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Homeowner Benefits and Responsibilities

About Freddie Mac

Freddie Mac is a stockholder-owned corporation chartered by Congress in 1970 to create a continuous flow of fundsto mortgage lenders in support of homeownership and rental housing. Freddie Mac purchases mortgages fromlenders and packages them into securities that are sold to investors. Since its creation, FreddieMac has helped financeone in six American homes.

About CreditSmart® Asian

CreditSmart Asian is a multilingual series to guide Asian American consumers on how to build and maintain bettercredit, understand the steps to buying a home and how to protect their investment.

Special Thanks

Special thanks to the following organizations for their collaboration in the development of the CreditSmart Asian: AsianAmericans for Equality, Boat People SOS, Chhaya CDC, Filipinos for Affirmative Action, Korean Churches forCommunity Development, Nakatomi & Associates, National Coalition for Asian Pacific American CommunityDevelopment (National CAPACD), National Congress of Vietnamese Americans, National Korean American Service &Education Consortium, Inc., and Quon Design.

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Welcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Understanding The Responsibilities . . . . . . . . . . . . . . . . . . . . . . . 3Of Homeownership

Refinancing Your Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Borrowing Against Your Home Equity . . . . . . . . . . . . . . . . . . . . . 12

Avoiding Financial Traps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Preventing Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Maintaining, Repairing and Improving Your Home . . . . . . . . . . 23

Home Safety and Emergency Preparedness . . . . . . . . . . . . . . . 31

Getting Involved In Your Community . . . . . . . . . . . . . . . . . . . . . . 34

Table Of Contents

1

Welcome,

s a new homeowner, you’ve made an important investment in your future.You have a place that you and your family can call your very own. Being a

homeowner brings tremendous satisfaction, but it also comes with greatresponsibilities.

As you embark on this exciting period in your life, Freddie Mac is pleased toprovide you with this information to help you maintain your home, protect andincrease its value, and ensure your success as a homeowner.

This guidebook, Homeowner Benefits and Responsibilities, provides informationabout how to take care of your home and protect your investment. It explains thefinancial obligations of homeownership, as well as the importance ofhomeownership, including recordkeeping, maintenance, and emergencypreparedness.

If you have not yet purchased a home or if you need information about how toestablish or improve your credit history, please read our companion guidebooks,The Importance of Good Credit and Steps to Homeownership. Together, thesebooks provide a road map to answer the questions you may have as you pursueyour dream of homeownership.

From all of us at Freddie Mac, we wish you great success. With proper planning,time, and hard work, we are confident you will enjoy all the benefits ofhomeownership.

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CreditSmart Asian: Homeowner Benefits and Responsibilities

These books provide

a road map to answer

the questions you

may have as you

pursue your dream

of homeownership.

A

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ongratulations! Now that you havepurchased a home, you have

achieved an important lifetimemilestone. Being a homeowner offersmany benefits, including:

� Shelter

� Security for your family

� A source of pride for you and yourfamily

� A safe investment that will mostlikely grow over time (“buildingequity”)

� The ability to make your ownimprovements and decoratingchoices

� The freedom to plant a garden andlandscape your yard

� Tax benefits

However, being a homeowner is verydifferent from being a renter. Being ahomeowner carries responsibilities inmany of the same ways that being aparent demands responsibilities.

Home Repairs and MaintenanceThere’s no longer a landlord to fixthings if they stop working. Repairs areyour responsibility. If a light bulb goesout, the toilet is broken, or the roof isleaking, you must take care of ityourself or pay someone to do thework.

New and Unexpected ExpensesNew homeowners must pay many newexpenses. These expenses includeyour monthly mortgage payment;property taxes and house insurance,which may be included in yourmortgage payment as part of an“escrow account”; and the costs ofany home repairs and improvements,such as replacing a broken waterheater or installing new window blinds.Owning a home can be an expensiveproposition with many hidden orunexpected costs. Plus, if you are lateor delinquent in making thesepayments (especially your mortgagepayment), you could hurt your credithistory or even lose your home —making it much more difficult andexpensive to buy another home or geta loan for any purpose in the future.Making your mortgage payment ontime every month should be your firstpriority.

