Getting Your Home Ready to Sell

FSDAs the economy improves, today’s sellers are facing a very different environment than they were before the housing market stumbled in 2006.

Today’s housing market features new procedures and standards, not the least of which are continuing borrowing hurdles for prospective buyers. If you are thinking about a home sale in the coming months, it pays to do a thorough overview of your personal finances and local real estate environment before you put up the “for sale” sign. Here are some general issues to consider:

Make sure you’re not underwater. You may want to buy a new home, but can you afford to sell? The term “underwater” refers to the amount of money a seller owes on a house in excess of final sales proceeds. If what you owe on the home—including all selling costs due at closing—exceeds the agreed-upon sale price, then you will have to pay the difference out of pocket. If you’re not in a situation where you absolutely have to sell now, you may want to wait until your financial circumstances and the real estate market improves.

Evaluate your finances. Before you sell, make sure you are ready to buy or rent. Making sure all three of your credit reports are accurate is an important part of that process.

Consider “for sale by owner” vs. “for sale by broker.” “For Sale by Owner” (FSBO) signs were a common sight in many neighborhoods during the housing crisis. Shrunken home values convinced many sellers to sell their property themselves rather than pay 5-6 percent of profit in broker commission. However, consider what a licensed real estate broker could accomplish in your specific situation. Many experienced brokers have market knowledge and negotiating skills that could potentially get a better price for your property. Deciding which route to take shouldn’t be an overnight decision. Check leading FSBO and broker sites and talk with knowledgeable friends, attorneys and real estate professionals to learn as much as you can.

Think twice before spending on improvements. Not every home construction project pays off at sale time. Remodeling magazine’s annual Cost vs. Value Report tracks both pricing and cost recovery for leading remodeling projects. Before fixing up a bathroom, kitchen or any other area of your home, research whether the work will actually pay for itself at sale. For many sellers, it might be advantageous to hire a licensed home inspector to identify any structural, mechanical or major appliance repair issues that could delay or compromise a sale.

Don’t forget moving costs. According to the American Moving and Storage Association, a leading industry trade group, the average professional interstate move of 1,220 miles costs an average of $5,630; in state, the average moving cost is $1,170. After all the costs involved in selling a home, don’t forget how much it costs to relocate.

Bottom line: Selling your home requires planning. Before putting it on the market, get solid, qualified advice on how to sell smart in a still-recovering housing market.


By Nathaniel Sillin


Housing Decisions After A Divorce

Man and woman halve their house.When a marriage ends, housing can be one of the most challenging transitions to work through. If you are facing this hurdle, try as much as possible to remove emotions from the equation and use the following factors to make a choice that will set you up for a more secure financial future.

Know your options

If you own a home with your spouse, you have four main options for the house:

  • You can jointly sell the house and share the profit, if you have equity in the home (the house is worth more than what you owe on the mortgage)
  • Buy out your spouse
  • Be bought out by your spouse
  • Keep joint ownership

Facts to consider

  • The settlement—Understand that the rights to the house aren’t necessarily going to be split 50/50. Every situation is different and states often have unique laws. Consult with your divorce attorney or your Certified Divorce Financial Analyst (CDFA) to get a handle on what your share of the home’s value is anticipated to be.
  • Children’s needs—If you have children, clearly one of your first priorities will be to provide for them the best you can. Factors like their schooling, safety, proximity to family and friends, etc. will come into play. Making a list of the pros and cons of different options as they relate to their best interest can help to clarify your choice.
  • Your budget—Before you know what scenarios are realistic for housing, you need to know what you will be able to afford on a monthly basis given your new financial circumstances. Complete a budget based on your new income and expense levels to determine what is affordable. No matter how attractive a particular option might seem, it will only make your life more stressful if you can’t keep up on payments long-term.
  • Could you buy a new house or refinance your current one?—If you are interested in the possibility of selling the home and using any profit you reap to buy a new house or condominium, or want to refinance the home so that it is just in your name, you need to assess your ability to do it. Think about your credit standing and whether or not your current credit score and debt and income levels would qualify you for a mortgage by yourself. If you are unsure about all this, talk with your financial institution about how they see you as a potential loan candidate.
  • Income security—With two people, it is generally much easier to stay up on mortgage payments. Even if one person loses their job or is out of work for a period, the other person is there to pick up the slack during that time. If you are considering taking on a mortgage by yourself, take into account what would happen if you were to unexpectedly see a sharp drop in income or increase in expenses. If you are thinking of living in your current house or buying a new one, you may want to consider taking in a roommate or family member to help with the mortgage and bills.
  • Tax considerations—This kind of living decision hinges on more than just concerns of comfort and cash flow. There could be a sizable impact to your taxes too. Make sure to consult with either a CDFA or a tax professional to weigh the ramifications of different options.

