Rent to Own Versus Financing

From just the name, you might think that renting to own is the best option around. Many people believe this without really understanding what the process looks like. However, there are some complexities about the rent to own process that you’d benefit from learning about as a homebuyer. You may learn that you would be better off going the route of financing your home.

Rent to Own

  • Renter makes payments to seller to possibly reduce final cost of home1
  • Based only on a possibility for buyer to purchase home in the future1
  • This option works mostly as a waiting period for renters to decide if they want to be buyers, allow time to improve credit, or pay towards the final cost.1
  • First premium payment is non-refundable (like a down payment) if renter decides not to purchase – this is not refunded.
  • You should discuss which party – you are your landlord – is in charge of maintenance
  • The ultimate purchase price may be unsettled as prices in the area can fall or rise over time, but the seller may be willing to lock in the future purchase price.
  • You may want to consult legal counsel to draft or review a rental agreement so that you know what you’re getting into and you have all your bases covered.

Financing

  • With the help of a lender, a buyer can purchase a home through financing. This means you pay on a loan for a duration of time at a certain interest (this could be fixed or adjustable).
  • This is a loan with the full intent to own. The only way you wouldn’t end up keeping the home is if you miss payments repeatedly or default on the loan.
  • Good for most common buyers who don’t have the amount of cash available to purchase a home outright. Allows a payment system (mortgage) for a buyer to pay towards.
  • Credit and income are very important to qualifying for a mortgage.
  • With financing, you inherit all the responsibility of the home because you become the owner. You may also have to pay for home maintenance and repair, taxes, insurance, and private mortgage insurance (“PMI”) if your down payment is below 20 percent.

Both options have pros and cons and some complexities that will arise with whatever your specific home situation is. The best thing to do is to gain a full understanding of each option as well as to decide whether you want to own your home outright, or else work towards owning your home through a rent to own option, knowing that ownership may be less certain if you go that route.

Be Financially Prepared For Either!

 

  1. The Balance. 11 June 2018. Pros and Cons of Rent to Own: A Guide for Buyers and Sellers.  https://www.thebalance.com/what-is-rent-to-own-315664

Oakbur Quill Co.

5 Steps to Financial Literacy

Financial literacy just means being smart/responsible with your money. In the same way we are “literate” and can read – in this instance if we are financially literate – we know and understand our finances.

Financial literacy is a practice and a journey. Just like with reading, the more you do it the better you become. You learn to read more complex content and your skills improve – the same is true with money. This also means that it’s learned and if you aren’t in a good place with your finances – you can be! Likewise, if you’re gliding smoothly with your finances – now is your chance to be better or perfect your skills.

Let’s look at the five basic steps that can lead to financial literacy:

  1. Understand your current financial status. This can’t be overstated. Because of automation and paperless statements, many people don’t even keep up with their paychecks. It’s a lot harder these days to know your average paycheck after insurance and taxes. It’s also easier than ever to live above your means by deferring your payments or charging a credit card. Print out statements, watch your bank activity, and learn the patterns of what you get paid and how you spend it. Without this understanding, you can’t be effective.
  2. Save. Once you take a look at your current financial status – you’ll realize (like most of us) that you can stand some change. The best change to make first is to begin saving or saving more. This does not have to be 401K or big accounts. Start small. Try a dollar a day, or a dollar a week and keep up all year. The discipline of saving has little to do with how much money you make and much more to do with how willing you are to prioritize it. There is also no standard. If you can’t save a lot – that’s okay! You’re still doing it!
  3. Budget. Now that you’re willing to save, you can budget. Gather your bills and monthly payments so you can record actual amounts for your budget. Understand if you don’t budget at all, the first month is just a projection that you’ll try to match. However, it will take adjusting. Especially, as you begin to watch your accounts, cut unnecessary spending, and think more frugally. Budgeting may be something you refresh every month, it may be something you outline and put on the fridge and stick to for the year, it may be mental list. Everyone is different and everyone benefits from budgeting.
  4. Make adjustments. Budgets can be uncomfortable. They demand financial change. This can be hard to understand as most of us have inherited the money mind of our parents or guardians, but budgets can make us question whether what worked for them will work for us. If debt is burdening you – start paying it off, begin to only pay cash, or stick to necessities. Ask for help
  5. Practice good credit card habits. This one could be its own post. Using credit cards is a necessary evil if you want to buy a home or newer car. Few people can pay out of pockets for these things, and you are required to have credit to be given loans for either one of those purchases. Be consistent with paying monthly balances, only purchase needs, only purchase what you could easily match in cash.

