A lot of costs beyond price of your home

This was originally published on Monday, July 17, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Once you decide to purchase your home, there’s more to consider than just the purchase price or your monthly mortgage payments. It’s easy to let emotions get in the way of reality, especially if it is something we want.

There may be some things you need to consider before signing for that dream home. Some of concerns may be financial, while others require a little investigating on your own.

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 get, you can pay anywhere up to 20 percent of the home’s sale price.

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.

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 within it. It may also cover special conditions to which your house may be exposed, such as flood or earthquakes. Ensure you read your policy carefully and understand exactly what it covers.

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.

Appraisal fees. Lenders will require a potential buyer to hire an appraiser to determine the value of the home. They take into account 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 particular house.

Home inspection fee. Although not common on Guam, you may decide to hire a home inspector to look at electrical wiring, plumbing and cooling systems to determine if there are any defects. As a buyer, you can request the price be lowered or that the seller fix the defect before you purchase the home.

Escrow fees. An escrow is a third-party that will hold the money while the buyer and seller finalize the contract. 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 worthiness.

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.

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

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

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.

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The benefits of buying your own home

This was originally published on Monday, July 10, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Purchasing a home is one of the biggest financial decisions you will make in your life. It’s important to consider how buying a home will affect your finances and lifestyle before making the purchase.

When you think about purchasing a home, think about the following:

  • Do I really need to buy a home?
  • Is my income going to grow?
  • Will I stay in a home long enough to benefit from the purchase?
  • Do I have enough money saved?
  • Am I ready for the responsibility?

Homeownership can be a one of the greatest financial rewards. Here are some of the advantages:

  • Predictable monthly payments. Depending on the type of mortgage, you could have the same monthly payment for the length of your mortgage. Landlords can raise your rent at the end of a lease. If you are locked into a fixed mortgage your payments will not fluctuate.
  • Equity. Home equity is typically a homeowner’s most valuable asset. That asset can be used later in life. To calculate equity, subtract any outstanding loan balances from the property’s market value. Home equity can increase over time if the property value increases or the loan balance is paid down. When you rent, you won’t have an asset when your lease expires.  The equity in your house can be used for emergencies, funding home renovations and even help with your nest egg. If you own your house for a long time, the value probably increased. As you get older, you may want to downsize. Selling your larger home to move into a condo or an apartment will free up some money to enjoy retirement.
  • Tax advantages. Owning a home might qualify you for some tax advantages or credits. As a homeowner, you may be able to deduct all interest paid on your mortgage. In January, after the end of the tax year, your lender will send your IRS Form 1098, detailing the amount of interest you paid in the previous year. The money you pay in property taxes may be deductible too. If you pay for your taxes through a lender escrow account, you’ll find the amount on your 1098 form.
  • Freedom. You may have some restrictions if you are a part of a homeowner’s association, but for the most part, how you decorate your home or landscape your property is pretty much your decision. You may also be able to add a wall to give you more privacy. Home ownership allows you to set down some roots, and there is a certain security in living in a home that you own.
  • Sense of belonging. Research has shown people feel a sense of worth and are more involved in their community when they purchase a home. It allows you to have a voice in community matters and boost your self-confidence.
  • Security. When you rent, your landlord can give you notice of breach of contract and terminate or not renew your contract. With your home, as long as you make your mortgage payments, you have a place to live. It is comforting knowing that you have a roof over your head.

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.

 

Steps to becoming a homeowner

This was originally published on Monday, January 25, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

The process to buying a home can be lengthy. Preparing your finances, securing an agent and then finding a home you want can take months. At this point you are almost in the home stretch. Although you can see the light at the end of the tunnel, be prepared for a lot of paperwork.

