Additional costs to purchasing a home

This was originally published on Monday, December 10, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

When settling the purchase of a home, closing costs are charged to both the buyer and the seller to compensate the parties involved in funding, approving and insuring the sale. They are not included in the purchase price of the property. Before closing on your home, discuss what your closing costs are and how much the additional fees will total.  Here are more closing costs that you could be responsible, in addition to your final purchase price.

Loan origination fee. This fee covers the lender’s administrative costs of preparing the required documents for the loan and the closing paperwork. The average cost of the fee is usually 1 percent to 2 percent of the loan amount.

Pest inspection.  This fee covers the cost to inspect for termites or dry rot, which is required in some states and required for government loans. Repairs can get expensive if evidence of termites, dry rot or other wood damage is found.

Private mortgage insurance. Depending on how much of a down payment you make, you may be required to purchase private mortgage insurance. In most cases, it will be rolled into your monthly mortgage payment. Your loan provider usually requires you to have private mortgage insurance to protect lenders against loss if a borrower defaults.

Recording charges. State and local governments charge this fee to record your deed, mortgage and loan documents regarding the sale.

Survey fee. A survey is a drawing or map showing the precise legal boundaries of a property and other details. If an existing survey of the land can’t be obtained, a new survey will have to be conducted. Your lender may require you to have the land surveyed to ensure the boundaries are where they are supposed to be and there are no legal issues.

Title insurance. On Guam, it’s common for property to be passed down from generation to generation without being recorded or going through the proper legal channels. Title insurance ensures the property you are buying is free and clear of any claims, taxes or property disputes.

Transfer taxes. This is the tax paid when the title passes from seller to buyer.

Underwriting fee.  This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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Don’t forget about closing costs when buying a home

This was originally published on Monday, December 3, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

When calculating your mortgage, there is more to think about than just the down payment and the total mortgage payment. Most financial advisers calculate the average closing cost to be anywhere between 2 to 5 percent of the home value. Closing costs are fees that are associated with the purchase of your home. Closing is the point in time during your home purchasing process where the title of the property is transferred from the seller to the buyer. The cost of closing can be incurred by the buyer or the seller, or both.

The costs associated with the closing process are based on the property purchased and the type of loan you.  Here are some common fees that may be included in the closing of your home.

Application fee.  This fee covers the cost of the lender to process your application.  Sometimes it will cover the cost of running your credit check.

Appraisal fee. Lenders will require a potential buyer to hire an appraiser to determine the fair market of the home.   They consider similar properties in the area, market trends, house amenities, square footage, defects, and structural concerns.  The fee is usually paid by the buyer prior to the sale being finalized.  The appraised value could greatly impact your down payment, loan terms, monthly payments and, in some cases, even your ability to buy that house.

Attorney fee:  This pays for an attorney to prepare and/or review your closing documents and is not always required.  The attorney can work on the behalf of the buyer and lender.

Closing or escrow fees. An escrow company is a third-party that will hold the money while the buyer and seller finalize the contract. The escrow company will is the intermediary between the buyer and the seller. Generally, you’ll have a portion of the monthly mortgage payment held in escrow to pay for property taxes and insurance.

Credit report fees. Some loan institutions will charge a fee to check your credit history.

Down payment. The amount you contribute to your home will determine how much your total mortgage loan will cost. Depending on the type of loan you receive, you may be required to have up to 20 percent of the home’s sale price, in cash as a down payment.

Home inspection. You may decide to hire a home inspector to look at the integrity of the home. They will verify the condition of a property and determine if repairs are needed before purchase.  Hiring a home inspector works in your favor as the buyer.  They can spot costly repairs that may sway your decision. Also as the buyer, you can request the price be lowered or negotiate with the seller to fix any defects before you purchase the home.

Homeowner’s insurance. Many banks require a homeowner’s insurance policy be purchased before closing on the home. The policy covers personal liability and hazard insurance to cover the home and the contents. It may also cover special conditions which your house may be exposed, such as typhoon, flood or earthquakes. Ensure you read your policy carefully and understand exactly what it covers.  Your first year’s insurance is often paid at closing.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

Securing a mortgage

This was originally published on Monday, November 26, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Obtaining a mortgage is a crucial step in the home buying process. Securing a mortgage pre-qualification and a pre-approval are part of that crucial step. However, getting pre-qualified is much different than getting a pre-approval. So, before you start shopping for your home, it is important to know the difference between being pre-qualified and pre-approved for a mortgage.

Pre-qualification.  When a lender has evaluated your creditworthiness and decides that you will be eligible for a mortgage, you are being pre-qualified. To get pre-qualified you provide your lender some basic financial information and get an idea of what will be the maximum amount that you qualify. This amount is an approximation and not a promise of how much you can receive. A pre-qualification does not require a mortgage application. Usually, you do not have to pay a fee to receive a pre-qualification and it does not require a credit history check. Lenders do not consider the amount you will use as a down payment and will give you an estimated amount. Some lenders will provide interest rate information.

