Four Mortgage Misconceptions to Watch For

The process of buying a house feels like trying to finish a level on Super Mario World—one minute you’re bumping along on Yoshi and the next minute you miscalculate and sink into a bottomless pit. Here are four things to watch out for before you run out of lives.

  1. Your credit score doesn’t matter for anything other than approval. Ouch! That’s not a Koopa but it’s close—your credit score determines not just your approval but your rate. The rate you’re going to have to live with for the duration of the loan. Make sure your credit score is looking healthy using these tips. (link)
  2. Your payment is 30% of your income, next level! Not so fast. The rule that your mortgage payment should not equal more than 30% of your income is more complex than it seems. Think of it this way—there’s more to home ownership than just the mortgage payment. There are maintenance expenses, taxes and homeowner’s insurance. If you fail to calculate those expenses into this thirty percent, you will be putting yourself in a sticky financial situation.
  3. You don’t really need a down payment. While this may be factually true—you aren’t required to put down 20% –it’s not a good idea for long term financial house. If you don’t put down a down payment, you will be required to purchase private mortgage insurance, which can be a substantial extra cost in your monthly mortgage payment.
  4. A traditional 30-year mortgage is the way to go. The 30-year mortgage is certainly the most common choice for mortgages, but it may not be the best choice. If you can afford a larger monthly payment for a 15-year loan, you will end up spending a lot less money over the life of your loan. Adjustable rate mortgages can be a good option if you are in a vigorous housing market and only plan to be in a house for a few years—before the rate resets, you will have moved.

We don’t all have to fall into the bottomless pits—in many cases a good real estate and mortgage broker can help you get through these levels and rescue Princess….I mean, buy the house of your dreams.

 

Photo by Cody Hughes @clhughes21

Use That Bitcoin, Bro

 

How many cryptocurrencies would it take to buy a house in the U.S.?

If you’re sitting here still uncertain what bitcoin even truly is, it’s okay most the world doesn’t get it either. Here’s a handy definition. (link). But that doesn’t mean it’s not already being used in the housing market. Some exclusive property owners are either requiring only bitcoin or allowing bids to be placed in bitcoin.

So how much bitcoin does it cost to buy a house? Well, the current median housing price is $248,000 and as of Jan. 15, 2018, that median price is about 17.65 bitcoin.

How does this hold up nationwide?

San Francisco: $1.588 million = 113 bitcoin
Seattle: $725k = 51.6 bitcoin
Los Angeles: $583k = 41.5 bitcoin
Washington D.C.: $550K = 39 bitcoin
Phoenix: $243k = 17.3 bitcoin
Connecticut: $247k = 17.6 bitcoin
Florida: $240k = 17 bitcoin
Illinois: $185k = 13 bitcoin
Iowa: $153, 250 = 11 bitcoin
Kansas: $200, 451 = 14.3 bitcoin
Maine: $200k = 14 bitcoin
Massachusetts: $384k = 27.3 bitcoin
Michigan: $182, 761 = 13 bitcoin
Missouri: $190, 050 = 13.5 bitcoin
New Jersey: $300k = 21.4 bitcoin
New York: $254k = 18 bitcoin
Ohio: $174, 689 = 12.4 bitcoin
Texas: $213, 396 = 15.2 bitcoin
Utah: $277k = 19.7 bitcoin
Vermont: $221k = 15.7 bitcoin
Virginia: $270k = 19.2 bitcoin
Washington: $363, 200 = 26 bitcoin

 

Whether bitcoin will be the housing market currency of the future remains to be seen. Maybe by then we’ll understand what it actually is.

 

Photo by Cody Hughes @clhughes21

Hidden Costs of Home Buying

 

Buying a house can feel a bit like a game of whack-a-mole—hit one thing down and another pops up. Here are four costs you might not anticipate in the home buying process.

 

1. The Inspection: It’s easy to remember the inspection is a hurdle to buying a home, but we often forget it’s also a financial hurdle. An inspection can cost a few hundred dollars, and doesn’t guarantee the house will pass inspection, so keep that in mind and be prepared.

2. Bringing cash to the table: Closing costs are expected, but what isn’t anticipated is how much extra cash you might need to bring to the closing table. Some lenders require you to pay a year’s taxes and mortgage upfront. And if the seller paid any expenses, you’ll be required to pay back a pro-rated amount.

3. The move: Whether you plan to move yourself or hire someone, moving can carry loads of additional costs. If hiring movers, make sure you get quotes from a few companies and ask for referrals from friends.

4. Immediate costs: It’s important to budget for the immediate costs of home ownership like changing locks, utility fees, as well as the unanticipated expenses in the first year of owning your home.

 

Set aside some savings now and you won’t have to rely on your credit card through these unanticipated expenses. The same does not apply to your next game of whack-a-mole.

 

Photo by Cody Hughes @clhughes21

Renting or Buying?

