Adding to your rainy day fund
It’s inevitable — your house will need some kind of repairs. These repairs might be something expected like an old water heater or HVAC system needing to be replaced, but some can also come as a surprise. Inclement weather could cause your pipes to freeze and burst. Then, you would need to repair both the plumbing and anything else that was damaged – beyond what might be covered by your homeowners insurance. Having money set aside in a rainy day fund can help prepare you for when those repairs are needed.
What is a rainy day fund?
A rainy day fund is similar to an emergency fund. Over time, your house is going to go through some wear and tear, and having money set aside in an account can help you pay for maintenance. Rainy day funds are typically reserved for the smaller-scale expenses. These expenses are typically something that you wouldn’t anticipate having in your monthly budget, so they could really throw you for a loop and leave you scrambling to find a way to deal with the cost. Having a rainy day fund keeps you from having to do the scrambling. You’ll have an extra financial security measure to fall back on.
How much should you be putting in your rainy day fund?
The amount of money that you should have in your rainy day fund depends on the value of your home, so the amount of money in each person’s savings will be different. Realtor.com recommends keeping a reserve of 1-3% of your home’s total value. For example, if your home is veiled at $250,000, you should probably keep your rainy day fund around $2,500 to $7,500. Having a rainy day fund is all about diversifying your savings. While you’re not saving up for something specific, you are saving up for when that inevitable, unexpected incident occurs.
While having a rainy day fund is important for homeowners, it is also a good practice for renters too. For someone who is currently renting with a longer-term goal of purchasing a home, it’s important to make sure that you start saving for all the expenses that come with the territory — mortgages, down payments and home maintenance. Home repairs — expected or unexpected — can have a large price tag attached. Your rainy day fund can help you pay for those without cutting into your monthly budget. It can prevent you from having to make a hard choice between keeping the lights on and buying groceries or repairing your air conditioner or roof.
How to build a rainy day fund.
Because your rainy day fund is for saving and not for immediate spending, you can make wise decisions to protect (and even grow) your savings! Talk with a local bank or credit union about creating a savings account. These accounts usually allow you to earn a small amount of interest on the money that you put into the account. While it’s not going to earn you a ton of money, every dollar earned is helpful when an emergency happens! You can then talk with your employer about setting up a direct deposit to automatically add a small amount of funds to that account every time you’re paid. If the money never hits your spending account, it’s easier not to touch it! But, if you’re worried about spending from the savings account, you can always talk with your banker about protections you can put in place – like setting spending limits or not printing debit cards with access to the account.
Entering into homeownership can be intimidating, but there are resources out there to help you along your way. United Housing, Inc. is here to help make sure that everyone has access to affordable housing. We can help you in your home search and with financing options. Most importantly, we can help educate you on the entire process. We offer homebuyer education classes every week. Remember — you are not alone. United Housing is a resource that is here waiting to help you in any way you may need.
Creative ways to finance your home
When it comes to buying a home, financing options can be daunting. But traditional financing is not the only option. Here are some alternatives out there for becoming a homeowner.
When it comes to buying a home, financing options can be daunting. Thinking about loans, down payments and interest rates can be overwhelming, especially in a market that fluctuates as much as the housing one. However, the traditional ways for buying a home are not the only options. Here are some alternatives out there for becoming a homeowner.
Consider shared equity financing.
In a nutshell, shared equity financing allows for multiple families, banks and community organizations to invest in a property together. Having multiple investors in a property is affordable, but it also allows the community to create standards for properties in their neighborhood. This could include preventing things like gentrification or rapid price swings in communities that can price people out of the market. In a shared equity financing agreement, there are different roles. One party will act as an investor, and the other party will be the occupant. However, the investor isn’t solely responsible for paying. The occupant will also pay a portion of the mortgage and other housing expenses, which is all determined in the signed agreement. Additionally, if the occupant ever decides to sell the home, the investment partner or partners will get a portion of the profits made from the sale.
Look into adjustable-rate mortgages.
Adjustable rate mortgages, or ARM, are a double-edged sword. While choosing an ARM today might mean that your interest rate and monthly payments are lower, there is always the potential that the price can rise. ARMs initially start as fixed-interest-rate mortgages – meaning the interest rate you agree to at closing will stay the same for as long as your mortgage agreement states. But after a certain number of years, your financing partner can change your interest rate. For example, you might have a 30-year ARM, but your fixed interest-rate period is only the first five years. This means that after the first five years of payments, your mortgage can increase or decrease based on interest rates. While ARMs can initially be a great deal for homeowners, it’s important to recognize and understand the risks that can come later down the line. If you’re considering an ARM, talk with your lender about the amount of time your rate will remain the same, how much your interest rate can move in a year once the rate becomes adjustable, or what it might look like to refinance in the future to a fixed-rate mortgage.
Go through nonprofits like UHI.
Another nontraditional housing option is to look into nonprofits – like United Housing, Inc. – that help homeowners find more affordable housing options. Depending on the nonprofit you choose, they could offer several affordable options for home loans and home repairs. These nonprofits also provide you with an extra support system to help you walk through the process and really understand all the decisions that you’ll have to make.
