How are you doing with your New Year’s resolutions? Is homeownership on that list? Have you found yourself wishing you could be investing in a place of your own instead of paying a monthly rent check to someone else? Is 2016 the year you decide to buy a home?
Maybe you want the freedom to paint and personalize your own place. Maybe you’ve seen the studiesthat show that homeowners are, over the long-term, wealthier and healthier than renters. Whatever the reason, maybe 2016 is your time to buy a home.
But buying a home is a big deal. Small mistakes can cause big headaches.
Before you buy, here are 5 questions to help you decide:
1. Are Your Debts Under Control?
One of the first things that a mortgage lender will do is check your credit report. They’re looking to see how well you manage your money and to estimate the amount of money they might be able to loan you. While a credit score is not be a perfect predictor of how well you’ll pay your mortgage, it does give your lender insight into how well you’ve managed to pay your bills in the past.
Don’t worry. Perfect credit is not needed to buy a home.
When you apply for a mortgage loan, your lender will calculate something called your “housing ratio” and your “debt-to-income ratio.” (Insider tip: these are also called your front-end and back-end ratios). They’re looking to make sure that your full mortgage payment – that includes principal, interest, taxes and insurance doesn’t eat up too much of your gross income, especially if you have any other long-term or revolving debt.
Keep in mind that your lender may be willing to loan you more than you’re comfortable borrowing. A Homeownership Advisor can help you decide your comfort level for taking on homeownership debt. Even if you have had some credit issues in the past, we can help you sort them out and get on the road to homeownership.
2. Is Your Income Reliable?
Once you decide to take out a mortgage, you need to be able to pay it… for many years. Lenders like to see that you have a stable income – one that hasn’t changed much in the past two or three years.
The Center recommends that if you’re thinking of making a career change, or going back to school – something that may mean spending money or taking a cut in pay – You might want to stay flexible and rent for a while longer. If you work in a field with frequent layoffs, you might want to keep your savings easily available too.
3. Do You Have Any Money Saved?
You may have heard about all the changes in the mortgage industry over the past few years and think you need to save 20% or more to buy your first home. This isn’t true. The reality is that there are quality mortgage programs out there – from reputable lenders – that will allow you to buy your first home with much smaller amounts, as low as 1 to 3%.
Your Homeownership Advisor can also work with you to see if you qualify for any down payment or entry cost assistance programs.
Be aware, most lenders will also want to make sure that you aren’t using all of your savings to purchase your home. They may require you to have money in savings even after you close. If you need every penny you have to purchase a home, you might be over-extended.
4. Are you Planning on Sticking Around for a While?
Homeownership is a long-term investment. Selling a home costs money. “You don’t want to find yourself in a situation where you need to sell in the next year or two, but you don’t have any equity” [PERSON] advises. So, if you think your career or personal life might make you want to move sooner rather than later, you may be better off renting for a while longer.
5. Are you Ready to BE a Homeowner?
You’ll need the know how to fix things yourself. Or make room in your budget to call the plumber, exterminator, electrician, or other professionals when things go wrong. Eventually, every major system and appliance in a home will need to be replaced… even if you were to purchase a brand new home today.
We recommend saving at least 1-2% of your purchase price every year. This will help you cover upkeep and maintenance. That means that if the home you buy costs $100,000, you should save between $1,000 and $2,000 every year.
Some years you may not have any expenses, other years may drain those savings. You never want to max out a credit card or fall behind on your mortgage because you had to pay a plumber to fix a leak.
Would you like to know more about what it means to be a homeowner? Learn insider tips and tricks to be successful? Take a homebuyer education course – the Home Stretch homebuyer workshop or online via Framework® partner.
Your homebuying success is our mission. Learn more about how to be a successful homebuyer here.