Understanding the Responsibilities of Homeownership

Being a homeowner

carries responsibilities

in many of the same

ways that being a

parent demands

responsibilities.

C

Yard Work and LandscapingUnless you own a condominium, youare responsible for maintaining youryard by mowing the lawn, trimminghedges, taking care of thelandscaping, raking leaves, and evenshoveling snow in winter, dependingon where you live. Yard work andlandscaping can be a significantamount of work, but manyhomeowners also find these activitiesfulfilling. Planting flowers, vegetables,shrubs, and trees can be relaxing andmake your home more enjoyable foryou.

Community CommitmentsHomeowners tend to become part of acommunity, usually taking on moreresponsibilities in their neighborhoodand the larger community. This couldmean they help their elderly neighborsbuy groceries each week, join thevolunteer fire department, serve on theboard of a local community group, oreven run for elected office. Whateverthe form, getting involved is arewarding way to make a difference,for you and the whole community


Financial ResponsibilityNow that you are a homeowner, youmust keep your finances in order. Hereare some guidelines to follow:

Keep good records. Homeownershipcomes with a lot of paperwork. To getyour tax benefits, you’ll need recordsof your housing-related expenses. Ifyou ever experience damage to yourhome caused by an emergency ordisaster such as a fire, you’ll need yourinsurance policy along with copies ofpurchase receipts and photographs ofyour possessions. If your newrefrigerator breaks, you’ll need thewarranty. To find these and otherdocuments when you need them,you’ll want to set up a system for filingyour homeownership records as soonas possible. Not having an organizedsystem could be costly in the long run.Buy a fireproof filing cabinet or box, orrent a safety deposit box at your localbank to store household records andlegal documents.

Now that you are a

homeowner, you

must keep your

finances in order.


Maintain adequate insurancecoverage. Because lenders generallyrequire you to have homeowner’sinsurance in order to get a mortgage,your policy is probably adequate.Before you experience any loss,however, review your policy to makesure you understand your coverage.Ideally, you want to ensure that youhave enough insurance to cover thecost of rebuilding your home at currentconstruction costs, not including thecost of the land. Be sure to look atyour policy at least once a year when itis renewed to make sure that yourcoverage goes up with any increase inyour home’s value.

Maximize your tax deductions.Current tax laws permit you to deductthe interest you pay on your mortgageand the real estate taxes you pay onyour home — major expensesassociated with homeownership —from your taxable income. Thesedeductions may reduce the federaland, in most cases, state income taxesyou have to pay. It’s wise to check witha tax accountant to help you withthese tax issues.

Prepay your mortgage. You can savemoney in interest paid over the life ofyour mortgage by including some extramoney with your regular mortgagepayments. Tell your servicer to applythis extra money directly to theprincipal to reduce your outstandingloan balance. This is called“prepayment.” Prepayment reducesyour loan term and lowers the totalinterest owed over the life of the loan.Just adding an extra $50 a month toyour monthly payment on a $100,000,30-year loan at 7% interest wouldreduce your loan term by more thanfive years and save you around$32,000 in total interest paid over thelife of the loan. If you are interested inprepaying your mortgage, contact yourmortgage servicer to find out theproper procedures for doing so. Besure to find out if your mortgage hasany prepayment penalties.

It’s wise to check

with a tax accountant

to help you with

these tax issues.


Not all insurance coverage is the same.

The Importance of Homeowner’s InsuranceHomeowner’s insurance, although a sizable expense, is vitally important.When you purchased your home, your lender required you to carry propertyinsurance. You must keep this policy in good standing not only because yourmortgage lender requires it, but because it protects your valuableinvestment. Even the most basic coverage is beneficial in the event of loss ordamage to your home.

Keep in mind, however, that not all insurance coverage is the same. Forexample, if you live in an area prone to earthquakes or flooding, you mayneed to carry a separate policy (usually underwritten by the state or federalgovernment) to insure against these types of disasters. Additionally, certainpossessions, such as expensive antiques, jewelry, or musical instruments,may not be covered by your regular homeowners’ policy if they are stolen,lost, or damaged. To insure these items, you may need an additional policycalled a rider or a floater. If you have any questions about what is and is notcovered by your current policy, consult your insurance company.