At United Housing, we believe that everyone deserves a home. From affordable loans to educational classes, we want everyone to have the support and confidence they need to become homeowners. If you’re ready to make the big purchase, give us a call today.
How much space do I need in my house?
If you’re going to start looking at houses to buy, one of the first qualities you need to consider is how much space you want. Generally, people measure a home’s space by three metrics: square footage, the number of bedrooms and bathrooms, and the acreage of the lot on which the house sits. These numbers can vary widely, but when combined, they paint a really clear picture that can help you find the perfect house for your current and future needs. We break down what to consider when evaluating a home based on these metrics and how they play together.
How space is measured
To understand how a house’s space is measured, it’s best to start by defining the terms.
Bedrooms: Counting a home’s bedrooms might seem straightforward, but there are a few things you should know about what counts as a bedroom. For a room to count as a bedroom, it has to have at least 7 feet of horizontal distance, two forms of entry/exit (usually a window and a door), 7-foot ceilings and some sort of heating/cooling elements. Some states require a closet for a room to be considered a bedroom, but not all.
Bathrooms: A “full bathroom” is a washroom that includes a toilet, sink and shower or bathtub (or a shower/tub combination). You may also encounter a home with a half-bathroom or a powder room. Usually, this is a smaller bathroom that doesn’t have a shower or bathtub. If a home has two half bathrooms, the listing shouldn't combine them to list a full bathroom. Make sure you understand how many bathrooms are in a house and how they break down between full and half bathrooms by reading the property description.
Square footage: A home’s square footage is calculated by measuring the length and width of a room and multiplying the two measurements together. You repeat this process throughout all of the rooms and add the figures together to determine the total square footage. It’s important to consider a home’s number of rooms alongside the square footage to get a clear picture of how big a home is. Some homes have many smaller rooms while others will have a few bigger spaces. Both arrangements have pros and cons – it really depends upon what you need and want in a house.
Lot size: You should not only consider the size of the house you’re looking to buy, but also the size of the lot on which it sits. Sometimes lots are measured in square feet, and other times they’re measured by acreage. Regardless of the metrics used to measure, take some time to drive around and look at the lot size in the areas you’re considering. This can help you determine how much or how little land you want.
Current vs. future space needs
Now that you understand the metrics, it’s time to start thinking about how much space you need. A good way to get started is to think about your current living arrangement. Does everyone in your family who needs a bedroom have one? If not, you may want to consider homes with more bedrooms than you currently have. Is there a bathroom in your current space that often goes unused? Then maybe you could consider a home with one fewer.
Then, think beyond bedrooms and bathrooms and envision how you’d like to use your new house. If hosting meals for family holidays is important to you, then a larger kitchen and a dining room might be features to look for. If you have an active pet and kids who enjoy playing outside, then a fenced yard may be an important priority. When you think about your needs and your wants combined, a clear picture of how much space you really need can come into focus.
One pitfall homebuyers can fall into is not considering their future space needs when shopping for a home. If you plan to have children, have a significant other move in with you, care for older relatives or host guests, you may want to look for a home that’s a little bigger than your current needs. This can help make your home last longer for your family and keep you from having to move.
Finding the balance between space and affordability
Some people might say that bigger is always better – but that’s not the case when you’re shopping for a home. The goal should be to find a home that has enough space to make sense now and into the future while also fitting within your budget. After all, you don’t want to pay more in a mortgage and higher utility bills for space you don’t really use. This is where working with a Realtor comes into play. A licensed real estate professional can help you determine what parts of town would be affordable based on the size of a home you’re looking for.
They can also help you evaluate how well a house uses space. Some houses waste square footage because of poor design choices. Others have lower square footage but are much more functional for modern families. For example, Homes in United Housing’s neighborhood, Wolf River Bluffs, use universal design standards to maximize usable space and provide amenities that are both functional and affordable.
Ultimately, it’s your decision!
Whether you need a home with lots of space or a more compact economical house, it is your decision. Once you understand how space is measured and use our recommendations to determine your needs and wants in a space, you should be on your way to finding your dream home!
Interest rates: What are they and how are they affecting homebuyers in 2022?
Interest rates have been in the news quite a lot this year. Eager homebuyers are navigating a challenging housing market while they watch interest rates soar, hoping to beat any further increases and finally sign a contract on the perfect home. Rising costs on just about everything, like food, gas and everyday services are worrisome for many. All of these things aren’t predicted to decrease in price any time soon, unfortunately. So how does all of this affect you, the hopeful homebuyer? We explain below.
What is an interest rate on a home?
An interest rate is a set percentage rate that you pay on a loan (your mortgage). You begin with a principal loan amount (the amount you purchased your home for) and then pay interest to your lender on top of that price to be able to borrow the money. It’s broken down on your monthly mortgage statements, too. You’ll see the amount that was applied to your principal and the amount you paid in interest. As the amount owed decreases, the amount of interest you pay monthly will decrease. Your interest rate also depends on the economy and market conditions.
How is a homebuyer’s interest rate calculated?
