4 Simple Strategies for Coming Up with a Mortgage Down Payment

house key and dollars.Real estate concept

Buying a home is often seen as an important rite of passage and a major part of the American dream. Depending on your situation and where you live, it can also be cheaper than renting. But, unless you have a large chunk of money just sitting around, the down payment it requires is a big obstacle. As higher costs of living continue to shrink our net income, it can be a real struggle to save that recommended 20%, especially if you’re a first-time homebuyer with few assets. Thankfully, there are plenty of assistance and low-down-payment options out there if you really need them, but there’s also a unique sense of accomplishment if you can do it on your own! Here are some simple strategies for saving up for a mortgage down payment.

1. Open a Dedicated Savings or Investment Account and Automate It

Separating your down payment fund from your other savings accounts will make it easier to calculate its progress. You can simply create a new savings account with your current bank for ease of transfer, but it’s also a good opportunity to open up a high-yield savings account that offers higher interest rates. Money market accounts and funds are also low-risk ways to earn more for your dollar. If you have a year or more to save, CDs offer even higher interest rates.

Next, set up your direct deposit or bank account to automatically transfer a certain amount from each paycheck (ideally based on your projected savings goal and timeframe). Even if you can’t afford to set aside much, consistency leads to accumulation.

2. Get Ruthless with Your Net Income

After savings and retirement contributions are deducted, your bills are paid, and your consumables are purchased, what’s left? What are you spending your money on? Can you live without any of those things for awhile? Being ruthless as you slash your discretionary spending is hard, but it’s also one of the easiest ways to ‘find’ money to apply to your down payment.

If you’re a two-income household, see if you can tighten up your finances enough to live off of one income for awhile and bank the second. It’s not easy, but it’s also much more possible than many people think.

3. Throw Every Windfall and Spare Dime at It

Tax refunds, monetary gifts, bonuses, cash-back rewards cards, even that annual raise – every time you find yourself with “extra” money, put it toward your down payment.

If it’s too hard to save larger chunks of money, save your “change.” Although there’s no shame in raiding the couch cushions or the console of your car, you can still apply the concept of “spare change” to your automated finances. Enroll in bank programs and apps that automatically round up debit transactions to the nearest whole dollar, transferring the difference into your designated savings account. You could also adopt the popular $5 rule – every time you get this (or another chosen amount) in change, it goes toward your down payment fund.

Check out First Financial’s Save Your Change Program – get started today!

4. Liquidate, But Don’t Rob Yourself

Carefully consider liquidating stocks, bonds, CDs or other non-cash assets if you own them. However, this does not include retirement accounts. As tempting (and allowable) as it is, borrowing from your future security could turn into robbing from yourself, not to mention taking these funds out early often will lead to having to pay penalties and taxes on it. Definitely not worth it!

There’s no way around it: saving money for a down payment takes planning, sacrifice, and time, but the reward will be worth the effort.

Stop into any First Financial branch and we can help you with your home buying journey. We provide great low rates and offer a variety of Mortgage options – to speak with First Financial’s lending department, call us at 732.312.1500 option 4.* 

*A First Financial membership is required to obtain a mortgage and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties. Subject to credit approval. Credit worthiness determines your APR. 

Article Source: Jessica Sommerfield for MoneyNing.com

 

How to Get the Best Mortgage Rate

conceptual image with piggy bank, coin and house

Credit score

The MOST important thing is your credit score. If your credit score isn’t good, not only will you not get a good deal, but you probably won’t even get approved. So the key here is to have a high credit score. The higher the score the better your rate.

Compare

Once you start looking for a mortgage, don’t get set on the first one you find. It’s better to shop around. There are tons of choices out there, so do your research and figure out what’s best for you. Make sure you compare not only interest rates, but fees as well.

Down payment

If you don’t have the money for a 20% down payment, there are mortgages available with lower down payment requirements, but you’ll have to purchase mortgage insurance and you’ll probably get a slightly higher interest rate too. If you’re only planning on staying in the house for a few years, this may not be as important for you.

Need help calculating if you can afford to buy a home or what your monthly payments will be based on what you put down? Check out our free mortgage calculators at firstffcu.com!