Your agent will draft an offer letter to present to the seller’s agent. This can be one of the most stressful steps in the home buying process. Using information that your agent has on the property, you and your agent will decide on how much you want to offer the seller. Remember the seller wants to get the most from you and you want to give the least amount possible. Somewhere there is a happy medium and your agent will try to find it. Some of the information to consider are:

  • The housing market. Is it a seller’s or buyer’s market? If there are many houses in the area to choose, the seller is usually at a disadvantage due to competition. If there are a fewer homes then the seller has the upper hand.
  • How long the property has been for sale? If the house has been on the market for a while, the seller is incurring costs with the property just sitting there. They may be more inclined to sell. Just the opposite if the house is new to the market, the seller may want to test the waters and see what top price they can get and may hold out for a while.
  • Why is the house being sold? If the house has been foreclosed and the bank is trying to recoup its money , the bank may want to sell it quickly. If the house has been deeded to the seller without a mortgage, the house may stay on the market longer. If the seller is leaving island or has purchased a new home, they may be willing to sell faster.

Your agent takes this and other information and deduces a price. The agent offers the price to the seller’s agent. If the seller disagrees, they may counter with a different offer. This process can go on for a while. During the negotiation, those repairs you were asking for may also be included.

You should also take into consideration that the seller may have multiple offers. Once a price is agreed upon the next step is to go through escrow.

Escrow clears property

Escrow is when a third party steps in and ensures that the steps to closing are done properly. The escrow company handles all the money that is exchanged and sees that all conditions are met. At some point, the property will have to be appraised. This could be a condition of your offer.

You may also want to have the house inspected, especially if it is an older house or if the house is in a special zone such as flood or tidal. You may also require that the house be inspected for pests. A house infested with pests could have structural damage. The seller is required to mention any major damage to the home.

If the property is a foreclosure and the bank is selling it, it may be sold as is. An important step a title insurance company takes is to check if the title of the home is free and clear. In other words, there are no outstanding lawsuits as to who owns the land and all property taxes have been paid.

Once the escrow company is done clearing the property for sale, the next step is getting the home insured. Most banks require that insurance be purchased before the house is occupied. Majority of the time the bank will ask you who you want to insure your home with, and will work with that insurance company. The monthly payments for the insurance may be included in your monthly payments.

The last step is signing the multiple copies of documents at the bank. Once the documents are completed, the keys are handed over and you are now a homeowner.

Take pride in the steps you accomplished and enjoy your new home.

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.

Find agent who prioritizes you

This was originally published on Monday, January 18, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Whether it is your first home or you are a seasoned home buyer, you need to have an agent or realtor with whom you can trust and feel comfortable. Of course you can go online and look for available properties and call the seller’s agent, but their priority is the seller’s interest. That interest is selling the home for top dollar. This conflicts with what you want, which is getting the best value for your dollar.

When choosing an agent, find someone who is familiar with home trends, understands your needs/wants and is readily available. The agent should be flexible to show you houses when you are available. You may want to ask friends and family about their agents and their recommendations or precautions.

Most agents will ask you to sign an exclusivity contract. This is very normal. The contract protects the agent who should work tirelessly for you. It would not be fair if they put hours of hard work into finding you a home, and you leave for someone else. Some of these contacts can be as long as ninety days and as short as thirty days. Decide on a length that you are comfortable with. Maybe start off with a thirty-day agreement and work your way up. By taking the shorter contract you are not committed to paying someone who completely misses the mark. Some agents can represent both the seller and the buyer. Be careful, that could put all parties involved in situations that most would like to avoid. Your agent should be pleasant but a good negotiator of your interests. If your agent helps close on a house, the seller usually pays your agents fees.

‘Be realistic’

Now that you have an agent, list exactly what it is that you want in your home. Be realistic. Unless you are building the home from the floor to the ceiling, not every house will have exactly what you want. Your agent should be honest with you and let you know if those expectations are within your budget. Your agent will start looking at homes that fit your demands. Of course you are more than welcome to search as well. Today’s access to the Internet gives you the opportunity to look as well. Get online and search “Guam MLS.” The MLS is the multiple listing services. Many major real estate companies will have a link to it on their website.

To make your search easier, the MLS has questions to refine your search. You can choose your location, price range, number of bedrooms and bathrooms and even special amenities such as a view of the ocean or on a golf course. Choose as many filters as you like and the website will show you what is available. Take note that too many filters can reduce the number of available homes to you. Many of the homes have pictures and video of the property. If you see something that you like, let your agent know.

