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Homebuying terms you should know - B

A new month means five new housing vocabulary! 

Balloon Mortgage: A balloon mortgage is a loan that features consistent payment amounts with a large payoff, known as a balloon payment, due at the end of the loan.

The payments for balloon mortgages are typically calculated as if they were 30-year loans. For a $150,000 loan at 5 percent interest, the monthly payment is about $805 per month. If that loan is structured as a balloon mortgage with a 10-year term, the borrower still pays $805 per month for 10 years. At the end of 10 years, the borrower must come up with almost $123,000 to pay off the loan, or refinance it.

Bank Secrecy Act: Passed in 1970, the Bank Secrecy Act (BSA) requires U.S. financial institutions to work cooperatively with the government to prevent money laundering. Also known as the Currency and Foreign Transactions Act, the BSA was designed to keep banking institutions from acting as unknown intermediaries in illegal financial transactions.

The BSA is enforced by the Financial Crimes Enforcement Network (FinCEN). In January 2017, FinCEN reported that they assessed $184 million in penalties to Western Union Financial Services for past violations of anti-money laundering rules, in a coordinated effort with the Department of Justice and the Federal Trade Commission.

In 2012, HSBC Bank paid $1.9 billion for violations in its failure to prevent money laundering by drug traffickers, and in 2014 JP Morgan paid $2.6 billion in fines for failing to notify authorities about suspicions of fraud at Bernie Madoff’s fund.

Beta: Beta is the measure of the risk or volatility of a portfolio or investment compared with the market as a whole. Beta is used in the Capital Asset Pricing Model (CAPM) to help calculate the expected return of an asset.

An exchange-traded fund, or ETF, with a beta of 0.65 is 35 percent less volatile than the market. Most utility stocks have a beta of less than 1. Most high-end stocks have a beta of more than 1, offering the possibility of a higher rate of return — but posing more risk.

Bitcoin: Bitcoin is a type of digital cryptocurrency. Functionally, it serves the same purpose as U.S. dollars or Japanese yen, except that it’s not tied to a central bank and isn’t regulated by a government body such as a treasury. Bitcoin transactions take place entirely online and offer a degree of anonymity to users, and they are securely recorded in a public ledger called a blockchain. Users purchase bitcoins in an exchange and have the option of “storing” them in a digital cryptocurrency wallet.

A (very) early adopter of bitcoin named Kristoffer Koch bought about $26 U.S. dollars of bitcoin in 2009, becoming the owner of 5,000 bitcoins. He stored the unique key signifying the bitcoin on an encrypted wallet and forgot about it. Years later, he started noticing that the price had risen considerably, and he spent weeks trying to remember the wallet’s password. When he was finally able to unlock his bitcoin, the 5,000 bitcoin investment was now worth $886,000, and Koch was able to buy himself an apartment in Oslo.

Blockchain: A blockchain is a digital, public ledger that records online transactions. Blockchain is the core technology for cryptocurrencies like bitcoin. A blockchain ensures the integrity of a cryptocurrency by encrypting, validating, and permanently recording transactions. A blockchain is similar to a bank’s ledger, but open and accessible to everyone who utilizes the cryptocurrency is supports.

Asgaror, lead singer of the Norwegian black metal band Heimskringla, has seen his income dwindle ever since the band’s label increased their cut. Asgaror realizes he can increase his revenue by selling to fans directly. He decides to use the blockchain not only to register his band’s grim riffs and nefarious lyrics, but also to set up a smart contract that allows users to purchase Heimskringla’s records and merch by paying a set amount of a certain cryptocurrency. Both the registration of Heimskringla’s intellectual property and every transaction to purchase goods from the band are securely and permanently recorded.

Mortgages 101

Buying a home can be exciting but at the same time—stressful. With finances clear in mind, it is easy to feel intimidated. But don’t worry! We got you covered. Here are the basic mortgage plans you can choose from.

5 types of mortgage loans:
1. Conventional mortgages
2. Jumbo mortgages
3. Government-insured mortgages
4. Fixed-rate mortgages
5. Adjustable-rate mortgages

A conventional mortgage is is a home loan that’s not insured by the federal government. There are two types of conventional loans: conforming and non-conforming loans. A conforming loan simply means the loan amount falls within maximum limits set by Fannie Mae or Freddie Mac, government agencies that back most U.S. mortgages. On the other hand, loans that don’t meet these guidelines are considered non-conforming loans. Jumbo loans are the most common type of non-conforming loan. Generally, lenders require you to pay private mortgage insurance on many conventional loans when you put down less than 20 percent of the home’s purchase price.

Jumbo mortgages are conventional loans that have non-conforming loan limits. This means the home prices exceed federal loan limits. For 2018, the maximum conforming loan limit for single-family homes in most of the U.S. is $453,100, according to the Federal Housing Finance Agency. In certain high-cost areas, the price ceiling is $679,650. Jumbo loans are more common in higher-cost areas and generally require more in-depth documentation to qualify.

The U.S. government isn’t a mortgage lender, but it does play a role in helping more Americans become homeowners. Three government agencies back loans: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans) and the U.S. Department of Veterans Affairs (VA loans). Government-insured loans are ideal if you have low cash savings, less-than-stellar credit and can’t qualify for a conventional loan. VA loans tend to offer the best terms and most flexibility compared to other loan types for military borrowers.

