The advantages of renting a home

This was originally published on Monday, July 3, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I am considering purchasing my first home. I have been saving up and ensuring my credit score is good enough to be given a low interest rate. This is a big financial step and I want to make sure that I am making the right decision. Do you have any pointers to help me make a sound decision?

You are correct; buying a home is a huge financial undertaking. Homeownership is not for everyone and you have to be certain that you are ready for the long-term responsibility. There are always two sides to the coin — the pros and cons — which need to be taken into consideration before making the decision to be a homeowner. Before we get into buying a home, let’s first discuss a few advantages of renting a home:

Flexibility: In today’s economy, many people struggle to make ends meet. We are never sure where life will take us next.If you fall on hard times it is easier to pack up and move without the stress of breaking free of an expensive house. Renters have the option to downgrade into a more affordable living space at the end of their lease.

Repair and maintenance costs: One of the largest advantages of renting vs homeownership is there are no maintenance costs or repair bills. If your air conditioner stops working or your roof starts to leak, you do not have the financial responsibility for the repairs. You don’t have to spend your weekends fixing clogged pipes. As a homeowner, you are completely responsible for your repairs and maintenance – which can be quite costly.

Special amenities: If you rent an apartment or condo, and even some homes, you likely live in an area that is landscaped. As a renter you may have access to amenities such as a swimming pool, fitness center or playground. If a homeowner wants to match these amenities they can expect to pay thousands of dollars in installation and maintenance costs. Similarly, condo owners may need to pay monthly fees to pay for access to these amenities.

More cash on hand: Renters do not have to pay additional costs such as taxes, homeowners insurance, repairs and maintenance expenses.If a renter obtains renter’s insurance, it is much more inexpensive than homeowner’s insurance. Depending on the size of your rental unit, and the agreement you have with your landlord, your utility costs may be covered with your rent. Apartments and condos are smaller than homes and are usually less expensive to cool.

When purchasing a house with a mortgage, you may be required to have a sizable down payment. Renters however, do not have to have to save up a lot of money to move into a rental property. While the exact amount varies, the total amount is significantly less than you would need to buy a house.

Safety from market fluctuations: Property values go up and down. When the country went through the latest recession, many homeowners were left owing more than the value of their homes. Numerous experts believe that the market has recovered but the number of foreclosures still seems to be quite high.

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 www.moneymattersguam.wordpress.com.

 

Cons of home ownership and renting

This was originally published on Monday, September 12 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Buying a home is a major financial step. Home ownership is a big responsibility and although many try to achieve it, it is not for everyone. As with any big move in your life, you should do some research and investigate the pros and cons. Take into consideration your personal preferences, upcoming plans, and your overall financial status.

Disadvantages of buying a home

  • Long-term commitment. Probably one of the biggest decisions in buying a home is taking on the commitment of being bound to a mortgage. Most mortgages run for 15 to 30 years. Although you may pay off your home sooner, it will still take longer to complete than a rental agreement.
  • Maintenance. When something breaks while you are renting, the landlord is generally responsible to get it fixed and to pay for it. As a homeowner, the responsibility falls squarely on you. Some repairs like fixing a roof or the foundation can be very costly.  Not only do unforeseen repairs cost money but so does the normal upkeep of your home like leaky faucets or air-conditioner maintenance.
  • Additional costs. There are large, upfront costs that are associated when you purchase a home. Costs such as a down payment, title clearance, appraisal services, and other fees should be saved for starting the purchasing process.
  • Furnishing. Most homes, unlike some rental units, do not come fully furnished. If you do not have furnishings when moving into your new home, you may have to save for furniture and appliances.
  • Financial loss. Homes over time start to depreciate. As they get older, houses go through normal wear and tear. New homes generally cost more than older ones. Property value also changes. Sometimes your property value drops depending on the economic factors of your neighborhood.
  • Hidden costs. When renting, your landlord takes responsibility for many of the hidden costs such a property insurance and taxes. As a homeowner these now become your responsibility.
  • Less mobility. A tenant can leave a property after fulfilling their rental term. Homeowners may take longer to find a buyer or renter.

Disadvantages of renting

  • No equity. As a homeowner, every dollar you pay on your principal goes toward building your equity. As a renter every dollar you spend goes to your landlord and does not benefit you.
  • No tax deductions. Homeowners receive an incentive to buy homes through tax deductions at the end of the tax year. Renters generally cannot claim a housing deduction on their yearly taxes.
  • Lease. When you signed your lease you agreed to certain conditions. Some may take away the creative control to create the space you want. Some constraints like no painting or drilling may come with a lease. Some may agree to no pets or keeping the landscaping the way it is. Your lease can impact the freedom you would have as a homeowner.
  • Increased costs. Rental prices generally go up at the end of the lease term. Landlords can raise your rent once your lease term expires.
  • Security. Unless you fall behind on your payments you are pretty much guaranteed a roof over your head.  While most laws protect the renter there are laws that also protect the landlord. With adequate notice your landlord can give you notification to be ejected.

