insurances usually cost between 0.5 and 1 percent of the entire mortgage loan amount. This may not sound like much, but, on a $200,000 loan, you would end up paying up around $2000 per year, and that’s not exactly pocket change. With the average price of a house in the United States being over $200,000, you would be paying around $200 more per month on top of your mortgage payment.
  • Not tax-deductible. This is not always the case, and it depends on you and your spouse’s income. If you and your significant other earn less than $110,000 per year, than the PMI is tax-deductible. However, if you file your taxes separately, the limit is only half of that.
  • Hard to cancel. When the equity in your home reaches 20 percent, you won’t be required to pay private mortgage insurance anymore. Unfortunately, canceling your PMI is not as easy as you might think. You will be required to request the cancellation in writing and have your home appraised, and in most cases this process can take as long as a few months.

How to Avoid Private Mortgage Insurance

Because private mortgage insurance is mandatory if you don’t have the required down payment, the best way to avoid it is by finding a way to pay the 20 percent. If, however, there is no chance of coming up with the down payment, some lenders still offer a 80-10-10 piggyback mortgage loan, which can help by using a second mortgage and your down payment to make the loan-to-value ratio of the first mortgage smaller.

Alternatively, you could build up equity in your home, and apply for a PMI cancellation, but this may take a while as you will be required to have your home appraised. Another way in which you could get rid of private mortgage insurance is by refinancing, but this only makes sense if the new loan doesn’t require PMI and you qualify for a lower interest rate. Refinancing can be very costly, so you will need to do your homework before you go down that road.

Private mortgage insurance is expensive and it is recommended to pay the 20 percent down payment instead of thousands in insurance. The alternatives must be weighed carefully, as they could turn out to be more expensive than private mortgage insurance.