Many factors go into calculating a homebuyer’s interest rate. Traditionally, a mortgage company will look at the length of the loan, the total loan amount, your credit score, inflation, housing market conditions, and your down payment among other things! The type of loan you’re getting, such as a conventional loan or FHA, also factors in.
If you know anything about United Housing, though, you’re aware that we’re in the business of making homeownership possible by making it affordable! Our programs and resources are designed to keep housing affordable and provide attainable mortgages to those who may not qualify for traditional loans. Take our Cherry Mortgage for example. We created this loan with fair qualifications that we set because we’re your lender versus a large, national organization. And that includes the interest rate. So when traditional mortgage rates are on the rise, we work to ensure purchasing a home through UHI remains affordable.
Why does this matter now?
If you recently went through the process of getting prequalified for a traditional mortgage, it’s possible that you found – based on current market interest rates – it won’t actually be affordable at all. Even if a homebuyer is prequalified for a certain amount, the rising interest rates can push them out of that amount because as those rates rise, so does a buyer’s monthly payment. Or, maybe all of the negative news around interest rates has discouraged you from even trying. But as mentioned above, our Cherry Mortgage is meant to be a solution to this very challenge. If you’ve hit roadblocks with a mortgage lender, partnering with United Housing may be the option that helps you achieve your dream of homeownership.
To learn more, we encourage you to check out our Homebuyer Education Courses. It’s a great first step for any new homebuyer and is also a requirement of our Cherry Mortgage. We host classes Tuesdays, Thursdays and Saturdays, so sign up now.
How to prevent foreclosure
Purchasing a home can be an exciting process. While you’re visiting properties, weighing pros and cons and evaluating neighborhoods, you’ll need to take a step back and carefully consider what home makes the most sense for you financially. Foreclosure is emotionally and financially devastating, but for the most part, it can be prevented with forethought and planning.
So, what is foreclosure? Simply put, foreclosure is a financial process where the lender reclaims a home from the borrower because of an inability to make payments. The immediate implication is the loss of your home and property, but the ripple effects – like a hit to your credit score, inability to purchase a home for five to seven years, and emotional distress – can be felt for years.
United Housing is committed to helping Memphians achieve homeownership. But beyond that, we want to help our neighbors remain in their homes and build wealth. Here’s what you can do before you buy to help prevent foreclosure.
Attend a Homebuyer Education course
Fully understanding the cost of owning a home can help you better determine how much money you can afford to spend on a home, consequently preventing you from overextending yourself financially. Homebuyer Education courses, provided by organizations like United Housing, paint a holistic picture of the homebuying process and the costs associated with buying and maintaining a home. If you’ve already purchased a home, it’s not too late! We can still help you through our Post-Purchase Homeowner Education classes.
Create a budget and stick to it
Once you know how much homeownership costs, you can build a budget to ensure you have the money needed to cover your mortgage payment. United Housing’s HBE course helps you start the process, providing you with the tools you need to lay out your expenses and set your spending priorities.
Prioritize saving
Simply put – life happens. Even sound budgets can be shattered when economies change, babies are born or jobs are lost. Having a solid savings account will leave you time to reallocate your funds without missing payments on your mortgage.
What to do if you’re facing foreclosure?
If your mortgage payments are mounting, seeking help early can keep you in your home. UHI offers foreclosure counseling where our team of caring, trained professionals can help you evaluate your options. You don’t have to lose your home, and we can help you find a solution.
Stop Home Scams: Knowing what to look for
COVID-19 has created a housing insecurity crisis. Families across the country are struggling with newfound uncertainty and increasing fragility surrounding their living situations. Unfortunately, scammers use crisis situations like these to prey on people’s fears and insecurities. That’s why it’s so important to pay attention to and learn more about housing scams.
Luckily, our friends at NeighborWorks America are partnering with the Wells Fargo Foundation, National Fair Housing Alliance and National Foundation for Credit Counseling to create a public education initiative aimed at helping consumers take action to protect themselves and their homes from scammers. They have already offered helpful tips to identify and avoid scams:
Do not pay anyone who is not your mortgage lender.
If someone contacts you and asks about home payment, do not pay them. The only entities that should be dealing with your mortgage payments are you, your lender and your certified housing counselor if you’re working with one. Additionally, if anyone gets in contact with you to tell you to stop paying your monthly mortgage payments, do not listen to them. Trying to get someone to halt their payments is a sure sign of a scam.
Do not give any personal or financial information to someone you do not know.
A great general rule is to not give any personal information to anyone who is not a licensed professional or personal friend, especially over the phone. That being said, if someone calls requesting information regarding your personal finances or housing situation, do not answer their questions until you can credibly verify who they are. If you cannot, there is no reason to move forward with any further conversation.
Do not listen to promises.
Someone might try to contact you and tell you that they can fix whatever housing insecurity you might be facing. For example, the person might promise to prevent your home being foreclosed on, or might promise to give you money for your next monthly payment. All payment plans should be arranged directly with your mortgage lender and your housing counselor – and neither will EVER promise you they can stop foreclosure or eviction. They will only provide the best options and counseling with the goal of preventing home loss. Promises of “free” money without certified counseling and expert intervention are a sure sign of a scam, as nobody can guarantee you will not be foreclosed upon or evicted. Also, if someone promises to provide a housing-related service for you, such as lawn care, do NOT pay them before the service has been completed, no matter how sincere their “promise” to get it done is.