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 www.moneymattersguam.wordpress.com.

Selling a home usually will cost you some money

This was originally published on Monday, March 23, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

When you sell your home the money from the sale will help pay certain costs and fees. This should be factored in, especially if you plan on using the money to purchase another home.

• Commission: Real-estate professionals work on commission. It is the seller’s responsibility to pay the commission on the sale of the home. A typical commission is usually 4 to 6 percent.

• Mortgage: Unless your home is paid off and is free and clear of any liens, you are responsible for paying off all debts on your home. You cannot sell your home unless the property has a clear title. The money from the sale will pay off your original loan first. If you have a second mortgage, any money left will be used to pay it off. If the sale of your home is not enough to cover the complete amount of the second mortgage, you have several options.

The first option is a short sale. A short sale happens when both lending agencies agree to accept less than what is owed. Another option is converting the balance of your second mortgage into a line of credit or an unsecured loan.

Because you paid your loan off early you may have to pay a prepayment penalty. Your lending agency may also charge you a loan payoff fee for all the administrative work associated with the sale

• Recording fees: After your debts have been cleared and you have sold the property you will record this with a government agency. This agency may charge a fee to record and document these changes.

• Escrow fees: Escrow is when a third party is used to complete a monetary exchange between two parties. The buyer and seller sign a purchase agreement and the escrow starts. The escrow ensures all terms are met. The fees usually are paid based on a percentage of the sale price.

• Title search fees/insurance: To ensure that the title is free and clear of any past liens or debts, a title company will research the property’s history through public records. A clear title gives you the legal right to sell the home. The title company offers insurance that their work is free of errors. If a lender is used to help buy a home, the buyer pays for a lender’s title insurance policy. A buyer or property owner may also purchase an owner’s title insurance policy. If an error occurs, the title company is responsible for compensation. Title fees and insurance costs are a onetime payment. A small payment now can save you big in the long run.

• Taxes: Because the selling of your home is an exchange of money for goods there may be taxes that you pay when transferring ownership of the home. If your property tax is not up to date you will have to pay the delinquent taxes and maybe late fees before you can sell the home.

• Notary fees: During the sale of your home you will be inundated with paperwork. Most are official documents and may need to be notarized. If you want official copies of all the paperwork have the documents notarized.

• Other expenses: As a seller you want to make your buyer happy. Sometimes it may mean going the extra mile. Buyers may ask for termite treatment and certification to empty a septic tank or new appliances. These requests must be met before the exchange of money happens so it will be out of pocket. Most of our homes may require painting or minor repairs even before you start the selling process. A little money spent sprucing up the home can translate into more money in your pocket later.

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 www.moneymattersguam.wordpress.com.

Things to consider before you sell a home

This was originally published on Monday, March 16, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

The process of selling your home is not an easy one. There are many steps, documents and local agencies that you will have to work with. Not to mention local laws that you will have to follow. As a seller you can either hire a real estate professional to represent you or you can sell it as “for sale by owner.” There are pros and cons for selling through a real estate professional and selling the home yourself.

Cost — The cost is probably the number one reason most “for sale by owners” decide to sell their home on their own. When using a real estate professional, a commission will be paid on the money from the sale. Generally it is the seller who pays the commission. The commission is usually shared between the seller’s and buyer’s representative. For example, if the commission is 5 percent, the seller’s and buyer’s representative each get 2.5 percent. The percentage of the commission is generally negotiable.

Manpower — It takes a lot of work to go from getting a house ready to be sold to closing the deal. A real estate professional’s sole job is getting your house sold. If you choose not to use a professional, be prepared to take a good amount of time out of your day to run around getting documents, preparing your home, showing your home and other tasks that a real estate professional does. On the other hand, if you have that time on your side it certainly will be worth it when you don’t have to share a portion of the sale.

Knowledge — Real estate professionals must attend a certain amount of classroom hours and pass an exam. This puts them in a position of understanding the market, buyers, and the law. There is more to selling than just advertising and showing your home. Your real estate professional knows what the market is looking for, how to price your home, how to make your home appealing to buyers, and so much more. There are legal and financial risks involved in selling a home. If they are not followed properly, you may end up losing the money you saved by selling it on your own. Unless you really understand the process, having a real estate professional represent you and guide you through the process may be worth the money.

