Category Flood Insurance

How Unemployment Can Affect Your Plans To Buy a Home—Now and Later

By in Credit Repair, DIY, Flood Insurance, Unemployment Tag , , , , , , , , , , , , , , , , , , , , , , , ,

unemploymentthianchai sitthikongsak / Getty Images

The coronavirus pandemic has led to record-high unemployment rates not seen since the Great Depression. And this is particularly worrisome for would-be home buyers.

If you were among the 23.1 million Americans who were laid off or furloughed, you might be worried about your financial future. And if you were hoping to buy a house—either now or in the next few years—you might also wonder how your current jobless status might affect those plans.

While the situation might seem dire, unemployment does not mean that home-buying plans have to be put on hold for long. Here’s how to navigate a period of unemployment so that it doesn’t derail your hopes to buy a home.

Can you buy a home if you’re unemployed?

For starters: If you lose your job while in the midst of home shopping or after you’ve even made an offer, you might have to put the purchase on hold.

The reason: Given your reduced income, the odds of lenders loaning you money for a property purchase are slim, unless your spouse or partner has a sizable income that can carry the mortgage alone.

And even if you’re getting unemployment checks every week, that money is considered temporary income, so it can’t be used to qualify for a mortgage, says Jackie Boies, senior director of housing and bankruptcy services at Money Management International, a nonprofit providing financial education and counseling.

In short, “unemployment could have an effect on your ability to purchase a home in the short term,” Boies says.

But the good news is that once you find a new job, you can likely resume home shopping without trouble, Boies adds. “Unemployment shouldn’t have a long-term effect on being able to buy a home.”

How long after unemployment can you buy a home?

But even once you do find a new job, that doesn’t mean you can easily buy a house just yet. That’s because lenders like to see a steady history of employment before loaning someone money.

“Regular employment must be reestablished as stable, reliable, and dependable,” says Karma Herzfeld, mortgage loan originator at Motto Mortgage Alliance in Little Rock, AR.

So how long is enough? Lenders typically require borrowers to have six months of employment at their current job, and two years of continuous employment. Breaks in employment older than two years shouldn’t affect getting a mortgage.

How unemployment affects your credit score

While unemployment doesn’t jeopardize future home-buying hopes per se, financial experts warn that what can put those plans at risk is how you handle your finances while jobless. Unemployment, after all, can stress your budget in ways that can damage your credit history and credit score.

Lenders check your credit score to assess how well you’ve managed past debts. Scores between 650 and 700 range from fair to good; scores below 650 are considered subpar, which could limit which lenders are willing to loan you money for a house. (You can check your score for free on sites like Credit Karma.)

Credit scores can be damaged in a variety of ways during unemployment. For one, if you get behind on paying bills, this will put some blemishes on your credit history and drag your score down.

Unemployment can also lower your credit score by negatively affecting your debt-to-income ratio, a calculation used by mortgage lenders to compare how much you make against how much you owe.

If you’re unemployed, you may face a double whammy as your income is lower and you’re charging more to your credit cards, thus increasing your debt. Both moves can negatively affect your debt-to-income ratio, which may make lenders leery of loaning you money.

“Any factor that affects income or debt may affect the debt-to-income ratio,” Herzfeld explains.

In sum, hopeful home buyers should be careful not to take on too much debt, even while unemployed. You need to preserve cash as best you can.

“I recommend, if on unemployment, [you] cut back on all discretionary spending and make every effort to keep bills current so that the credit score may not get negatively impacted,” Herzfeld says.

Debt-to-income ratio will likely rebalance once you return to work, as long as you haven’t racked up too much debt during the period of unemployment, Boies says.

How to handle your finances while unemployed

“My recommendation is to always try as best as you can to pay at least the minimum required payment on all monthly debt obligations, otherwise credit may be negatively affected,” Herzfeld says.

Boies suggests reaching out to landlords, credit card companies, utilities, auto lenders, and others to find out what options you have, such as payment plans, deferments, or forbearance. You might also be able to reduce some bills, such as insurance, by reviewing your policy.

