Purchasing and Financing a home
Seminars@Hadley
Purchasing and Financing a Home
Presented by
Steve Barris
Moderated by
Larry Muffett
June 10, 2015
Larry Muffett
Welcome to Seminars at Hadley. My name is Larry Muffett. I’m a member of the Hadley Seminars team. And I also work in curricular affairs. Today’s seminar topic is purchasing and financing a home. I’m really pleased and honored to have the opportunity to get a chance to work with today’s presenter. I had an opportunity to be in attendance at a Veteran’s Day ceremony here in Winnetka that he was the keynote at and was very impressed with him and been impressed with him ever since and really pretty excited about the opportunity to finally get a chance to work with him. Steve Barris is a bank professional and a blinded veteran and today he’ll be sharing some professional and personal insights on purchasing a home and obtaining the finance to close the deal. So now let me welcome Steve and we’ll get underway. Welcome, Steve.
Steve Barris
Great thanks, Larry, and hello to everybody that’s here from sunny Florida.
Larry Muffett
I don’t want to, to fool the audience on this, so portions of today’s presentation are going to be recorded, but Steve, as you just heard, is in live in the chatroom so he’ll be able to answer questions on you, so without any further ado, I’m going to go ahead and start the presentation.
Steve Barris
Well, I wanted to start off this morning with a disclaimer. First of all, I am not an MLO, which is called a Mortgage loan officer or loan originator. I’m not an attorney, I’m not a tax accountant or anything with the federal government because of the housing meltdown that we had some years ago and because of the mortgage crisis and all of that. Had to come up with some certain regulations such as regulation z, where somebody were to talk to you specifically about mortgage rates and all that, they have to be licensed and certified. So I am not that. Although I do work for a bank and have a lot of knowledge in these areas, I am not a professional in mortgages and rates and all of that. So if you have any questions regarding any specifics, what we’re doing today is basically a general overview. But if you really want specific, you really need to talk to somebody that does work in the mortgage field or an attorney or tax accountant or any of those types of areas.
So all I want to talk about home loans in the program today, this is really not specifically about VA home loans. It’s really, we’re going to be talking about great information for first-time homebuyers or even a second or third-time homebuyers. So most of it will really apply to homebuyers and not just typically just for the VA. Home purchasing is the biggest purchase that you’re probably going to make although I’ll tell you what, the price of cars have gone up significantly, but really the home is going to be the most expensive purchase you’re going to make in your lifetime. Although there was a big mortgage crisis and all that,really right now, it is a great time to buy a home because the interest rates are still low. The Fed has kept those interest rates low and they’re, although they’ve gone up a little bit, they really historical, historical lows. Of course, buying home is a great, great investment over time. But you really want to make sure that you do it right and you want to make sure that you’re an educated buyer. So this means research and, you know, part of that research is it’s really up to you to do that research. It’s good to have a real estate agent that you’re working with and all of that, but in most cases, a lot of this research is really up to you.
And one of the most important things and probably one of the most difficult things is to look at the home buying process as a business transaction, and not an emotional one. And I know when we’re looking at these houses, we’re talking about places that we’re going to live in for the next, you know, 30 years or so, this is the place we’re going to raise our kids in and it’s place where we’re going to celebrate holidays and anniversaries and birthdays. But when it comes to buying a home, it really is a business transaction. Save the emotions for when you’re living in there and you have your family coming over. But during the buying process, really it’s a business transaction. There are some general rules that are out there about buying a home. Some are true, some are not. Some are myths, some are not. The really general rule is that you don’t buy a home unless you’re really going to plan on being in that home for five years. And that’s because by the time you pay all the costs and expenses and all of that, and of course you have the interest rate and everything else, you’re really not going to see that monetary advantage to being a homeowner unless you’re going to be in that home for five years or more.
