Tuesday, August 2, 2011

Learning How to Own a Home

WOW! That is all that I can say really. 

It's overwhelming the amount of information that is out there for first time home owner's. Anyone who is looking into buying a house, should seriously consider taking a first time home owner's class. It's a real experience. And one of the best things in the world in order to educate people on all aspects of buying a house. The class we are taking didn't just focus on the home buying process. There was also some financial planning in there as well. But it is all connected. Having a good financial plan, makes the dream of owning a home more attainable. 

Some tidbits we learned about:
* mortgage insurance - this kind of insurance compensates the lender in the event there is a default on the mortgage. Our teacher also indicated that it's quite common for home owners with small children to purchase this insurance to cover the loan on the house in the event one of them dies. Our instructor suggested getting a life insurance policy for the amount of the loan as opposed to going the mortgage insurance route. 

* we learned about the short sale process. Once a home owner misses 3 months of mortgage payments a lis pendens, a lien, is placed on the property and the short sale process has begun. At this point the equity in the house is gone and the pre-foreclosure process is started. Short sales are very harmful for the home owners. If you go 3 months without paying for your mortgage, you, as the owner of the house, get a 200 point ding to your credit that lasts 4 years. However, if you stay in the house for 18 months without making payments you get a 400 point ding to your credit that lasts 10 years!!!!!! The short sale process means that while the home owner can have some say in the sale of the house, the bank also has to be involved in the decision about who is buying the house.

* most people know about the 3 major credit reporting agencies (CRAs): Equifax, Experian and Transunion. Did you know that each of these agencies have contracts with different retailers? Interesting huh? And did you know that the credit card companies pay attention to the things that you buy? For instance if you go to a pawn shop and shop there regularly, your credit is affected negatively? On the flip side if you purchase bird seed, it's good for your credit. Fascinating huh? Additionally, the credit card companies pay attention to how often you use certain cards and what you use them for. If you have a card that you use to make big purchases one at a time and then you start using it for everyday items, the credit card company will assume that you are perhaps unemployed and are more likely to raise your interest rate!!! Craziness right?!?!? One last thing for this, if you use your credit card on a regular basis, it's best to keep it below 35% of the total credit limit. Doing this should not negatively impact your credit. Lastly, for the record... the type of credit card you have, i.e. Visa or Best Buy store card, does not affect your credit score.  

* there are several types of loans out there that are available for home buyers. it's highly recommended that you go with a fixed rate mortgage. it makes so much sense. while the home owners insurance and taxes may change and fluxuate during the life of your mortgage, but if you get a fixed rate mortgage, the interest rate will not change. there are some loan types out there that are real head scratchers, i.e. interest only, balloon payment loans. they just don't make any sense. 

* when signing a mortgage, make sure there isn't a prepayment penalty clause. these are fees that you will be charged if you pay off the mortgage too early. 

* one of the best ways to pay off the mortgage quicker is to make bi-weekly automatic mortgage payments. this can shave 5 years off of your loan. you can also send extra money to be applied to the principal separate and apart from your normally scheduled mortgage payments. 

* you should set aside 1% of the sales price of the house annually for general upkeep and maintenance of the house. 

* two websites to check out: bankrate.com - this will allow you to look at different scenarios, mortgage calculators, and amortization schedules; cnn.com - has a debt reduction planner that will allow you to run scenarios. 

* keep a spending journal - what you bought, how much you spent and how you paid for it. 

The class that we are taking is offered through Goodwill. I am not sure if this is a national program or not, but I am sure that there are other classes out there across the county. 

And believe it or not, there is more to learn tomorrow night. I am sooooo excited! 

1 comment:

  1. I agree, more first time home owners should should take a class. Thanks for sharing. I really like the suggestion of setting aside 1% for upkeep.