| |
Building Wealth Through Homeownership
.jpg)
This month’s e-Wealth coach is Barbara Womack of NeighborWorks Western Pennsylvania, a national non-profit that promotes homeownership through education, counseling, and affordable lending. Barbara has worked on issues of housing and economic development for over 15 years.
Dear Saver,
Despite the recent rise in home foreclosures, homeownership is still one the best ways to build and maintain personal wealth. That’s because most homes increase in value over 20 or 30 years, and are their owner’s largest asset.
However, in trying economic times, the need to be educated about home ownership is greater than ever. Here are a few tips about home buying in today’s market.
Many lenders have increased the credit score necessary to borrow; and more potential buyers are finding that they have credit issues. Credit counseling and repair can assist the buyer in identifying these issues, creating a budget, and developing a strategy for change. However, credit repair is not an immediate fix--it takes time, and usually a change in behavior.
Lenders are also encouraging more responsible borrowing. First time buyers will generally have to supply a down payment, as an indicator of the borrower’s willingness and ability to save.
First-time homebuyers may have access to grants and low interest loans that can help defray the costs associated with down payments or closings. These are available from a variety of sources, including government entities, non-profit community development corporations (CDC’s), and financial institutions.
Buyers also need to beware of predatory lending practices. Predatory lending has seriously affected homebuyers-- resulting in a rise in defaults and foreclosures. Buyers are cautioned against certain loan practices such as adjusted rate mortgages (ARMs), interest only mortgages, or mortgages with high balloon payments, which can place the owner at risk. Potential buyers should work with a reputable lender that they trust.
Buyers should also be realistic about what they can afford, and what they may need to forgo in order to become a homeowner. Current standards recommend paying no more than 31% of your income for housing. This assures that there is sufficient income left after making a house payment to pay other obligations. Buyers should also try to have an emergency fund of 3-6 months’ of expenses saved to guard against job loss or other unforeseen events.
Homeowners need to protect the equity in their homes by keeping their homes well maintained and limiting the borrowing against their homes. Homeowners who regularly maintain their properties help to minimize costly replacements and major repairs. By limiting borrowing against their homes, owners are able to pay down their debt, and keep the equity available for emergencies or home improvements.
If a homeowner is unable to pay his mortgage, his first action should be to communicate with his lender. Lenders are aggressively working with their borrowers to keep people in their homes. Solutions may include extending the term of the loan, reducing the interest rate, adding arrearages to the end of the loan, or developing a payment plan for arrearages. Be wary of anyone who would charge for these services, particularly if they ask for payment up front.
Sincerely,
Barbara Womack
Chief Operating and Marketing Officer
NeighborWorks® Western Pennsylvania
NeighborWorks ® Western Pennsylvania has been providing homeownership services since 1968—offering credit counseling and repair, financial literacy workshops, homebuyer education, and foreclosure mitigation, as well as affordable loans for closing costs, down-payments, emergency repairs and home improvements. Visit www.nwwpa.org for more information.
|
|