Find out what your options are
One of the best ways that you can fight against scams is by becoming informed and arming yourself with knowledge as early in the process as possible. Talk to one of United Housing’s HUD-certified housing counselors, or any one of our team members. We want to help you find housing stability and give you real, practical ways to help you with whatever obstacles you may be facing. Regardless of moratorium deadlines, we can help you get on the path to foreclosure prevention now. The earlier you start the process, the better. Visit https://www.uhinc.org/education/foreclosure-counseling to get started with one of our counselors.
If you are suspicious that someone has tried to scam you or a neighbor, whether they were successful or not, please report the situation to the appropriate authorities such as the Federal Trade Commission (FTC) or the Consumer Financial Protection Bureau. For more resources on stopping scams, visit https://www.stophomescams.org/.
Foreclosure in Memphis: what you need to know
If you’re facing foreclosure in Memphis because of hardships caused by COVID-19, there is help out there for you. By connecting with United Housing, you’ve come to the right place.
No one expects you to know what to do on your own when you’re facing foreclosure. Our team of educated housing counselors can help you better understand the options you have that could help you keep your house. They will also walk you through the process – you do not have to go through this alone. You can start the housing counseling process by filling out this online form. If you’re facing foreclosure, we encourage you to sign up as soon as possible.
Before you start housing counseling, there are a few things you can do on your own. By taking these steps, you’re gathering information that will help your housing counselor and could help you keep your home.
To help you create a plan, our housing counselors need to know who owns your loan. If you’re not sure, you can use this free online tool to find out. Why is this important? Different lenders handle foreclosure support differently. Knowing who owns your loan will help us create the best repayment plan for your family.
2. Learn about CARES Act support and forbearance.
Government support can be confusing, especially when it comes to homeownership. Even if you read or watch the news and try to keep up with the most recent changes, it’s easy to misunderstand what help is available. This online tool from Freddie Mac explains important topics you should understand before you attend your counseling session: forbearance and CARES Act support. Read through this guide and click on the “+” icons to expand specific topics. Reading through this page a few times can help you better understand these topics and how they apply to your situation.
3. Prepare questions for your counselor.
You don’t have to come to your housing counseling session knowing everything about the CARES Act and forbearance. But reading about these topics ahead of time can help you prepare questions. As you read through the interactive online guide from Freddie Mac, write down questions for your housing counselor. They will be able to answer your questions and explain topics in more detail.
4. Continue to follow United Housing for more help.
United Housing is here to help. When you follow us on Facebook, you can learn about upcoming workshops or classes from United Housing and other trustworthy organizations in Memphis. These classes and workshops are a great way to learn more about housing, homeownership and specific topics like foreclosure.
If you live in Memphis and need help to keep your home, reach out to United Housing today. You can visit our website or call 901-272-1122.
How does debt factor into the homebuying process?
Finances are highly personal, and it can feel overwhelming when you’re trying to buy a home and you suddenly have to share a lot of personal financial information. You might even feel judged or embarrassed to share your debt information with a potential lender. The average American is about $38,000 in debt, so you are certainly not alone if you enter the homebuying process with outstanding debt. But it’s important to understand your personal financial information in relation to your debt and how that will impact your homebuying process.
How does debt impact my ability to buy a home?
Debt is one of the largest factors mortgage lenders consider when you apply for a home loan. Specifically, mortgage lenders will look at your debt-to-income ratio – or how much of your monthly income immediately goes toward paying down your existing debt. If you think about it, you consider your debt-to-income ratio every month when you make purchasing decisions. In your budget, you likely subtract your expenses (like debt repayment) from your income to determine how much money you can spend in a month. Your mortgage lender is doing this same process.
The specific debt-to-income ratio your mortgage lender is looking for will vary. But generally, most lenders look for a debt to income ratio below 43%. Of course, a lower debt-to-income ratio is favorable to lenders because it means you are more likely to be able to cover the cost of your mortgage on a monthly basis without overextending yourself financially.
Another way debt might impact your ability to buy a home is through your credit score. Your credit score is an easy way for financial institutions to see how reliable you are as a lender. Your credit score is built using a number of factors, but many of them are linked to debt. You can build your credit score by making your debt repayments on time every month, limiting outstanding debt on credit cards and reducing the number of debt accounts you have at one time.
Is all debt the same to my mortgage lender?
Most common types of debt are considered equal to mortgage lenders. Things like autopayments, student loans, personal loans and credit cards are all factored into your debt-to-income ratio. But, it’s important to talk with your lender, as some debts might be treated differently depending upon your mortgage options. For example some lenders subtract alimony payments from your monthly income but don’t include it in your debt-to-income ratio. This can sometimes make it easier for you to qualify for a loan.