Just when you need your insurance the most, such as after a fire or naturaldisaster, you may not have access to your policy. It is a good idea to keepyour basic insurance information, including your policy number and thecontact information for your insurance company, on a card in your wallet andin a separate location, such as with a trusted friend or relative. Storeimportant papers, like birth certificates, passports, and insurance policies, ina fireproof box or safety deposit box.


General� Record organization checklist� Birth certificates� Marriage certificates� Divorce decrees� Death certificates� Citizenship papers� Military service records� Wills

Auto� Titles� Auto insurance policies� Records of traffic violations and

accidents� Auto registration receipts� Auto maintenance records

Employment� Employee handbooks� Fringe benefits information� Personal resumes� Licenses and certifications

Finances� Receipts from bills and debts paid� Income/expense records� Spending plans� Bank statements and cancelled

checks� Payroll check stubs� Bankruptcy papers

Health and Medical� Health and disability insurance

policies� Medical history records� Life insurance policies

Investments� Transaction slips and monthly

statements

Personal Property� Personal property inventory� Guaranties and warranties� Instruction books

Home� Purchase contracts� Deeds� Mortgage papers� Property tax receipts� Home improvement receipts� Title insurance policies� Homeowners insurance policies� Property details� Appraisal information� Property surveys� Inspection reports

Taxes� Tax returns with W2s� Receipts and records for

deductions

How long do you need to keepimportant records?

Indefinitely

� Birth, death, and marriagecertificates

� Adoption and custody papers

� Separation and divorce papers

� Citizenship and naturalizationpapers

� Diplomas and education records

� Employment and military records

� Medical history records

� Investment records

� List of safe deposit box contents

� Personal property inventory

� Real estate and mortgage papers

As Long As You Own

� Appliance use and care manuals

� Vehicle titles and bills of sale

Until Expiration

� Insurance policies

� Warranties

Five Years After Payment

� Installment contracts and other realestate forms

Seven Years Minimum

� Tax returns

Checklist for Keeping Good Records

Here is a list of items you should keep in a safe deposit box:

t some point, you may think aboutchanging your mortgage terms by

refinancing because mortgage rateshave gone down or your financialsituation has changed. Refinancing iswhen you take out a new mortgage topay off your current mortgage. Whenyou refinance, you complete many ofthe same steps and pay some of thesame expenses that you did when yougot the first mortgage to buy yourhome. Before starting the refinancingprocess, you should understand thefollowing points:

� Refinancing your mortgage canhave significant costs. Often therefinancing fees are pulled from theequity in your home.

� Using your equity this way willincrease the balance owed on yourmortgage and reduce the cash youmay have available for a potentialfinancial emergency in the future.

� Refinancing may extend yourrepayment term.

� In some cases, if you receivedspecial financial assistance fromyour local government or anonprofit organization to purchaseyour home, you may have to repaya portion of these funds if yourefinance your home. Review yourmortgage documents to find outabout these restrictions.

� If your original mortgage includes aprepayment penalty, you may incura penalty for paying off yourmortgage through a refinance.Review your mortgage documentsfor the exact terms of anyprepayment penalties.


Evaluating Refinance OptionsThere are a number of good reasons toconsider refinancing, including:

Refinancing to save money on yourinterest rate. If interest rates droplower than what you have on yourcurrent mortgage, refinancing at alower rate could reduce your monthlypayments and the total amount ofinterest that you pay over the life of theloan. When considering this option,determine your break-even point. Thisis how long it would take you torecapture all of the costs of refinancing(closing costs, fees, points, and anyprepayment penalties through savingsfrom the new mortgage payment). Ifyou plan to stay in your home forlonger than it would take to recoveryour costs, the savings you willaccumulate could be worthrefinancing.