Fixed-rate mortgages keep the same interest rate over the life of your loan, which means your monthly mortgage payment always stay the same. Fixed loans typically come in terms of 15 years, 20 years or 30 years. If you plan to stay in your home for at least seven to 10 years, a fixed-rate mortgage offers stability with your monthly payments.

Unlike the stability of fixed-rate loans, adjustable-rate mortgages (ARMs) have fluctuating interest rates that can go up or down with market conditions. Many ARM products have a fixed interest rate for a few years before the loan resets to a variable interest rate for the remainder of the term. Look for an ARM that caps how much your interest rate or monthly mortgage rate can increase so you don’t wind up in financial trouble when the loan resets.

Read more about the pros and cons of each mortgage type here:

A 17 Year Success Story

Talisa is a single mom with one daughter who bought a home with the help of HOME, Inc. She participated in the Lease Purchase program for two years before purchasing. This program have her an opportunity to work on her credit, budgeting, and accumulating savings in preparation to take on the mortgage.
The sale price of the house was listed at $85,271. With the help of two grants, the purchase price ended up being $45,120 with an interest ratio of 5.875 fixed 30-year loan. 

Seventeen years later, Talisa is now married with three children and still lives in her HOME, Inc. home. The current mortgage balance is $28,000 with an assessed value of $96,900. To top it off, her monthly mortgage payment is only $567!

Talisa is still employed by the state and doing well. She expressed a lot of pride in maintaining a "nice little affordable home." In past years she has strongly considered upgrading to a larger home and selling, but at the same time, she didn't want payments to increase. Talisa loves how comfortable her home is how it still fits the needs of her family. 

We take pride in hearing from past clients and the success they have had. Talisa is one of many incredible HOME, Inc. success stories.

5 Financial Tips

It’s common to not want anything bad happening to us or our loved ones. But not properly planning for these circumstances can end up being a very costly mistake.

Here are five financial topics that many people will put off for as long as possible. These delays end up costing significant amounts of money down the road if you’re caught off-guard.

Funding retirement savings

Why people put it off: There are other bills to pay or other purchases people want to make. Also, if you don’t have access to an employer’s retirement plan that can make retirement saving less automatic. Sometimes parents prioritize paying for their children’s education instead of funding their own retirement.

How it costs people: They may have to work longer or during retirement. It can also cost them the retirement lifestyle that they envisioned. It can also cause parents to be forced to live with their children if they didn’t properly plan for retirement.

What you can do: Make sure you start contributing toward your retirement as early as possible, with the goal being to maximize your annual contribution. But even if you can’t reach the maximum level, try and push your limits by raising the percentage you contribute toward a retirement account.

Buying life insurance

Why people put it off: If nothing bad happened to them previously, they think nothing bad will happen in the future. They also don’t like to think about death. Or they rely too much on a smaller insurance policy through work.

How it costs people: People aren’t properly prepared when an unexpected death happens and people’s lives are significantly impacted. A family may be forced to move if they can no longer afford the mortgage or rent upon the death of a parent.
With a proper policy in place, a child’s college tuition could be taken care of if, God forbid, a parent passed away. Without one, saving for college may be even harder for one parent. Grieving is hard enough. But grieving — and worrying about money — would make the situation even more stressful.

Procrastination here also costs people as life insurance rates generally increase as people get older. We usually don’t get healthier as we age.

What you can do: Use a life insurance calculator to see how much your family or loved ones would need if something were to, God forbid, happen to you or your spouse.
For many, term life insurance is sufficient. It’s usually the most cost-effective option too.

Getting disability insurance

Why people put it off: They assume they’ll stay healthy and nothing will happen to them. It’s the money-saving mentality that they’ve gotten by without it, so why pay for it in the future.

How it costs people: If you’re not able to work, then you likely won’t have a regular stream of income coming in. Or that stream may be substantially reduced. This can cause you to deplete your savings. Or it could cause you to incur debt or be forced to dramatically cut your spending.

What you can do: Make sure you look into disability income insurance if you wouldn’t be able to live without your income. Don’t assume that health problems and other circumstances can’t happen to you.

Making a long-term care and estate plan for their family

Why people put it off: Nobody likes to have a conversation about death. It can be even harder to talk about death with your loved ones. Also, the pressure for the perfect plan could lead to no decision or no plan put into place.

How it costs people: Better planning can help parents make better living choices when they age. Parents leaving a house to loved ones might not be the best decision in some cases.

What you can do: Try to plan some sort of gentle conversation about the topic with your parents and see where it goes from there. Make the best possible decision now, especially if it’s a decision that you can change. And then revisit that decision in a year to see if anything changed or if you changed your mind.

Building savings and maximizing returns

Why people put it off: They might not think it’s worth it because they think the interest won’t add up over time. They don’t see the big picture of letting money just sit there, not earning a competitive yield.

How it costs people: Not earning any interest really hurts your future purchasing power. It’s not something you can see on a month-to-month basis. But long term, your money is losing future value. Even if you’re only earning a few dollars in interest, that’s better than nothing.

What you can do: Use a savings calculator. Plug in your current APY and then compare savings and CD rates on Bankrate. Calculate how much money you would have if you were in a higher-yield account.

Moral of this blog - it is better to be prepared, anything can happen!