Lesson 8: You Are A Homeowner! What Now?
Jewell: Hello. My name is Jewell DiDucca and welcome to American Consumer Credit Counseling's presentation on home buying. Our home buying workshop is a 9 lesson series focused on the essentials of owning a home of your own.
Today in lesson 8, we'll be discussing: “You're a home owner, what now?” Let's get started. The most important thing you need to do once you become a home owner is to make your house payment on time and in full every month. It's easy to get excited about redecorating and furnishing your new home. However, your first priority is making your house payment. After closing on your home, you should receive instructions from the closer on how and when to make your first payment. If you're unclear on what you should do or have questions, please be sure to check with the closer or the lender, because it's your responsibility to make the first payment on time.
Over the life of your loan, your property taxes and home owners' insurance will be subject to change and could result in an increase or an occasional decrease. When these changes occur, your insurance company and the county will notify both you and your lender of these changes.
If your taxes and insurance are escrowed or collected by the lender, then your lender will need to adjust your monthly payment accordingly. If your lender doesn't adjust your payment for the increases or decreases, you need to contact them immediately. Sooner or later, the lender will notice that they've made a mistake and will back collect the amount needed from you. This could result in a substantial increase in your monthly payment until the difference is made up. If your taxes and insurance are not escrowed, you need to make sure to pay them on time. If you don't, the county can put a lien against your house for property taxes that have not been paid. This could result in you losing your home if you're unable to make the payment.
During the life of the loan, it's not uncommon for home owners to experience a time when it's difficult to make payments. If you encounter a financial difficulty such as unemployment or an increase in medical expenses, please be sure to contact your lender right away. The sooner you ask for help, the more options you have open to you. Once you get a month or two behind in your payments, lenders are less likely to work with you.
If you do encounter difficulties, there are some ways a lender can assist you and keep you on track. First, a lender may offer a special forbearance. A special forbearance is a written agreement between you and the lender that could include a repayment plan, a temporary reduction in payments or a suspension in payments for a short period of time. You and the lender may also choose to pursue mortgage modification. This is a permanent change in one or more terms of the loan, such as a change in the interest rate or extension of time available to repay the loan. Your lender may also be able to work with you to obtain an interest free loan from HUD to bring your mortgage payment current. If you opt for this option, you will then have to repay the loan when you refinance or sell your home.
Always remember that if you do not make your monthly payments, the lender will start foreclosure proceedings. A foreclosure means that the lender can take back the house and try to sell it for the money that you owe. If your circumstances have gotten to a point where you cannot afford mortgage payments or pay the past due amounts, there are two alternatives to foreclosure. First, you could pursue a pre-foreclosure sale. This allows you to sell the property yourself and then pay off the mortgage loan. If the sale price does not cover the amount you owe on the house, the lender may be able to negotiate with you to take the amount you received from the sale and use it against your outstanding loan amount.
Finally, you could arrange for a deed in lieu of foreclosure. In this instance, you may be able to voluntarily give back your property to the lender. There are fewer legal fees involved with this procedure and it's less damaging to your credit than a foreclosure.
One of the most important opportunities you can pursue when managing your mortgage is refinancing. Just because you took out a mortgage at 8% doesn't mean you're stuck with it. In fact, you have the best of both worlds, because if market interest rates go up, your interest rate will not increase and if they go down, you have the option to refinance your loan.
Refinancing does have its advantages and disadvantages. By refinancing, you may be able to reduce your current interest rate that you have to pay, which will thus reduce your monthly payment. Refinancing can also reduce the number of payments that you have to make until you fulfill your loan. The one big disadvantage of refinancing is that there are costs associated with it. Essentially, refinancing means you're selling the house and buying it back with a new mortgage. As a result, the cost of refinancing an existing loan can run thousands of dollars. However, some people finance these costs and include them in the cost of the new mortgage.
Whether it's a smart idea to refinance depends on your personal finances, how long you'll be living in the home and how much your interest rate will decline. You should compare your current loan with the new loan in order to determine the cost to you for the period of time you intend to be in the house.
In addition to managing the financial aspects of owning a home, as a home owner, you're also required to manage the maintenance of your home. First and foremost, make sure that you're aware of all city ordinances that govern the outdoor appearance of your house. For instance, the city may regulate how long your grass can be and that you keep the walkways clear of snow and ice. Failure to follow the city ordinances will result in the city hiring an outside contractor to do the service and then billing you personally.
As a home owner, you'll also need to complete certain seasonal maintenance projects around your house to maintain it in good condition. It's much easier and cheaper to do regular maintenance than to try to repair items once they're broken or not working. Typically, you can break the seasonal maintenance into two categories: spring/summer and fall/winter.
During the spring and summer months, you want to check your roof to look for and replace any missing or damaged shingles. Replace any damaged shingles as quickly as possible to prevent any water damage to the insulation or interior ceiling of your home. Also, be sure to clean up your yard. Make sure to trim the bushes, mow the lawn and replant bare spots in the yard. Also be sure to inspect the area around the foundation of your home. Make sure that the ground is sloping away from your house. Otherwise, any water that collects in this area will cause damage.
You also want to inspect your gutters and downspouts to make sure that they're free of debris and have no leaks. Check for broken windows and torn screens. Make sure to have your air conditioner checked and serviced before the hot weather arrives. Keep your lawn trimmed and watered and finally, clean the siding of your house to remove any mildew that may have built up during the winter.
During the fall and winter months, you want to make sure that you check your sidewalks and driveway for cracks before the winter weather turns cold. Freezing temperatures will expand the cracks. Check your heating system and make sure to have it serviced before the weather gets cold. Inspect the seals and re-caulk or replace the weather stripping around all of your doors and windows. Shut off and drain outside faucets and hoses before you get freezing temperatures. Also, be sure to rake and remove any leaves from your yard, or else they'll kill the grass. Make sure to install your storm windows to help serve as an insulation against heat loss and finally, when the weather does turn for the worse, make sure to do snow removal as soon as possible.
If during your seasonal maintenance inspection you come across repairs that are beyond your skills, then you may need to hire a contractor. Before doing so, make sure to do your research and ask for references. Also, check with the Better Business Bureau to see if there have been any complaints filed against that contractor you're thinking about hiring.
When you do choose a contractor, the contractor should come to your home and discuss what needs to be done. The contractor should give you a written bid that itemizes the work to be done, the type of materials to be used, the cost of the materials, the cost of labor and an estimate as to how long it will take to finish the job. You should also ask the contractor if they're licensed and insured, as well as ask to see a copy of the license and their insurance policy. Make sure you call his insurance company to verify his coverage is still in effect. Most importantly, ask the contractor for three references and make sure to call them. If people are happy with the contractor, they'll be happy to tell other people. If people were not happy with the contractor, they'll be even happier to tell you.
Finally, discuss with the contractor how the bill will be paid. You should never pay in advance and you should not pay in full until all the work is done to your satisfaction.
After today's lesson, I'm sure that being a home owner sounds like a scary prospect, but owning your own home can be a wonderful thing. However, you need to consider many factors when you buy a home. If you do your comparison shopping, ask questions, read the documents and understand what you're signing, being a home owner will be less stressful. Most importantly, you want to make sure that you know what to expect, know what is expected of you, what costs are involved and who the players are and what their roles are.
This concludes our discussion on lesson 8, You're a Home Owner, What Now? I'm Jewell DiDucca with American Consumer Credit Counseling. Please join us next time for lesson 9, when we'll discuss predatory lending.