Let’s say you just got a divorce and you and your six-year-old daughter are on your own. You’ve got a pretty good job and you’re thinking about buying a home on your own. What’s your first step? Here are a few tips to help guide you in the process.
1. First, ask yourself, is home ownership right for me?”
According to the Federal Housing and Home Loan Mortgage Corporation, better known to the public as Freddie Mac, you should review your current finances and determine:
1. Do you have a steady job and a source of income for at least the next two years?
2. Do you have reasonably good credit history?
3. Can you afford to assume the costs associated with home ownership — repairs or insurance, for instance?
4. Do you have enough money set aside to put a down payment on the home you want to buy and to cover closing costs?
If the answers to these questions are yes, the folks at Freddie Mac say home ownership might be right for you.
2. Second, consider the benefits of home ownership.
Owning a home gives you a place to call your own. It also makes you a part of the community. Other pluses include:
1. By making monthly mortgage payments, eventually the home will be yours. If you are renting, you’ll pay the rent and have nothing to show for it.
2. If you select a fixed rate mortgage your payment won’t ever increase. The same can’t be said if you’re a renter.
3. Home ownership can be a nest egg that usually increases in value during the time you own the home.
3. Think about how any financial fallout from your divorce will affect your ability to buy a home.
“If your credit wasn’t injured during the divorce then it shouldn’t be hard for you to get a loan,” says Paul DaCosta, a North Port, Florida mortgage broker specializing in foreclosures. “If you have a job and you’re paying your bills on time it shouldn’t be hard at all,” he adds. Sometimes though, one of the parties decides to make it financially tough on the other. “What usually happens,” DaCosta says, “is both ruin their credit rating. My suggestion in a situation like that is be proactive. You need to explain to your creditors you’re in the process of getting a divorce and you may be a little late on your payments.”
4. Understand the additional costs of homeownership.
With a 20 percent down payment on a home, the lowest rate available at this time for a 30-year fixed rate loan is about 6 percent, according to DeCosta. Even though it’s a buyers market, home ownership isn’t for everyone. There are some down sides. Among them:
1. If you’re forced to sell your home, given the current climate in the real estate market, it may be tough. Hiring a Realtor® will probably cost up to six percent.
2. Home value can depreciate if you don’t maintain the property, the neighborhood deteriorated or a recession occurs. It doesn’t happen often, but it does happen.
3. When you lose your job, it’s easier to find a cheaper rental than to sell a house. All the while you’re trying to sell, you’re responsible for the mortgage.
Still, Vincent Bindi, a broker with a firm in Orange County California, says, “Ninety-five percent of the people who go through a divorce end up with credit problems and bad debts. This makes it almost impossible for them to buy a home in today’s real estate market. But if their credit is good, the present market…offers a perfect time for a divorced person, or anyone else, to buy a home.” In Orange County, prices in some communities have decreased 20 to 25 percent below “what they were two years ago and interest rates are extremely low.”
After weighing the positives and the negatives, if you decide to make the leap into homeownership, it might be nice to get a feel for what your monthly mortgage payment will be for your new home.
If you gross $50,000 a year, your monthly debt is $1,500 and you can put $10,000 down and come up with the about 5 percent in closing costs, then you can afford a home of approximately $138,000 at an annual fixed rate of 5.75 percent, commission paid over 30 years. The bottom line is your monthly mortgage payment will be about $745.
Don Moore is a veteran newspaper editor and reporter who spent more than 40 years working at newspapers around Florida. He recently retired from the Port Charlotte, Florida Sun-Herald. He can be reached at donmoore39@gmail.com.