Once you decide to look at a home, your agent will arrange a time to meet with you. Do take into consideration that not all homes that are for sale are vacant. Many of them have the sellers still living in them and you may have to work around their schedules as well.

Once inside try to keep an open mind. Don’t judge the house by the furniture in it. It is almost certain that you and the current owner do not have the same taste.

Take a look at the flow and functionality of the home. Imagine your furniture, wall colors and your family living in the home. Do not harp on the little things. Many of those can be included in the selling negation if you decide to buy it. Be sure to ask questions. Does it have a septic tank or is the house hooked up to the sewage system? Have any major renovations taken place? If so, ask why. Does the home have extra fees like monthly common area fees? By looking at many different homes you may decide that what you wanted in the beginning may have changed. Be sure to tell your agent.

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.

Before buying a home, calculate what you can afford

This was originally published on Monday, January 11, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Buying the house of your dreams can sometimes be just that … a dream. But owning a house that lives up to your family’s needs, provides shelter and is a part of your life memories is very possible. The reality is what you can afford and what makes you financially comfortable.

Some experts say that your monthly home payments and other loan payments should not exceed 35 percent of your monthly income. Before you start looking at houses and shopping for a loan, determine how much you can afford. The hardest thing is to fall in love with a home and then find out you won’t be able to afford it. Knowing what you can afford first will make the process easier, since you will be looking at homes within your price range. Some people will go to a bank and get a pre-approved loan right away. Although banks are thorough with their financial research, you are the best person who knows exactly how your money is spent. The key is being honest with yourself when doing a budget.

Track your expenses for the next four months to the smallest details (entertainment, groceries, dining out, coffee, fuel, etc.). This may seem like an intimidating task, but it is an important step to knowing what you can afford. In other words, don’t just use what a bank or credit union uses in a mortgage pre-qualification worksheet as your guide to how much home you can afford. Don’t forget about all the other daily and monthly expenses. They add up quickly.

Income

Add up all of your income that you earn after taxes. Include your current pay stub, your spouse’s, retirement check, Social Security payments, alimony, and any other income you receive that can be used towards your mortgage.

Monthly expenses

List all the recurring monthly expenses that you pay and add them up, such as the power bill, water, trash removal, insurances, phone, car payments, credit card payments and other loans. Don’t forget to include property taxes, tuition for schooling and medications. Subtract this amount from your income. Do not include your rent or other fees you pay for your home since you are determining how much you can afford.

Other expenses

Next, add up the other expenses such as fuel, groceries, entertainment, eating out, and buying clothing. If you have a hobby such as gaming, bingo diving, add those costs up as well. These expenses may fluctuate over the month depending on how much you use them. That is why tracking four months of your expenses is needed. It gives you a realistic snapshot of your spending habits. Subtract this total from the total you recently calculated in the last step.

After expenses

What you have left is what you can afford for your monthly house payments. It is also wise to subtract an amount you want to put aside for home repairs and emergencies. When you own your home you can’t call the landlord to fix a problem. Those home repairs will be strictly your sole responsibility and out of pocket.

Now that you have an idea of what you can afford, you have worked on improving your credit score, and saved money for closing fees and that extra cushion, you can now go to a bank and inquire about a pre-approved loan. If your pre-approved loan is higher than what you calculated, stay on the safe side and look for a house less than what you are approved. The important thing is not to overextend yourself financially. You want the home to add value to you as an asset and not be a burden. The last thing you want to do is buy a home that could go into foreclosure, or worse, place you in bankruptcy.

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.

Things to consider when buying a house

This was originally published on Monday, January 4, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: My family and I finally saved up enough money to start looking into buying our first home. I have heard that the process can be long and somewhat confusing. What are our next steps?

Congratulations on saving that amount of money. That usually is the most challenging part of buying a home. I am not going to sugar coat it. The process can still be difficult, stressful, and exhausting but that should not be a deterrent to owning your dream home. Before looking and going through the process you should take a few things into consideration.

Credit Score. This is a topic I have mentioned many times in my articles because it is so important. Having a high credit score will save you a sizable amount of money especially when it comes to your home loan. Financial institutions see your credit score as a report of how responsible you are with money. Borrowers that are in the 580 to 600 range can expect to pay larger fees or a higher down payment. On the other hand, if your score is 700 and above you can expect lower interest rates and smaller monthly payments.