The value of home ownership has been on a roller coaster ride the last few years, and in many ways it’s like looking at the seven stories Tower of Doom TM and wondering whether it will leave you smiling or woozy for the rest of the day. Should you get on the roller coast? Or stay on the teacups? Here are three questions to ask yourself when deciding between buying a home or renting one.

Q: How long do you plan to stay?

Most questions of renting and buying come down to the question of timing. If you plan to stay in an area or a home for a long period of time, you can buy a home knowing you have plenty of time to absorb any market drops. But bringing this to concrete numbers helps most of all—compare the average home price in your area to the average rental price, calculate in a down payment for your home purchase and a 5% increase in rental prices and the numbers should tell you how long you’d need to own a home before making it the more affordable option.

Q. What are your costs?

Both renting and owning carry hidden costs that we tend to overlook when comparing. For renters you need to think of the loss of home equity and home owner tax breaks. The offset is not being responsible for home repairs. For homeowners, you’ll deal with things like homeowner’s insurances, private mortgage insurance, property taxes and maintenance.

Q. Are you “throwing money away”?

We’ve all heard it when discussing the pros and cons of renting—renting is throwing money away. But building home equity isn’t the only way to make money. If you have any doubt about your ability to keep up with the cost of home ownership, or keep up with savings, it’s better to consider renting for the near future.

When having these discussions, remember you can always talk with your agent and walk through the decision together.

 

Photo by Cody Hughes @clhughes21

Renting or Selling

Maybe it was the second glass of wine, but when you had to listen Rob Schmobb talk about how he converted his former home into an income property, it seemed like a tempting idea. Forgo the hassle and risk of selling your current home, use it as an income property and move on while improving your finances. What’s the downside? Well, there’s six things to think about first.

  1. Do you want to be a landlord? Being a landlord is different than being a homeowner. The expectations of a renter are going to be place more demands on your time and finances.
  2. Research the rental market—estimate how much rent you could get with the help of a broker and if it would cover the mortgage, taxes, and expenses.
  3. Ask an accountant about tax implications.
  4. Do you need a property manager? If you are moving out of town, you need to hire someone to take care of the property and tenants.
  5. Crunch the numbers– estimate your rental profit and compare it with cash you would get for selling your home.
  6. Do you really want to be a landlord? It’s a thing.

Using your current home as a rental property can be quite successful and rewarding. Check the numbers and see if it’s a situation that can work for you.

 

Photo by Cody Hughes @clhughes21

Smart House

Have you ever sat on your couch on a quiet night, swirled your merlot, and looked at your house like, what a waste I can’t use this equity right now to pay off current unsecured debt in order to improve my long-term financial situation.

No?

Well, think about it now. Your home is typically your biggest asset, and if you have equity you might be able to use it to pay off debt. They key to making this work is knowing three things.

  1. Decide how much you need.
  2. Confirm how much you currently owe.
  3. Figure out how your current interest rate compares to today’s interest rates.

There are two options for using home equity and your answers for the above questions decide which one will be a good fit.

When refinancing your mortgage, you take a loan of a specific sum out from the equity of your home. If interest is at least half a point higher than current rates, refinancing makes a lot of sense. Also, if interest rates are about the same it might not be worth it. Keep in mind, closing costs are about $3,000, so depending on how much you need to borrow the fee might eliminate this option.

A Home equity line of credit works like a credit card, drawing on your home equity as you pay it back. Home equity line of credits don’t have closing costs. But, the interest rate is adjustable and will probably trend upwards as interest rates have been rising.

Used smartly, your home can be a great tool in your long-term financial plan.

 

Photo by Cody Hughes @clhughes21

Five Ways to Improve Your Credit Score

Your credit score can sometimes feel like your weight after a long weekend of indulgence. If you never step on the scale, it never happened. Unfortunately, for both our jeans and our credit score, we all know simply refusing to know, doesn’t change the facts. Buying a home, leasing a car, or even getting a job requires a credit check—the step on the scale—and obviously, we want our credit to be in good shape so as to not risk our future. Here are a few tips to achieve a healthy score. Some of them may surprise you!

  1. Keep credit card balances under half of the total credit limit.  Halfway and under says you know how to use credit without abusing credit. If you have more than that on your balance already, make getting under half your first financial goal.
  2. Stop using so many credit cards. Pay off credit card balances on small cards and use one or two cards for all purchases. Start with cards you only use once in a while and are easy to pay off, like store credit. Request a lower interest rate on the one or two cards you decide to keep. Bonus, you have an excuse for a smaller (new) wallet (budgeted, of course).
  3. But don’t get rid of old debt and good accounts. You can’t have good credit, if there isn’t any credit at all. Keep stable, low interest, high reward accounts open. The history of being able to use credit and repay, is what counts. Keeping these accounts can help illustrate a long repayment history.
  4. Pay bills on time. Many late payments will negatively impact your score.
  5. Review your credit report once a year in January. If you notice any errors, report these problems to each of the three major credit bureaus—Experian, TransUnion, and Equifax.

