On Home Buying and Credit Repair

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					                                 TABLE OF CONTENTS



I.    Is Home Ownership for you at this time?
II.   To own or to rent? That is the question.
III. Would home ownership save you taxes?
IV.   Begin by Maximizing Your Credit Score.
V.    Financial reality check.
VI. Types of mortgages.
VII. Hiring a Broker or go it alone?
VIII. Foreclosures and bank owned properties.
IX.    Negotiations, offers and sales agreements.
X.    How to handle the Worst Case Scenario.
                                            INTRODUCTION



During the course of practicing Law for 37 years, I have spent countless hours consulting with people
regarding whether or not to proceed with the purchase of a home and how to go about doing it if it’s
right for them at that time. It has been on my mind for some time that it would be a win-win situation
for all if I put down the facts and knowledge I have acquired during these decades of study and
experience. Needless repetition is avoided this way and we all win from that.
This book contains a summarization of objective facts as well as my thinking on these matters that will
be of great value to those who read it.
 It has become apparent that this compilation of the results of my studies will save the reader money
that might otherwise have been spent on attorney’s fees. Clearly a knowledgeable attorney should be
hired at some point if you decide to complete the purchase of a home. I know this book will give you a
firm base of knowledge that will make that attorney’s job easier in that way you will be such a
knowledgeable partner in the business at hand that no one will think about underestimating you in any
way. For advice that is specific to your own personal circumstances, you should consult your own
trusted professional.
This comprehensive, reliable and thorough road map is written for the newcomer to the process of
home buying, but it is also rich in detail useful to those who already have some knowledge through
their own experience and study. We are all students here and always will be. The law is constantly
changing and always will change and evolve with time. Knowledge is power.
The advice on maximizing your credit score is so useful and comprehensive that it alone is worth the
price of the book. Regardless of whether you ultimately proceed to buy a home, you will benefit
greatly from the knowledge gained by following through on what you learn from this chapter.
For most people, the decision of whether or not to buy a home is the single most important financial
decision they will ever make. Although choosing where you will live long term is an emotional process,
that process can be quite rewarding and I have tried to keep this factor in mind. However, let it be clear
that the business side of the equation must ultimately have the greater weight in all final decisions.
Start by learning to think ahead, I mean really ahead and you will do just fine.
The information contained in this book is for informational purposes only. There is no substitute for
discussing your individual situation with your own attorney. It is my hope that your dealings with
professionals will be aided by what you learn here.
Let’s put it together right! I will help you think it through, that’s a promise.
Edward F. St. Onge, Sr. J.D.
Your comments and questions are appreciated: edstongelaw @aol.com
BULK RATES FOR REALTY OFFICES AND EDUCATORS
Ask about customized and personalized editions.
                                            CHAPTER ONE


                         IS HOME OWNERSHIP FOR YOU AT THIS TIME?


                            Other than the fact that it seems like “the thing to do” or everyone says you
                            should or you have just always wanted to you must think about this home
                            buying you propose to do in a way separate from preconceptions and
                            emotion. After all, you have always heard that buying a house is the best
                            investment you’ll ever make. Can everyone be wrong?
                            The stability and comfort provided by home ownership are important in
                            ways that are not strictly measured by financial measurements. You may
                            be excited by the process of transforming a house into your personal and
                            individual home. This will become your sanctuary and your playground.
                            You may be prepared to spend some time on household chores, perhaps at
                            the expense of time you now spend socializing. Be forewarned, however,
that the financial advantages of home ownership are frequently exaggerated.
But this is a win-win situation isn’t it? I have to live somewhere, so instead of paying rent, I will
acquire a valuable asset that becomes a built in savings account that constantly appreciates. My profits
if I sell will be Capital-Gains tax-free. Is it all really that simple?
I get to deduct the interest from my income taxes. I can control the costs because rent can go up but
my mortgage will not. I suppose property taxes, insurance and maintenance may go up with time but
probably not much. Am I missing something here? Buying their home is what adults do most people
think but it is not always that simple.
In many cases, it is a wise decision. In other cases it may be wiser to wait. Let us examine some of the
factors that should go into your analysis of whether this is the right decision for you at this particular
point in time or at sometime in the future. Most people should own their own homes at some point in
their life, but let’s think about whether this means now, in the near future or somewhere further down
the road for you. Do not let anyone pressure you into thinking there is a rush to get in now. Prices are
not expected to really hit bottom for years to come. Then they will likely bounce along at a stagnant
bottom for more years. There is a lot of inventory out there with an aging population ready to
downsize and put even more on the market.
YOUR FINANCIAL SITUATION: Do you have any cash? Can you prove sufficient income to handle
the mortgage through at least 2 years of income tax returns? How is your credit rating? We will get
into this reality and what we can do about it early in the book. You must take a hard look at your
overall financial situation in the same way that your lender will look and we will do this well ahead of
time.
YOUR PERSONAL SITUATION: Do I want to commit to living here long term? How is my job
security? Is the proposed home centrally located to job, amusements, shopping, church, schools to
make my life easier? Do I like this area for the right reasons? If you are moving to another region, you
may be faced with a higher cost of living. If you are moving to a new city to take a new job, your
employer may pay your moving expenses. If not you may deduct these costs. There is a non-profit
organization called ACCRA.com, which compares cost of living indexes for more than 350 cities in the
U.S.
THE BIG PICTURE: The market has been declining. Interest rates remain at historic lows. Will these
trends continue or reverse themselves? It seems likely there will be winners and losers.
Remember when you identify a home with potential for you that the effects of the housing bust have
been unevenly distributed. In South Florida, Phoenix and Las Vegas house prices relative to rents are
very low. Constant pressure from foreclosures has forced prices way down. In Seattle and Portland,
this is not the case.


