Question: Why should someone buy instead of rent?
Answer: The benefits of owning a home normally outweigh renting as, over the long term, it allows you to build equity in your property. Over time you will eventually lower your mortgage balance while the value of your property increases. Equity in real estate has many advantages. Your long-run housing cost decreases relative to renting, which is likely to increase over time; you can use your equity to buy up to a bigger home or to a better area. You can leverage your equity to pay for high-cost items such as college for your children or purchasing a rental property. In addition, the government continues to look favorably on homeownership and subsidizes the cost of your mortgage loan through tax deductions on your income taxes. Being able to claim the interest you pay as a tax deduction effectively lowers the cost of your mortgage loan.
Buying in Hawaii, in particular, gives you a much better chance to grow equity faster than in some other parts of the country. The limited amount of land, combined with regulations controlling development, keeps demand ahead of supply, allowing for your home’s value to increase faster here than, say, in Nebraska.
Q: When is the right time to consider buying?
A: When you buy a home, you should think of it like getting into the stock market. It is always a good time to buy if you are in it for the long haul and are planning to live in your home for many years. While it would be nice to time the market and buy when values are low and interest rates are low, you should consider the long-term benefits of homeownership. Yes, the value of the property you purchased may decline after you purchase it if the economy goes into recession, but it will also increase as the economy recovers. History has shown that the economy and interest rates will go through cycles. You should not worry about that when purchasing your home. The only caveat is if you expect to move and have to sell in the near future. Then, buying high and having to sell low can pose problems, especially if you have no choice in timing.
Q: Can someone buy a home even if the person has bad credit and doesn’t have much for a down payment?
A: There are many different loan programs in today’s market targeted to first-time homebuyers, such as programs from the Veterans Administration and the Federal Housing Administration, as well as creative in-house programs offered through banks and other financial institutions (known as portfolio loans). These programs have different rules and look at the entirety of a borrower’s profile, including credit, down payment, income and debts, as well as job stability. Meeting with a loan officer is highly recommended so that you can explore programs and get pre-qualified for a loan. You may be surprised at what you can qualify for. Even if you don’t qualify right now, a qualified loan officer can provide you with guidance on how much you need to save or how to improve your credit score. It’s like going to a doctor and getting a checkup versus self-diagnosing from the Internet. Make the time to meet with a mortgage professional to see exactly where you stand before making assumptions on whether you can qualify.
ERIC HODNEFIELD
>> Title: Senior vice president and sales manager, residential loan department
>> Company: Finance Factors
>> Education: B.A. in economics, University of Hawaii at Manoa; B.S. in finance, Louisiana Tech University, Ruston, La.; M.B.A., Chaminade University; graduate, Pacific Coast Banking School
>> Email: erich@financefactors.com |
You can also seek the assistance of nonprofit organizations that are dedicated to promoting homeownership, such as the Hawai’i HomeOwnership Center. Organizations like this help educate and guide first-time homebuyers to ensure that they are able to successfully purchase their first home.
Q: How much money does a first-time homebuyer have to come up with to buy a home? How does a homebuyer get a loan?
A: Your best bet is to make the time to sit down with a lender and talk about loan programs that fit your financial profile. While there may be programs that allow you to go online and enter data into a calculator, there is no substitute for meeting face to face with a loan officer and going through all of the available options. A good loan officer will be able to review different programs and their respective guidelines to find the best options for you to consider.
Q: How can a first-time homebuyer find a lender?
A: When searching for a good lender, look for someone who is not just knowledgeable, but someone whom you can work with over a two- to six-month time period, depending on how long it takes you to find a property. Many people are intimidated with the process of getting a mortgage loan, and so they settle on the first person they meet. My advice is to meet with three loan officers instead of simply settling on the first referral you get. Buying your first home is a huge step, and you should take care in interviewing loan officers just as they are interviewing you. How well does the loan officer explain things to you? Do they respond to phone calls, emails and texts from you? Are they specific or vague? How do their answers compare to each other?
Q: In addition to the mortgage payment, what other costs need to be considered?
A: Besides your mortgage payment, you also need to consider the following expenses that you will need to pay: fire and hurricane insurance, property taxes, maintenance fees if you are buying a condo or townhouse, association fees if you are buying in a master-planned community (for example, Mililani, Waikele, Ocean Pointe, etc.), flood insurance if your property is in a flood zone, and mortgage insurance if the program you select requires mortgage insurance. While most of these costs are annual or semiannual, your lender will typically collect some of these fees monthly along with your mortgage payment and pay them on your behalf when they are due.
Q: What does a homeowner need to bring when applying for a mortgage?
A: It is critical that you are completely honest with your loan officer from the start so that you will get the correct guidance. These are some of the items that will be most helpful in determining what you can qualify for: your tax returns from the last two years, including your W-2 forms; two of your most recent pay stubs; your two most recent statements for any asset accounts in your name, such as savings, checking and retirement accounts; your employment history for the past two years, especially if you have changed jobs; and your most recent loan and credit card statements, including any for loans that you co-signed.