There are a few things that you might consider debt that aren’t by your mortgage lender. Things like your monthly phone plan, gym memberships, or other subscription services are not counted as debt. It is still important to factor those costs into your monthly budget, though.
How can I use information about my personal debt to make a smart homebuying choice?
Understanding your personal financial situation, including your outstanding debt, is important to help you make the best homebuying decision for your family. When you work with one of United Housing’s homebuying counselors, they can help walk you through that process. Some families might need to work on paying off debt and raising their credit for a year before starting the homebuying process. Other families need to closely monitor their budget to determine how large of a mortgage payment they can comfortably afford. Regardless of your situation, our team of well-trained experts will help you understand your financial situation and will guide you toward the decision and home that is right for you.
Homeownership is for everyone – including young people
Homeownership is an intimidating process that many people think is too complicated or expensive for them to pursue. Historically, candidates for first-time homebuying were in their mid-20s through their early 30s. The generation that is currently within this age, millennials, carries $1 trillion in student loan debt, exponentially more than any previous generation. For some people, this debt fills the line in the budget previously allotted for housing.
Whether or not student loan debt is a factor, many young people assume that they could never afford to buy a house. Others believe they simply don’t need to buy a house. And while homeownership may seem out of reach, it is achievable and beneficial for most people with planning, budgeting and education. We’re debunking four homeownership myths to help you see how attainable and helpful homeownership can be for young people.
1. I have to have a 20% down payment to buy a house.
A down payment is the amount of money a homebuyer puts forward at the time of sale. While conventional mortgages require a 20% down payment to buy a house, there are other common mortgage loan types with more manageable down payment requirements. Federal Housing Administration and Veterans Affairs loans are great options for many young people and first-time homebuyers, and they require as little as 3.5% down. There are also down payment assistance programs offered by local and state governments for down payment assistance. Through these programs, qualified buyers can buy a home with 1.5% down. That makes the amount of money you have to save to start the process more affordable.
2. It’s cheaper to rent than it is to own.
One of the best things about purchasing a home is the control you have over what you spend. As you’re looking at houses, your mortgage lender can tell you the estimated cost you’ll pay per month for each house you’re considering. One thing that surprises UHI clients is that you can often finance a home so your mortgage payments are less than what you’re currently paying in rent! You can absolutely find a home that fits your desired monthly payment – below, at or above what you’re currently paying in rent.
3. I don’t have a partner, so I could never afford the payments.
Homeownership is not dependent upon your relationship status. Many young homeowners can afford to purchase a home and live on their own, but some people like the company of roommates. As the homeowner, you act as the landlord to your roommates, collecting rent to help cover your mortgage payments.
Depending upon the size of your house, the number of roommates you have and your monthly mortgage note, you might be able to free up some of your personal budget to save for unexpected repairs, home renovations or other expenses.
4. I’m taking on a lot of risk buying a house – I don’t want to be stuck here forever.
Any major investment assumes some risk, and a house is no exception. However, property and a home are some of the most stable investments a person can make. You’re never guaranteed equity, but most homes appreciate in value over time. So, if you’re planning on staying in your current city for the next few years, you’re likely to make a little bit of money if you buy a home. Buying a home is an investment in yourself and your future – renting is an investment in someone else’s property.
Important housing terms defined
Important housing terms defined
If you’ve experienced financial hardships in light of COVID-19, you’re not alone. Millions of Americans have filed for unemployment and others have been furloughed or had their hours significantly reduced. As we’ve shared before, we’re in the beginning stages of understanding what effects COVID-19 will have on housing, but we know that many of you needed to miss payments because of financial hardship.
We want to make sure you’re in the best place possible to navigate the repayment process. There are a number of factors to consider, and there are terms associated that can be confusing or unclear. Here are a few terms you should know as you start to build your repayment plan:
● Compounding interest may still accrue depending upon your debts. If additional payments are added on to the back end of your loan, your interest may compound and extend beyond your original payment plan. Talk with your lender about your interest rate and how deferment or forbearance might impact how much interest you pay on the life of your loan.
● Deferment is simply the process of pushing something back or moving it to a later time. If your bills or loans are deferred, like many individuals’ student loans are now, this means that they will be due at a later time. Check with your lender to learn what your repayment plan will look like.
● Forgiveness when it’s associated with a loan means that you are not expected to make repayments. This is rare for things like mortgages, utilities or rent payments. You may have heard this term in conversations about COVID-19 relief loans for businesses. Always check with your lender before you assume a debt is forgiven.
● Forbearance is an immediate relief program where one’s debts payments are no longer due on a regular basis. Forbearances usually have terms that you’ll know up front (usually listed as a number of days) and after the terms have expired you’ll be expected to resume payments. If your loan is in forbearance, you need to talk with your lender about the repayment process.
● Hardship is any circumstance that has made it difficult for you to make loan payments. Many deferment and forbearance programs require proof of hardship before you can miss payments. Hardship examples could include a termination letter, proof of reduced hours, or other documentation that demonstrates a loss in income related to COVID-19.
We know that this can be a complicated process to navigate. If you need help understanding your loan standing and determining a repayment plan, United Housing can help.