Refinancing to lower your monthlypayment. If you would like to reduceyour mortgage payment, you couldeither extend the term of your loan orswitch to a loan product with a lowerinterest rate. If you choose to lengthenyour loan term, it will take you longerto pay off the mortgage and own yourhome outright, and it will cost youmore in overall interest charges andtotal loan costs. Be aware thatadvertisements regarding loan

Refinancing Your Mortgage

A

Refinancing is when

you take out a new

mortgage to pay off

your current mortgage.


products and their interest rates canbe misleading. Some loans, especiallyadjustable-rate mortgage (ARM)products, have low initial “teaser rates”or low interest rates in the first fewyears to attract consumers, but thencan adjust to higher rates. Othermortgages such as interest-onlymortgages have low monthlypayments that might seem attractive,but none of your monthly payment isused to pay down your mortgageprincipal; it is only used to pay off theinterest. With an interest-only loan, itmay be difficult to build equity in yourhome. While these loan options mayseem attractive, consumers should bevery cautious when consideringadjustable-rate mortgages or interest-only mortgages because the monthlymortgage payments could risedramatically over time.

Refinancing to convert one type ofmortgage to another. When youselected your original mortgage, youbased your decision on your financialsituation at that time. If your situationhas changed and that product is nolonger the right fit for you, you couldrefinance to obtain a different loantype. If you have an ARM and wish toget rid of an unpredictable interest rateand monthly payment, you couldchange to a fixed-rate mortgage. If youcan manage a fluctuating interest rate,you could look for an ARM with a

lower rate or better features. If youwould like to improve the terms on asecond mortgage, you could eitherrefinance this loan with a betterproduct or refinance both your first andsecond mortgages into a new firstmortgage loan.

Refinancing to build equity faster. Ifyour financial situation has improvedsince you bought your home, you maywant to get a mortgage with a shorterterm. This will help you pay less in totalinterest charges and own your homesooner. On the other hand, yourmonthly payments will be higher.

Refinancing to take cash out. If youneed some extra cash, you could get acash-out refinance loan. With this typeof loan, you turn some of your homeequity into cash by getting a largerloan — often with a higher interest ratethan the loan that is being paid off. Theadditional cash you receive can beused for any purpose.

If your situation has

changed and that

product is no longer

the right fit for you,

you could refinance

to obtain a different

loan type.

Determining Whether to RefinanceChoosing to refinance is a personaldecision that should be based on yourfinancial situation, the terms of yourexisting loan, the new loan beingconsidered, and how much equity youhave in your home. Making thisdecision can be challenging. You’llneed to weigh the pros and cons ofrefinancing considering yourcircumstances. A trusted financialadviser can help.

Keep in mind that your home isprobably your largest financial asset.For your long-term financial health, it’svital that you manage this asset wisely.When refinancing get your finances inorder, shop around for the best loanavailable, and proceed with caution.

Many homeowners get into troublewhen they refinance their homes usingrisky or high-cost mortgages. Thereare some sensible steps you can taketo ensure that refinancing is your bestoption and that the loan you selectbest fits your needs.

Get financial counseling. You canavoid getting into financial trouble bymaking informed decisions aboutrefinancing. Counseling can help youunderstand your mortgage options andhow to avoid unscrupulous lenders.Free or low-cost counseling is offeredby many nonprofit organizations,including those that are part of the


NeighborWorks® network(www.nw.org) or vist the Department ofHousing and Urban development(www.hud.gov) for a link to nonprofitorganizations in your area. In NewYork, visit Asian Americans for Equality(www.aafe.org) and in Los Angeles,visit Korean Churches for CommunityDevelopment (www.kccd3300.org) forcounseling in Chinese and Korean.

Maintain a budget and set up anemergency savings account.Unexpected expenses can throw awrench into your finances. Try to save10% of your income in a savingsaccount to cover these unexpectedexpenses — whether they are homerepairs, health problems, or car repairs.As a homeowner, it’s important to havea little financial cushion to protect youfrom these expenses.

Stay on top of home repairs andmaintenance. Neglected homemaintenance and emergency homerepairs combined with untrustworthycontractors can lead to unexpectedbills. These high costs can push ahomeowner’s budget to the breakingpoint — especially if they have nosavings to cover home repairs. If youare considering refinancing your home,think about the costs of any necessaryrepairs in the financing package.

When refinancing get

your finances in order,

shop around for the

best loan available, and

proceed with caution.