Debt-to-income ratio

Lenders will focus on how much your current gross income is going toward ongoing debt, so try and keep this ratio as low as possible. If you have any debt that is within reach of being paid off before you apply for a mortgage, definitely put some extra money on it and get it paid off.

Income stability

Lenders like to see a steady job history. If you’ve been in your job for at least a couple of years, you’re probably good to go. If you’re self-employed, the lender will probably want to see a few years’ worth of tax returns to make sure you have a solid stream of income coming in.

Stop into any First Financial branch and we can help you with your home buying journey. We provide great low rates and offer a variety of Mortgage options – to speak with First Financial’s lending department, call us at 732.312.1500 option 4.* 

*A First Financial membership is required to obtain a mortgage and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties. Subject to credit approval. Credit worthiness determines your APR. 

Article Source: John Pettit for CUInsight.com

 

7 Signs You Can’t Afford to Buy a Home

House made of woman hands isolated on dollars background

Making the leap from renting to buying is thrilling and liberating — for many, it signifies the realization of “the American Dream.” Buying a home is also a long-term commitment, and one that requires strong financial standing. If any of these signs strike a chord, you may want to delay taking on a mortgage in the near future.

1. You have a low credit score.

Before considering home ownership, you’ll want to check your credit score, which you can do through free sites like Credit Karma, Credit.com, or Credit Sesame.

“The higher your score, the better the interest rate on your mortgage will be,” writes personal finance expert Ramit Sethi in “I Will Teach You to Be Rich.” Good credit can mean significantly lower monthly payments, so if your score is not great, consider delaying this big purchase until you’ve built up your credit.

2. You have to direct more than 30% of your income toward monthly payments.

Personal finance experts say a good rule of thumb is to make sure the total monthly payment doesn’t consume more than 30% of your take home pay.

“Any more than that, and your finances are going to be tight, leaving you financially vulnerable when something inevitably goes wrong,” write Harold Pollack and Helaine Olen in their book, The Index Card. To be fair, this isn’t always possible. While there are a few exceptions, aim to spend no more than 1/3 of your take home pay on housing.

3. You don’t have a fully funded emergency savings account.

And no, your emergency fund is not your down payment.

As Pollack and Olen write, “We all receive unexpected financial setbacks. Someone gets sick. The insurance company denies a medical claim. A job is suddenly lost. However life intrudes, the bank still expects to receive their monthly mortgage payments. Finance your emergency fund. Then think about purchasing a home. If you don’t have an emergency fund and do own a house, chances are good you will someday find yourself in financial turmoil.”

Certified financial planner Jonathan Meaney recommends having the equivalent of a few years’ worth of living expenses set aside in case there is a job loss or other surprise. “Unlike a rental arrangement with a one or two year contract and known termination clauses, defaulting on a mortgage can do major damage to your credit report,” he tells Business Insider. “In addition, a quick sale is not always possible or equitable for a seller.”

4. You can’t afford a 10% down payment.

Technically, you don’t always have to put any money down when financing a home today, but if you can’t afford to put at least 10% down, you may want to reconsider buying, says Sethi.

Ideally, you’ll be able to put 20% down — anything lower and you will have to pay for private mortgage insurance (PMI), which is a safety net for the bank in case you fail to make your payments. PMI can cost between 0.5% and 1.50% of the mortgage, depending on the size of your down payment and your credit score — that’s an additional $1,000 a year on a $200,000 home.

“The more money you can put down toward the initial purchase of a home, the lower your monthly mortgage payment,” Pollack and Olen explain. “That’s because you will need to borrow less money to finance the home. This can save you tens of thousands of dollars over the life of the loan.”

Need help calculating if you can afford to buy a home or what your monthly payments will be based on what you put down? Check out our free mortgage calculators at firstffcu.com!

5. You plan on moving within the next five years.

“Home ownership, like stock investing, works best as a long term proposition,” Pollack and Olen explain. “It takes at least five years to have a reasonable chance of breaking even on a housing purchase. For the first few years, your mortgage payments mostly pay off the interest and not the principal.”