Networking — Another advantage of a real estate professional is that they are well connected with many other real estate professionals. They represent customers who are looking to purchase a home. These professionals have access to an online database called the Multiple Listing Service, MLS. This website is the number one marketing tool that will get your home noticed. As a “for sale by owner” you may have to hire a real estate professional to get your house put on the website. If you do choose to sell your house on your own, study the market and price your house accordingly. Get your house appraised so you know how much to ask for. Hire a certified appraiser who will give you an objective price. Having your home appraised will justify the price you are asking for. Under pricing your home could cost you by losing money. Think about your personal safety when showing a home. Remember it is your home and numerous strangers will be walking through it. Understand what local laws must be followed when selling a home. Not following the laws could result in hefty fines. Don’t be afraid to negotiate your price and other terms and conditions when dealing with a buyer.

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 www.moneymattersguam.wordpress.com.

Many factors can affect selling a house

This was originally published on Monday, March 09, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

When selling a home you have a lot to consider. Besides the price or condition of your home there are outside forces that come into play that can make selling your home a challenge. One of those forces is the type of market in which you are selling your home. You probably heard of a “buyer’s market” and a “seller’s market.”

A buyer’s market is caused when the homes for sale outnumber those that are looking to buy. In other words, the buyer has the advantage because there are more homes to choose from. Because of this competition to sell, buyers can negotiate prices usually much lower than the seller wants. If you can hold out to find a buyer willing to pay close to the asking price, it would definitely be worth it. But if you need to sell the home to purchase another home or need that money for other reasons, the advantage is definitely on the buyer’s side.

A seller’s market is just the opposite. In a seller’s market, there are more buyers than there are homes for sale. The advantage goes to the seller because the completion is lower and the demand is greater. The seller can usually get their asking price and sometimes more if the competition to purchase the home is great.

These markets can fluctuate from one minute to another. A geographic region can have several different markets. For example, a newly built housing development may entice more buyers than there are homes for sale compared to an established neighborhood just down the street. It is best to take a look in your neighborhood and study how long a house stays on the market. Look at homes that are comparable to yours in size, condition and location.

Another factor that comes into play is how you sell your home. Do you want to hire a real estate professional to assist you or do you want to sell your home yourself? As with any major decision there are pros and cons for both.

There are several different real estate professionals that can assist you. Each can help you sell your home, but experience and education can make a difference.

Real estate agents are anyone who has taken a number of classes and pass a test earning a license to sell real estate. Real estate agents cannot work independently and are employed by a broker.

Real estate brokers have been a real estate agent for a period of time and who have continued and completed their education past the real estate agent level. They must also pass the broker’s license exam. A broker can work independently or they can run their own firm and hire agents to work for them. Brokers can conduct appraisals and ensure that transactions are properly completed.

A REALTOR® is a real estate agent or broker that is a member of the National Association of REALTORS®, NAR, and has completed ethics training. REALTOR®s maintain the strictly enforced code of ethics and standards of practice set by the NAR.

As the seller, when you enter a contract with a real estate professional he/she becomes your representative and is legally obligated to represent you and your financial interests. Usually the buyer will have a real estate professional who will represent their financial interests. If these two real estate professionals are from different brokerage firms, the process is pretty straight forward. But, it is possible that the seller’s and buyer’s agents work for the same brokerage firm. The brokerage firm is called the designated agency. The agency must abide with strict confidentiality to both parties and represent both parties fairly. On rare occasions one real estate professional may represent both the buyer and the seller. This situation can be quite complex since the real estate professional must remain confidential and perform in a manner that is not detrimental to either party’s financial interest.

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 www.moneymattersguam.wordpress.com.

When selling your home go step by step

This was originally published on Monday, March 2, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I will be leaving island soon and I want to sell my home. I am a bit anxious about this since I have never sold a home before. I would like to use the money from the selling of my home to help finance my move and to purchase a new home. Do you have some financial tips that could help me out?

Answer: Selling a home is just as stressful as buying one. It may even be more stressful if you are in need of the money from selling your old home to purchase your new home. There are many factors and steps that go into selling your home and it is a bit overwhelming. Take it step by step and understand everything you sign. Don’t be afraid to ask questions if you don’t understand something.

The very first step you need to take is to gather all your documentation regarding your home. If you remember how much paperwork you dealt with when you purchased the home, be prepared for more. It is best to have extra copies made and pay a little more to have them notarized.