Three Questions To Ask Yourself Before Considering Homeownership
Whether you’re thinking about becoming a homeowner for the first time or you’re coming back into homeownership following a foreclosure, buying a home is both a financial and emotional decision that requires preparation. The Minnesota Homeownership Center wants you to be successful when you step into homeownership. Here are three questions to ask yourself to see if you are ready for homeownership:
1. Is Your Lifestyle Ready for Homeownership?
Homeownership is a big step and it shouldn’t be taken lightly. Before you think about anything else, the most important question to ask is: Is my lifestyle ready for this long-term commitment? Successful homeownership requires a level of financial stability (stable income) AND the desire to commit to living in the same community for at least five to seven years. You should want to establish roots in a neighborhood and be ready for the responsibilities of homeownership. When you buy, you become your own landlord. Repairs, maintenance and upkeep – and the costs associated with them – are your responsibility.
2. Is Your Job or Career Ready for Homeownership?
It may seem like an odd question to ask, but one of the most important aspects of successful homeownership is having a stable income that will allow you to cover the monthly mortgage payments and the additional expenses of ownership that you might not have had when renting. Some additional expenses may be minor, like replacing a furnace filter or the batteries in a smoke detector, but other expenses can be major, like repairing the roof or replacing a major appliance. Even a brand new home will require maintenance eventually.
Most lenders will require that you show two to three years of stable income either at the same job or at least in the same field before they’ll be willing to offer you a mortgage.
3. Are Your Finances Ready for Homeownership?
In addition to a stable income we talked about in #2, you’ll need to have your expenses under control. Good money-management skills are a must if you’re going to successful at homeownership. Lenders will want to see that you have a financial cushion (savings) and aren’t using every penny you have on the purchase of your home with nothing set aside for future unforeseen events.
Another aspect of good money management is keeping your debts under control. The more outstanding debt you have, the more difficult it will be to qualify for a mortgage – and the more stressful it will be day-to-day making both mortgage and debt payments.
If you’d like additional assistance with money management – or would like a non-biased overview of your financial situation to see if you’re financially ready for homeownership, speak with a Homeownership Advisor.
Even though we’ve already discussed the need to understand your financial situation and have good money-management skills, it’s important to understand how much you’re willing to spend on purchasing your home. A mortgage lender can tell you ‘how much home you can afford’ – or how much they’re willing to lend you, but that is not necessarily the amount that you’re comfortable spending on a home. They may not know that you love to travel, or want to save more to retire early or are planning to reduce your work hours once you start a family.
Once you’ve thought through the lifestyle and financial aspects of buying your first home, make sure you’re following the right path to successful homeownership.
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Center staff member Ed Nelson sharing with buyers the importance of homebuyer education and counseling.
The Minnesota Homeownership is always looking for new and innovative ways to help homebuyers make smart choices and build vibrant communities in Minnesota. To that end, staff from the Center joined with Wells Fargo, Minnesota Housing and other non-profit and community-based housing organizations this past weekend on the Affordable Home Tour – affectionately referred to as the “homebuyer forum on wheels.”
Wells Fargo rented a large tour bus that took prospective buyers on a unique tour of Minneapolis and St. Paul highlighting affordably priced homes. A REALTOR met the tour at each of the homes to share information about the property AND each home also had a representative from a local non-profit who spoke to the buyers about downpayment and entry-cost assistance programs that they may be able to qualify for to purchase the property.
Potential buyers climb on board the ‘Homebuyer Forum on Wheels’
Between stops, representatives from Wells Fargo, Minnesota Housing and the Minnesota Homeownership Center shared important information for first-time buyers. Of course, the Center was there to highlight the importance of homebuyer education and counseling through Home Stretch and Framework.
One of the tour participants, after visiting some of the homes on the tour stated:
“I can’t wait to take a Home Stretch workshop and learn the right way to buy a home. I lost a home to foreclosure several years ago and I didn’t think I’d ever be able to buy again.”