Sethi recommends staying put for at least 10 years. “The longer you stay in your house, the more you save,” he writes. “If you sell through a traditional realtor, you pay that person a fee — usually 6% of the selling price. Divide that by just a few years, and it hits you a lot harder than if you had held the house for ten or twenty years.” Not to mention, moving costs can be high as well.

6. You’re deep in debt.

“If your debt is high, home ownership is going to be a stretch,” Pollack and Olen write. When you apply for a mortgage, you’ll be asked about everything you owe — from car and student loans to credit card debt. “If the combination of that debt with the amount you want to borrow exceeds 43% of your income, you will have a hard time getting a mortgage,” they explain. “Your debt-to-income ratio will be deemed too high, and mortgage issuers will consider you at high risk for a future default.”

7. You’ve only considered the sticker price.

You have to look at much more than just the sticker price of the home. There are a mountain of hidden costs — from closing fees to taxes, that can add up to more than $9,000 each year, real estate marketplace Zillow estimates. And that number will only jump if you live in a major US city.

You’ll have to consider things such as property tax, insurance, utilities, moving costs, renovations, and perhaps the most overlooked expense: maintenance. “The actual purchase price is not the most important cost,” says Alison Bernstein, founder and president of Suburban Jungle Realty Group, an agency that assists suburb-bound movers. “What’s important is how much it’s going to cost to maintain that house,” she tells Business Insider.

Stop into any First Financial branch and we can help you with your home buying journey. We provide great low rates and offer a variety of Mortgage options – to speak with First Financial’s lending department, call us at 732.312.1500 option 4.* 

To receive updates on our low mortgage rates straight to your mobile phone, text FIRSTRATE to 69302 and each time our mortgage rates change, we’ll send you a text message with the new rates.** We’re here to help you achieve your financial dreams!

*A First Financial membership is required to obtain a mortgage and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties. Subject to credit approval. Credit worthiness determines your APR. **Standard text messaging and data rates may apply.

Article Source: Kathleen Elkins for Business Insider, http://www.businessinsider.com/signs-you-cant-afford-to-buy-a-home-2016-4

6 Reasons to Take Out a Smaller Mortgage Than You Qualify For

Money house on white background

Whether you’re buying your first home or your fifth, being approved for a larger-than-expected mortgage can be intoxicating. But qualifying for a big loan isn’t the same as being able to afford it — and you don’t want your biggest asset to ruin your finances.

Look at what happened during the Great Recession: Believing their homes would appreciate in value, many people borrowed more than they could handle. When their homes lost value instead, those homeowners were stuck with underwater mortgages — loans that exceeded their home’s worth. This made it impossible for many to refinance or sell their homes for a profit, and led to a flood of foreclosures.

Before you sign up for a mortgage, ask yourself “How much house can I afford?” Many financial advisors and consumer advocates recommend that you borrow less than you qualify for. These are a few of the reasons why.

1. You’ll lower your risk of missing a payment. If your housing costs are on the edge of what you can afford, “the odds of not being able to make payments in the event of an economic emergency or a job loss is much too high,” says Casey Fleming, a mortgage advisor with C2 Financial Corporation and author of “The Loan Guide: How to Get the Best Possible Mortgage.”

Missing a mortgage payment can have a domino effect on your finances. “If you are at risk of missing a payment,” Fleming says, “you are at risk of being in default, risk of ruining your credit, and risk of foreclosure, which would wipe out your investment in the home.”

To ensure that the home you’re considering is within your budget, take all housing costs into account, including your mortgage payments, property tax payments, insurance premiums, maintenance costs and, if applicable – homeowners association fees.

2. You’ll be prepared for emergencies. Life can be rough – you might lose your job or face a medical emergency that drains thousands from your savings. You might have to move before you’re able to build significant equity in your home.

“Many people are on the razor’s edge when it comes to being able to tolerate any kind of economic disruption in their life,” says Brian Sullivan, a supervisory public affairs specialist with the U.S. Department of Housing and Urban Development.

Close to half of all American households don’t have enough savings to stay above the poverty line for three months if they lost their income, according to recent findings from the Corporation for Enterprise Development.

