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Lesson 9.3

Homeownership & Finances

 
Tim Alvis | Credit Expert | NMLS #373984

Keeping Healthy Habits

Many prospective buyers exercise heaps of caution on the road to homeownership. Purchases are delayed. Payments are made on time, if not early. Credit scores are closely monitored.

Don’t let those good habits disappear after closing day. As a new homeowner, you have even more to lose from poor fiscal management. The effects of foreclosure can be devastating, both emotionally and financially. It can be a harrowing event that homeowners should strive to avoid.

Here are a few tips to help you manage your mortgage obligation and stay financially disciplined:

Avoid Big Purchases

A big, empty house can easily stir new homeowners into a shopping frenzy. New TVs, furniture or appliances are exciting purchases and can seem essential at first. But then the bills start rolling in. On top of a new mortgage payment, you have new furniture, top-of-the-line kitchen appliances and fresh carpet to pay for each month.

Spend slowly, and schedule your big expenses over time. Don’t make all improvements the day after closing on a new home. Give yourself a few weeks to figure out the essential improvements, and space your expenditures adequately.

Prepare for New Expenses

Every home has different monthly expenses. If you’ve been living with family or renting a condo where utilities are included, your first batch of utility bills can send you into shock. Now add in a water bill, trash service, cable fees and more. Before purchasing a home, you should have received an estimate of average utility bills for the location. Make sure your budget can safely cover those expenses, and give yourself some time to adjust to your new bills before making big purchases.

Maintain 3 to 6 Months of Reserves

Most new homeowners head into a purchase with optimism. But challenges both minor and monstrous in scale can occur. Plumbing problems can result in a small DIY fix or a weeklong project for a professional contractor. Your employer could cut back on hours or, even worse, your job.

When facing any sort of financial challenge, it’s extremely reassuring to have a safety net. To protect your family and your future, strive to maintain three to six months’ worth of living expenses in a separate account. These reserves are not designed to fund your dream vacation or a rainy day splurge. Reserves are only to be used in case of emergency. That kind of diligence can be tough to maintain. If you’re faced with a crisis, you won’t regret your dedication to an emergency fund.

Pay Your Mortgage on Time

Staying current on your payments is one of the simplest ways to maintain the health of your mortgage. Late mortgage payments can rack up huge penalties and send your credit score tumbling. An even scarier realization is the fact that late mortgage payments can trigger foreclosure. Mortgage servicers can send a first notice or even file for foreclosure once your mortgage is more than 120 days delinquent. Avoid the headache and heartbreak of foreclosure by always making your mortgage payments on time. Contact your mortgage lender or servicer immediately if you’re having trouble making your payments.

Beware of Refinance Scams

Now that you’ve closed on your home, your real estate transaction is a matter of public record. This means other mortgage companies can and often will access your information and send you refinance and credit offers.

Some may be reputable advertisements from legitimate companies. But many others won’t be. These shady offers may even feature imitation insignias and fake logos meant to look like official correspondence from the VA or other government agencies.

You’ll often see rock-bottom interest rates and terms that promise significant savings. No matter how tempting these offers seem, please remember: If it looks too good to be true, it probably is.

Lenders who aggressively (and sometimes illegally) solicit adjustable rate mortgages and other too-good-to-be-true refinance offers don’t have your best interests at heart. Some hide or obscure the relatively short time you get to enjoy that low interest rate before it can skyrocket and send your payments soaring.

Other offers may include steep closing costs and fees that lenders stuff into your overall loan balance. Low introductory interest rates help mask the fact that your mortgage balance has ballooned to cover costs and fees. You could even wind up owing more than your home is worth after one of these shady refinance loans.

Here are some things to keep in mind:

  • Be wary of mortgage and credit offers that seem to imply a government affiliation by using official-looking logos, insignias and titles. The VA and other governmental agencies don’t make home loans or advertise them.
  • Be wary of incredibly low interest rates. Always check the fine print, as these rates tend to last only a short time before increasing, sometimes significantly. Also, these rates don’t usually reflect the Annual Percentage Rate (APR) on the loan, which can be a better reflection of the total cost of borrowing.
  • Be wary of anything that sounds like a guarantee. Loan preapproval is not the same thing as loan approval.

The best thing to do when you receive an offer like this is simply throw it away. Better yet, you can opt out of receiving them entirely. Visit the Federal Trade Commission’s website to learn more about managing prescreened credit and insurance offers.

In addition, you can always call your loan officer with questions about a refinance offer you’ve received. They can help you separate fact from fiction and determine whether a refinance might be in your best financial interest.

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