There is no “right for everyone” answer to this question. However, if you carefully consider the available options, you should be able to arrive at the one that is best for you and for the future.


© 2012 BALANCE

Debt-to-Income Ratios Can Derail Your Home Purchase

debttoincomeYou’ve got your down payment. Your credit score is fantastic. You’ve even figured out your monthly budget for housing expenses.

So now you’re ready to charge ahead into the home buying process, right? Maybe not. If you’ve overlooked your debt-to-income ratios, you might not be as mortgage-ready as you thought.

What are they?

As the name suggests, debt-to-income ratios (DTIs), are ways of measuring a person’s monthly debt payments as they relate to incoming cash.

There are two main types of debt-to-income ratios used by mortgage lenders. These are known as the front-end ratio and the back-end ratio. The front-end ratio measures monthly payments for only housing-related expenses, like mortgage principal, interest, taxes, mortgage insurance, homeowner’s insurance and HOA fees (if applicable).

The back-end ratio encompasses all debts that are currently or will be paid on a monthly basis, like the housing-related expenses, home equity loans, credit card minimums, student loans, personal loans, alimony/child support and any other monthly debts.

Remember that your income figures should include not only any salary you receive, but also any alimony, child support, public assistance, stock dividends, profits from a side business, or regular bonuses (yearly totals divide by 12 for a monthly figure). Be sure to use gross (before tax) figures.

How do I calculate my DTIs?

Once you’ve added up your projected monthly housing expenses, simply divide them by your gross monthly income. This will give you your front-end DTI. For example, if your projected monthly housing expenses are $1,500 and monthly family gross income is $6,000, your front-end DTI is 25%.

To calculate your back-end ratio, just add your monthly debts as described above and then divide them by your gross monthly income.

Why is it so important?

Generally speaking, mortgage lenders want a potential home buyer to have a front-end DTI of no more than 28% and a back-end of 36%. While these numbers may vary from lender-to-lender or by location, it is wise to use these figures as targets when you are beginning the process of buying a home.

If you find yourself with numbers above the 28/36 thresholds, don’t despair. While it may be tough to quickly raise your recurring monthly income, it’s usually easier to examine your budget for ways to free up money to aggressively chop away at your debts. You may need to sacrifice a few luxuries for a while, but if doing so helps you get into a home you love, you will probably find it was all worth it.

© 2014 BALANCE


First-Time Home Buying Mistakes To Avoid

homebuying mistakes

The mistake: Using the same agent as the seller

How to avoid it: You may be told that you can save money by using one real estate agent for the transaction. However, the reality is that you are much better served by having someone looking out for ONLY your best interests.

The mistake: Buying points without considering how long you will stay in the home

How to avoid it: When you buy points on a mortgage, you lower the interest rate on the loan by providing more money up-front. This certainly makes sense if you are planning on staying in the property long-term and will save a large amount of money by paying less interest over that time frame. However, if you plan on moving within a few years or are buying the home with the idea of selling it relatively quickly, it probably doesn’t make much sense to buy points.

The mistake: Using an adjustable rate mortgage to buy before you are ready

How to avoid it: One of the reasons for the housing crisis of the late 00’s and early 10’s was homebuyers being encouraged to buy homes they couldn’t afford using a low initial interest rate that they could theoretically renegotiate as the value of the home increased. The problem came when many of those homes didn’t increase in value. Gambling that you will be able to refinance a mortgage or sell the home before the rate increases is not only risky, but puts you in a very stressful position as a homeowner.

The mistake: Including closing costs in the loan

How to avoid it: The lender may provide you the option of including the closing costs in the mortgage loan if you are not able to meet this expense at the time of closing. However, financing these costs means paying more since you will have to pay interest too. You are better off saving up for closing costs ahead of time since this will cost you much less in the long-run.

The mistake: Being unaware of service contracts for your home

How to avoid it: Hot water heater broken? Before you shell out the cash to have it fixed, check the paperwork to see if repairs are covered in a service contact included in the loan agreement. You don’t want to pay out of pocket for something that is already covered.

The mistake: Thinking a passing home inspection grade means no worries

How to avoid it: The best home inspectors will give you notes on possible future trouble areas even if they are working fine right now. However, this isn’t always the case. Don’t assume that a home inspector signing off on a property means that there won’t be any major expenses in the near future. Assuming that repair costs will spring up eventually and preparing accordingly is the best practice.