Seeing people excited about homeownership – and being excited about learning how to make smart choices that lead to successful ownership – is what keeps us going here at the Minnesota Homeownership Center. We’re looking forward to other new and innovative ways to share the importance of homebuyer education with potential buyers. Do you have an idea? We’d love to hear from you.
The Minnesota Homeownership Center is pleased to partner with Wells Fargo Home Mortgage to offer a very unique home tour opportunity. Perfect for first-time buyers that are just thinking about buying a home or are unsure of where to start… participants will be able to view a variety of affordable property types from new construction, condo, move-in ready and a fixer-upper.
While on the ‘tour’ you’ll learn about downpayment and entry cost assistance programs, homebuyer how-to information and how to access special resources for first-time buyers.
Ride along with us on the tour bus or explore the homes at your own pace. The tour kicks off at Elsie’s Restaurant in NE Minneapolis on Saturday, November 8th @ 9am.
A few years ago, many people believed that Millennials (ages 18-29) would be “a generation of renters” – – that the economy and changing lifestyle choices would somehow mean that this generation would be the first generation in American history without the desire to own a place of their own.
While the most recent mortgage crisis has taken some of the shine off of the concept of owning,… and an important component of their future success.
Of those surveyed:
» 75% believe homeownership is an important long-term goal
» 73% believe homeownership is an excellent investment
» 24% already own their home and
» An additional 60% plan to buy a home in the future
Importantly, this next generation of buyers understands that buying a home can be complex and are more cautious. The Demand Institute report finds that 44% of Millennials think it would be difficult to qualify for a mortgage.
We have to work together to make sure that this next generation of buyers are fully informed and are making smart choices when entering into homeownership.
We know that homebuyer education and counseling services are a significant deterrent to default and foreclosure. Do you know a Millennial that is thinking about homeownership? Make sure that they are armed with the necessary knowledge to be successful. Make sure that they attend a Home Stretch Workshop or take the online Framework course.
We can build vibrant communities across Minnesota… if we work together to help the next generation of buyers make thoughtful and informed purchases.
In June, the Center released our “State of Homeownership” report, sharing information on the importance of homeownership, the latest data on the uneven housing recovery and expressing our hopes for smart, sustainable homeownership in Minnesota.
Recent research from the geography program at Macalester College shares similar findings on the aftermath of the crisis, showing an unequal recovery among neighborhoods hit hardest by foreclosure.
Avre’s research found “Communities with high concentrations of people of color and low-income residents witnessed the greatest levels of housing value appreciation leading up to the housing crash. However, low-income communities of color and renters across the metro region experienced disproportionately higher rates of foreclosure and housing value depreciation than more affluent, white homeowners in the aftermath of the crash.”
Even today, the Center writes in its report, “Foreclosures continue to weigh heavily on the neighborhoods predominantly of color like Near North and Phillips in Minneapolis, and the Payne-Phalen and Thomas-Dale in St. Paul. In each of these neighborhoods, nearly half of all homes sold in 2013 had been foreclosed upon. Median home sale prices are also low – as low as $81,000 in Near North. Home values have improved in recent years, but 2013 sales prices must still increase by anywhere from 74 percent (Payne-Phalen) to 110 percent (Phillips) to reach peak home values recorded in 2006.”
In conducting his case studies of these areas, Avre uses urban housing submarket theory – in short, the idea that home values tend to appreciate most quickly at the edges of suburban development, and most slowly in the city core. “Yet,” he writes, “not only did a housing bubble develop within North Minneapolis before 2006, but the tracts in the central city also witnessed the most substantial declines in home values following the crash.”
Delinquency rates – a sign of foreclosures to come – are also high in predominately minority and low-income neighborhoods, ranging from 5 to 8 percent of all mortgaged homes. Affluent, mostly white neighborhoods reviewed are seeing the opposite trend. In Southwest Minneapolis, average home sale prices reached $306,000 and distressed homes made up only 9 percent of sales in 2013. There, just 8 percent of homes are underwater and home values have exceeded 2006 peak prices.