Getting a smaller mortgage than you qualify for will allow you to stash away extra money so you can handle hardships. Experts advise keeping enough money in your savings to cover six months of living expenses. You should also be saving for life after retirement.

“If all of your money is going to your monthly housing costs, then you aren’t able to invest in your retirement accounts or other savings,” Fleming says. “The closer you are to the maximum qualifying mortgage, the closer you are to having too little disposable income and inadequate reserves.”

3. You can more easily afford other costs. Part of the fun of owning a home is filling it with things you want and need. If you have children, you might need to set aside money for college. Let’s also not forget the costs of fixing a leaking roof or a busted water heater.

If you have to make other debt payments on credit cards, auto or student loans — it’s in your best interest to opt for a smaller monthly mortgage payment, and put your savings toward these expenses.

4. You can avoid using your home like an ATM. When less of your monthly budget is taken up by the mortgage, you’ll have more disposable income and be less tempted to use a cash-out refinance— the process of replacing your current mortgage with a larger one and pocketing the difference to buy a new car or pay off credit card debt.

A cash-out refinance can be risky because you’re putting your home on the line. If you miss a few credit card payments, you won’t lose your home. It’s another story when you can’t make higher mortgage payments after a cash-out refinance. “A home is shelter first and foremost, as opposed to an ATM for wealth creation,” HUD’s Sullivan says.

5. You’ll be prepared if property taxes rise. “You don’t know what will happen to property taxes in the future, which affect your mortgage payment,” says Lorraine Griscavage-Frisbee, deputy director of the Office of Outreach and Capacity Building at HUD. Depending on where you live, property tax rates may increase annually.

“Many municipalities tie taxes on their properties to the current value of the home. If someone is maxed out on their mortgage payment, they may not have any wiggle room if next year the tax bill goes up because of appreciating property values,” Griscavage-Frisbee says.

6. You can decrease your risk of having an underwater mortgage. Your home’s value isn’t guaranteed to increase over time. If it drops and you don’t have enough equity built up, you could end up owing more than the house’s market value, which is sometimes called having negative equity.

Over 4 million homes were in negative equity positions at the end of 2015, according to a report by real estate industry research firm CoreLogic. That’s an improvement compared with conditions immediately after the last housing bust, but Fleming says it’s still dangerous to count on home appreciation.

“If real estate values rise dramatically, it may work out well in the end anyway, but it seems very dicey to put all your eggs in one basket. If it doesn’t work out, you could end up with no assets at all,” he says.

A borrowing rule of thumb:
So how much should you borrow? Your debt-to-income ratio — the percentage of your pre-tax income that goes toward mortgage and other debt payments — is one way to figure out how large your loan should be. Professionals say 28% is a safe target.

You can also use a mortgage calculator, like our free mortgage payment calculator at firstffcu.com – to see what you might pay and be able to afford each month. In some cases, it does make sense to borrow what you qualify for. We also have a mortgage qualifier calculator at firstffcu.com. If you have a high income, plan on staying in your home for at least seven years, are buying in a competitive market, or have sky-high rent payments, there is some flexibility in the 28% rule. But if you can go lower than 28%, you should. That way, you’ll be more likely to feel comfortable — financially and otherwise, living in your home.

Stop into any First Financial branch and we can help you with your home buying journey. We provide great low rates and offer a variety of Mortgage options – to speak with First Financial’s lending department, call us at 732.312.1500, option 4.* 

To receive updates on our low mortgage rates straight to your mobile phone, text FIRSTRATE to 69302 and each time our mortgage rates change, we’ll send you a text message with the new rates.** We’re here to help you achieve your financial dreams!

*A First Financial membership is required to obtain a mortgage and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties. Subject to credit approval. Credit worthiness determines your APR. **Standard text messaging and data rates may apply.