If you follow these small steps to steadily improve your credit, it will never come as a nasty surprise right when you don’t need it. Your pants on the other hand….there’s no guarantees.

Four Steps to Get Ready to Buy

Buying a home in Charlotte’s real estate market can sometimes feel like watching the news footage on Black Friday sales. Homes are selling within hours and everyone else seems to know to run for the TV in the back, while you’re still trying to get through the door. Having a trusted voice to cut through the noise is the first thing you need, but here’s what else you need to know so you’re ready to buy in Charlotte.

  1. Save: We all know to save for a down payment. What you don’t know is that lenders are also looking for a prospective borrower who has several months’ mortgage payments saved up. A prospective borrower who is only looking for loans that will allow them to put as little down as possible, sometimes 3%, not the typical 20%, is not going to be as competitive as someone with a down payment and savings. Lenders will give a borrower a little wiggle room if they have a lot of savings, but not much for annual earnings or credit score.
  2. Check your credit score: The higher your credit score, the lower your down payment and/or monthly mortgage payments could be. Tips for improving your credit score? Hack away at credit card debt, don’t apply for any new lines of credit for a few months prior to your home purchase, and avoid closing out any accounts. Wait to make any large purchases like furniture, TVs, etc. until after the closing date of your home.
  3. Get pre-approved: Sellers are getting multiple offers nowadays, and this is a great way to set yourself apart from the competition. Get pre-approved, not simply pre-qualified. This means your loan officer will collect financial information, run a full credit report, and give you a clear price range based off a mortgage amount that won’t overextend you on a monthly basis.
  4. But before you buy:. You need to prepare to move on from your current situation. Do you need to sell a home before you can purchase your next property? If you need to sell your home first, you’ll need to get your property ready for the sale. Like yesterday. A real estate agent will help you through this process—see here for how to pick an agent that is the best fit for your situation. If you don’t currently own, is your lease term up in a few months? If so, how much time do you need to find a home? If you’re renting, does your lease convert to a month-to-month term at the end of the lease? If so, how much notice do you need to give your landlord or property manager?

Regardless of the situation, be prepared so you’re not left outside while everyone else manages to grab the good stuff.

 

Photo by Cody Hughes @clhughes21

Five Steps to Financial Freedom

Quick. Right now. If something were to happen—a car breaks down, an unexpected vet bill, the Nordstrom Anniversary sale—would you be able to take care of it without using credit? If you are one of roughly 62% of American who have $1,000.00 or less in their savings account[1], you are probably already aware how difficult it can be to stretch for large purchases (including those shoes), unexpected bills, and let’s not even mention your retirement. To make matters worse, cost of living in Charlotte has increased. The average house in Charlotte now cost’s an average of $188,900[2], and our income growth has not kept pace. It’s enough to send anyone to the sale section for a consolation purchase. Can’t get a house, but check out my new whisky glasses.

But before you click over to Nordies, consider this: financial freedom is a game of small steps, not one big one. Much like any lifestyle change (inward groan), we have to make small movements for long term goals.

First step is simple: Know where your money is going. Separate out your fixed expenses (monthly debts combined with annual debts, divided into twelve months) from last month’s extra’s (the morning coffee, restaurants, and yes, those shoes). Combine the total expenses and compare that to your monthly income. How does that look? Frightening? Having heart trouble? Or about what you expected? Either way, you can take this information and….

Second: Set a budget. And not one in your head. Turns out, we’re really good at pretending to have a budget and then basically shoving it behind mental tasks like Candy Crush.[3] Reduce the impact of surprise bills and plan ahead for fun purchases, by making a budget and revisiting it regularly. A good rule of thumb is to revisit your previous month’s budget at the first of every month. This keeps your financial goals and how to get there, front and center.

Step three: Find ways to save. Here’s where you can get creative. Something as simple as turning out the lights when leaving a room can make a difference in those recurring monthly expenses. Other ideas include: changing all your lightbulbs to energy efficient ones, and turning off your HVAC and water heater if leaving for more than two days. Commit the projected savings to an emergency fund.

Four: Commit to automatic savings. In other words, pay yourself first. It is easy to forget to transfer money, so set up automatic savings and transfer any additional money on top of this amount.

Finally, Pay off debt. Barely half of Americans have enough cash saved to cover their credit card debt.[4] “Even though some debts like mortgage or student loan debts are considered “good” debt because they are investments, credit card debt is seen as a problem for many Charlotteans,” says _____ of _____.  (was uncertain of this quote)

Like any long-term change, where we are today decides much of where we will be tomorrow. Change your financial future by following these five steps today.

Sources:

[1] http://www.marketwatch.com/story/most-americans-have-less-than-1000-in-savings-2015-10-06

[2] https://www.zillow.com/charlotte-nc/home-values/

[3] http://time.com/3657285/task-americans-cant-do/

[4] https://www.cbsnews.com/news/51-percent-have-enough-cash-to-pay-off-credit-card-debt-study/