Though Avre states homeownership has traditionally been a goal in the working class and lower middle class submarkets, today’s homebuyers of all incomes are more cautious. In fact, more than 3 in 4 Americans believe the housing crisis isn’t over, according to a 2013 survey sponsored by the MacArthur Foundation.
This caution is playing out in Minnesota, where more first-time homebuyers are taking steps to make thoughtful and informed purchases. Overall, homebuyer education is expected to play a greater role in the home buying process in the years to come as lenders, consumer advocates and local governments recognize that education is a significant deterrent to foreclosure. One 2013 analysis by Freddie Mac even found mortgage delinquency dropped by nearly one-third when first-time homebuyers participated in education or counseling.
If you are purchasing your first home – or working with clients that are in the buying process – make sure you avail yourself of one of the best deterrents to future foreclosure… additional information about homebuyer education in Minnesota is available, here.
June is National Homeownership Month and to celebrate, the Minnesota Homeownership Center and its network of nonprofit partners, the Homeownership Advisors Network, are offering FREE homebuyer education to potential homebuyers. To learn more about the free Home Stretch™ Workshops and Framework® options, visit our June Homeownership Month page here.
At the Homeownership Center, we know secure homeownership is the key to creating vibrant communities and that successful homeownership is possible through smart choices based on solid information. Nothing supports successful homeownership better than education.
The Homeownership Center and our Network are working hard to make sure everyone who wants to own a home has opportunities to learn about the process from professional, experienced and unbiased sources – whether in-person classes, personal sessions or online – so that they can make smart choices about their homeownership options.
This June Homeownership Month you can help us spread the word about FREE homebuyer workshops to empower a new generation of homebuyers to make smart choices. It’s easy! Just visit our Facebook page today and share this post with your friends:
On Tuesday May 13th, the Federal Housing Administration released its “Blueprint for Access” in which the FHA outlines a number of proposed plans to expand access to affordable mortgages for underserved borrowers.
Here at the Homeownership Center, we know that stable homeownership is an enormous benefit both for families and their communities, and that successful homeownership is possible through smart choices based on solid information and applaud the FHA for proposing the pilot program Homeowners Armed with Knowledge, or HAWKfor short, which seeks to integrate housing counseling into the homebuying process for borrowers using an FHA-insured mortgage.
The HAWK program will offer buyers savings on their FHA-insured loans if they complete housing counseling provided by independent nonprofit organizations like the Homeownership Advisors Network here in Minnesota.
Quoting directly from the proposed HAWK plan: “To increase access, we must identify and implement responsible ways for creditworthy borrowers to obtain mortgage credit. This includes encouraging housing counseling. Responsible access can be enhanced by ensuring borrowers are well-educated about the home-buying and mortgage finance process.”
So what does HAWK mean for buyers?
If the proposed plan is enacted, buyers who complete Homebuyer Education and Counseling before signing a purchase agreement, and also complete a pre-closing counseling session, will qualify for a substantial savings on the Mortgage Insurance Premium (MIP) of their FHA-Insured loans. The proposal calls for a reduction of 50 basis points on the cost of the upfront MIP and a 10 basis point reduction in the annual MIP. PLUS, if buyers complete post-closing counseling and maintain their payments, with no delinquencies, for a minimum of two years after closing, they will see an additional 15 basis points reduction in their annual MIP.
According to FHA, the average FHA loan is about $180,000. These reductions could save buyers over $300 per year, and almost $9,800 over the life of the loan.
What happens next?
The entire HAWK program is, at this point in time, just a proposal and will be open to comment as part of the upcoming Federal Register Notice… so many parts of the program, especially the MIP savings, could change.
If the program proceeds past the comment period, which seems likely, FHA will begin to pilot the program in the fall of 2014. The Minnesota Homeownership Center, as a HUD-Approved Intermediary, looks forward to working with FHA on this program to more-fully integrate Housing Counseling into the homebuying process. We’ll keep you up to date as details of the program become available.
