SPRING 2008
HOME OWNERSHIP GUIDE
Finding the “charm” in Charm City Unlocking credit secrets The time to buy a home is ... NOW! Avoiding foreclosure Tips and strategies for saving your home
A publication of the Afro-American Newspapers
HOME OWNERSHIP GUIDE
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HOME OWNERSHIP GUIDE
A publication of the Afro-American Newspapers
Contents Home Ownership! HOME OWNERSHIP A publication of the Afro-American Newspapers
GUIDE
The Baltimore Afro-American Newspaper 2519 N. Charles Street Baltimore, MD 21218 (410) 554-8200 The Washington Afro-American Newspaper 1917 Benning Road NE Washington, DC 20002 (202) 332-0080 John J. Oliver Jr. Chairman/Publisher Director of Advertising, Sponsorship and Sales Susan Warshaw Sales Michaela Blanchard Robert Blount Marquis Goodwin Jessie Murphy Sheia Murphy Annie Russ Electronic Editor Shanise Winters Graphic Designer Perry Sweeper Photographers William Tabron Robin Akinwale Khalid Naji-Allah Proofreader Perry Greene
Photo by William Tabron
6
Selling a house
8
Now!
10
Owning a home has its advantages
12
Become a homeowner
16
Understanding credit
20
Home buying credit tips
22
Know your rights
24
District Living
26
Uncovering Charm City’s Charm
28
Keep your home
A publication of the Afro-American Newspapers
HOME OWNERSHIP GUIDE
Martin O’Malley GOVERNOR
Anthony G. Brown LT. GOVERNOR
Raymond A. Skinner SECRETARY
Clarence J. Snuggs DEPUTY SECRETARY
Governor O’Malley and the Maryland Department of Housing and Community Development (DHCD) believe that strong, sustainable homeownership provides a solid foundation for individual economic growth and is the cornerstone of healthy neighborhoods, towns, and cities. For many, purchasing a home is the single most important financial decision they will make in their lives, and the State of Maryland wants to ensure that prospective homebuyers have access to resources and assistance that will help them get their foot in the door of an affordable home. The Maryland Mortgage Program (MMP) is the State’s flagship mortgage assistance program. The MMP provides Maryland’s families with reliable and flexible mortgage loans, including 30, 35, and 40 year fixed-rate mortgages, as well as several, safe interest only loan options. In 2007, the MMP enabled nearly 4,000 Marylanders to become homeowners with loans totaling over $807 million. The MMP also provides an assortment of downpayment and closing cost assistance programs like MMP Plus, the Downpayment and Settlement Expense Loan Program, the employer matching program House Keys 4 Employees (HK4E), and the Live Near Your Work Plus Program. If you are interested in purchasing your first home, the MMP is a great alternative to many conventional and subprime loans offered in the commercial mortgage marketplace. The Program’s combination of quality mortgages with downpayment and closing cost assistance can help you realize the dream of buying your first home and ensure that your mortgage remains affordable. To find out more information about MMP, visit www.mdhousing.org or call 1-800-6387781. Not only is the State of Maryland committed to helping you buy your first home, we are also committed to ensuring that existing homeowners STAY in their homes. Under Governor O’Malley’s leadership, the DHCD is aggressively tackling foreclosure issues that have become a crisis throughout our State by creating financial products and opportunities that help Marylanders combat foreclosure and sustain long term homeownership. If you feel your home is in danger of foreclosure, the DHCD may be able to help you through programs like the Lifeline Refinance Mortgage Program or Homesaver. Both programs are designed to provide mortgage refinancing options to Marylanders who currently have a subprime, adjustable rate mortgage, or other exotic mortgage loans. We also offer the Bridge to Hope program, designed to provide immediate assistance to homeowners facing foreclosure through zero percent interest deferred loans which can be used towards delinquent mortgage payments, taxes and other arrearages, or as a monthly subsidy of their mortgage payment for up to 24 months. If you find yourself having difficulty making your mortgage payment, if you have an ARM that has recently reset or is about to reset, if you are facing foreclosure the worst thing you can do is DO NOTHING. Help is available through DHCD and its partner housing counseling agencies, but you must take action NOW. Find out if the DHCD can help you by visiting www.mdhope.org or calling 1-877-462-7555. Everyday, the DHCD is working to promote and preserve homeownership. Please contact us to find out how you can build a better, brighter future for you and your family. Sincerely,
Raymond A. Skinner Secretary OFFICE OF THE SECRETARY
HOME OWNERSHIP GUIDE
100 Community Place Crownsville, MD 21032 PHONE 410-514-7700 TOLL FREE 1-800-756-0119 FAX 410-514-7994
A publication of the Afro-American Newspapers www.mdhousing.org TTY/RELAY WEB
711 or 1-800-735-2258
Life, Liberty, and the Pursuit of Home Ownership!
B
e a part of the American dream! With home market prices at an all time low, it is now easier than ever for people to purchase homes. I have always encouraged my staff, family members and friends to purchase versus renting, because of the intrinsic value and the chance to be the master of your own destiny.
There really is nothing like owning your own home, whether you are single, dating, married or have children, there is a way to own a home on almost any budget. It takes a bit of planning and knowing the right places to look for special incentives that help people from searching for homes to closing. Local home ownership training programs assist buyers in obtaining the necessary tools needed to begin the home ownership dream. Either most people are unaware or not utilizing the resources available to them, when it comes to home ownership, we here at the Afro have compiled a guide of Maryland and D.C. agencies that assist buyers, hot neighborhoods to buy in, types of mortgages and more to help you on your journey to owning a home. The most important preliminary step to home buying is maintaining good credit. Understanding and using credit, not credit cards, is key to getting into the home you want at the best price. The higher your credit score, the lower your interest rate and the less expensive your monthly mortgage payment will be. Inside are many more helpful tips to improve credit and get you into your first house. It is time to invest in your future! I hope you find this guide to be a resource in making your American dream come true. I look forward to sharing the advantages of home ownership with you and some tricks of the trade to help you prepare for the next stage of your lives. Best,
John “Jake� Oliver Publisher/Chairman A publication of the Afro-American Newspapers
HOME OWNERSHIP GUIDE
Selling a home
Making your home stand out on the market By Zephyr Crenshaw
A
ccording to statistics reported by the Metropolitan Regional Information Systems and the Coastal Association, homes sales were down in every jurisdiction in Maryland in 2007. Overall for the state, approximately 25 percent fewer houses were sold in 2007, than 2006. However, there is no shortage of houses on the market, from newly built homes in developments to older homes with owners looking to sell. “People are actively interested,” said Eunice Herring, a real estate
agent with Celebrity Associates Real Estate Services, “but there are a lot of houses on the market. It’s taking longer to sell.” In this situation, Julian Jones, also with Celebrity Associates, advises, “When one [buyer] knocks on your door, you have to put your best foot forward.” Jones says several things impact salability, some that you can’t do anything about. He said the location of the house is what it is and
Courtesy photos
Curb appeal is important when trying to sell a home. In a market filled with choices, it is important for your home to make a good first impression on perspective buyers, from the time they see it. These homes in Waverly are well maintained, in a well-kept neighborhood. This make a positive impression on buyers.
