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.

Start with a down payment

As you form a long-term plan to purchase a home, it can help to start thinking as early as possible about your down payment.

A down payment will give you immediate equity in your home, and it shows financial institutions that you have the discipline to save. A down payment allows you to ask for a smaller mortgage loan amount, which lowers the total amount of interest that you eventually pay.

The ideal amount for a down payment is 20 percent of the home’s price. This allows you to avoid purchasing private mortgage insurance, a form of protection for lenders in the event that you default on your loan. It is possible to purchase a home with a smaller down payment, together with that insurance. There also are programs that offer down payment assistance or favorable terms for future homeowners who meet certain requirements.

But if you are early in your planning, try to aim for that 20 percent mark. You will build up the financial discipline you need to take on a long-term mortgage, and lower the monthly payments you’ll have once the mortgage is active.

Here are some tips you can use as you save for your down payment:

Establish an emergency fund first. If you make a plan to save for your down payment, and those plans are interrupted by an emergency need, this can be disruptive to your savings pattern. If you become demoralized by the setback, it can be tempting to halt your savings entirely. To prevent this, build up your emergency fund first. If an emergency happens, you’ll be covered and your down payment will be protected.

Understand the timeline in which you’re saving. When you’re saving for a major goal, it can help to have a specific figure in mind. You can put together an initial estimate by looking at local realty websites for the prices on homes that fulfill you needs.

On a $200,000 home, a 20 percent down payment would be $40,000. We’ll estimate closing costs at 3 percent, or $6,000. This is a total of $46,000 to save ideally.

As with any large amount, break this down into a number that has meaning for you. Let’s say that you and your spouse choose a period of five years to save. We’ll divide the total amount by 60 months, and divide again, to split the savings between you and your spouse. This comes to $383.33 that you each save every month to meet your goal.

By doing the math early, you can adjust your budget to meet your goals, come up with a realistic timeline, and encourage yourself to save.

Keep your savings out of reach. It can be difficult to hang onto a large amount of cash when you have needs elsewhere in your budget. This especially is true when it’s easy for you to withdraw your money from your account. To protect your savings, put them in a place where you will have some trouble getting to them. Keep those funds separate from your emergency fund, such as in a separate savings account. Savings vehicles such as CDs and money certificates allow you to put your money away for a set period of time, and often pay higher interest than standard savings accounts.

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

Helping your teen buy their first car

Throughout National Financial Literacy Month, we’ve been going over financial advice that parents and teens can discuss, as those teens prepare for financial independence.

A car is a major expense, and often, a necessary one. Even if a car purchase will take place a few years into the future, early savings and positive credit behavior established beforehand can make things easier for your teen.

Knowledge about budgeting, financing and repayment can help your son or daughter avoid credit rating damage and save money over the life of the loan.

If you plan to purchase a car for the family soon, take your teen with you through the process. Here is some basic conversation points:

Save for a down payment. With a down payment, you will pay less in overall interest on your car, because you’ve lowered the principal amount that you need to borrow. A down payment can shorten the amount of time that you repay the loan or lower your monthly payments, so that you don’t over strain your budget.

A sustainable monthly payment is important, because it can help you avoid late payments and a potential default.

Start saving as soon as you anticipate your need for a car. It doesn’t have to be a very large amount, because those savings will add up over time.

Build a positive credit history. If you are thinking about buying your first car, you also should be thinking about your credit history.

Financial institutions are more likely to approve a loan if they can see that you have a history of consistently paying your credit obligations on time.

Once you have a credit card, always pay before the due date, and keep your balance as low as possible. If you want to build your credit history but are having trouble obtaining a credit card, you can look into a secured card.

With a secured credit card, you deposit savings to the credit card issuer, and that amount of savings becomes your “credit limit.” Just check to be sure that the issuer will report your credit card activity to the credit bureaus, so that your positive behavior will be recorded on your credit report.

Choose according to your needs. When you’re young, and you have many goals to fulfill, it’s crucial to consider your financial needs first. Before you shop for a car, create a budget and see what you can afford. Think about your most basic needs and do your research before you step into a dealership.

Compare loans from different financial institutions. You can find the best values by comparing products, and loans are no different. Compare financing available from different institutions, and choose the loan with the best rates and terms. Just try to keep your inquiries to a limited period of two weeks, to protect your credit score.

Get help if you run into trouble. If you experience financial hardship, talk to your financial institution. They may be able to lower your monthly payments temporarily, which can help you avoid late fees, damage to your credit rating, and repossession of the vehicle. It’s always best to discuss financial hardship early, so that you can immediately start working on a solution with the financial institution.

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.  You can email him at  moneymattersguam@yahoo.com.

Save up, shop smart for that new car

If you’re smart about financing your car, you can save yourself money and protect yourself from owing too much. Here are a few things you can do, before you start browsing.

Save as much as you can for a down payment.

The more you pay up front for your car, the less you’ll need to borrow. If you borrow a smaller amount, you’ll also pay less in interest fees over time, leaving more room in your budget for the other parts of your life. You may also qualify for a shorter loan term, and own your car sooner than expected.

Check your credit reports.

The interest rate on your car loan will depend on your credit score. The higher your score, the lower the interest rate you’ll qualify for. Borrowing at a lower APR (annual percentage rate) will leave more cash in your pocket over the life of the loan.

Information on your credit reports determine, in large part, your overall credit score. You can download these for free once a year from the three major credit bureaus, at annualcreditreport.com. Make sure all of the information is accurate, and if it’s not, correct it. You want your credit score as high as possible before you apply. Make sure that you’re paying your obligations on time, and that you’re paying as much as you can on your lines of credit.

Figure out the total cost of the car you can afford.

By now you should know, from last week’s column, how much room there is in your monthly budget to pay for your car.

What you want to do now is find out what price range is affordable for you. You can start by using a car affordability calculator online, for a first estimate. You can find these calculators at autos.yahoo.com, Edmunds.com, and Cars.com.

You will need:

•Your monthly payment

•Your down payment

•An estimated APR (keep in mind, this will depend on your credit history)

•Your term (The number of months you’re comfortable with carrying a loan)

•The value of a car you’re trading in.

Add these figures to your calculator, and you should have a final number: the amount you can afford to pay for a car.

Keep in mind, this is just an estimate. It will give you some broad guidelines for kinds of cars you can browse — whether or not you should choose an economy car, or whether you can upgrade.

Inquire with financial institutions about rates you qualify for.

Now that you have a rough idea of how much you can afford, and you’ve done some research on cars that fit that affordability ceiling, you can start checking on the kinds of rates you’ll qualify for.

It’s a good idea to check with a wide range of financial institutions. You can talk to them about the monthly amount you can pay, and the estimated amount you’d like to borrow. Different institutions will give you different APR rates and terms, and you can compare these rates with each other and with the rates you can get from the car dealer. It never hurts to have as much information as possible, before heading in to buy your car.

Now that you know what you can afford, need, and what kind of financing is available to you, you’re ready for the next step: shopping around.

Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.