5 Things to Consider Before Buying a Home
Buying a home can be an overwhelming process, and it’s easy to forget something on your checklist. If you’re a first-time buyer, chances are you’re learning a lot of stuff for the first time. To help make this process easier, here is a list of things you should watch out for, just in case you forgot one.
1. The neighborhood.
This is really important because it determines the value of your home years from now. Many new home buyers are excited to find a home with everything they need, but forget to check the surrounding area. When you’re buying a home, spend some time and walk around the neighborhood. Is this house near a rough area? If so, years from now – the bad neighborhoods might spread into your area.
2. Talk to the neighbors before buying.
There are plenty of little things neighbors can tell you about the area. Be sure to ask them what they don’t like, because it’s always better to find out ahead of time which neighbors never mow their lawns, and which ones are the loudest.
3. Find a good home inspector.
Get recommendations from people you know and trust, because a detail oriented inspector can spot problems and save you a lot of grief later on, such as after you already own the house.
4. Prepare for extra expenses.
Does the home need a new roof? Take a few grand off the asking price. Are the appliances old? Will you have to replace the furnace or heat pump soon? These are all things you should consider when negotiating the sales price and bidding. If you foresee immediate expenses, this should be taken into account, and addressed with the sellers.
5. Are there issues with the home you can’t change?
While you want to make sure the home is structurally sound – be sure to note the cosmetic factors you can’t change about it, and consider how much those things will bother you later in life. For example, if you’re not happy about the curb appeal of the new home, think about whether you can improve it. If it’s structural stuff that can’t be improved with some trees and flowers, thinking about how much this will bother you years from now.
Those five items make up the crucial list new home buyers can easily overlook when house hunting. Home buying is not only an exciting, hectic, and overwhelming time – it also determines your living situation for years to come. And while nothing really beats the feeling of finally owning your own home, you do have to select carefully to avoid any regrets later.
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FHA Mortgage Down Payments to Remain at 3.5 Percent
In recent years, the FHA has become a vital source of mortgages as private investors have fled the mortgage market. Low current mortgage rates and low down payment requirements make loans insured by the FHA especially attractive to first time home buyers. As much as 80 percent of FHA business is with first time home buyers.
Recently the House Financial Services Committee voted down a measure that would have raised the required down payment for an FHA mortgage from 3.5 percent to 5 percent. This is great news for borrowers who do not have a lot of money for a down payment. If the down payment were to be raised, hundreds of thousands of borrowers would be unable to get an FHA mortgage. The rejected bill would have stopped sellers from putting proceeds from the sale toward a buyer’s closing cost.
The bill was introduced because cash reserves at the FHA are running very low. The FHA is required by law to maintain capital reserves of at least 2 percent of the total value of the mortgages it insures. The high number of defaults brought on by the recession have depleted FHA reserves. Estimates have FHA capital reserves around 0.5 percent. Low cash reserves mean that additional defaults could effectively bankrupt the program.
The Committee did approve a measure that would allow the FHA to raise its annual mortgage insurance premiums. Currently the mortgage insurance premium is 0.55 percent. The agency intends to gradually increase the premium to 1.5 percent.
The FHA also wants to raise minimum down payments to 10 percent for borrowers with credit scores below 580. The FHA contends that these changes will bring capital reserves back to 2 percent relatively quickly. The Congressional Budget Office claims these changes alone will not return cash reserves to the legally required minimum.
The bill still needs to be approved by the House of Representatives and the Senate in order to be passed into law.
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How the Home Affordable Modification Program Works
The $75 billion Home Affordable Modification Program, or HAMP, was launched by the U.S. Treasury Department in February 2009, recognizing the “need to help families keep their homes and to stabilize communities.”
The idea was to encourage private mortgage lenders to modify the terms of loans so homeowners currently in default could afford to make smaller monthly payments. Lenders are not required to participate, but HAMP offers to share in the costs of modifying the loan and provides incentives based on successful loan modifications. More than 110 private mortgage companies have signed on nationwide.
To qualify, borrowers must be in default — defined as 60 or more days late on their mortgage payments — or be at risk of imminent default. The home must be owner-occupied and can’t have an unpaid mortgage balance of more than $729,000.
Under the program, a calculation is made based on a borrower paying no more than 31 percent of their gross monthly income toward the mortgage. Interest rates are then adjusted downward to where payments are low enough to meet the 31 percent standard, with a minimum interest rate of 2 percent.
Also, the term of the mortgage can be extended to 40 years, which reduces the monthly payment further, although a large balloon payment on the remaining principal is due when the loan matures.
Borrowers who qualify then begin a 90-day trial period to show the ability to make three modified mortgage payments. Borrowers who succeed are then offered permanent modifications.
Lenders receive $1,000 from the government for each loan that reaches permanent modification and another $1,000 per year for up to five years as long as the borrower stays in the program.
Lenders also receive one-half the difference between how much borrowers pay at the modified level and what they would have paid on the original loans.
The government also offers several other loan modification programs under the broad Making Home Affordable initiative, including programs for borrowers with second mortgages in default.
For more on HAMP, visit Making Home Affordable.gov
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