“Don’t think that if you can’t pay that bill, you just can’t do anything about it,” Boies says. “You need to reach out to see what options they have available to you.”

How to bounce back from unemployment

If your credit score is negatively affected while you’re unemployed, it’s not the end of the world—but it will take time to repair.

Six months to a year or more of positive credit rebuilding could get you on track to buy a home, Herzfeld says.

“The sooner past-due debts can be remedied, the sooner the score may begin to improve,” she says.

The post How Unemployment Can Affect Your Plans To Buy a Home—Now and Later appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

How to Prepare For Closing Day [Free Download]

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After you’ve successfully put in an offer for your dream home and set a date for closing, you’ve come to the final steps of your home buying journey. However aside from getting the keys, you’ll want to be prepared for the additional costs, and steps that will be required for a successful home purchase.

The Preparing For Closing Day guide contains information, tips, and more about what to expect on the big day. The guide will also include a checklist of what to prepare and an example of how to calculate the funds needed for closing.

To learn more about how you can best prepare for closing day, get our free buyer’s guide here.

Pre-Closing Day Checklist

To ensure a smooth process for your home transaction, you’ll still have a few steps to go through before you get your keys. Here are 6 steps to check off your list before closing day:

  1. Review your contract
  2. Complete a final walkthrough
  3. Meet with your lawyer
  4. Purchase home insurance
  5. Know how much cash is required at closing
  6. Secure cash required for closing

Cash Required At Closing

Understanding the costs that will be required at closing day is important to know even before you start your home search. Not only will you be prepared for what to expect, but this can help you with budgeting your costs.

Some examples of costs to include in your calculation:

  • Down payment
  • Title insurance
  • Legal fees
  • Land transfer tax

Statement of Adjustments

Another important document is your statement of adjustments, which will display any credits to both the buyer or seller as well as the final amount payable by the buyer on closing day. You can expect the following to be listed in the statement:

  • Purchase price
  • Your deposit
  • Prepaid property taxes, utilities or fuel
  • Prepaid rents 
  • Appraisal fee
  • Land survey fee

For a sample calculation of cash required at closing, download our Preparing For Closing Day guide here.

The post How to Prepare For Closing Day [Free Download] appeared first on Zoocasa Blog.

Source: zoocasa.com

Need Cash? 3 Ways To Tap Your Home Equity—and Which One’s Right for You

By in DIY, Flood Insurance, Refinance Tag , , , , , , , , , , , , ,

home equityaluxum / Getty Images

You need to come up with some cash, fast. Maybe you have a leaky roof that desperately needs fixing or you need help paying for your kid’s first semester of college. But where do you turn?

If you’re a homeowner, you have options that involve tapping into your home equity—the difference between what your home is worth and how much you owe on your mortgage.

There are three main ways to tap into home equity, but sorting through those options can be confusing. To help, we’ve boiled down what you need to know about some of the most common home financing options—cash-out refinance, home equity loan, and home equity line of credit—and how to determine which one is right for you.

1. Cash-out refinance

How it works: A cash-out refinance replaces your existing mortgage with a new loan that’s larger than what you currently owe—and puts the difference in your pocket. With a cash-out refinance, you’re able to receive some of your home’s equity as a lump sum of cash during the process.

“This only works if you have equity in your home, either through appreciation or paying down your mortgage,” says David Chapman, a real estate agent and professor in Oklahoma.

Pros: If you need cold, hard cash in your hands, a cash-out refinance can help you get it. You can use this money for whatever you want—upgrades to your house, even a vacation. Another positive? If interest rates are lower than when you first got your loan, you’ll get to lock in lower interest rates than you’re paying now.

“Now is the time to look at a cash-out refinance due to the low interest rate environment,” says Michael Foguth, founder of Foguth Financial Group.

