Homestead Community Land Trust News

The Pros and Cons of becoming a homeowner

By Angel Dawson

Whether or not you choose to purchase with HCLT, buying a house is a huge financial decision. So before you make what will likely be your largest purchase ever, here are some advantages and disadvantages to consider:

Advantages of Homeownership:

Building Equity

Your monthly mortgage payment is like a savings account. As you pay down the principle owed, your equity in the house grows. You can pay off your mortgage and greatly reduce your monthly expenses, or borrow against your equity to fund expenses down the road like your children’s college education. If you purchase a home with HCLT, all the equity you build is credited to you in the resale formula.

Tax Benefits

As a homeowner you are entitled to additional deductions such as the mortgage interest and property taxes you pay. These deductions may reduce your total income tax paid. Also, as a member of the Northwest CLT Coalition, we are working to reduce property taxes for land trust homeowners.

Your Own Home

There is no landlord telling you what to do. You are free to decorate and make changes to create a home environment that is most comfortable to you.  Also, it’s a great time to get involved with your local neighborhood association to contribute to the community where you own your home.

Stable Housing Costs

Assuming you purchase with a fixed rate mortgage your mortgage payment will never change. When you pay off the principle balance you will have no mortgage payment. If you purchase with HCLT you will always get a 30-year fixed, below-market interest rate loan through our partnership with the Washington State Housing Finance Commission (WSHFC).

Appreciation

An increase in the market “value” of your home is called appreciation. Like equity this is money that can benefit your family in the future. If you purchase with HCLT you will be paid a percentage of appreciation if you sell your home in the future based on the HCLT resale formula.

Inheritance

With HCLT you have inheritance rights, and can keep your home benefiting your family for generations to come.

Disadvantages of Homeownership:

Maintenance Costs

No landlord also means now you’re responsible for all maintenance and repairs.

High Cost

Your monthly mortgage payment could be higher then your current rent. Now your expenses also include property taxes, homeowner’s insurance, maintenance and repairs and utilities, like water and garbage, you may not pay as a renter. Of course, purchasing with HCLT can greatly reduce the cost of home ownership in Seattle’s high cost market.

Possibility of Foreclosure

A mortgage is a very long-term commitment. Banks can and do foreclose on owners who stop making their full mortgage payments on time. You could lose not only your house, but your equity and your good credit. The good thing is if you purchase with HCLT, we will be here to help you problem solve if you hit a bump in the road.

In the final analysis, only you can decide what is right for your family. But if you have questions or want to discuss your options, we’re here to help. When you submit an application and come in for an affordability analysis, we factor in all the potential costs and benefits so you can make an educated decision about whether to purchase a home with HCLT.

Terms To Watch Out For

By Angel Dawson

Obtaining financing to purchase a home can be a confusing process.  There are lots of loan products on the market. Financial education helps you avoid deceptive loans that can turn your American Dream into a financial nightmare. Do you know how to steer clear of loan sharks? Here’s a pop quiz:

1) Balloon Payment:

1. The way your wallet is so light after making your mortgage payment you practically float away.
2. A lump sum principal payment due at the end of some mortgages or other long-term loans.
3. An amortized mortgage payment that decreases over time.

2) Prepayment Penalty:

1. A fee charged to a mortgagor who pays a loan before it is due.
2. The sinking feelings in your stomach right before you have to make a mortgage payment too big for your budget.
3. When you co-sign on a loan in exchange for payment to compensate for the damage to your credit and ability to borrow money.

Remember, if you purchase with HCLT you can feel safe knowing you will always get a below market, 30-year fixed interest rate through our partnership with the Washington State Housing Finance Commission (WSHFC).

Answers: 1=B, 2=A.

Taking Control of Your Credit Score

When you apply for a home loan, a cell phone, insurance and even some jobs, your credit report will be reviewed. Because credit is so important, before you apply you should understand your credit. Then you can control how it reflects on you. One important but little-understood aspect of your credit report is your credit score.

Each of the three credit bureaus (Experian, Equifax, and Trans Union) calculates your credit score based on your personal credit history. Approximately 30 individual factors are used to determine your credit score. Credit scores can range from 300 to 900. Generally, scores of 620 and above are considered acceptable for standard financing options. 

There are five broad areas that credit bureaus look at in calculating your credit score. Each area accounts for a certain percentage of your credit score.

• Payment      History - Details about credit cards, installment loans (such as car      or student loans), and mortgage loans. Any late or missed payments show up in this part of the score,      which accounts for about 30% of the total.
• Outstanding      Debt - The total amount you owe, and the ratio of your credit balance      to your credit limits is factored in for another 30%. If you don’t      want to lose points for this reason, carry balances below 30% of your      available credit on credit card (example. less then $30 on a $100 credit      card, or less then $3,000 on a $10,000 credit card.)
• Credit      History - How long have you been building a credit history? How long have you had your current      accounts? On average, this      category determines 20% of your score. So if you’re new to credit, it just takes time to establish      a positive credit history.
• Pursuit      of new Credit (Inquiries) - Application for new credit and      recently opened accounts are looked at for another 10%. Luckily, mortgage inquiries      that occur within a 14-day period count as a single inquiry. So you have the opportunity to      comparison shop without harming your credit.
• Types      of Credit in Use – The number of accounts and the different types of      accounts, such as credit cards, department store cards and installment      loans, are considered. This      category usually comprises another 10% of your final credit score.

Overall, if you want to improve your credit the best things you can do are pay your bills on time and pay down any high balances on your credit cards. Your credit score is calculated based on the information in your credit file at the time the credit score is calculated. Therefore, your credit score can change every time the information in your credit file changes. Great motivation to improve your credit score!