HOME OWNERSHIP GUIDE
A publication of the Afro-American Newspapers
can’t be with. But you can increase the condition of the property, adjust the asking price and be flexible on the terms and conditions of the sale. Herring, who’s been working in real estate since the ‘80s, says there are things you need to do to prepare the house for sale. She recommends a good cleaning as a place to start. “Get the carpet cleaned and straighten the curtains,” she said. “Have the lawn cut and the edges trimmed, line up the trashcans behind the house and fix the storm door. Also, paint and declutter. This makes it look crisp and clean.” Jones agrees. “Painting is the best thing you can do if you are selling,” he said. “When someone comes in, you have to make sure everything is as good as you can make it.” He pointed out that a good price for a house in good condition will sell itself. Also of importance to buyers, he said, are bathrooms and kitchens. “People hone in on bathrooms and kitchens. They should be really nice, if you can.” Some simple steps for upgrading the look of the bathroom include replacing the faucet fixtures, vanity and bowl, as well as painting the room white and sealing the tub and sink area with fresh caulk. For the kitchen, a new faucet, new countertop and painting the room white will work wonders. Jones recommends making the home as neutral as possible when preparing to show it. “The fewer items in a room, the bigger the room will look,” he said. “A room with a bunch of stuff looks smaller.” He added that removing a lot of personal items makes it easier for potential buyers to imagine the space as
their own, imagine their items in place. “I think it’s easier if the house is empty,” he said. Another suggestion, said Herring, is for the seller to have an home inspection done. This gives the owner an idea of the things that need to be done to the home, that can be started or, if that’s not possible, can at least be spoken about intelligently to perspective buyers. Presenting a bright, crisp and fresh house for perspective buyers will take advantage of the excitement generated when a property first comes on the market. It will also help people make the emotional connection to the property needed to propel them to the next step, the offer. It is important that sellers consider the concessions they can make to move the deal forward. “Sometimes buyers ask for seller contributions,” said Herring. “Most people expect some help with closing costs,” said Jones. “It can’t hurt to ask.” With the state of the market, helping at settlement might be harder now than in the past. Many sellers, especially when putting their best sale price on the table, may not have enough after all the required payouts to offer any buyer assistance. Jones says in these circumstances – a buyer looking for help and a seller anxious to sell – it might be worth a call to the mortgage company to see if a reduced pay off amount can be negotiated. “The mortgage company can be your friend,” he said. “They don’t want to foreclose on your home.”
“The most important thing for a seller is to realize in this market you have to put your best foot forward.”
A publication of the Afro-American Newspapers
HOME OWNERSHIP GUIDE
NOW!
Houses are for sale all over the Baltimore-Metropolitan area.
Photo by William Tabron
There’s no better time
By Zephyr Crenshaw
T
he news is full of tales of woe regarding foreclosures, the bursting of the real estate bubble and the credit crisis. But Julian Jones, real estate agent with Celebrity Associates, says, “Now is a great time to buy a house.” According to Jones, it’s a buyer’s market. There are a large number of properties on the market and interest rates are continuing to drop. “It’s a whole different ball game,” he said. “Buyers can be choosy and demanding now. Sellers should be
HOME OWNERSHIP GUIDE
willing to make concessions to sell the house.” Bill Ariano, deputy director of the Maryland Department of Housing and Development, said, “Anytime is a good time to purchase a home if you are prepared. You have to have your finances in order and be knowledgeable about what you are getting into.” Right now, dropping interest rates and home prices are peaking buyer’s interest, despite the gloom and doom about people losing their homes, exotic mortgages and the credit crisis. Because homeownership is a stabilizing factor in neighborhoods and important to the revenue base
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of municipalities, towns, cities and the state have implemented a variety of programs designed to get people into homes. The Maryland Department of Housing and Community Development administers several programs for that purpose. Under the More House 4 Less program, the state has three offerings. One provides grants to home buyers for the down payment and closing costs, one partners with employers to provide matching funds to assist home buyers and the third provides a variety of mortgage products for first time home buyers or people purchasing homes in state target areas. The DCHD Downpayment and Settlement Expense Loan Program is open to any borrower eligible for a Maryland mortgage program loan. It provides money at various levels based on the
“Until recently,” said Mr. Ariano, “Most of what [Community Development Administration] did was increasing homeownership. For the year ending June 2007, we did over 3,383 mortgages for first time homebuyers.” He added that the average mortgage provided was $200,000 and that 70 percent of the loans made were to single head of households. A program Anna Custer, executive director of Live Baltimore, mentioned is Live Near Your Work. She said there are about 80 employers currently participating in the program, which are listed on the Live Baltimore website. According to Ms. Custer, if the employee provides $1,000, then the employer will give $1,000, as will the state. Baltimore City also offers a program for its employees, providing $3,000 if a home is purchased
“Buyers can be choosy and demanding now. Sellers should be willing to make concessions to sell the house.” purchase price of the home. The money is given as either an interest free loan that become due when the home is paid off, refinanced or transferred to someone else or as a grant that is forgiven after four years of owning the property with the original Maryland Mortgage Program financing; repayable in full if refinanced, sold or transferred before that time. House Keys 4 Employees is open to any employee of a qualified company that received a contribution for down payment or closing costs from an employer. For those home buyers, DHCD will match up to $2,500 towards the down payment or closing costs. This assistance is available for any buyer using Maryland Mortgage Program financing. The Maryland Mortgage Program offers a variety of mortgage packages to allow residents to select the best one for their circumstances. All kinds of homes are eligible, including new construction taking place in priority funding areas in the state. Available are 30- and 40-year fixed-rate loans and interest only loans. More information on these programs, including qualifying criteria and contact information can be found at: http://www.morehouse4less.com/.