The mistake: Not budgeting for HOA fees

How to avoid it: With all the costs popping up as you move through the buying process, it can be easy to forget about Homeowners Association Fee. Unless you have money to burn, a successful home buying experience is going to involve understanding first what you can afford and then the total monthly cost of the property you are looking at—including potential increases.

The mistake: Failing to plan for potential increases in insurance or property taxes

How to avoid it: With a fixed-rate mortgage, you might think your mortgage expenses are locked-in. But think for a moment of parts of the country hit by natural disasters in the past few years. Many homeowners in these areas have seen dramatic increases in their homeowners insurance as a result. Hopefully you won’t be hit by any cataclysms, but even if the odds of this are low, it’s still wise to have some money set aside in a housing fund to cover increased costs.

© 2014 BALANCE

Questions to Ask About Property Tax Before You Buy

Property-TaxWhen selecting a home to buy, you’ve got a lot on your mind: how the different options meet your wants and needs; the respective price tags; what the individual neighborhoods are like; and the likelihood each property will go up in value. While all these are important factors, they need to be considered in conjunction with an oft-overlooked issue: the property tax.

Whether you are a first time homebuyer or an old pro, you are well-advised to contact the local property tax appraiser’s office for each of the homes you are considering. Many of these offices have websites to answer your questions, but be aware that you may need to call some appraisers’ offices to get the information you need. When you have gotten in touch, there are some key bits of information you need to find out to truly make an informed decision. Below are the questions every homebuyer should ask about property taxes.

  • What is the assessed value of the home?
  • What is the formula used to calculate property taxes?
  • Are there supplemental taxes in the first year of ownership?
  • Do rates go up after the first year?
  • Will the home be reassessed after closing?
  • When was the home last assessed?
  • When is the next scheduled reassessment?
  • Are there exemptions to—or assistance for—property taxes?
  • Will remodeling the home cause a reassessment?
  • Does the home fall under the jurisdiction of multiple tax authorities?
  • How do taxes on the home compare to other properties in the area?
  • Is it possible to appeal the property taxes?

You may not be able to nail down the exact number for every year going forward, but by asking the above questions and recording the answers, you should be able to get a sense for what kind of property tax profile each housing option presents.


© 2014 BALANCE

Understanding Mortgages


If you’re going to be responsible for paying a mortgage for the next 30 years, you should know exactly what a mortgage is. A mortgage has three basic parts: a down payment, monthly payments and fees. The down payment is the amount you contribute toward the home purchase. The monthly payment is the amount needed to pay off remaining amount over the length of the loan and includes a payment on the principal of the loan as well as interest. The fees are all the costs you have to pay up front to get the loan.

Keeping in mind those basic concepts, we’ll look at some of the mortgage variations that are available:

  • Fixed Rate A fixed rate mortgage requires a monthly payment that is the same amount throughout the term of the loan. When you sign the loan papers you agree on an interest rate and that rate never changes. This is the best type of loan if interest rates are low when you get a mortgage.
  • Adjustable Rate Be careful if you’re considering taking an adjustable rate mortgage. An adjustable rate mortgage allows the interest rate on your loan to vary with prevailing interest rates. If rates go up, so will your mortgage rate and monthly payment. If rates increase a lot, you could be in big trouble. If rates go down, your mortgage rate will drop and so will your monthly payment. A good strategy may be to stick with a fixed rate loan to safeguard against rising interest rates. And if rates drop, refinance your mortgage to take advantage of lower rates.
  • Veterans Administration (VA) Loans The Veterans Administration offers loan benefits to veterans who served in the armed forces on active duty during times of conflict, such as Korea, Vietnam, Desert Storm and Afghanistan, as long as they were not discharged dishonorably. The first step to obtain a VA loan is to obtain a certificate of eligibility, then submit it with your most recent discharge or separation papers to a VA eligibility center.
  • Federal Housing Administration (FHA) Loans The FHA was created to aid people in obtaining affordable housing. FHA loans are actually made by a lending institution, such as a bank, but the federal government insures the loan. This is often the least expensive loan that non-veterans can get.
  • Customized Loans Whatever the situation, there’s a financing strategy with terms to fit your budget. These options include the First-Time Home Buyer Program, as well as High Loan-to-Value, No PMI and Reverse Mortgages. 

Visit NASA Federal’s Mortgage Center to learn more, or to apply today!

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