Pre-approval.  A pre-approval is a letter from a lender that states you qualify for a specific mortgage amount based on all your financial information such as your credit report, salary, assets, financial obligations, and your bank statements. Unlike a pre-qualification, a pre-approval requires that you submit a mortgage application. Most of the time, a fee is required to process the pre-approval. Lenders will consider how much of a down payment you will put toward your mortgage and give you a very specific amount that they will approve. Along with your pre-approved amount, lenders will also give you the interest rate.

By getting a pre-approval letter you receive a very clear snapshot of the houses you can afford. It will help eliminate houses that are not within your price range, therefore saving you time and effort. You will not have to keep going back to your lender to get an approval every time you find a home that interests you.

The best time to get pre-approved is before you even start house hunting. There is no need to get your heart set on a home you are unable to afford. Most pre-approvals are good for 60 to 90 days. Be careful, if your pre-approval expires, you will have to go back to your lender and request another one, which will place another inquiry on your credit report. This process will bring your credit score down and you may not be approved for the same amount. Before going to the back, check with your lender on what documents will be needed. Most lenders require you to show W2 forms from the past two years, three months of pay stubs, last two years of your personal tax returns, your Social Security Card, and your monthly debt and living expenses. If there is more than one person on the mortgage, each borrower will need to provide the same information.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Right steps to buying a home

This was originally published on Monday, November 19, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

As the year is quickly coming to an end, it is time to start thinking about your personal financial goals. If buying a house is something that you are working toward you should know your options and the right steps to the journey of your new home. Buying a home is a huge investment and will probably be the most significant purchase of your life.  Before you start down the road to homeownership, here are a few steps to take into consideration.

Improve your credit score. Before even beginning your search for your dream home, it is imperative to know your financial health. It is important to know what your credit score is to determine if you qualify for a loan and to secure the lowest mortgage rate. In some cases, just a half a point difference in your credit score can translate to tens of thousands of dollars saved. Credit score greatly affects the amount of interest you will pay. Many lenders will approve a minimum score of 600, if your credit score falls below 600 consider raising your credit score before applying for a loan. Most lenders consider scores from 550 and below as bad, 550 – 649 as poor, 650 – 699 as fair, 700 – 749 as good, and 750 and above as excellent.

Decide what you can afford. When calculating what you can afford, consider your household income, monthly debts (for example car loans, utilities, and credit card payments), and the amount of available savings for a down payment. It is vital to have a certain level of comfort. A good rule is to have at least three months of your mortgage and monthly expenses in reserves. Your bank will use a calculation called your debt-to-income (DTI) ratio to decide the amount of mortgage you can borrow. Your DTI is calculated by taking your total monthly debt and dividing it by your total monthly pre-tax income. The ratio or percentage you get is your DTI. Your total monthly spending for housing and debts should not exceed 36% of your monthly income.

Start saving for the down payment. A down payment is the cash you pay upfront and is deducted from the total amount of your mortgage. You can purchase a home with as little as 3% down. The optimal down payment is 20 percent so if your home costs $300,000, your down payment at 20 percent is $60,000. That is a lot, but you will receive a better interest rate, have more equity in your home upfront, and pay lower monthly payments.

Have a healthy savings account. Your lender will want to know that you are not living paycheck to paycheck. If you have at least three months’ worth of your mortgage set aside, you are more attractive to lenders. Lenders will give you more leeway on other criteria if they see that you have a sizable cash cushion.

Get a pre-qualified. A pre-qualification from your lender gives you an idea of how much house you can afford. Your pre-qualification is issued after your lender has evaluated your financial history which is based on your credit report and score. A pre-qualification also gives you a leg up when shopping for a home especially when there are other interested buyers.

Purchase your home. Take time and shop around for a house. Be certain that the house you are considering is the one that fits your family’s needs.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Housing loan options for veterans

This was originally published on Monday, November 12, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Today we honor those who served in the military. When our service members, veterans and eligible surviving spouses are considering buying a home, the Department of Veterans Affairs has a program to assist them. The home loan guaranty program can assist in purchasing, building, and repairing a home. The loan is provided by private lenders and the VA will guarantee a portion of the loan. The program also helps those eligible with more favorable terms.

In researching this column, I asked a friend about some of the programs available. The benefits of a VA Home Loan Guarantee help those eligible purchase a home with competitive interest rates usually without a down payment. The VA also provides assistance when the borrower has difficulties renting their property or is trying to avoid foreclosure. If the VA home loan is in jeopardy, those eligible can apply for an Interest Rate Reduction Refinance Loan, IRRRL. An IRRRL can only be made to refinance a property on which a VA loan was used to purchase the home. The VA also has a cash-out refinance option that allows veterans to take out cash out of your home equity to take care of concerns like paying off debt, funding school, or making home improvements.