• Deed: Your deed shows your legal ownership of your home. It contains names of the old and new owners and has the signature of the person transferring the property. It contains descriptions about your home and the lot including measurements and square footage. If you inherited your home you still should have a transfer-on-death deed or a similar documentation showing that you are the legal owner and how you came into ownership.

• Mortgage contract: The mortgage contract is the document that shows how much money is exchanged for buying the home. It also details the financial terms and conditions and the type of loan. If you still have a lien on your home you will also have to show proof that the mortgage is being paid. If your mortgage is behind on payments, that must be disclosed to all interested parties. If you have paid off your mortgage you will need documentation showing that your property is free and clear of any financial obligations. If you have a second mortgage, that should also be disclosed.

• Property tax: Gather documents that show that your property taxes are current. Some financial institutions include your property taxes with your mortgage payments. If they do, your monthly mortgage statement should show a breakdown of the bill to include how much property tax you pay. If your property tax is delinquent you must disclose that to all interested parties.

• Architectural blueprints: If you have the original drawings and blueprint of the home it would be beneficial to the next owners. If any work has been done to modify the home such as electrical, plumbing, or removing or adding to the structure, it should be disclosed as well.

•  Insurance: The payment history of your homeowner’s insurance may also be needed.

• Renovations and repairs: You must disclose any improvements to the lot or the home or had major repairs to the home, or events or issues such as flooding, earthquake damage, or foundation repairs. Warranties from repairs or improvements may be carried over to the new owner.

• Utilities: Copies of your utility agreements and bills may also be needed. These records will make the smooth transition of utility hook up for the new owner.

• Renters: If you are renting out the property you are selling you should provide a copy of the rental agreement.

If you do not have the original documents, you may request for a certified copy. The more documentation you have about your home the better. Be prepared to take all these forms with you as you talk to all the parties involved.

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 www.moneymattersguam.wordpress.com.

Home modifications can help you save

This was originally published on Monday, November 11, 2013, in the Pacific Daily News.  Click here to subscribe to the PDN.

With the rising cost of utilities, you may be looking for ways to make your home more energy-efficient. There are some home improvements that are inexpensive and can be done in a few hours. Others may cost more and require a few days to complete.

With big renovations, there may be a large upfront cost, but in the end, you will be saving yourself some big savings. Here are some home improvements you want to consider:

• LP Gas — Many water heaters, stovetops, clothes dryers and generators can operate on LP gas. This will reduce your electricity bill and theoretically replace the cost with a lower LP gas bill.

• My father recently replaced his windows with energy-efficient windows and saw cost savings. Energy-efficient windows will eventually pay for themselves by lowering cooling costs. Most energy-efficient windows have two panes of glass that are glazed to help reduce the heat transferred from the sun through the windows and eventually warming the house. Some windows may be tinted and filter out 40 to 70 percent of the heat that is transferred through the window but still let light through. When selecting your energy-efficient windows, look for the Energy Star and talk to your sales representative as to which energy performance rating is best for your needs.

• According to the energy.gov website, about two-thirds of all homes in the United States have air conditioners, which use about 5% of all electricity produced in the United States. That is a whopping $11 billion dollars that homeowners pay to cool their home. Air conditioners use a lot of energy to cool. There are three types of air conditioners — central, split and window.

Central units: are more efficient, but can run up your power bill by cooling off the whole house and not just one room.

Split units: are efficient and you can control which rooms you choose to cool.

Window units: are the least efficient and are traditionally louder. Although they are less efficient of the three, they are the inexpensive choice. You can control which rooms you may want to cool.

Split central: I know I said three types, but the split central units are a fourth that I recently experienced. These units provide air handlers in specific areas like split units. Several handlers are connected to one condensing unit. The condensing unit only uses what it needs as determined by which handlers are on.

Do some research and decide which one falls into your renovation budget. The important thing is to know what size unit is needed to efficiently cool your room. An air conditioner that is too small will not effectively cool a room and will use more power trying.

• Renewable energy is another great way to cut back on utility bills. Granted, it is probably the most costly of these renovation options, but renewable-energy units start paying you back as soon as they’re installed. Prices, especially for solar units, have dropped drastically over the last five years or so.

Solar panels are the most popular on Guam because of the amount of sunlight we receive.

Solar water heaters have been around on Guam for years. Unlike solar panels, which provide electricity, solar water heaters heat up the water that enters your home.

Wind power is starting to become more prevalent on the island as people take advantage of the tropical trade winds.

Keep all receipts of any home improvements that make your home more energy efficient. Come tax time, you may be able to qualify for some tax rebates. No matter which renovation project you take on, large or small, the bottom line is that you will save some money.

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 www.moneymattersguam.wordpress.com.