Finding the Right LenderJust as you did when you purchasedyour home, you’ll need to consider avariety of loan options when yourefinance. There are many differenttypes of lenders, and they offerrefinance loan products, includingthose from banks, mortgagecompanies, credit unions, governmentagencies, and mortgage brokers.Before you select the right lender andloan product for you, you’ll need tounderstand what different lenders canoffer you. Shop around, compare costsand terms, and negotiate the best deal.Below are some useful tips:

Start with your current lender. If youhad a good experience with yourcurrent lender, compare its productswith others found from research andreferrals. Your existing lender may offersome incentives or discounts to keepyour business.

Contact several lenders. Get pricequotes from at least three lenders tocompare their offerings.

Compare similar options. Look at thecombination of interest rates, points,and fees being offered by each lender.When evaluating different products, theannual percentage rate (APR), which isthe total annual cost of borrowingmoney based on the loan amount,interest rate, added fees and term, is auseful benchmark. You will also wantto find out how much money you’llneed at closing and what your newmonthly payments will be.

Understanding Your Credit RatingYour credit history influences whichloan products you’ll be offered. If youhave good credit, you’ll be offeredlower interest rates. If you have hadpast credit problems, you’ll be chargedhigher rates. If you’ve had minor creditproblems in the past, don’t assumethat your only choices are high-costlenders. Talk to different lenders abouthow your credit history will affect theprice of your loan and what you can doto get a better price.

If you’re working with a mortgagebroker, be sure to do some extrahomework. A mortgage broker is bestdescribed as a “loan finder,” orsomeone who acts as an independentcontractor between you and the lender.In return for a broker helping you tofind a loan, you normally pay him orher a fee, which can range from a fewhundred dollars to 1% of your loanamount. Ask questions and do yourresearch to be sure your broker is notpushing you into a higher-pricedproduct to get a higher commissionfrom the lender.

Shop around,

compare costs

and terms, and

negotiate the

best deal.

fter becoming a homeowner, youwill receive many offers by phone

and through the mail for home equityloans and home equity lines of credit.When you borrow against your homeequity, you get a loan or line of creditthat is in addition to your existingmortgage. You should carefullyconsider many factors whendetermining if it’s a good decision toborrow against your home equity toget extra cash.

What Is Home Equity?Home equity is the difference betweenwhat your home is worth and the totalamount you owe on your home. Youcan build equity in two ways: (1) bypaying down your loan balancethrough regular mortgage paymentsand by making extra payments towardthe loan balance; and (2) by havingyour home’s value increase from homeimprovements or appreciation in yourarea. Both may happen at once.


Determining How Much Equity You HaveIf you have built enough equity in yourhome, you may be able to take outcash toward other financial goals. Onthe other hand, you may prefer to saveyour equity to build more savings foryourself.

If you are considering borrowingagainst your home equity, one of thefirst things you will need to do is to findout how much equity you have. Tofigure out how much you have, you willneed to know your home’s marketvalue and your outstanding loanbalance. Call your loan servicer orcheck your monthly loan statement foryour loan balance. For your home’smarket value, you can hire anappraiser, contact your local taxassessor’s office, or check with a realestate professional. Subtract your loanbalance from your home’s value to seehow much home equity you have.

Borrowing Against Your Home Equity

If you have built

enough equity in

your home, you may

be able to take out

cash toward other

financial goals.

A


Reasons for Borrowing Against Your EquityIt can be difficult to decide whether toborrow against your home equity. Yourhome is an important financial assetthat you want to manage wisely. Whileborrowing against home equity givesyou access to extra money for majorprojects and events, it could jeopardizeyour financial security if you don’tborrow prudently. When you get ahome equity loan or line of credit, youborrow more money that is securedagainst your home. If you take on toomuch mortgage debt and can’t affordto repay it, you could lose your hometo foreclosure. Consult a trustedadviser, like a reputable housing orcredit counselor, to decide if borrowingagainst your home equity is right foryou.

If you decide to use your home equity,only do so for a good reason. Use it asan opportunity to invest your moneysafely and wisely for long-termfinancial goals, not as a chance tospend money on items that have littlereturn on investment.