in the city and $3,750 if the home is located in a Healthy Neighborhood. For those interested in purchasing in one of Baltimore’s Healthy Neighborhoods, the programs and monetary assistance increase. While each of the 17 designated healthy neighborhoods – BelairEdison, Charles Village, Ednor Gardens, Garwyn Oaks, Midtown, Mondawmin, the Neighborhoods of Greater Lauraville, Patterson Park, Reservior Hill, Southeast Baltimore, Better Waverly, Waverly and Remington, Brooklyn and Curtis Bay, Coppin Heights, Coldstream Homestead Montebello, Cylburn and Levindale, Edmondson Village and Glen – has its own association that is tapped into resources structured to meet the needs of the neighborhood, through the Healthy Neighborhoods program, interested home buyers can access additional programs. Many of the partnering neighborhood associations also offer homeownership counseling services and comprehensive information about the area. So, is now the time to buy? Absolutely.
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HOME OWNERSHIP GUIDE
H
omeownership has been held out as a crucial part of the American dream since the start of the nation. Even today, with the mobility of the population and the changing economy, it’s considered a life milestone, like getting married and raising a family. But it’s not just the milestone status of homeownership that makes people seek it. It’s the variety of advantages that come from making this significant investment in the future. Housing costs are stable When you purchase a home, the monthly amount you’ll pay on the mortgage is known if you have a fixed interest rate loan. While some costs might fluctuate – property taxes rates, assessed value or property insurance premiums – homeowners do not
Tax benefits are received Some costs related to owning a home – interest paid on the loan and property taxes paid – can be deducted on your income tax return, reducing your tax liability. Owning a home helps you keep a little more cash in your pocket, instead of paying it in taxes. Less expensive than renting When you purchase a home, some part of your
s ’ t i s a me h
o h a g wnin
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experience yearly increases in the cost of housing like renters often do. Knowing the cost of housing makes it easier to budget and plan for larger expenditures like household repairs and vacations.
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s e g a t dvan shaw
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Illustration by Perry Sweeper
10 HOME OWNERSHIP GUIDE
A publication of the Afro-American Newspapers
monthly payment goes towards increasing your equity in the property and by extension, your personal wealth. However, when you rent, the money paid is going out, with no return for you. Equity is built with each payment Mortgage payments, in their most basic form, consist of principal and interest. The principal is the amount paid against the amount originally borrowed. The interest part is the amount paid to the bank as their profit for lending you the money. With a typical mortgage, each payment reduces the principal owed to the bank and increase the purchaser’s ownership, or equity, in the property. Equity is an asset that can be called upon in times of trouble or used when needed for something important. If necessary, the house can be sold or used as security for a loan, allowing the owner to access the equity to meet an obligation. Home equity is the largest block of wealth most people have. A good payment record strengthens credit Making mortgage payments on time enhances your credit history and over time will strengthen your credit score. This can make it easier in the future to acquire other needed items like a new vehicle or credit for home repairs. Decorating can occur without restrictions
walls, which means it can be difficult to make the living space your own. There are no such restrictions when you own your own home. Hang anything you like, paint in rainbow colors if desired. You can take any liberty you want to make the living space your own. This extends to making changes to the house and yard. Put up a shed or garage. Dig up the lawn for an additional driveway. From more bedrooms to professional landscaping, you have the right to modify your property in an way that pleases you. Privacy Your home belongs to you. If not invited by you, a person is not allowed access to the premises and, you can deny access at any time. You can retreat into your house and expect to be left alone and to have your privacy respected. In a rental unit, the property belongs to the landlord and in certain circumstances, the landlord or his designee can enter or allow access without your permission. The property grows in value Property has consistently increased in value over the years. Even now, with the bursting of the real estate bubble, property is being valued at more than in the past. Your ownership stake in the property increases through appreciation, so as the value increases, so does your equity and wealth.
Most rental agreement prohibit hanging items on the wall or changing the color of the A publication of the Afro-American Newspapers
HOME OWNERSHIP GUIDE 11
Photo by Robin Akinwale
Tia Delly and son, Donavin Bunn, love their West Baltimore home. “I always thought it was rewarding to become a homeowner,” said Delly.
process. “A realtor has a vested interest in getting you into a home. A loan office has a vested interest in getting you a loan. I cannot stress it enough - do your research first,” said Reginald Exum, assistant vice president with M&T Bank’s mortgage division. Dale Quisgard, senior loan underwriter for the Maryland Bridge to Hope program, said that homeowner counseling is not just learning what to look for in a house, agent and home inspection, but it includes a process where you evaluate what you can afford. “It’s more of an education,” she said, “ with guest speakers and discussions of what happens post closing, including what it means to be a homeowner. From these classes you are
Becoming a home owner Steps to living the dream
By Robin Akinwale and Zephyr Crenshaw
B
uying a home, especially your first, is not as simple as saying, ‘I want a house.’ While it can seem complicated, following some basic steps will make it easier to navigate the process and make it easier for you to get and keep the home of your dreams. Seek homebuyer counseling Purchasing a home will most likely be the largest investment in your lifetime, so become as knowledgeable as you can. The purpose of counseling is to become informed of the roles and responsibilities of all the professionals involved and to understand the entire buying
12 HOME OWNERSHIP GUIDE
getting a full education , not just a piece of it.” Anna Custer, executive director of Live Baltimore said, “Once you complete a homeownership education class, you get a certificate. This allows access to a lot of city and state incentives.” Save! Save! Save! Earnest money is money deposited by a buyer that is applied to the purchase price and other expenses. “An earnest money deposit shows the seller that you are serious and capable about purchasing a home,” said Lachele Kellam, a licensed real estate agent in the Baltimore area since 2003. If the goal is to have $6,000 saved to cover A publication of the Afro-American Newspapers
a down payment, be sure to set aside at least $500 a month for an entire year. And that $500 should not make or break you financially. If so, that’s an indication this is not the best time to consider purchasing a home. Once you determine how much you would like to save for the down payment, do not touch those funds. Exercise self-control. Consider the big picture. Just imagine turning the key to the door of your big, beautiful home.
