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.
There is a new, one of a kind home energy certificate is available to Minnesota homeowners. Energy Fit HomesSM is a certificate program that provides a rating of basic energy efficiency in existing homes. It is focused on energy efficient upgrades that are cost effective to the homeowner, making it the only certificate of its kind.
To start the certification process all homes must receive a home energy assessment. Metro area residents can schedule a home assessment through program administrations such as the Center for Energy and Environment and the Neighborhood Energy Connection. At the home assessment, homes receive an Energy Fitness Score, which evaluates the performance and efficiency of five main areas of the home: heating system, insulation and air sealing, ventilation and combustion safety, windows, and lighting, all of which improve comfort and save energy. The score rates each home from 0 to 100, the higher the score, the more energy efficient the home. A home with a score above 95 qualifies for the Energy Fit Homes certificate. Homes that receive a score of 95 or below will also receive a report that details the upgrades necessary to improve the total score and qualify for Energy Fit Homes.
Minneapolis resident Meleah Housenecht went through the process of getting her home certified with Energy Fit Homes in 2014. Maleah and her husband recently purchased their house and while they knew the previous owners had made some energy improvements, they were interested in learning for themselves how their house was functioning. They were especially interested in getting the opinion of a trusted, independent source and upon recommendations from neighbors they scheduled an assessment with the Center for Energy and Environment. Meleah was excited to learn that their home scored a 99, qualifying it for the Energy Fit Homes certificate.
Energy Fit Homes provides a way to distinguish houses that have made investments in energy efficiency. For Meleah and her family this was an excellent opportunity, especially since they do not plan to stay in their current home forever. In her words:
“The Energy Fit Homes certification will be a great asset when we are ready to sell our house. Many of the upgrades the previous owners had made to the house were hidden from us when we were deciding to buy. Now, with all of the energy efficiency information readily available in one compact document, it will be easier to highlight some of the great benefits.”
The home assessment provided Meleah a great opportunity to learn about the energy performance of her home and she sees Energy Fit Homes as a great, new benefit to homeowners. “It was nice to get official recognition for the work that’s been completed. I now recommend the program to all of my neighbors.”
Over 180 homes have current received an energy Fit Homes Certification in Minnesota. The certification is designed to be used across Minnesota and is looking to scale up assessment opportunities outside the metro area in 2016. Visit mnenergyfit.org to learn more about Energy Fit Homes and how to get your home certified.
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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On December 16, 2014, President Obama signed a bill that extended the Mortgage Forgiveness Debt Relief Act to cover any mortgage debt cancelled through year-end 2014. The Mortgage Forgiveness Debt Relief Act prevents homeowners who went through a short sale, foreclosure sale (Sheriff’s Sale) or principal reduction from being taxed on the amount of mortgage debt forgiven. For homeowners to qualify for this tax exemption in 2014, their sale or loss mitigation (workout) must close by December 31, 2014.
The Act has only been extended through 2014. Congress is expected to debate further extension of the Act as part of a larger tax package in 2015. In the meantime, mortgage debt forgiven by a lender in 2015 might count as taxable income.
The Minnesota Homeownership Center has updated our Fact Sheet on Mortgage Debt Forgiveness to reflect these new changes for 2014. You can access the fact sheet, here.
If you have questions about your foreclosure, short sale or Sheriff’s sale, our network of Homeownership Advisors that specialize in Foreclosure Prevention would love to assist. You can connect with a Homeownership Advisor, here.
In a ‘good news/bad news’ story from the Pioneer Press, Frederick Melo and Sarah Horner highlight how the good news of increased property values after years of declining prices have also led to a bad news situation where many east-metro residents may see their property taxes increase substantially next year due to increased assessed values of homes.
Almost all of the consumers interviewed for the article were Seniors who were living on fixed incomes. Interestingly, the article did not mention Minnesota’s tax deferral program available to seniors on fixed incomes, so we decided we would highlight the program here.
About the Senior Citizens Property Tax Deferral Program:
The Senior Citizens Property Tax Deferral Program in Minnesota allows property taxpayers who are 65 years or older to defer payment of a portion of their homestead property taxes until a future date. Under this program, homeowners only pay a maximum of three percent of the preceding year’s household income as property tax, and the rest of the property tax is deferred.
Taxpayers are still allowed to file for property tax refund and any other property refunds the state may offer, however the amount of any refunds will be applied to the deferred property tax amount.
In order to qualify for Senior Citizens Property Tax Deferral Program, all of the following criteria must be met:
The property must be owned and occupied as a homestead by a person 65 years or older. If married, BOTH must be at least 65 years old.
Total household income must be $60,000 or less during the calendar year preceding the year of the initial application. That means that if someone applies for the program in 2015, their household income in 2014 cannot exceed $60,000.
The home must have been owned and occupied by at least one of the homeowners 15 consecutive years before the initial application.
There can be no state or federal tax liens or judgement liens on the property.
The total unpaid balances of debts secured by mortgages and other liens on the property, including deferred tax and interest amounts under the program, unpaid and delinquent special assessments and property taxes, penalties and interest – cannot exceed 75% of the assessor’s estimated market value of the property for the current year.
The Senior Citizens Property Tax Deferral Program only DEFERS payment. It is not a grant. A lien will be placed on the property that may affect refinance options as well as estate planning issues. In addition, the deferred property taxes, any special assessments that may have been deferred, penalties, plus any recording or filing fees will become due and payable to the state of Minnesota when the deferral ends. If the property is sold or the homeowner dies, payment is due within 90 days of termination.
Homeowners who think they may qualify or have questions about property taxes for a friend or family member are encouraged to contact a Homeownership Advisor as soon as possible. If you are struggling with property tax or mortgage payments, time is of the essence. Don’t wait, speak to a Homeownership Advisor today.
If you’re like us, you know Give to the Max Day – the statewide online giving day when Minnesotans showcase our amazing generosity – is upon us.
You may not know that the Minnesota Homeownership Center is participating in Give to the Max Day as part of our effort to make Smart Choices and Vibrant Communities a reality for all Minnesota families. But what does that mean, exactly, and why should you consider us among your giving choices tomorrow?
Smart Choices means homebuyers are empowered with the information they need to buy when they are ready, and on terms that are in their best interest. The Center’s statewide network provides homebuyer education and counseling to help homebuyers understand what they can afford and how they can best prepare for homeownership. Our advisors connect buyers with loan and down payment programs that will be sustainable in the long-term, and provide free, unbiased guidance at every step of the home buying process.
We also know that smart, sustainable homeownership creates Vibrant Communities where everyone thrives. We are working every day to make the proven benefits of homeownership real for everyone: benefits like improved health, better educational outcomes and stronger financial security.
We know you’re getting zillions of emails and tweets asking for your gift, but we hope you’ll consider a small donation to the Minnesota Homeownership Center, and here’s why:
Our counseling and education programs have helped 200,000 households purchase and retain their homes.
More than half of the delinquent homeowners who work with advisors in the Center’s Advisors Network are able to avoid foreclosure.
Homebuyer education has been attributed to 30 percent fewer mortgage delinquencies, saving communities and taxpayers money in the long-term.
Just $25 can fund eight referrals from our ‘mortgage crisis’ phone line
The benefits of homeownership can alleviate several problems addressed by other nonprofit agencies. Families who own decent and affordable homes report being healthier, safer and more financially secure than their renting counterparts.
We hope you’ll take a moment to learn more about the Center’s work by reading some other blog posts or exploring the resources on our website.
The Center believes the value of homeownership is still strong, and the value of your gift is immeasurable.
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.