Article Source: Michael Burge for Nerd Wallet, http://www.huffingtonpost.com/nerdwallet/6-reasons-to-take-out-a-s_b_11077442.html

5 Foolish Mistakes First-Time Home Buyers Make

buying-house-without-realtor

Buying a home is exciting, especially when you’re buying for the first time. In the midst of all of the excitement, it’s easy to become blinded by beautiful back-splashes, granite and quartz counter tops, hardwood floors, and fenced-in backyards. While looking at homes that are completely perfect from top to bottom, you may begin to rationalize a larger purchase than you had originally planned for — “This house is perfect for me; it’s worth $50,000 extra dollars for me to have a house with enough space in a perfect location,” or “We were planning on spending a little bit of money on painting; we can spend $50,000 extra on this house because it doesn’t need any work.” These are some common mistakes first-time homebuyers often make – so be careful to avoid them if you are about to buy your first home.

1. Overspending

Before you even look at a single property, you need to know exactly how much you can afford. We have several online financial calculators you can use, but these tools are only estimates. Use these tools as a guide, but then adjust the amount based on your individual situation. How much is your current rent payment? Did you meet that payment each month with ease, or was it a bit of a struggle each month? The payment you can afford right now is a good indicator of what you’ll be able to afford in your new home.

Meet with a lender and get pre-approved for an amount you can afford. Also, keep in mind that it’s always better to lean towards a lower amount, rather than a higher amount. You do not have to use the entire amount you’re pre-approved for. Once you know how much you have to work with, then and only then should you start your house hunt.

2. Counting chickens before they hatch.

When determining how much mortgage you can afford, base this amount on what you are earning today. That is, the income that you and your spouse earn from stable sources. If you’re in your last year of law school, for instance, don’t assume that you will be earning much more money in a year or two, so you can afford a larger payment. If your wife is expecting a big promotion, don’t base your mortgage payment off of her potential salary increase. No one can predict the future, and although you may very well be in a better financial situation a year down the road, there is no guarantee.

3. Failing to account for closing costs, property taxes, HOA, and homeowner’s insurance.

When you rent a home, you generally only have one payment — rent — and then maybe renter’s insurance, which is optional. When you buy a place, your mortgage payment is only the beginning of an array of costs. Homeowner’s association fees can be as low as $0 or as high as a few hundred dollars per month, depending on where you live and the amenities and services offered.

Homeowners insurance and property taxes very based on your geographic location. Florida has notoriously high homeowner’s insurance rates, where they average $161.08 per month. In Idaho and Wisconsin, rates are a bit lower, averaging below $50 per month, according to Value Penguin. Property taxes average higher in New Jersey, New Hampshire, Texas and Wisconsin and they’re lower in Louisiana, Hawaii, and Alabama.

Then on top of all of those costs, if your down payment is less than 20 percent of the selling price, you may end up paying an additional cost — private mortgage insurance (PMI) — which is basically insurance for the lender in case you default on your loan. At the end of it all, your $800 mortgage payment can easily turn into a $1,200 house payment.

4. Failing to protect yourself with home inspections, contingency clauses, etc.

During your house hunt, you may find a house that looks great at first glance. Then, as you walk through a few of the rooms, you notice problems with the house — maybe the floors squeak or the kitchen island is off-centered. After walking through the house, you come to realize that someone simply put lipstick on a pig, and this house is in questionable shape.

Home inspections provide you with some protection. The inspector will be able to find problems that you can’t and you want to know these problems before you sign on. “The seller isn’t likely to tell you there’s mold in the basement or the walls are poorly insulated,” reports MSN.

Contingency clauses also offer a form of protection. “A mortgage financing contingency clause protects you if, say, you lose your job and the loan falls through or the appraisal price comes in over the purchase price. Should one of these events occur, the buyer gets back the money used to secure the property. Without the clause, the buyer can lose that money and still be obligated to buy the house,” explains Justin Lopatin, a mortgage planner with American Street Mortgage Co.

5. Being too naive or too paranoid.

Some first-time home buyers are naive. Overly optimistic, they think nothing could possibly go wrong. If a home has a few problems, they view them as easy fixes and are unrealistic when it comes to the cost and time it takes to fix up the home. Some naive buyers will move to a neighborhood on the wrong side of town, forgetting that you can fix up a house, but you can’t change your neighborhood or location without moving.

Paranoid buyers can be difficult to work with. They may not believe the price is an accurate assessment of the house’s market value. They may submit low offers which can be consistently rejected. Paranoid buyers may not trust real-estate agents, and may even try to buy their home without an agent, which is generally an unwise choice.