report, and your credit score, annually. There are also documented procedures for correcting inaccuracies on the report. The credit history report is used to generate the credit score. Your credit score can be improved over time with on-time payments and properly managing your use of credit. The higher the score, the lower the interest rate, which saves you money over the life of the loan. “A large part of our financial literacy campaign is to coach individuals on expense Construct a budget tracking, budgeting, debt Budgeting is extremely reduction and improving important. This includes credit scores. We urge giving you an allowance, individuals, young and old, “A large part of our cutting out extravagant to take advantage of our free financial literacy meals and unnecessary resources and to become campaign is to luxuries, and tackling debt educated,” said Vicki Clark, coach individuals head on. director of Housing and on expense tracking, “It’s important to look at all Financial Literacy for the budgeting, debt your spending, to make sure Greater Baltimore Urban reduction and you have created a situation League. improving credit where the mortgage loan Patricia J. Henderson, scores.” can be sustained”, said senior loan officer for First Quisgard. Preference Mortgage, concurs. What does that mean for you? Less frequent “We need to educate our borrowers to get them trips to the barber shop and nail salon. In ready for the whole process.” fact, learn to give yourself a shape up or have a friend give you a manicure. Clip coupons Get pre-qualified before heading to the grocery store. Brown Getting pre-qualified involves a loan bag it; no need to order lunch on the job. Cut professional reviewing your income and corners any way you can. Once again, keep expenses to determine the type of mortgage in mind what the end goal is. Nothing should payment you can afford. “My job is to help the get in the way of heading down the road to potential buyer establish a realistic timeframe financial stability and homeownership. to get into a home,” said Exum. This is determined by viewing pay stubs, Know your credit score W-2 forms, an updated credit report, bank The law requires credit reporting agencies statements and the work and rental history of to provide you a copy of your credit history the past two years. Although these documents annually. It is important that you review your assist in determining the creditworthiness of A publication of the Afro-American Newspapers
HOME OWNERSHIP GUIDE 13
the applicant, Exum said a potential buyer should have a better understanding of their personal affordability than an expert. There can be hundreds of loan programs at a given time. “Don’t let anyone, including a professional, tell you what type of loan to get. Allow them to make recommendations of the programs that best meet your needs,” he said. “Mortgages should be based on customer needs and where they are going to be in 10, 20 or 30 years,” said Henderson. After prequalification, refrain from making any large purchases such as a car or entertainment system. “A prequalification is valid for about 120 days but must be updated every 30 days,” Exum said. It is important to understand what prequalification means. According to Henderson, a pre-qualification is based on a conversation with the potential borrowers and a preliminary review of their documents. It does not include any investigations and does not involve an underwriter. It basically makes the representation that seems to be okay, which can be very useful in starting the process to purchase a home. “A loan commitment can only come from the underwriter,” she said. “Pre-qualification doesn’t mean anything until the underwriter looks at the whole deal.” Work with a real estate agent Once you know how much of a home you can afford, it’s time to find a qualified professional to guide you through the process. Get referrals from family members, friends and coworkers. Live Baltimore is also a good source for real estate agents selling in Baltimore City. According Custer, the organization keeps 14 HOME OWNERSHIP GUIDE
a list of qualified real estate agents on its website. “We teach a class for real estate agents on selling Baltimore City,” she said, “where to sell and the incentives available.” Don’t settle for just anyone. Kellam recommends buyers have a comprehensive understanding of the agent’s credentials before even considering working with them. Consider the agent’s philosophy for business and whether or not you feel comfortable with the individual. “Remember you are hiring someone to represent you. You must be able to trust this individual wholeheartedly,” she said. The duties of a real estate agent include educating the buyer about the entire process from start to finish, staying loyal to the client he/she is representing, being obedient to the client’s needs, assisting the buyer in making clear and informed decisions and remaining ethical at all times. “The agent should really be your partner in the home buying process,” Custer said. “You should feel comfortable with those involved in your biggest business deal.” When a buyer contacts a realtor, he/she should have an idea of what type of home they want —the desired number of bed and bathrooms, the neighborhood and a list of amenities that are a must for the home. This information allows the agent to conduct a competitive market analysis comparing the prices of similar homes recently sold in nearby neighborhoods. “I urge my clients not to look at the selection process as such an emotional decision because the buyer is making an emotional decision with their finances. It could just be paint that makes it seem like home,” said Kellam. What’s great about the current state of the A publication of the Afro-American Newspapers
market is that the inventory is huge and the prices are low. Kellam feels that in no time, a buyer can find the home of their dreams. Making an offer So, now you have toured a number of houses and think you have found your home. Does this house fit your needs? Is it within your price range? If you feel confident about your decision thus far, then it’s time to proceed. The average contract in Maryland is about 12 pages and your agent should go over all the terms and conditions with you. The contract will include the sale price, closing date, financing contingencies, appraisal contingencies and home inspection contingencies. “This part of the process can be stressful,” Kellam said. The terms for any earnest money should be included to detail what will happen to the deposit should the buyer not be happy with the outcome of the inspection. Should the inspector discover needed repairs, a credit can be applied for the buyer’s benefit to have the defects repaired or the seller can agree to fix the repairs within a certain amount of time. Should the appraiser appraise the home for less than the sales price, both parties must determine what will be done. “Every detail must be in writing and fully understood by the buyer,” Kellam said. Items from appliances to window treatments to a home warranty can be negotiated in the sales price. The buyer can even request the seller to cover some of the closing costs and with the current state of the market, Kellam said, the buyer has the upper hand in
negotiations. Find a certified home inspector Fresh paint and beautiful landscaping can disguise an array of secrets lurking behind the walls of a home. A home inspector scrutinizes the premises to ensure the house is structurally safe and sound, that the dwelling is free of pests and termites, lead paint, mold and radon gas. Electrical and plumbing are also covered in the inspection. A buyer may be responsible for any damage done to the home during the inspection process should they choose not to purchase. “It is also a good idea to ask for a detailed list of repairs along with photos to substantiate any potential issues,” Kellam said. An inspection can take several hours and cost anywhere between $300 to $1,000. While you can check with friends and family members for references, you can also log onto The National Association of Home Inspectors website (nahi.org) to ensure the inspectors are both certified and licensed in the industry. Lending institutions require property insurance before closing to protect the investment. Make sure to read the policy to see exactly what is covered. Many policies do not cover water, earthquake and flood damage. Closing time “Make sure to have a final walk-through before heading to closing. This is the time to make sure that all the items that are to remain are there and in working condition and that repairs have been completed,” Kellam said. At closing, you will finally meet the sellers, the seller’s agent and title company. Most Continued on pg. 19
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HOME OWNERSHIP GUIDE 15
By Zephyr Crenshaw
W
Complete credit reports from Experian, Equifax and TransUnion are available online.