Cons: You’ll have to pay closing costs when you refinance, though some lenders will let you roll them into your mortgage. The costs can range from 2% to 5% of your loan amount. And, depending on the circumstances, if interest rates have gone up, you could end up with a higher interest rate than your existing mortgage.

Also, you’ll be starting over with a new loan and, unless you refinance into a different type of mortgage altogether, you’ll ultimately be extending the time it takes to pay off your home loan. Even if you get a better interest rate with your new loan, your monthly payment might be higher.

When to get a cash-out refi: A cash-out refinance makes the most sense if you’re able to get a lower interest rate on your new loan. (Experts typically say that at least a 1% drop makes refinancing worth it.)

This option also works well for home renovations, since (ideally) you’ll be increasing your home’s value even more with the updates. In essence, you’re using your home’s existing equity to help pay for even more equity growth.

While you could use your cash-out refinance to pay for anything, financial experts typically advise that you spend the money wisely, on something that you see as a good investment, rather than on something frivolous.

2. Home equity loan

How it works: Unlike a cash-out refi, which replaces your original loan, a home equity loan is a second additional mortgage that lets you tap into your home’s equity. You’ll get a lump sum to spend as you see fit, then you’ll repay the loan in monthly installments, just as you do with your first mortgage. The home equity loan is secured by your house, which means that if you stop making payments, your lender could foreclose on the home.

Pros: With a home equity loan, you get a huge chunk of cash all at once. A home equity loan lets you keep your existing mortgage, so you don’t have to start over from year one. Your interest rate is typically fixed, not adjustable, so you know exactly what your monthly payment will be over the life of the loan. And, another plus is your interest may be tax-deductible.

Cons: Compared with a cash-out refinance, a home equity loan will likely have a higher interest rate. Home equity loans also come with fees and closing costs (though your lender may opt to waive them). Another downside? You’re now on the hook for two mortgages.

When to get a home equity loan: A home equity loan makes more sense than a cash-out refi if you’re happy with your current home loan, but you still want to tap into your home equity, says Andrina Valdes, chief operating officer of Cornerstone Home Lending. It can also be handy for home renovations that add value, though of course you’re free to use it however you want.

“A home equity loan could be used in cases where you may already have a low mortgage interest rate and wouldn’t necessarily benefit from a refinance,” says Valdes.

3. Home equity line of credit

How it works: A home equity line of credit, aka HELOC, is similar to a home equity loan—it’s a second mortgage that lets you pull out your home equity as cash. With a HELOC, however, instead of a lump sum amount, it works more like a credit card. You can borrow as much as you need whenever you need it (up to a limit), and you make payments only on what you actually use, not the total credit available.

Since it’s a second mortgage, your HELOC will be treated totally separately from your existing mortgage, just like a home equity loan.

“With a HELOC, the homeowner will need to make two payments each month—their mortgage payment and the HELOC payment,” says Glenn Brunker, mortgage executive at Ally Home.

Pros: You borrow only what you need, so you may be less tempted to spend this money than a lump-sum home equity loan. You pay interest only once you start borrowing, but you can keep the line of credit open for many years, which means your HELOC can act as a safeguard for emergencies.

HELOCs typically have lower interest rates than home equity loans, and they typically have little or no closing costs. (Again, your lender might offer to waive these fees.) HELOCs are often easier to get because they’re subject to fewer lending rules and regulations than home equity loans.

Cons: HELOCs usually have adjustable interest rates, which means you can’t necessarily predict how much your monthly payment will be. Most HELOCs typically require the borrower to pay interest only during what’s known as the draw period, with principal payments kicking in later during the repayment period. If you don’t plan properly or you lose your job, you might be caught off guard by these higher payments down the road. As is the case with other second mortgages, your bank can foreclose on your house if you stop making payments.

“Once a HELOC transitions into the repayment period, the borrower is required to make both principal and interest payments,” says David Dye, CEO of GoldView Realty in Torrance, CA. “Many borrowers forget about this transition and are often startled by the sudden increase in minimum payments.”