Get More Financial Tips!

 

Do I Need a Real Estate Agent to Purchase a Mobile Home?

It’s a tough choice to decide whether or not to hire a real estate agent. A buyer’s agent may be a great asset to you if are a home buyer. However, you may have plenty of mobile home knowledge yourself.

Usually, the motive behind not seeking a real estate broker or agent is to save money, and the main motivator for choosing a real estate agent is to save time. It really all depends on your situation and what your strengths are as a negotiator and your knowledge of the home buying process. So, let’s explore a little and weigh the options!

The Mobile Home Difference

If you are looking to purchase only a mobile or manufactured home without land– typically you won’t have an agent. The exception may be with homes located in parks/communities. However, mobile homes attached to land are often listed by real estate agents. Something to keep in mind is that there are manufactured home specific agents and agents who specialize in both traditional real estate and manufactured homes. A strictly site-built specialized real estate agent will not have the necessary knowledge you need about buying a mobile home.

Paperwork

There’s lots of it with homebuying. If you’re a first-time homebuyer the amount of paperwork may be more than what you expected.

Most of the paperwork associated with a home purchase occurs with the closing process. This is where a real estate agent’s experience can help you understand the documents that you are signing. However, if you’ve been through it before you may be more equipped to handle it yourself.

Cost

Usually the seller pays for the real estate agent’s commission out of the proceeds of the sale of the home. Many see this as no expense to the buyer. While it may not be an out-of-pocket cost for the buyer, the real estate agent’s commission can still affect the buyer if the seller increases the price because of it1. Sellers may be more willing to negotiate the price of the home and charge you less if they do not have to pay commission to a real estate agent.

Representation

Having a real estate agent represent you provides you with someone who can negotiate the costs and conditions of the sale for you. They also communicate with both sellers and buyers. A seller may be more willing to work with a buyer who is represented by an agent because it means that you are more likely to be ready to purchase1.

If you are familiar with the home buying process, are confident about negotiating the price of a home, know what to ask for and if you are willing to work for it – you may be able to achieve the same result on your own as if you were represented by a real estate agent.

Legal Needs

If you are not represented by a real estate agent, you will need an attorney to assist you with the negotiation, legal documents required to submit an offer, and to represent you at the closing of the purchase. You will also need to take care of having the property inspected and appraised.

Knowledge

Real estate agents are experienced in both buying and selling homes. They can also help you understand what homes are selling for in the area you are interested in and can help you purchase a home that is within a reasonable market price for the area.

However, if you’re a longtime local you may know the area you are looking in better than your real estate agent. You may also have relationships with home sellers or people in the area who can provide you with valuable information about the area as well that may not be available to a real estate agent.

In conclusion, there’s no one rule for everyone when it comes to whether you should use a real estate agent or not when buying a home. It’s situational and depends on your comfort and what you’re willing to work for. However, if you’re new to the homebuying process, or mobile homes and manufactured homes with land – you may want to consider a real estate agent to help you through the process.

Check Out First-time Homebuyer Resources!

1. Weintraub, Elizabeth. The Balance. 26 Sept. 2016. Pros and Cons to Home Buying Without an Agent. https://www.thebalance.com/do-first-time-home-buyers-need-an-agent-1798228  

2. Steele, Jason. Money Crashers. How to Sell Your House by Owner – Without a Realtor. https://www.moneycrashers.com/tips-sell-house-by-owner-without-realtor/

What Are the Parts of a Mortgage Anyway?

For the first-time homebuyer, or someone unfamiliar with purchasing – the world of mortgages and financing can seem like another language. So, let’s do some translating.

Let’s start with the basics. What does mortgage really mean?

A mortgage just means there is an agreement between the buyer and a lender. The lender agrees to loan the buyer money, but if the buyer doesn’t repay the loan, they have the right to take the property.

Who offers mortgages?

Banks, mortgage companies,  and credit unions all can offer mortgages.

The process of these lenders funding money to purchase a home is known as financing.


With that in mind, let’s now look at what makes up a mortgage payment. Your mortgage payment has four parts: principal, interest, insurance, and taxes.

Principal: The loan amount you have to pay back to lender

Interest: Percentage that the lender charges you for borrowing the principal. Mortgages can either be fixed interest rate or adjustable interest rate. Fixed rate mortgages have an interest rate percentage that stays the same for the entire loan term. Adjustable rate mortgages will change percentage over the loan term.