Know your credit score before applying for your loan. If you see any discrepancies, get them corrected as soon as possible. If your score is lower than 660, take some time to work on increasing your score. You may also want to hold off applying for new credit for at least a year before applying for a mortgage.

Savings. From your question you mentioned that you and your family had saved enough for a down payment. Did you take into consideration other fees and closing costs? A down payment on a home can be anywhere from 3% to 20% of a home’s selling price. Some programs such as Veterans Affair (VA) loan requires no down payment. Your bank may also have fees that your loan does not cover such as processing your loan or researching the title of the property. Other items that you may have to pay is the closing costs and title insurance, to name a few.

When applying for a loan, your financial records will be reviewed including credit card statements, bank statements and other loans that you currently have open. Financial institutions like to see that applicants have money saved up and that you do not live paycheck to paycheck.  Having a few months of a mortgage payments in your savings account will make you a better loan candidate.

Location. In retail they always say location is everything. The same holds true for purchasing your home. Know the area you want to live. Deciding where you want to purchase a home can give you an idea of how much your home will cost. Do you want to live close to shopping malls and night life or quiet and further away from the crowds? Take a look at the neighborhood. Do you want a closed gated community? Do people in the area seem friendly?   If your kids are in school will they have to move to a different school? Maybe moving will get you closer to a school you like. Commuting on Guam isn’t as bad as some areas, but you may want to take into consideration how long it takes you to get to work. Do you have to battle downtown traffic? Is the neighborhood in a high-crime area? Do you feel safe? Is it close to the beach, golf course, or have a beautiful view? Determining these factors can determine how much your home will cost.

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.

Have mortgage questions ready

As you visit financial institutions about a home loan, it can help to have questions or topics ready to discuss. Such questions will help you learn about the best options for you, and will allow you to compare offers from different lenders side by side.

Which type of mortgage will be right for you? Typically, there are two major types of mortgages: fixed-rate mortgages and adjustable rate mortgages. The specific mortgage you choose will depend on your circumstances. If you plan on staying in your home for the long term, a fixed-rate mortgage may be the better option for you. You don’t risk a rise in interest rates throughout the fifteen or thirty years that you hold the mortgage and your payments will be predictable and straightforward.

With an adjustable rate mortgage (ARM), you can expect the interest rate to change throughout the life of the mortgage. One example of an ARM is a mortgage that starts with a low interest rate, which changes after the initial period of time passes. After that period, the ARM interest rate will be based on a standard financial index, up to a certain set limit, and your overall mortgage payment will change accordingly.

If you look into this option, pay close attention to the maximum interest rate you may pay, as well as the calendar dates where the interest rate will change. If there is a big change in the interest rate, your mortgage payments may suddenly rise, and you need to be sure that your budget can handle the increased payment. An ARM’s low initial interest rate may give you an advantage if you’re not planning on staying in your home for the long term, as long as you carefully consider your budget. Different mortgage types suit different purposes, so be sure to talk to lenders about the best option for you.

Compare interest rates with different lenders. Different financial institutions have different ways of calculating the interest rate they’re going to offer you. Some lenders may weigh certain factors more heavily than others, so there can be some variation in what you’re offered. A fraction of a percentage point can make an enormous difference in the amount you pay over a 30-year mortgage.

Will you pay points? Points allow you to reduce your interest rate. You pay a certain amount at closing (one point is calculated as one percent of your mortgage) in exchange for a reduction in your interest rate.

If you are offered points with you interest rate, talk to your loan officer about breaking down those numbers into the specific amounts you would pay at closing and on your mortgage payments. You can also find calculators online that will help you do this. Dollar amounts will help you compare offers from different financial institutions.

Compare closing costs. Different lenders may offer different closing costs, so it can help you to see estimated closing costs from various financial institutions before you make your final decision.

Closing costs include loan origination fees, application fees, appraisal and inspection fees, as well as other insurance and settlement costs. You can talk to lenders to develop a good understanding of each of these costs, and compare them as a factor in your decision.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 19 years experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com.