Eligibility for VA home loan

Eligibility for the VA home loan depends on years of service, duty status, and character of service. For those that have certain total and permanent disabilities that are related to their military service, the VA has a loan that can help you adapt your home to your disabilities through their Adapted Housing Grants. Veterans must have satisfactory credit, sufficient income and a valid Certificate of Eligibility, or COE. A COE verifies to the lender that the veteran is eligible for the VA-backed loan. The COE can be obtained through the VA’s eBenefits website at www.ebenefits.va.gov or through the lender. You can also request a COE through the mail as well. The home must be for the borrower’s personal occupancy.

On Guam, the VA home loan limit for Jan. 1, 2018, through December 31, 2018, is $679,650. There are several banks on island that honor VA loans. The VA has certain requirements to be eligible for the VA loans programs. They can be found at the VA’s website, www.benefits.va.gov.

I thank service members and the families for all that you have done to keep our nation safe. Happy Veterans Day.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Have a clear financial plan for retirement

This was originally published on Monday, November 5, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

You have planned for many years and it is finally here. Retirement is a time for tremendous change and it is important to prepare your thoughts and expectations of the retirement life you desire. Do you want to travel, spend time with family who are off island, or maybe take on a new hobby? To achieve your retirement dreams, you should have a clear financial plan.

Consolidate.  Throughout your career, you may have accrued numerous retirement accounts. By consolidating your accounts, you could reduce the fees that you pay. It also gives you a comprehensive picture of your true retirement finances.

Withdrawals.  Take the time to understand when it is beneficial to start withdrawing from your retirement accounts. You do not want to withdraw too much or too early.  Create a plan that has the dates that reduce your fees and maximizes your savings.  The same goes for your Social Security benefits. If you can hold off until 70 years of age, you should consider it.

Income.  If you would like to supplement your retirement income, consider working part time. Retirement is a great way to turn a hobby or passion into a part-time job. Money that you bring in will reduce your withdraws. If possible, live off the income of your accounts and leave the principal amount to continue to earn interest. Do not overspend.  It is tempting to travel and enjoy retirement. Spread out your large spending events to let your savings build back up.

Downsize.  Now that the kids are living on their own you may not need the large house.  Moving into an apartment or condo can be a smart choice. It could reduce your utility bills and the sale of your home may also add to your retirement income. Think about the benefits of living in a condo or an apartment such as lawn care, maintenance, and accommodations. Accommodations can include a pool, gym, laundry and recreational areas. You may also want to consider moving to an area where the cost of living is much lower, and healthcare is more affordable. If you and your spouse are both retired, perhaps you do not need two vehicles.

Portfolio.  Ensure that your portfolio is not too aggressive or too conservative.  Retirement is not the optimum time to be aggressive with your portfolio. On the other hand, being too conservative is not a good idea either. Being too conservative may keep your portfolio from growing enough to cover your needs. You also want to diversify your portfolio smartly to keep from loosing money when an investment does not perform as well.

Estate.  Keep your will, trust, living will and power of attorney up to date. Decide who will inherit your assets. Identify the people who will carry out your wishes. Not having a will is costly to your heirs and your assets could be used in ways you didn’t intend.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

What you need for retirement

This was originally published on Monday, October 28, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

With retirement on the horizon, hopefully, you have been saving to live the retirement life you did not have time to live while you were working. If you are getting close to retiring, be sure you are ready before making the decision to retire. You should take into consideration how much you have in savings versus your retirement saving goals.

How much do you need? Create a retirement budget. Will you have enough saved to continue the lifestyle you are living now? Are you eligible for military or other pensions?  How much will you be receiving from Social Security? You may want to consider a part-time job after you retire. If the shortfall is larger than you expected, you may not be ready to retire. If you want to know how much you may receive from Social Security, you can go to https://www.ssa.gov/OACT/quickcalc/.

You can take money out of your retirement at any time, but be aware you will be penalized by being heavily taxed. Once you reach the age of 59 ½ you will not be penalized to withdraw but at the age of 70 ½ years, you are required to start withdrawing from your traditional individual retirement account. If you have a Roth IRA, there is no time limit to when you must start withdrawing from your account. If you have a pension from being in the military or worked as a federal or local civil servant, your disbursement may be reduced to compensate for your Social Security.

Timing.  The time at which you retire makes a huge difference, especially when you start collecting your Social Security. You can start collecting Social Security at 62 years of age, but you can hold off until you are 70. Those several years can add several hundred dollars to your monthly Social Security check. Also, take into consideration inflation. A $100 today is going to be worth a lot less in 15 or even 30 years from now.  By working a few more years you can also increase your nest egg.

Healthcare.  If you are retiring early, remember that you will need healthcare before you are eligible for Medicare at 65. Does your employer have health benefits for retirees? If not, do your research to find the best healthcare possible. You may have to get a physical evaluation and disclose any medical conditions you have. If you are in great health, the costs will be much lower than someone whose health is not as good.

Family.  If you are married or still have minor children when you retire, be sure to talk with them about any financial changes that may happen. Be sure you are all on the same page and that you are willing to work together to stay on budget.

Plan your estate.  No matter your assets, be sure that you have at least a will.  Consider getting a living will and a healthcare proxy to ensure your wishes are respected in the event that you are incapacitated and no longer able to communicate or make decisions.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.