By Lewis Smith
Why do homeowners need an annual mortgage and homeownership checkup? For most it means making sure all is running smoothly. But for others, it means understanding the payment terms of their non-fixed mortgages. Some have mortgage payments that don’t fit their budgets. Some are surprised by changes in their property tax bills. Condominium owners may find that their building is not insured and their cash reserves for repairs are inadequate. Still others are surprised to learn they must pay off their second and third mortgages when they refinance their first.
Family budget. Following a family budget is the key to successful homeownership. Do you save monthly for unexpected expenses? For assistance in preparing a new family budget, call the nonprofit Consumer Credit Counseling Service at (866) 889-9347.
Increases in housing payments. Property tax and insurance payments usually increase annually and adjustable loan payments often go up. The property taxes and HPAP (Home Purchase Assistance Programs) payments of some buyers may not start for five years. Plan ahead to handle any increases.
Property tax payments. Failure to pay property taxes can lead to disaster. Your home could be sold at the District’s annual tax sale. Check status by going to the DC Office of Tax and Revenue website. Review your tax assessment and tax payment history. Be sure you are receiving the homestead deduction (saving $544 in FY 2008) and, if over 65 and eligible, that you are obtaining the senior citizen deduction, which cuts your tax by 50 percent. Be sure your taxable assessment is increasing by no more than 10 percent annually.
Property Insurance coverage. For a house, contact your agent annually to determine if your insurance coverage is adequate. For a condominium, be sure that you have an individual unit owner’s policy. Also be assured that the condominium has an adequate master insurance policy.
Terms of your first and subordinate mortgages. Understand your loan terms, especially on adjustable mortgages. Know your first and worst case payment increases. Understand what will happen if you have negative amortization, a prepayment penalty or a balloon payment. Most “community” second, third and fourth mortgage loans must also be paid in full if you do a cash-out refinance.
“Affordability covenants,” as part of your purchase, must be fully understood as they can significantly limit your sale price for many years.
Condominiums. Understand fully your condominium’s offering statement and the rules and regulations. Be sure your condo board meets regularly. Attend or read the minutes for each condo board meeting. Assure your condominium sets aside condo fee funds for repair and replacement reserves.
Mortgage insurance terms. Learn when and on what conditions your mortgage insurance payment can be dropped.
Credit rating. Check your credit rating annually and work on improving it. AnnualCreditReport.com is the free government-sponsored website. A good score can give you the best rates and terms.
Termite protection. Houses need periodic termite inspections. Make sure that your condominium association maintains an adequate termite control contract.
Income tax credits and deductions. Ensure that you receive, if eligible, your up to $5,000 first time District of Columbia homebuyer tax credit. Be sure you receive your annual tax deductions for mortgage interest, property taxes and any loan points.
Homeownership and mortgage records. Store all your purchase and mortgage documents from purchase and refinance settlements in one storage file or box for easy access when questions arise.
Refinance warning. Always guard against tempting promises for “cheap and easy” refinance money. Review any such proposals with an impartial non-profit Housing and Urban Development-approved housing counselor. Borrowers beware!
Lewis Smith is a reverse mortgage specialist at Manna Mortgage, the District’s first and only nonprofit mortgage company and is located at 828 Evarts Street, NE. Call (202) 832-1845 or Email: Lsmith@mannadc.org.
DISCLAIMER: The information or views presented in this column are those of the author and do not reflect the views of DISB.