Understanding
credit
16 HOME OWNERSHIP GUIDE
hat does it mean when a borrower is told they have a credit score of 640? Is that good or bad? Will the mortgage get approved? These are questions many borrowers have because individual credit history and the associated credit score are misunderstood parts of the home buying process. Credit history is a record of an individual’s interaction with credit. This details the type of credit a person has accessed over time, including mortgages, revolving credit accounts, installment accounts and other credit. Revolving credit accounts are credit cards and accounts that allow additional borrowing even if there’s an outstanding balance. Installment accounts are secured and unsecured non-mortgage loans – a personal loan from a finance company or bank, or a car note – where a fixed amount is borrowed and repaid in regular increments over a predetermined amount of time. The credit history report shows when each credit obligation started, the maximum owed, the current balance on the account, how much, if any, is past due, how many days it’s past due, when the last payment reported was made, whether the account is being repaid as agreed, whether payments made are more than the minimum required and if closed, the final disposition of the account. Information about a person’s use of credit is shared regularly with the major credit reporting A publication of the Afro-American Newspapers
agencies – Equifax, Experian and TransUnion generate the credit score. FICO, or Fair Isaac – and is used to update these organization’s and Company, calculates the credit score based records. This process, however, is not without on several criteria. According to information flaws, which can lead to inaccurate and false on the company website, it breaks down as information being a part a person’s credit follows: history. According to the Electronic Privacy * Payment history accounts for 35 percent of Information Center, a public interest research the score center in Washington, D.C., studies revealed * Amount owned on credit accounts represents that 29 percent of consumers had inaccuracies 30 percent of the score on their credit reports that impacted their scores * The length of your reported credit history by 50 points or more. EPIC reports that credit accounts for 15 percent of the score reporting agencies don’t always exactly match * New credit (the number of recently opened incoming information accounts, recent credit before declaring records the inquiries and the time since same. Women are especially these things last occurred) vulnerable to this because accounts for 10 percent of their last names change the score “Individuals with with their marital status * The mix of credit types and the companies expect used accounts for 10 inaccurate credit that occasionally Social percent of the score. reports will in turn The information on the Security numbers will be entered incorrectly. credit history reports is have inaccurate EPIC says that this close parsed and evaluated credit scores.” enough matching can according to the lead to information for appropriate categories. more than one person Also important to note, being reported for a single income, race, religion, person, which can lead to national origin, marital state, an account having inaccurate information or a gender, occupation, residence and age do not person having no credit history at all. figure into the credit score. The biggest problem with these methods is, as In order for a FICO score to be generated, a EPIC states best, “Individuals with inaccurate borrower must meet minimum requirement. The credit reports will in turn have inaccurate credit person must have at least one credit account scores.” open for six months or more, must have at least So, how does a person’s credit history turn into one undisputed account reported to the credit that far-reaching, always with you, credit score? bureau in the past six month and there should Unfortunately for consumers, exactly how that be no indication the person is deceased on the works is proprietary and generated differently credit history report. by a couple of different companies. Experian is using a different process for At present, for consumer credit scores, Equifax generating a credit score called Scorex. This and TransUnion use the FICO process to process is also proprietary and even less A publication of the Afro-American Newspapers
HOME OWNERSHIP GUIDE 17
information is available about how it uses credit “When I first started,” said Patricia J. history information to generate a score. The Henderson, senior loan officer for First system is promoted as a risk scoring tool, that Preference Mortgage, “there were no credit uses groundbreaking techniques. Information scores.” on Experian’s website indicates this process Now, she says, along with credit scores, lenders outperforms the traditional risk models. look at a person’s borrowing and paying But what do these scores really mean? How do patterns, and many of the same items/categories these number impact borrowers in a real sense? that matter in generating the credit score. She Credit scores generally fall between 300 – 850 said lenders look at how people are using credit. and represent how risky it is to loan to a specific Some red flags Henderson indicated are credit person. The lower the number, accounts at the maximum the greater the risk to the limit. But the borrower lender. Over 90 percent of all is paying the minimum lenders use the credit score as payment, judgments and “Over 90 percent collections, a significant part of evaluating and how many of all lenders use new credit accounts were whether or not to extend credit. recently, which the credit score opened People with credit scores could be up to 18 months as a significant out. below 500 can find it almost impossible to get credit or Regarding late payments part of evaluating if they do, find it is very and failure to pay, whether or not to expensive. A loan savings Henderson said, “Credit calculator on the FICO is a promise. You broke a extend credit.” website shows that a person promise.” with a credit score of 500She said lenders have a 589, purchasing a used car reasonable question at that for $6,000, will get an interest rate of 16.187 point regarding whether or not a borrower will percent for a 48-month loan. That same deal, keep the new promise. for a person with a credit score of 720, will An individual’s credit score not only impacts have an interest rate of 6 percent, representing their ability to get credit, but now more a monthly payment savings of about $30 and and more businesses are using the credit an interest savings over the life of the loan score to evaluate worthiness for insurance of almost $1,500. Change the parameters for coverage, insurance premium determination, this to a $220,000 mortgage for 30 years and requiring utility deposits for new service and the fixed rate for a person in the 500 range is employment. 12.031 percent, while for the person at 720 “It makes good sense to keep your credit or above it is 6.115 percent, representing a up because it affects your daily walk,” monthly payment savings of $993 and an said Henderson. “That’s a blemish on your interest savings of $335,837 over the life of the character.” loan. In this situation a better credit score will save roughly $11,195 yearly. 18 HOME OWNERSHIP GUIDE
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Continued from pg. 12 likely the title company representative will facilitate the closing. Closing is the point at which ownership of a property in transferred in exchange for the selling price. It involves the resolution of two issues: confirming the fulfillment of the promises in the sales contract and finalizing the buyer’s loan and the associated disbursement of funds. There is a lot of paperwork in this process. Generally the buyer has the opportunity to read the contract prior to sitting down at closing. Because the contract contains many pages, a thorough review ahead of time is recommended. This is also the best time to ask the seller and their agent any questions. It’s very important to be prepared for the disbursement of funds phase of the transaction. Any funds to be presented to the other party should be in the form of a certified check or money order. The title representative will accept funds and cut checks for all involved parties, including the seller and brokers. Congratulations, you are officially a homeowner. This is a very emotional time with feelings of excitement and accomplishment. Although you’ve just crossed a large hurdle, you aren’t done yet. Post-buying counseling is just as important as pre-purchase counseling. Advice on how to stay on top of mortgage payments, foreclosure prevention and maximizing your investment is provided by the same agencies that supply homeownership education.