What you should know about your credit score
There are still a lot of unknowns about the mid- and long-term impacts of the coronavirus on the financial well-being of Americans. Typically, missing or skipping payments on rent, utilities or other loans has a negative impact on your credit score. But with many financial institutions allowing missed payments, does that mean they will extend grace in relation to your credit standing? Not necessarily.
While we don’t know for sure how the coronavirus will affect your credit score, there are a few things you can do to put your best foot forward:
Learn what your current credit score is. Understanding your current credit score will help you track how it changes in the coming months. Without your current score as a baseline, it can be hard to tell if the score is changing over time. If you need help finding out what your credit score is, call United Housing at 901-272-1122.
Pay what you can. Continuing to make your regular payments is the best way to avoid a hit to your credit score. At the same time, try not to run a high balance on your credit cards. We understand that times are challenging, and making all of your payments may not be possible. Prioritize your family’s immediate needs, like food and shelter, first.
Keep detailed notes of any payments you skip. If you skip a payment of any kind, keep tidy notes so you can track progress toward paying them back. If you understand what you missed and how much you owe, you can work toward paying off your debt in a timely fashion. Repaying debts quickly will help prevent a major decline in your credit score.
Stay in continued communication with your lenders. We can’t say for sure what your personal repayment plans will look like. Talking with your lender about their repayment options will help you create a plan to repay your debt. You can prioritize based on deadlines and debt amounts to decrease your debt as quickly as possible. Again, if you carry debt for a shorter amount of time, your credit will be affected less.
If you have questions about managing your credit score, working with reliable lenders or building your credit, call us at 901-272-1122. We’ll be happy to help you and your family through these processes.
Interest Rates vs. Mortgage Rates
The economic market is in a state of uncertainty as financial institutions are trying to predict the outcome of the COVID-19 pandemic. There are a number of factors coming into play – from unemployment filings to gross domestic product – that paint a larger picture of the economic impact of the coronavirus.
One thing you’ve likely heard on the news or read online is that interest rates are falling. In an effort to stimulate the economy, sometimes the federal reserve will lower the interest rate to entice people to spend, which ultimately provides an economic boost. This means that interest rates on bank loans, car loans and other loan projects might be lower now than they were a few weeks or months ago.
It’s important to know that interest rates are not the same as mortgage rates. Mortgage rates are controlled by a number of different factors, and tend to rise in high-risk times. Because the economic future is uncertain, mortgage rates are rising. This means that mortgage rates are now higher than they were a few months ago. If you have a mortgage and your rate is locked, the change in mortgage rates does not affect your home loan.
Mortgage rates are ultimately out of a homebuyer’s control. While you want to get the lowest rate that you can, it should be noted that now is still a good time to buy a home if you’re in a strong financial situation. United Housing can help you prepare to make a home purchase through online and remote Homebuyer Education courses.
What should you consider when choosing a neighborhood?
Finding your perfect home is important, but your “wish list” shouldn’t just consist of a number of bathrooms and square footage. As crucial as it is to choose the right home, choosing the right neighborhood is just as significant. To get an idea of your prospective living space and potential neighbors, there are certain things you should look for in order to choose the perfect neighborhood:
Location
What’s the proximity of the neighborhood to locations you will frequent? Look into the walkability of places like emergency services, grocery stores and pharmacies. The commute time to your job could also be a factor, but as jobs are subject to change, don’t base your location assessment solely on this one factor. It can even prove to be beneficial to check out the schools nearby. You may not have kids, but you could some day — or a family member could. Neighborhoods with good schools usually correlate with home stability, meaning buyers stay in their houses longer and resell at higher prices. Remember, convenience doesn’t always mean complete and total comfort, for example, nearness to a highway might mean shorter car rides, but you may also be opening yourself up to 24 hours of traffic noise right outside your home. So, weigh the pros and cons of the area’s accessibility and determine which convenient locations are worth it and which ones aren’t.
Safety
While we can never guarantee total safety, checking into the security of a neighborhood is a great way to get peace of mind. You can ask your real estate agent, talk with other residents in the area or even use available online tools that utilize crime reports and other data to analyze an area’s safety. Also, it’s important to keep in mind that no area can be completely safe. Just because the neighborhood you’re looking into doesn’t rank No. 1 in the city’s most secure places to buy a home, doesn’t mean you are putting yourself in any danger.
Neighboring property
Neighbors and their homes are just as important as the neighborhood! Take a close look at the houses next door, across the street and around the block from the home you’re considering. Check out the level of property upkeep done by potential neighbors, as well as whether or not they are owners or renters. Study the area for houses in foreclosure or left vacant and whether or not there are any new homes being built, or spaces for them to be. Looking at the other homes that occupy a particular area is crucial in terms of resale value. It’s hard to try and peek into the future, but there may come a time in which you find yourself needing to sell your home and it is important to make sure you’re able to.
Protect your investment with a home inspection!
An often forgotten part of the homebuying process is the home inspection. This critical step in the process protects the buyer from purchasing a home that might have flaws or issues by uncovering and disclosing them before the final contract is signed.