Common reasons for borrowingagainst home equity include:

Making home improvements.Financing a home improvement projectthat increases your home’s value canbe a good investment.

Paying for your children’seducation. Helping to pay for yourchildren’s education can be viewed asan investment in their future.

Paying for your own education.Getting training to improve your jobskills or change careers can increaseyour earning power.

Consolidating debt. This is generally apoor reason for refinancing. Convertinghigh-interest, nondeductible consumerdebt (like credit card balances,installment loans, and medical bills)into one payment may makerepayment easier, but only if you canchange your spending habits to avoidtaking on any new consumer debt.

Making investments. Investing instocks or bonds, starting up a smallbusiness, or investing in other realestate can help you increase the scaleand diversity of your investments, ifyou can find sound ventures.

THE VALUE OF HOMEIMPROVEMENT

According to financial experts, hereare the top ten home improvementsin order of their return:

1. Remodeled kitchen (averagevalue: 80 to 120% of cost)

2. Extra bathroom (average value:75 to 100% of cost)

3. Fireplace (average value: 70% ofcost)

4. Deck or patio (average value: 50to 70% of cost)

5. Central air conditioning (averagevalue: 40 to 80% of cost)

6. Additional room (average Value:50 to 70% of cost)

7. Basement or garage conversion(average value: 30 to 60% ofcost)

8. Aluminum siding (average value:30 to 50% of cost)

9. Swimming pool (average value:20 to 50% of cost)

10. Recreation room (average value: 30% of cost)

Source: Money Magazine, as cited by

www.cnyrealtor.com

HOW TO SAVE MONEY ON HOME IMPROVEMENT

Do it yourself.

Even if you are new to home repair, there are many simple homeimprovement tasks you can learn to do yourself. By investing in a few toolsand learning the basics, you will be able to handle many basic home repairs.Check your public library for how-to books or visit your local homeimprovement retailer for guidance. Many stores offer free home improvementclasses on projects like tile and cabinet installation, gardening andlandscaping, painting, and flooring installation.

Ask for referrals.

Rather than calling someone you found in an ad or listed in the telephonebook, ask trusted friends and relatives for their references on contractors andrepair professionals they have used previously.

Comparison shop.

If you are quoted a price for a repair that seems too high, call another servicecompany and ask for their bid. One phone call could save you hundreds ofdollars.

Buy odd lots or overages.

Sometimes retailers and contractors have large quantities of carpeting, tile, orother supplies left after a large job. If you are willing to be flexible about coloror style to get a better price, this may be a good option for you.


One phone call

could save you

hundreds of dollars.


Ways to Borrow Against Your EquityThe following products allow you toborrow against your home equity:

Home equity loan. This is a mortgagesecured against your home in additionto your existing mortgage. You borrowa set amount of money as a secondmortgage or “junior lien.” Secondmortgage loans usually have fixedinterest rates that are higher than firstmortgages.

Home equity line of credit. This is aspecialized form of a second lien thatis also secured against your home. Aline of credit, in many ways, is similarto a credit card. It is a revolving line ofcredit, where the balance can go up ordown. You can borrow money (up tothe amount that has been approved)and pay it back as many times as youneed during the term of the loan.Interest rates for lines of credit areusually variable, but you only payinterest on the amount you borrow.

Cash-out refinance loan. This loanreplaces your old mortgage with alarger one, and you keep the differencebetween the loan amounts to use asyou want. The interest rate for a cash-out refinance loan is often higher thanthe rate for the loan that is being paidoff.

Choosing the loan

product that is right for

you depends on what

you plan to do with the

extra money, how much

you need, when you

need it, and how quickly

you plan to repay.

Reverse mortgage or home equityconversion mortgage (HECM). Thisloan is available only if all the ownerson the title to the home are at least 62years old. It works like a line of credit,except that you don’t make any loanpayments as long as you are living inthe home. Visit www.aarp.org for moreinformation on reverse mortgages.