If you are interested in learning more about OTHER affordable mortgage options, some with low down-payment options or options for people with less than perfect credit, speak with a Homeownership Advisor today! Counseling is FREE and available to everyone in Minnesota.
USDA Rural Development offers loans for low-income households to purchase or build single family dwellings, as well as home improvement loans and grants for very-low income households who already own their homes in eligible rural areas throughout the state.
The Center has received word that USDA Rural Development-Minnesota has ample funding available through September 30, 2014.
Section 502 Direct Home Loan Purchase Program Program Highlights
Loans up to 100% of market value
Interest rate is fixed for life of the loan
Monthly payments may be reduced with payment assistance for eligible applicants
Mortgage terms up to 38 years
Approved homebuyer education class required prior to closing
Do not currently own a house
Financed property must be owned as personal residence (cannot be purchased to lease)
Must have an adequate and dependable income
Adjusted family income cannot exceed 80% of median county income
Must be a U.S. citizen or non-citizen legally admitted for permanent residence
Must possess legal capacity to incur loan obligation
Must purchase in an eligible rural area
Must demonstrate positive credit history
Section 504 Home Repair Loans and Grants Program Highlights
Loans available up to $20,000 and grants up to $7,500
Loan interest rates are at 1% for up to 20 years
Real estate mortgage and full title services are required for loans of $7,500 or more
Grant funds are for home repairs and improvements to remove health and safety hazards
Grants may be recaptured if home is sold in less than 3 years after award
Maximum grant/loan combination up to $27,500
Homeowner must be unable to obtain affordable credit elsewhere
Very-low income defined as below 50 percent of the area median income
Grants available only to homeowners 62 years of age or older and unable to repay a loan
• Must live in an eligible rural area
Interested in learning more about USDA programs? Contact a homeownership advisor to see if a USDA program, or other affordable mortgage product, is right for you. To find your local homeownership advisor, click here.
The U.S. Department of Housing and Urban Development (HUD) has announced the Minnesota Homeownership Center’s designation as a HUD Approved Housing Counseling Intermediary.
HUD has been working to strengthen its partnerships with strong networks of multiple counseling agencies in order to leverage resources and improve consumer access to housing counseling services at the local community level. Recognized by HUD for its 20+ years of promoting and advancing successful homeownership through its network housing counseling agencies, the Center will now oversee a network of 20 HUD-approved housing counseling agencies offering housing services in pre-purchase education, one-on-one homeownership counseling, rental information, Fair Housing guidance, rehabilitation programs, Reverse Mortgage Counseling, homeless prevention support, and foreclosure prevention options.
As more first-time buyer loan programs, down-payment assistance and foreclosure avoidance programs require access to HUD-Approved counseling, the Center is pleased to be able to be a resource for consumers and counseling agencies throughout the state. With this new designation we also hope to be able to secure additional HUD funding for housing counseling services in Minnesota.
“We know that homeownership counseling and personalized assistance that help families achieve financial wellness are the best tools to prevent another housing crisis like the one we’ve recently experienced,” stated Ed Nelson of the Minnesota Homeownership Center. “Looking forward, The Center’s Network will continue providing education, guidance and resources to Minnesota families.”
Currently, the Center will continue all activities as usual, overseeing the Homeownership Advisors Network*. A complete list of agencies that are participating in our HUD intermediary network will be posted here on our website in the coming months. In addition, the Center will continue to embrace emerging technologies and tools that will prepare thousands of families for successful, sustainable homeownership and will continue to expand programming for partner agencies that will ensure that the Homeownership Advisors Network is on the cutting edge of housing and financial stability trends.
*Not all current members of the Homeownership Advisors Network will be participating with us in this HUD endeavor. Additional details will be posted soon.