For some mortgage types, home inspections are required. For others, it is an optional step. Regardless of your mortgage type, United Housing strongly encourages all homebuyers to have a home inspection. In fact, we have two home inspectors on staff! Will and Matt go out into the community, inspecting homes and reporting findings to current owners and future buyers alike. They’ve shared three reasons why a home inspection is important!
1. Home inspections protect your investment.
Every home has minor issues or quirks. They’re man-made, and inevitably time and weather will cause small leaks, cracks and mechanical failures in varying areas of your home. But there is a big difference between small, fixable issues – like a leaky window that needs new sealant – and major issues – like a problem with a home’s foundation. A home inspection will identify all issues, big and small, so you can understand the state of a home before you sign on a dotted line. Think about it – you’re about to spend tens to hundreds of thousands of dollars on a home. You want to make sure it’s in the best condition possible!
2. Home inspections give you bargaining power.
Inevitably you will uncover something in your home inspection that needs to be repaired. When these issues are uncovered, your Realtor can help you negotiate a lower sale price or ask for these repairs to be fixed. The seller can then decide whether or not they want to meet your requests. With the knowledge you gain from a home inspection, you might be able to save money on your all-in payment, and save yourself money on the back end by having the seller fix preexisting issues.
3. Home inspections ensure you’re safe.
Older homes often have windows that are painted shut. This is a safety hazard – as every room in your home should have an emergency fire exit. Home inspectors are trained to identify necessary safety features and can point out any that are missing. Some mortgage types require safety issues to be resolved before you can close on the home, and oftentimes a seller will oblige and accommodate these issues.
4. Home inspections can protect sellers, too!
If you’re thinking about selling your home, you can also work with a home inspector! Rather than waiting for a buyer to uncover issues, you can proactively have your home inspected and make changes BEFORE you put your home on the market. This saves you from losing negotiating power during the home selling process.
If you have questions about home inspections, or need a home inspector to take a look at your property, connect with United Housing! We can help you identify a qualified home inspector to meet your needs.
How do homes build generational wealth?
Homeownership is a large part of the American dream. While homes serve as your dwelling and shelter, the place you call home could metaphorically become a financial safety net for your family. Whether you’re single and just starting out, looking to start a family or already have a family of your own, homeownership is a credible way that you can pass down wealth to future generations.
Why is homeownership an investment in future generations while renting isn’t? Renting is a good option for small periods of time, like when you’ve recently moved or when you’re job placement is temporary. But your rent payments are like daily transactions and don’t go toward an investment in your future – they go into someone else’s pocket. When you make a mortgage payment, you’re repaying a debt that eventually benefits you and your family. Paying a mortgage feels no different than paying rent, but the result is vastly different!
As you continue to make payments toward your mortgage, you’re building equity, or increasing the portion of the home you own. If you sell your house in the future for $70,000, and you owe the bank $15,000 because of equity you’ve earned by making mortgage payments, you’ll pocket $55,000 that you can then invest in your family’s future. You’re reaping the benefits of paying on your mortgage for years.
Ultimately, homeownership is a way to save money by investing in a home that meets your current needs in a way that renting does not. So, what steps should you take to buy a house and officially become a homeowner?
The first step is to understand your options. It’s important to know which factors, like income, credit rating, current monthly expenses, down payment and interest rates, affect the affordability of a home. These terms may seem intimidating, but THDA offers several resources like pre- and post-purchase homebuyer education and homebuyer education counselors to help define these terms and explain how they fit in the process.
Using these resources not only can help you learn what you can afford but it’s also a way to know your rights as a homeowner. By educating yourself, you lower your chance of overcommitting financially or becoming a victim to risks like predatory lending. Don’t worry, we understand that the process of buying a house isn’t any less scary or unknown.
Once you understand your options and your rights, think about signing up for a local homebuyer education course, like those offered by United Housing. These courses explain the foundation of homeownership like the importance of credit, how to build your credit, how to qualify for a mortgage loan, choosing a house, working with a realtor and basic home maintenance (plus much more!).
A home is a place for families – current and future. You can build a solid foundation for your family, one that will exist today and in the future. Ready to become a homeowner? Sign up for one of our homebuyer education classes or call us at 901-272-1122.
Shopping for a mortgage – here’s where to start.
If you’re in the market for a car, you’ll likely spend time researching and visiting dealerships to make sure you find the car and the deal that is perfect for you. While you can’t test drive a mortgage, for a purchase of that size you should absolutely shop around! Different lending institutions can offer different rates, accept individuals with different credit scores and can approve you for different loan amounts.
We know what you’re thinking – that sounds intimidating. And it absolutely can be! But like shopping for a car, you can come into the process feeling confident with a little research and preparation. Before you start shopping for a mortgage, here are a few things you should do first:
Know your current financial situation.
To qualify for a mortgage, you often have to provide a number of financial documents. Start gathering paperwork related to your financial situation – including pay stubs, investment statements and credit card statements. Have a clear understanding of what you have in savings, how much of a “rainy day” fund you have available, and all sources of revenue your family has available. Potential lenders will likely need to see this information to make sure you can afford to pay your monthly mortgage payments.