When to get a HELOC: A HELOC makes the most sense if you want the flexibility and peace of mind of knowing you can easily access money in the future, says Mindy Jensen, a real estate agent in Colorado.

“A HELOC is great to have just in case,” says Jensen. “You have access to it, but are not committed to taking it or paying for money you don’t have an immediate need for.”

And compared with an actual credit card, a HELOC has a much lower interest rate, so it’s likely a cheaper financing option for you.

The post Need Cash? 3 Ways To Tap Your Home Equity—and Which One’s Right for You appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

So You Want to Buy a Fixer-Upper: Here’s What You Need to Know

By in DIY, Flood Insurance, Home Improvement, Loans Tag , , , , , , , , , , , , , ,

Stephen and David St. Russell, self-taught renovation and fixer-upper experts, are sharing their advice for homebuyers who are looking to explore buying a home that needs some extra TLC.

The post So You Want to Buy a Fixer-Upper: Here’s What You Need to Know appeared first on Homes.com.

Source: homes.com

A Guide To Everything You Need To Know About Home Ownership Costs [Free Download]

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Along with the excitement of purchasing a new home, comes the additional costs that you will be expected to pay as a homeowner. Apart from covering the mortgage of your home, you’ll have additional expenses – such as home insurance – that you will be expected to cover. If you’re looking to budget for a home purchase, it’s important that you consider these costs as they can add up to thousands of dollars each year.

To help you make educated decisions when budgeting, we’ve compiled a list of the major home ownership costs in one free, downloadable guide. Get the Home Ownership Costs to Consider guide here.

Home Insurance

Home insurance policies help protect against serious damage and destruction, like fires, leaks, floods, or break-ins. It also protects a homeowner from personal liability. Some banks may offer home insurance products, although you can typically purchase a home insurance policy through a home insurance agent or broker. 

Tip: You may get better rates if you use a broker or agent. It’s also important to keep in mind that policies typically renew on an annual basis.

Condo Fees

The cost of maintenance fees should be taken into account when you’re buying a condo. This recurring cost is in addition to your mortgage and impacts how much home you can afford. 

Your mandatory monthly fee will vary by your building and square footage. It typically covers:

  • Utilities (such as water and garbage collection)
  • Building insurance
  • Maintenance of common areas (such as the gym, pool, front desk, hallways, landscaping)
  • Building reserve fund (covers emergencies and long-term maintenance projects such as a new roof or elevators repairs)

What Are Status Certificates?

If you’re looking to purchase a condo, you’ll want to look into obtaining a status certificate so that you have as much information about the building and your unit as possible before buying. A status certificate provides valuable information about the condo corporation and its financial

situation. It includes details on the budget, legal issues, the reserve fund, maintenance fees, and any fee increases expected in the future. 

Tip: You’ll want to carefully review your status certificate with your lawyer before making a purchase.

Property Tax

Property taxes are paid annually by homeowners to their municipality. These taxes are ongoing and are separate from your mortgage. Your annual property tax can often be paid in installments.

Tip: It’s important to remember that this cost is not due at closing, but is a recurring cost.

How Are Property Taxes Calculated?

Your property tax rate will vary depending on the value of your property as assessed by your provincial assessment authority. This is then multiplied by a rate that falls between 0.5% to 2.5%.

How Do You Pay Property Taxes?

You can pay your property taxes either through your mortgage provider or directly to your municipality. 

Your Utility Bills

When you purchase a home, you’ll have to set up or transfer your utility bills to your new home. If you live in a condo, these costs may be included in your monthly maintenance fee. Your utility bill will include:

  • Hydro (electricity)
  • Heat
  • Water and Garbage
  • Internet, Phone, Cable

For the full details on the home buyer’s journey including examples, advice, pictures and sample calculations, download a copy of our free Home Ownership Costs to Consider Guide here.

The post A Guide To Everything You Need To Know About Home Ownership Costs [Free Download] appeared first on Zoocasa Blog.

Source: zoocasa.com