Stop into any First Financial branch and we can help you with your home buying journey. We provide great low rates and offer a variety of Mortgage options – to speak with First Financial’s lending department, call us at 866.750.0100 option 4.* 

To receive updates on our low mortgage rates straight to your mobile phone, text FIRSTRATE to 69302 and each time our mortgage rates change, we’ll send you a text message with the new rates.** We’re here to help you achieve your financial dreams!

*A First Financial membership is required to obtain a mortgage and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties. Subject to credit approval. Credit worthiness determines your APR. **Standard text messaging and data rates may apply.

Original article source by Erika Rawes of Wall St. Cheat Sheet.

 

The Best Times to Buy, Sell, or List a Home

selling-home-vegasA common question from a buyer or seller is: what is the best time to buy or sell a home?

In the clothing world, it makes sense to get the best “deal” on winter clothes at the end of winter and that you likely will pay top dollar for a swimsuit when it’s warmer. Does the same trend hold true for real estate purchases and sales? Not really. But there are some considerations a buyer or seller should make as they enter the market that could have an impact on the transaction.

Spring and fall are better times for buyers.

Let’s be clear. You can’t ever time a home purchase. Buying a home isn’t like buying a car or an iPad. The home buying process is a journey, one that happens on your own time and only after you’ve done enough research, seen enough homes, and have your financial house in order.

At any one time there is a brand-new buyer entering the market and then another who has done enough research and becomes a very serious buyer. Nobody can control the evolution, but something for a buyer to consider is that real estate inventory tends to fluctuate by season. Each spring and fall we tend to see an increase in home inventory, and more inventory means more options for buyers.

Holidays and winter are the best times for sellers.

It’s not conventional for a seller to list their home before the holidays or in the dead of winter for obvious reasons, but serious buyers don’t care about the season or timing. At any one point of the year, there will be a very motivated, experienced buyer ready to make an offer, no matter the season. There have been contracts written on Thanksgiving, escrows closed on New Year’s Eve and there are even serious buyers who have made offers using DocuSign from a beach in Hawaii.

Sellers believe that it’s more conventional to list for the spring “selling” season and then again after the summer. If you go the conventional route, you will see more competition. If you can sell “off season,” you might fare better because there are still serious buyers, but less homes for sale.

Best time to list a home.

The Sunday open house, particularly the first Sunday of the month, is the holy grail of real estate.

For decades, agents and sellers worked hard on a listing with a deadline being the first open house. The “for sale” sign, which made the listing official a generation ago, would go in front of the house days leading up the first open house. In the digital age, the listing goes “live” online.

Sellers and agents work hard to clean, paint, or prep the home in time for the photo shoot. Agents and sellers tend to rush to the finish and you will see many listings hit the market late Thursday afternoon or Friday morning, with Sunday being the first showing. Instead, try listing on Monday or Tuesday and don’t do any showings until the open house on Sunday. You can build momentum and have a very strong first open house.

As much as buyers and sellers try to strategize the timing of a real estate purchase or sale, it’s never that easy. Unlike Macy’s or Target, who control inventory and monitor competitive activity, there isn’t one seller in real estate. Sellers are unrelated and disconnected and the types of homes are different making it nearly impossible to “time” a purchase or sale.

If you’re looking to purchase or refinance a home, First Financial has a variety of options available to you, including 10, 15, and 30 year mortgages. We offer great low rates, no pre-payment penalties, easy application process, financing on your primary residence, vacation home or investment property, plus so much more! For rates and more information, call us at 866.750.0100, Option 4 for the Lending Department.*

You can also sign up for our Mortgage Rate Text Messaging Service to receive updates on our low mortgage rates straight to your mobile phone. To be a part of the program, text FIRSTRATE to 69302 and each time our mortgage rates change, we’ll send you a text message with the new rates.** 

*A First Financial membership is required to obtain a mortgage and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties. Subject to credit approval. Credit worthiness determines your APR.

**Standard text messaging and data rates may apply.

Article source by Zillow on Fox Business.