Understand what your credit score means.
In addition to financial information, your lending institution will evaluate your credit worthiness using your credit score. Your credit score uses a number of factors – outstanding debt, regular payments on outstanding loans, the amount of time you’ve had credit – to help financial institutions judge your ability to make prompt and full payments. If you don’t know your credit score, or worry your credit score is too low, United Housing offers credit counseling to help! We can help you understand what your score means and work to raise it.
Learn about mortgage options.
There isn’t a one-size-fits-all mortgage. There are different products that financial institutions offer depending upon your life stage and financial situation. It’s important that you understand the different mortgage types and which products are (and are not) a good fit for your family. We want you to avoid getting your hopes up about a loan product (and then a future home) that is out of your financial reach. This is what we teach in United Housing’s Homebuyer Education course! We break down available mortgage options in the current market and which options are available based on your circumstance.
Research financial partners.
Your mortgage lender will be part of your life for the next 15 to 20 years, so you want the relationship to be a good one. Do research and look to partner only with stable, trustworthy institutions. And, these institutions aren’t always banks! Community Development Financial Institutions, like United Housing, sometimes have loan options that you can consider when shopping for a mortgage!
Picking a home that will suit your needs now and in the future
When buying a home, everyone is looking for what serves their needs at their current stage of life. Of course, no one is going to purchase a house that negatively affects the way they live now. However, something that many potential homeowners don’t consider is what their needs will be later on. Life can change and fast! That’s why it’s a good idea to think long-term before purchasing a home. What future needs may arise? Will your family grow? Do you have an aging loved one who may have trouble with a multilevel abode?
Location
A location may seem perfect for your present situation, but what if that changes? For example, you may find a house that isn’t close to anything you usually frequent, but you sacrifice that because it is right next door to your job and you can’t pass it up. What if you change jobs one day? Or, what if your job moves office spaces? Try not to let current employment keep you from the location you want to live in now so you aren’t stuck in the future.
Future Projects
Be careful buying a home with features you don’t like solely based on the idea that you will renovate it in the future. Things you think you will have time for now may not always end up being feasible. Life and all the busyness that comes with it can sometimes get in the way.
Size
A home that may seem to be the perfect size now could end up feeling quite the opposite down the road. Be sure you keep in mind whether or not you might have children or even a relative joining you, as that may require an extra bedroom or two. People are not the only thing that can make your space seem like it’s closing in on you. If you work from home with a job that is increasingly demanding, you could end up needing more “office” space. In addition, consider yard size. Do you envision having a furry friend that would need space to run and play?
Resale
You may think this is the place you will live forever, but you never know, which is why it’s important to always consider a home’s value in terms of resale. Look at it through the lens of the average homebuyer instead of just in terms of you and your family.
Affordability
A mortgage payment that seems mostly doable now could turn into a real stressor on your budget. When looking to buy a home, make sure the mortgage payments and other fees are payable in any situation, for example, temporary unemployment, unexpected medical bills, etc. Wishful thinking isn’t always the best to cling to when it comes to home payments.
These are just a few things you need to consider before signing on the dotted line. Just remember, when it comes to buying a home that’s going to be with you for a while, the future is just as important as the present.
Raising your credit score
When preparing to purchase a home, many questions arise. Luckily, we’re here to help! One of the most common topics we discuss with our clients seeking homeownership is credit scores. So, how does your credit score impact your ability to get a mortgage loan? Here’s the scoop.
Your credit score, which is calculated based on the information in your credit report, is a key ingredient in determining two things when it comes to securing a mortgage loan. Not only does it determine whether or not you qualify for a mortgage loan, it also dictates the interest rate you will pay each month. Before we dive too deep, let’s break down credit score ranges to give you an idea of where you stand.
● 750-850 is considered "excellent"
● 700-749 is considered "good"
● 650-699 is "fair"
● 300-649 is "poor"
Your credit score is calculated based on the information in your credit report, including your lending history, length of credit accounts and any incidence of collections, among other things. If you have a higher credit score, you may be eligible for lower interest rates and are more likely to be approved for your mortgage loan. The lowest credit score to purchase a home with a Federal Housing Administration (FHA) loan is 600, according to credit.com. FHA loans are great for first-time homebuyers and require a minimum down payment of 3.5 percent.
Now, just because a credit score of 600 will likely secure your home does not mean you should stop working toward improving your credit score. Part of our education program at United Housing is our credit counseling. Raising your credit score is extremely important as it can lighten financial burdens for years to come. So, how do you do it?
Pack your patience. Your credit score didn’t plummet overnight and it won’t skyrocket overnight either, but don’t panic! Raising your credit score is definitely doable, and we are here to help. Here are a few tips.
Contact your creditors to set up a payment plan.
Pay your bills on time every month. If possible, pay more than once in a billing cycle to speed the process of raising your score.
Pay off credit cards that are “maxed out” first.
Do not close unused credit card accounts. If you must close accounts, close those that are newer.
For more information on how your credit score plays into purchasing a home or on United Housing’s credit counseling services, give us a call at 901-272-1122.