In fixed rate loans – principal and interest work like a see-saw because of a process called amortization. Think of your payment as the middle, the fulcrum, the balance of the see-saw. Your principal sits on one side and your interest sits on the other side.

In the beginning, your principal payment is on the ground and your interest payment is high in the air with feet dangling down. To start, your monthly payments go toward paying off more of your interest than your principal. As you get toward the end of the life of your loan, monthly payments go more toward your principal, than your interest. At the end, your interest is low to the ground and the principal is high in the air.

Taxes: Amount added to your monthly payment (if your account is escrowed) to pay for the property taxes on your home. Usually property tax is paid to your local government. Sometimes an escrow account will be created for you. The mortgage servicer collects your money in an account, separate from your mortgage, where funds are held to pay property taxes and insurance.

Insurance: There are a few types of insurance that may be escrowed: homeowners, flood, and mortgage insurance. Homeowners insurance is the amount you pay to insure your home against losses or damage from something unexpected, like a fire or burglary. Flood insurance is what you pay to protect your home against flood damage if it’s in an area at risk for flooding. Mortgage Insurance (sometimes called Private Mortgage Insurance or PMI) is usually required by your lender if you have a down payment lower than 20 percent of the purchase price. This insurance is to protect the mortgage company from you defaulting or failing to make payments.


Let’s see those four parts in action.

VMF Mortgage blog Graphic FNL2

EX: Principal – $63,000 x Interest rate – 7% – 20 year loan = $488 monthly payment

*Due to interest over time the amount your loan was for, say $63,000 will cost more over the lifetime of your loan (20 years). In this example, if you paid your monthly payment as listed for 20 years your final cost would be $117,225. Without early or higher monthly payments, you’d pay approximately $54,225 in interest as well as your loan amount.

*Your specific loan amount will be broken down for you by your lender. Check out this mortgage calculator to get a better idea of your specific situation. See how the loan estimate looks here!

Things to remember:

*Monthly payments are not just your principal and interest. With the example, $488 is not all you’ll have to pay. You’ll have to pay taxes/insurance, and utilities. Leave room for other homeowner fees.

*Paying interest means you’ll pay back more than you originally borrowed.

*Your interest rate and credit matter. Better rates come with better credit. Try to keep your credit up. It will pay off. Seriously.

*With a fixed rate mortgage, lower payments over time will cost you more. If you can afford it, consider a shorter loan term. It may feel like it’s more expensive because you have higher payments, but will save you money in interest in the long run.

Learn More!

Budgeting/ Saving Strategies that are Worth Your Time

Financial freedom. It’s something most American’s chase. There are tons of tools out there to help you along the way – some helpful and some not as much. When you’re trying to make ends meet or you feel in a hole, all these tools can feel miles away. It’s easy to feel overwhelmed or to give up when one program or idea doesn’t work for you.

Don’t give up. You may never have a huge savings account. That’s okay. The goal isn’t to store up money and sit on it. The goal is to learn to live with what you need, value what you have, and to not be ruled or crippled by money. It’s about taking the power from debt and giving it to yourself. Here are some great strategies to push you forward! Start today!

Tracking:

Apps – There are a variety of apps you can choose from. Some are free and some have a small fee. They are only worth it if you are going to keep up with them . If you’re not willing to update them as you spend – apps probably are not the best option for you. If your meticulous – this is your solution. Some apps simply track spending while others automate savings for you. Browse app options!

Envelope System – The idea of this strategy is you budget for various categories and then get that amount out in cash. Whatever amout you have in cash is all you can spend on the category for the month. Each category is signified by an envelope. For example, if you say you’ll spend 50 dollars on clothes a month – that’s all you can spend. If you have left over cash you can reward yourself! Read more about the envelope system!

Spreadsheet – If you have a spreadsheet program on your computer, this is the easiest option to obtain. If you know how to create formulas or can ask someone for help, spreadsheet budgeting is pretty minimal. You just enter your numbers and see where you are in line of your budget.

Great ways to save as you budget:

Incremental – If you don’t have much to spare – incremental saving is the strategy for you. As you get paid, you save small amounts, over time you can increase the amount. Maybe you save 1 dollar each day for the month of January and 2 dollars every day for the month of February. This adds up quickly after a bit of time!

Reducing – If you do a lot of impulse buying or luxury buys this is a great place to start. All you do is cut back the amount you spend in certain categories or cut them out all together. Then what you save can be more focused on needs.

Set Your Financial Goals Today!

Don’t be limited by debt, be empowered by budgeting. You can be in a better place. These options can help you get there. Have patience and do your best.