Choosing the loan product that is rightfor you depends on what you plan todo with the extra money, how muchyou need, when you need it, and howquickly you plan to repay. A reputablehousing or credit counselor can helpyou select the right product. Beforeyou accept an offer for a home equityloan or line of credit, make sure youknow the terms of the loan and if thereare any prepayment penalties.

Exercise Caution When BorrowingAgainst Your Home EquityHome equity loans are often structuredas 10- or 15-year loans — that’s a longtime to pay it back. If you use thefunds for a new car or vacation, the carwill likely need to be replaced andmost of your vacation memories will belong gone before you finish paying offyour loan. Moreover, while homevalues in most markets appreciate overtime, leaving your appreciation intact isan excellent way of saving for collegeand your retirement. If you need touse your asset — your home — forsome important family event, such as amedical emergency or sending a childto college, shop around for a mortgagethat is fairly priced, with fair terms andfair marketing.

Do I need the money in a lumpsum or in several installments?

A home equity loan is best if youneed a lump sum of money,

while a line of credit makes sensewhen you need money in installments,such as for a large-scale homeimprovement project.

Is it for a long-term or short-term purpose?

If you plan on spending themoney on something that will

last a long time, like a new roof, ahome equity loan might be better. If themoney is for something that won’t lastlong, a line of credit might make moresense.

How much monthly paymentcan I handle?

A home equity loan generallyrequires you to pay principal and

interest every month for the life of theloan, while a line of credit usually givesyou more flexible payment optionsdepending on how much you borrowfrom it.


Would a line of credit tempt meto use the money carelessly?

If you are worried abouttemptation, opt for a home

equity loan to have an installmentaccount rather than a revolvingaccount.

Should I be concerned abouta variable rate?

If you don’t like the idea ofhaving a payment that could

change every time rates change,consider getting a home equity loan,which usually has a fixed interest rate.

Should I Choose a Home Equity Loan or Home Equity Line of Credit?When deciding which home equity option is right for you, consider the following:

Q:A:

Q:A:

Q:A:

Q:A:

Q:A:

A home equity loan is

best if you need a lump

sum of money, while a

line of credit makes

sense when you need

money in installments,

such as for a large-

scale home

improvement project.


Avoiding Financial Traps

hen you own a home, you arelikely to receive many offers for

new loans, refinancing and creditcards. Because of this, you must becautious – no matter how attractive theoffer might seem — to avoid high-pressure or deceptive sales tactics. Beon the lookout for these unscrupulouslenders, because you could lose yourhome and much of your savings if youborrow from them.

Here are some common techniquesused to deceive homeowners:

Targeting unsuspecting consumers.These lenders target low-incomepeople with poor credit or elderlyhomeowners with large amounts ofequity in their homes.

Using high-pressure sales tactics.These lenders use high-pressuretactics and sometimes outrightfraudulent tactics to deceiveconsumers.

Focusing on the monthly payment.These lenders highlight only themonthly payment for the loan andoften hide or gloss over keyinformation such as the interest rate onthe loan, high fees, or otherunfavorable terms.

ABUSIVE LENDING MARKETING TECHNIQUES

Unscrupulous or predatory lendersuse many aggressive marketingtechniques to reach consumers.These techniques include:

� Marketing through telephonecalls, door-to-door solicitations,direct mail, fliers, the Internet, andtelevision commercials. Somepredatory lenders may first canvasa neighborhood or look throughpublic records to find likelycandidates.

� Selling loans under the guise of‘rescuing’ a homeowner fromforeclosure.

� Making loans in conjunction withhome improvement contractors,including offering loans tohomeowners whose homes havesuffered a disaster.

� Selling home equity loans as away for borrowers to consolidateother debts.

� Marketing home equity creditcards.

� Paying high referral fees tomortgage brokers.

Ignoring the borrower’s financialcondition. These lenders putborrowers into questionable and high-cost loans without considering thehomeowner’s ability to repay.

Bait and switch. These lenders offerone set of loan terms when you apply,then switch to higher fees and interestrates when borrowers complete thetransaction by signing the loan papers.

Adding unnecessary fees. Theselenders charge high fees for the loansand often add unnecessary and costlyfeatures such as credit life insuranceinto the loans.