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HOME OWNERSHIP GUIDE 19
Home buying credit tips 20 HOME OWNERSHIP GUIDE
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By Zephyr Crenshaw Along with knowing what you want in a home and how much you can afford to pay, consumers should be ready to put their best credit foot forward when starting the home buying process. According to Patricia J. Henderson, senior loan officer for First Preference Mortgage, the first step is to review your credit. “Do not walk in blindly,” she advises. “If you have reviewed the information and know your scores, you can talk intelligently.” Accessing your annual free credit report online is the easiest way to get the information you need to evaluate. Henderson advises getting copies of your report from each of the three depositories – TransUnion, Equifax and Experian. She said lenders use a special mortgage credit report that combines the information and scores from the three agencies into one geared towards their needs. The second step is to review the reports and take the time to correct any mistakes you find. Report any mistakes you find to the agency. The credit reporting agencies have 30 days to investigate your complaint and if they can not verify the information should be there, you can demand it be removed. Henderson said if a lender has not communicated updated information regarding payments, you can contact them and ask them to report, as well as send the credit agencies the new information directly. Once the information is corrected, your report should be rescored. Finally, Henderson says you should regularly review your credit and work to get the score going up. Some things to be aware of that impact your credit score: * Late payment of bills can drive the score down. If there’s a problem, the first call, said Henderson, should be to your creditors. In most cases, the lenders are willing to work with you.
Then, she said, whatever you promise to do, do it. Especially in the case of mortgages, she said, “We truly do not want these houses. It is costing banks money.” * Inquiries into your credit history by lenders negatively impacts your credit score. A large number of inquiries at the same time show you are shopping for credit. While the shopping is a good thing if you are looking for the best deal, a high number of inquires can make a lender leery that you might be or get overextended. One way to avoid this is to have your own scores to share with potential lenders, which will minimize the inquiries. * Keep your revolving credit accounts at 50 percent or less of the maximum available credit. Lenders are concerned about consumers who have used all their available credit, especially if they are only making the minimum payments on the debt. * Your credit report is supposed to be purged every seven years, according to Henderson, but, she says, the companies will not do it until you request it. So, reviewing your credit report at least yearly will help you know when to request items be purged. Henderson said that in this economy lenders are afraid people are not going to pay, so it is difficult to help those people who are marginal. Credit in the 620-680 range is not good any more, she said. “It’s a challenge every day to get some of these deals through. The hardest thing to do is to tell someone with a 670 that they have to pay a higher rate.” Credit can be repaired, over time, by following a few simple steps. While there are services advertising that they can repair your credit for a fee, it is something you can do for yourself. If you feel you need help, organizations that offer homeownership counseling can provide valuable guidance and assistance in getting your credit on the right track.
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HOME OWNERSHIP GUIDE 21
Know your rights By Zephyr Crenshaw
F
or most people, the purchase of a home is the biggest investment they make in a lifetime. It is fraught with complex processes and mounds of paperwork, and can be scary. “You need to understand your rights as the homeowner,” said Patricia J. Henderson, senior loan officer for First Preference Mortgage. 1. Borrowers have the RIGHT to find the best loan for themselves by shopping around and comparing the costs and fees of various lenders and mortgage brokers. The available interest rates, points (interest lenders make you pay up front), fees, settlement restrictions, etc. vary between lenders. And while mortgage brokers are often helpful, additional fees are incurred that vary between brokers. It’s important to interview brokers and lenders, getting a clear understand of the charges, and to
compare before making a selection. 2. Borrowers have a RIGHT to know the exact services that will be provided for them by a mortgage broker. A mortgage broker is essentially a middle man. The broker will collect and process the borrower’s information and use that information to find lenders willing to work with the borrower and provide the kind and amount of funding needed. It is important for the borrower to know which steps in this process will be performed by the broker and which ones will not. Asking questions about this is important for a successful transaction. 3. Borrowers have the RIGHT to know who is paying the mortgage broker and how much is being paid for the loan. The lender makes money from the
The process of purchasing a home is full of documents – contracts of sale, inspection reports, loan application and settlement paperwork and more.
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interest the borrower pays on the loan. The mortgage broker is paid by the borrower, the lender or both, and those fees increase the cost of the loan for the borrower. The borrower should ask for information on the total fees he or she will pay the broker and the total the broker will receive from the lender for the transaction. 4. Borrowers have the RIGHT to know if any of the fees paid during the process are non-refundable if the borrower decides to cancel the loan agreement. The ability to cancel a loan agreement and the timing of same vary by jurisdiction. If that right exists and is exercised by the borrower, some fees paid and billed to the borrower may not be refundable. The borrowers should know what cancelling will cost. 5. Borrowers have the RIGHT to know the total cost of the loan they are accepting, including interest rate, points and other fees. This includes understanding the terms of the loan and all the fees. It is important to ask questions about anything not understood and to continue to ask until the information is clear. The borrower should know exactly what the money they need to purchase a home is going to cost. 6. Borrowers have a RIGHT to request a good faith estimate of all settlement charges and loan fees before agreeing to the loan and paying any fees. This is very important. Before settlement, the borrower should have this estimate. It is the responsibility of the settlement preparer, usually a title company, to provide a conservative estimate of all the fees to be paid
before the borrower signs on the dotted line. This is used to ensure the borrower comes to settlement with the correct amount of money in the form of a cashier’s check or money order. 7. Borrowers have the RIGHT to question any charges or loan terms not understood. If there is something in the process or a part of the transaction the borrower does not understand, it is imperative he or she ask questions until it is understood. The acquisition of a mortgage and the purchase of a home are huge steps and should be entered into fully informed. “A person should not be able to take a loan application in an hour,” said Ms. Henderson. “You should be talking to the clients. We’ve got to educate our folks.” 8. Borrowers have a RIGHT to a credit decision that is not based on race, color, religion, national origin, sex, marital status, age or whether any income is from public assistance. 9. Borrowers have a RIGHT to know the reason a loan is denied. If a borrower’s request for a mortgage is turned down, he or she should not hesitate to ask for a reason. It is possible the denial is the result of a misunderstanding or is something that can be corrected. In these instances, this information becomes crucial to resolving any issues and getting a home.. Based on information from the U.S. Department of Housing and Urban Development.