Now this is not necessarily always the case. Just because, you know, if you get a home at a really, really good price, that may offset that. And especially in today’s market, once again, the prices of homes, depending on where you are, are at all-time lows. I live in Florida. Florida is one of the places that were the hardest hit by the financial crisis and the mortgage meltdown because a lot of people, let’s be realistic, I’m up in Winnetka, Illinois at the Hadley school right now, up in Chicago area. Nobody wanted to be in Chicago in February so a lot of people bought their vacation or winter places down in Florida by me so they could come down and defrost. But that also means that those second homes were some of the ones that were the hardest hit in the mortgage crisis because let’s be realistic. If you lost your job and you’re underwater mortgage and you were facing foreclosure, you were probably going to let your vacation condo be foreclosed upon before your primary house. So once again, that five year thing s a general rule but may not always necessarily be the case.
The other general rule out there is that if your interest rate changes by 2%, then you should refinance and once again, that’s a general rule. So let’s say for example, you’re paying 6% interest on the home that you own now, and interest rates, you can get one now for 4% then you should refinance, and I would agree with that part. However that 2% rule is a general rule. Once again, you may, the interest rate may be only one point difference or 1% difference or one and a half percent difference, which is not quite that 2%, but let’s say you find a lender that has no closing costs or anything like that, so when you add up all the fees along with that interest rate, that 2% rule may not hold true and it could be something that you want to look into.
Once again, right now, there are the HARP loans that are out there versus the Home Affordable Refinance Program which is a government program. It’s been extended as I’m talking right now. It is still out there. Depending on when you listen to this, it may or may not be a program that’s still out there. But that’s a great program that if you’re underwater on your mortgage and underwater in your mortgage means you owe more on your house than what your assessment is and what your house is worth, then these HARP programs or the HARP program is out there to help you reduce those costs, refinance your home, and to make it more affordable.
One of the rules of the HARP program, once again, if you want all the details on HARP, please contact a professional working in this area but one of the general rules under HARP is that it’s only for homes that were purchased before 2009, before the meltdown happened. So those are just some of the general rules and myths and all that that are out there.
One of the other myths that are out there is that the VA home loan program, for those of you that are eligible for the VA home loan program, that that loan is better than a traditional loan. Now once again, that may not always be the case, because it really depends on fees and I realize that you know, two of the great benefits with the VA home loan program is that first of all, if you are eligible, you can purchase a home with 0% down. Also under the VA home loan program is that the PMI, which is your primary mortgage insurance, those fees are waived. Neither one of those is usually the case when you use a traditional lender. However one thing a lot of people don’t realize is that the VA home loan program, although 0% down, does have a 2% fee for the first time that you use it for your first home purchase, so 2% of the value or the month that you’re paying that home, they’re going to add 2% onto that and they’regoing to roll that into your mortgage.
For subsequent homes, let’s say you use your VA home loan a second time, and yes, you can use it a second time. They’re going to charge you a little more than 3%. So once again, when you look at traditional loans, even with the PMI, you may end up saving money by going for a traditional loan than by using a VA home loan, but it really depends on your individual circumstances and once again, you want to take a look at the all the options that are available to you.
I do have some suggestions, general suggestions out there when you’re thinking about buying a home. First one is pretty much a no-brainer. You know, know your credit score. What they used to call credit worthiness, although they don’t like to use the term worthiness anymore, because that brings the connotation that if your credit score is relatively low, that you’re not worthy of getting credit, you’re not worthy of buying a home, and that’s absolutely not the case, but you really want to know your credit score because your credit score is going to affect, you know, what you can buy and what your interest rate is going to be. Because with all things being apples and apples, a person with excellent credit compared to a person with good or poor credit buying the same home, going to the same bank and all that is probably going to pay a higher interest rate because they are a greater credit risk. So know your credit score. If you have some struggles in your credit score, knowing that in advance will let you have an advanced opportunity to work on it and improve your credit score because it will on the long term affect the interest rate that you’re going to pay.
Another thing to look at is utility bills. It all depends, it’s probably not going to be the same as the previous owners of the house because you may want your house a little warmer or a little cooler, especially for me in Florida in the middle of July, than maybe the previous owners. Once again, the charges also differ at different times of the year. I’m in Chicago right now. Compared to Florida, I’m freezing to death, I probably stillhave my heat on up here. Down in Florida right now, I actually have my air conditioner on. So when you’re looking at those utility bills, you know, try to look at them at the major heating or cooling times of the year so you know how expensive it’s going to be. For example, you know, if I’m looking for the electricity bill, for my air conditioning system, I would ask to see their bills in August when it’s like 200 degrees down in Florida and very humid.