How about government tax credits and interest rates? These factors are so impossible to predict that
your own guess is probably as good as that of anyone else at any given time.
Be assured that this book is constantly updated. We will send you the most current information in the
latest edition available at the time of your order. The E-book edition is updated immediately as soon as
new laws and information come to light.
FAIR HOUSING: Fair housing refers to your right that housing          will be available to you without
discrimination based on your race, color, religion, sex, ancestral    origin, familial status, disability,
marital status, sexual orientation, age (18+) gender, identity and    expression or being a victim of
domestic abuse. You are protected under both federal and state law.   For additional information call 1-
888-722-1461, or visit www.fairhousing.org.
                                            CHAPTER TWO


                        TO OWN OR TO RENT? THAT IS THE QUESTION.


                            Renting is usually cheaper and more flexible than buying. Many renters
                            simply don’t like being tied down and worrying about maintenance and
                            upkeep. Leaky roofs and blown fuses are someone else’s problem. Most
                            leases don’t run more than a year so it is much easier to move if you need to
                            or simply want to. If you must break the lease, the Lessor is legally
                            obligated to use reasonable diligence to re-rent the property to mitigate your
                            damages. No weekends need be spent by renters tending to lawns, roofs or
                            gutters. The money the homebuyer needs up front to buy may be profitably
                            invested in stocks, bonds or a business by the renter. Capital that is tied up
                            this way where you can’t get at it is known as “Lost Opportunity Costs” to
financial experts.
In terms of strict financial dollars and cents there is a widely used formula for determining whether you
will save money by owning versus renting. Stated simply this rough rule of thumb says that if you
multiply your monthly rent by 200 the resulting figure is the amount of money you can afford to spend
on a home.
Put another way, if you are comfortable paying $500.00 per month for rent, your price range for
owning your own home should be in the area of $100,000.00 ($500.00x200). If you are paying and are
comfortable with a rent of $1,000.00 per month your realistic aim for a home purchase would be one
with a price in the $200,000.00 range.
Regarding the length of time of ownership at which home ownership seems to make sense for most
people, it is widely considered that buying is better than renting for those who stay put for at least 6 or
7 years. If you’re counting on really high appreciation to make your home ownership profitable in a
shorter term than this you are probably going to be disappointed.
There you have it. If only life’s decisions were that simple. We have to start somewhere. It makes
good sense to see if you make the cut in these two critical areas. If you don’t, let’s work toward that
goal. If you do, let’s move on to other areas of concern. I know you’re anxious to start actually looking
for your new home, but stay with me for a bit here.
LOCATION, LOCATION AND LOCATION are often quoted as the three rules of Real Estate. It is
wise to give more weight to the location than it is to the actual structure of the home. Changes can be
made to the home at any time by you or a potential future buyer from you but the location is what it is.
The rare exception may be an area that becomes gentrified with time but such developments are usually
too slow and unpredictable to be of much concern. Some neighborhoods slip backwards too. Keep
Detroit in mind.


Before we get too carried away here with the fun part of actually looking at property, let’s bear in mind
that the location we aspire to must be determined by what we can afford. Of paramount importance is
the length of the commute to and from work. If you don’t consider this, you will always resent the
daily problems of a long commute.
This brings us to an area that seems to consume an inordinate amount of time by buyers. It is time to
consider another rule of thumb that may run counter to what you are thinking or have been told by well
meaning friends and relatives.
It is better to underbuy by a little, especially the first time, than it is to overbuy. If your home owns
you, you can kiss goodbye to the nice restaurants, vacations and other indulgences that contribute so
much to your personal happiness. What you can afford must be decided on by considering more than
just your income. You must consider the taxes, insurance and the interest rate which you can secure to
start your calculations. For buyers there are many more necessary expenses yet to come as you will see.
Now weigh these expenses against your own comfort level.
DON’T BUY A HOUSE YOU CAN’T AFFORD.
You see the examples of the opposite way of thinking all around you and when you pick up the
newspaper every day. Naïve reliance on ever increasing housing values, unrealistic expectations
regarding future income and unexpected personal setbacks and expenses can send the overleveraged
homeowner into a cycle of financial misery that is ruinous to all important aspects of their life.
Give yourself some wriggle room. If things work out really well financially as the years go by you can
trade up comfortably. If you hit a valley in earnings or a little stretch of bad luck the you of the future
will thank the you of the present for having been realistic. Your friends and family may with all good
faith encourage you to overreach on this critical decision but you must temper your optimism about the
future with realistic and practical thinking.
There are costs to home ownership that are not readily apparent to even the most cynical of first time
buyers. Let’s examine these now while we are early in the process of thinking this whole matter
through. For our examples, we will assume a purchase of a $200,000.00 home, which is a nice round
figure near the national median.
Your lender will want to see at least 2 years income tax returns. If you are self-employed they may
want more proof than they require for those who work for large stable corporations or the government.
In a normal Real Estate market, lenders like to see a down payment of at least 20%. If you have this
available it gives you enough “skin in the game” to be taken seriously and to be able to negotiate the
best possible terms and conditions for the loan. Rates are negotiable if you have the clout that comes
from being a more than marginal borrower. A smaller down payment than 20% will also mean the
lender will insist on the considerable extra expense of private mortgage insurance. This can run from
$1,000 to $5,000 per year. Lenders require Private mortgage insurance to insure against the higher risk
of default that occurs with loan-to –value ratios greater than 80%. For those for whom the 20% down
payment is unre
				
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