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HOME OWNERSHIP GUIDE 23
Tree line on 6th and G streets in Southwest D.C. is what draws people home in this wonderful neighborhood.
Photo by Khalid Naji-Allah
DISTRICT LIVING
Finding the choice neighborhoods By Marcus A. Williams
M
any young professionals say they’re more focused on paying off debt than buying property. But some Washington, D.C. realtors’ advice is to make buying property a priority. “I recommend that the sooner you get into the sales game, the better. But only if you are willing to stay in that property for three to five years,” says Fleming. “If you sell your property for the same amount you paid for it, you will have spent nothing in rent, while someone renting will have spent between 20 and 30 thousand.” Despite the economic slowdown, realtors are saying the real estate market in the capital hasn’t been affected. “Sales are
24 HOME OWNERSHIP GUIDE
not down in D.C. in general. If things are priced appropriately, then property moves accordingly,” said Andi Fleming, a Long and Foster realtor. Being appropriately priced is what buyers say is key. Realtors are naming four affordable hot spots in the District for the budding young professional. First on the list is the H Street Corridor. “Union Station to the [Hechinger] mall and even a little further down towards Eastern Market is an entry level area,” said Fleming. “A buyer probably will be more likely to find really nice and affordable condos in that area.” The corridor is decorated with eateries, A publication of the Afro-American Newspapers
theaters and shops, all outlined by colonial $140,000 to $1.400 million. streets and alleyways. Living here gives But the best, saved for last, is the Eckington residents a five to 10 minute commute to community, home of media giant, XM Satellite Chinatown, Amtrak, Greyhound, Metro and the Radio, BET Networks and historic Howard shops at Union Station, and also offers quick University. access to the Baltimore-Washington Parkway. This area has it all. If you are into the corporate Houses in this area range from $180,000 lifestyle, it’s minutes from trendy professional - $967,000, while condos are priced from lounges, like K Street and Lima. If the $121,000 to $544,000. corporate scene doesn’t interest you after Another bustling area is the affluent and diverse clocking out from work, a string of clubs Columbia Heights district in upper Northwest. lining New York Avenue beckon the weary “This area is going to go up and be out of price professional. Home prices in the area range range, so if they want to get into this area it’s from $245,000 to $588,000, while condos are best to do it now,” says Fleming. priced from $162,000 to $510,000. Realtors are saying living in this culturally Making a six figure purchase on a low five flavorful district is a figure income seems must. Whether it’s the impossible to most, but 546,000 square-foot retail there is help. “There are “The [higher end] hipcomplex that grabs your a lot of programs for first hop hot spots would be attention or the GALA time buyers or just for places like the U Street Hispanic Theatre, with new people with low incomes,” area, Adams Morgan developments, property Fleming said. “Two of the and Dupont Circle.” values are skyrocketing. biggest ones in D.C. are Houses in this area range Neighborhood Assistance from $155,000 to $1.995 Corporation of America million, while condos can and D.C. Bond.” range from $143,000 to $740,000. Both programs are available through lenders. Columbia Heights isn’t the only area under Fair warning: once you move from entry level heavy construction. For the last two years, into higher-end buying, completion is stiff the Southeast section of the Waterfront has and prices can double. It’s not cheap living been getting a big city make over. It started in the capital. “The [higher end] hip-hop hot with the new $611 million stadium that seats spots would be places like the U Street area, around 42,000. With the new attraction, real Adams Morgan and Dupont Circle,” Fleming estate companies wasted no time getting said. “But the price ranges are not going to be condos and commercial properties up and conducive for [many] entry level buyers, which running. Residents in this area are only a few are usually the young professionals.” blocks from the historic Eastern Market district But realtors believe if you score a property and Pennsylvania Avenue, which leads into the in the H Street Corridor, Columbia Heights, center of the city. “The new stadium is making Southeast Waterfront or Eckington, then you’re that area a very big hot spot,” said Fleming. definitely a lucky buyer in an excellent position Houses in this area range from $180,000 to to see impressive returns on your investment. $1.155 million, while condos are prices from A publication of the Afro-American Newspapers
HOME OWNERSHIP GUIDE 25
Photo by Khalid Naji-Allah
Uncovering Charm City’s charm Baltimore neighborhoods with their best foot forward By Zephyr Crenshaw
B
altimore was not nicknamed ‘Charm City’ without reason. Its varied neighborhoods – from large single-family homes with yards to high-rise condominium apartments – and cultural diversity put it on the map as a thriving metropolis. Over the past decade, Baltimore suffered a loss of population as people migrated to the perceived greener pastures of the suburbs. But now, due to the work of neighborhood organizations and well-placed incentives, the charm of the city is drawing people back. For the first time in many years, according to Anna Custer, executive director of Live Baltimore, the city experienced a population bump. While access to major roadways and other strategic locations, the public transportation 26 HOME OWNERSHIP GUIDE
network and housing value in the area played a role, the appeal of the neighborhoods is the real draw. And while all of Charm City is pretty great, a few neighborhoods stand out as growing, thriving places to make a home. A neighborhood that keeps coming up, at the forefront of this resurgence, is Belair-Edison. Located in the northeastern part of the city, it is bounded by Harford Road, Sinclair Lane and the Herring Run stream. The area consists largely of brick row houses with classic front porches, filled with timeless amenities like hardwood floors and fireplaces. “Belair-Edison is a beautiful neighborhood, close to downtown and close to Aberdeen,” said Mark Sissman, president of Healthy Neighborhoods Inc. The area is also full of green spaces, including Clifton Park, which has an 18-hole golf course, and Herring Run Park. It also has an active A publication of the Afro-American Newspapers
shopping district with several restaurants, a new pharmacy, youth care and activity centers and a variety of other businesses. Belair-Edison Neighborhoods Inc. is a very active association, with a number of excellent staff in place to assist potential, new and existing residents. The organization provides not only information about the area, available home and activities, but also services like homeownership counseling, referrals and assistance to residents having trouble keeping their homes. For more information on this neighborhood, start with the BENI website at www.belair-edison.org. Another neighborhood getting a lot of attention is Reservoir Hill. This area of central Baltimore includes Druid Hill Park, the Baltimore Zoo and Druid Lake, and is bounded by North Avenue, Reisterstown Road and the Jones Fall Expressway. This neighborhood consists of very large town homes, most in historic Victorian style, with spacious rooms, high ceiling, decorative mantles and hardwood floors. Because Reservoir Hill literally sits against I-83, it has easy access to downtown, Baltimore County and all major highways. Additionally, it sits between the light rail and subway lines, providing excellent public transportation access. Just outside its bounds is Mondawmin Mall. And a few blocks up on North and Pennsylvania Avenues there are additional shopping districts. “Reservoir Hill is full of beautiful, old properties,” said Sissman. “One of the challenges is the houses are really big, so they’re not cheap to [renovate].” That shouldn’t be an impediment to anyone interested in living there. A variety of initiatives are in place, spearheaded by the Reservoir
A young couple takes a walk along Druid Lake, an amenity that Reservoir Hill has to offer.