Another one to look at that a lot of peopledon’t think about is septic tank. Not everybody’s connected to the sewer lines, and so every two years, if you have to go in and have your septic tank cleaned and pumped out, that’s an additional expense. And don’t forget the small things. Other things like HOA fees. If you live in a homeowners association, those are additional monthly expenses. In Florida, we’re surrounded by homeowners associations, some of the fees can range from $600 to $200, but once again, that’s additional money that you’re going to have to add on to your monthly payments. Another thing to look at is your cable or satellite as an additional monthly expense. Internet expense, what you’re paying for that.
Garbage. In some areas, one thing that I did not find out until later was when I lived in Lansing, Michigan, I lived in the city. Everywhere that I had ever lived in my entire life, if you lived in the city and you paid city property taxes, garbage collection was part of that. In Lansing, Michigan, it is not the same. I had to pay $60 a month for garbage pickup in the city of Lansing. Once again another thing to look at is any type of city assessments that might come up and a lot of that, youcan find out just visually. Are the sidewalks in your neighborhood in very, very bad condition? For those of you that have not owned a home before, a lot of those times, they will do a special assessment and charge all the homeowners on that block if they go in and have to replace the sidewalk. Or if you live in a condominium or townhouse complex. Your HOA fees do not cover such things as roof replacement, concrete replacement, painting, all of those different things. That could be an additional assessment that you may not be aware of.
Another one to look at is lawn maintenance. Once again, I’m totally blind. I live alone other than when I have my kids on the weekends, so I have a lawn service. So that also could be an extra expense for you. Sometimes it is cheaper actually, if you add things up, to a hire out lawn service. Like I had a lawn service that comes once a week, and the way you have to look at it and a lot of people in the business world will tell you this, when you’re looking at doing things and you own a home, you have to look at it once again as a business transaction by paying your stuff. So in other words, you know, I was taking care if I could mow my own lawn and all that, what would I charge somebody to do that? So let’s say I was going to charge myself $10 an hour to do it and it took me two hours every week. You add up that cost at the end of the month and of course, you have to remember gas and maintenance on all your lawn equipment and all that. So when it really adds up, it’s actually cheaper for me to hire a lawn service to come and do my lawn once a week than it would for me to do it myself by the time I got up all of those different charges.
And once again, another thing to look at depending on where you live is pool service. I have a wonderful in-ground pool and I have to pay that monthly expense for somebody to come every week to assist me with the pool. They come in and adjust the chemicals and do the cleaning once a week. It’s also very handy to be able to do some of that stuff yourself so in between the weekly pool maintenance I am out there in my pool doing the vacuuming and the brushing and all that so once again, you have to look at it as this paying yourself, because you are taking your time when you’re doing lawn maintenance, pool maintenance, home repair and all of that. You know, what would the charge be, and of course, you’d probably pay yourself less than you would pay a professional to come and do it. But those are all costs that add up. Once again, remember to pay yourself on those regular maintenance items and calculate out, you know, what that charge would be. For some people, for example, I do all my own planting and the garden and stuff and put the plants in and all that. Probably cheaper if I were to let me lawn folks do it because they will put things in cheaper than what I would be paying myself. But it’s something that I enjoy, so if you enjoy it in those regular home maintenance things and all of that, by all means, but once again, look at all those things as a business transaction, as it’s money that’s coming out of your own pocket.
Okay, so I want to move into different finance options. One of the other important things to do is understand what your finance options are. We already talked about shopping around for the bank, interviewing your bank and all of that to determine who’s going to have the best rates because it may not be your own, it may not be your own bank. So one of the things to look at is the different types of finance you can do. There’s fixed rate mortgages, which means whatever percentage rate your negotiate or you come up with for the mortgage, that rate is going to be fixed for the lifetime of your mortgage, so whether it’s a 15, 20, or 30-year mortgage, that is going to be your fixed rate. The other one to look at is a variable rate mortgage which means that mortgage can change depending on the economy.