Courtesy photo
Hill Improvement Council – which is very active and well organized – and organizations including Healthy Neighborhoods, to assist those interested in joining the neighborhood and making a positive contribution. The motto of the RHIC is “People powered change” and they’re doing just that. The staff works to educate and organize residents, and market and promote the area. For more information on the neighborhood or the work of the association, visit the RHIC website www. reservoirhill.net. Baltimore has over 200 neighborhoods, each with a unique flavor and style. For general information on the neighborhoods, the Live Baltimore website – www.livebaltimore.com – is a great resource. To find the neighborhood for you, just take a look around and see what Charm City offers. There truly is something for everyone.
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HOME OWNERSHIP GUIDE 27
By Zephyr Crenshaw
W
hat happened? Everything was fine and then there was an illness, a layoff, an unexpected plumbing repair or a two percent bump in the prime rate causing your adjustable rate mortgage to increase and now your mortgage payment is a bit too steep. This month’s payment is late and in a little over a week, the next one will be due and you’re not sure you can get this one in before it doubles up. What should you do? “If you are having trouble,” said Dale Quisgard, senior loan underwriter for the Bridge to Hope program, “contact your lender immediately. That is the major thing, to call them as soon as you are in trouble, not wait two or three months or for the sign to be tacked on your door showing you are going to be foreclosed on in the next week. “Go back to your housing counselor that helped you in the first place. Most of the agencies
Saving your home
Taking steps to avoid foreclosure 28 HOME OWNERSHIP GUIDE
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Graphic by Zephyr Crenshaw
Each day newspapers print multiple foreclosure notices as families labor under the weight of a failing economy.
have foreclosure prevention programs and intervention and things that they can do, to help you with your budget.” In fact, many of those homeownership counselors are trained in several strategies and are aware of a variety of program that can be used to assist in keeping you out of trouble. Patricia J. Henderson, senior loan officer for First Preference Mortgage, said, “What the average person needs to do, the day they miss a payment is sit down and redo their budget. Look at it, pick up the phone and start talking to the appropriate person.
“They don’t pick up the phone and the minute you don’t pick up the phone, that irritates the bank.” She said to explain the circumstances that led to the problem and then ask what alternative arrangements can be made. While the lender may not offer alternatives that are very creative, you can have some to present, that, based on your budget, you will be able to keep. Consider offering to pay principal only or interest only for a few months, or asking if the late and the coming payments can be deferred to the end of the loan. She also suggested asking to alter the monthly amount for a period of time, perhaps until the end of the year. She said find out what the lender is willing to do. “If you make arrangements to pay it, then pay it. Don’t say you are going to pay and not do it,” she said. “That is only going to make them mad again. Whatever you promise them you are going to do, do it. And then if you can’t do it, pick up the phone and call them. “We truly do not want these houses; it is costing banks money. “People just have to communicate.” Along with discussing the problem with your existing lender, there are other options for assistance, starting with the Maryland Department of Housing and Community Development. DHCD’s charge has been expanded. “For the first time in our history, our emphasis has changed from promoting homeownership to promoting homeownership at the same time we are working to sustain homeownership,” said Bill Ariano, deputy director of the agency. To operate within their expanded mission, DHCD has created several initiatives designed to assist homeowners in various stages of trouble under the umbrella of the HOPE (Home Owners Preserving Equity) program. The Lifeline Refinance Mortgage Program
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HOME OWNERSHIP GUIDE 29
provides refinancing options to Marylanders who may be facing difficulties with their mortgages or who find their mortgages no longer fit their financial needs. Working through approved lenders, this program allows homeowners to move into a mortgage product better suited for their long term needs, before their homes are in danger. “Lifeline assists people that aren’t in trouble yet,” said Ariano, “but can’t get financing to get out of their mortgages before the interest rates go up.” The Bridge to HOPE Loan Program is to help residents in danger related to a sub-prime or exotic loan or an adjustable rate mortgage about to reset. The program offers a maximum $15,000 deferred loan to be used to catch up delinquent mortgage payments and taxes and provides a subsidy for the mortgage payment going forward up to 24 months. The Homesaver Refinance Mortgage Program provides refinancing options for residents who
are no more than two months past due on the mortgage for their primary residence. This program is to help save the homes of people with sub-prime or exotic mortgages, experiencing difficulties because of a default, a credit score at 550 or a mortgage that exceed the value of their home. “People with that low a credit score are really in a double whammy,” he said. “They’re having difficulty, the interest rate is too high for them to be able to sustain. “A lot of people, who jumped at the opportunity provided by these sub-primes and exotics to own a home, weren’t ready yet [to own a home]. And I think that is the key item.” Even with all the programs to assist in the rescue, the most emphasized piece of advice is “don’t wait to seek help.” For more information on the DHCD programs, go to http://www.mdhope.org/.
Finding the right home takes time — finding the right home loan doesn’t have to. With a variety of mortgage products, personal service, and competitive rates, our loan experts can save you both time and money. To learn more about home financing, contact our Mortgage Loan Counselor, Toby Green, at 410-281-6200, x4363, or visit us online at www.securityplusfcu.org. Not a member yet? Join today! If you live, work, worship or attend school in Baltimore City, or work for one of our affiliated employers, you may be eligible to join. Contact our Call Center at 410-965-8908 or visit us online for more details and eligibility requirements.
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Martin O’Malley Governor
32 HOME OWNERSHIP GUIDE
anthOny G. BrOwn Lt. Governor
rayMOnd a. Skinner Secretary
ClarenCe J. SnuGGS Deputy Secretary
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