Encouraging repeated refinancing.These lenders encourage consumersto repeatedly refinance their loans,often rolling in other consumer debtsand charging high fees with eachrefinance.

W

Telephone and Internet Scams As a general rule, never providepersonal data, such as bank accountnumbers or your Social Securitynumber, to someone you do not knowand trust. There are many telephonescams out there — sweepstakesclaims, travel scams, businessopportunities, illegal charitablesolicitations, work-at-home schemes,and credit repair plans. Say no! Theirgoal is to get your money. For yourprotection, get on national “Do NotCall” and “Do Not Mail” lists, keeprecords of these types of solicitations,and create a paper trail. Take action byexercising your legal rights if you’vebeen harmed.

You’ll also find many Internet scams ifyou surf on the Web. Be careful!Always use caution with personal dataor credit card information on theInternet. Many of these “dot com”scams are old tricks reincarnated onthe Web.


Home Repair Scams If you own a home and need homerepairs or improvements, you need tobe very careful in deciding on acontractor to use. While manycontractors are honest and hardworking, others can be con artists whowork with unscrupulous lenders todeceive you and steal your money.Bad contractors might provide a highbid for your home repairs. Then, whenyou balk at the price tag, thecontractor says they have a “speciallender” who can offer a great financingdeal and make the repairs affordable.Indeed, you qualify for a loan with the“special lender.” But the deal is usuallytoo good to be true. That’s becausethe important details are in the fineprint — and the homeowner usuallyends up paying a higher price, hiddenfees, or having a high balloon paymentat the end of the financing period.

If you have concerns about a lender,call someone you know and trust tohelp you. Don’t be pressured intosigning any documents until you’veread the documents or had someoneyou trust review them.

There are many

telephone scams out

there — sweepstakes

claims, travel scams,

business opportunities,

illegal charitable

solicitations, work-

at-home schemes, and

credit repair plans.

Say no!


he worst fear of manyhomeowners is falling into deep

financial trouble and losing their home.Foreclosure is a legal process thatallows a lender to take back ownershipof the mortgaged property (forexample, a home) and sell it when aloan is in default.

Typically, only about 1% of mortgagesin the United States go into default andare foreclosed. It is a myth that lenderswant to foreclose on your home.Reputable lenders would much preferthat you pay your mortgage regularlyand be a good customer for life. Oftenlenders lose money in a foreclosureprocess, and, as a result, they areincreasingly offering help tohomeowners to avoid foreclosure.

The sad fact is that many homeownersin financial trouble avoid the issueinstead of asking for help from friends,relatives, counselors, lenders, andothers. These troubled homeownersoften ignore the problem until it’s toolate and their home is taken away inforeclosure. In many states, theforeclosure process only takes a fewmonths, so it’s important to contactyour lender early to ask for help if youare in financial trouble and are havingdifficulty meeting your mortgagepayments. Remember, make themortgage payment your first priority.

If you are in trouble and ask for helpearly in the process, there are usuallymany alternatives to help you remain inyour home. Alternatively these types ofinterventions can help you sell theproperty without destroying your credit.

Common Causes of Foreclosure� Job loss or income loss

� Health crisis

� Taxes, utilities, or propertyinsurance problems

� Problems with a rental unit

� High-cost auto or consumer loan

� Disability

� Overspending

� Death in the family

Preventing Foreclosure

T

The sad fact is that

many homeowners

in financial trouble

avoid the issue [of

foreclosure] instead

of asking for help

from friends,

relatives, counselors,

lenders, and others.

No one wants to lose his or her homethrough foreclosure. Typically, thecauses of foreclosure are complex andlayered. It may start as a family living“paycheck to paycheck” on a tightbudget with too many debts whensuddenly a financial hardship hits. Itmay be the loss of overtime work, atemporary layoff from a job, a large carrepair bill, or a family healthemergency. The unexpected loss ofincome or expense destroys thebudget and puts the family into afinancial crisis. The bills mount up andmany don’t get paid. The creditorsstart calling and demand to be paid.This type of stress can lead to avicious and continuing cycle offinancial problems. No homeownerwants to face this situation, so it’sextremely important to learn how toavoid foreclosure.

Tips for Avoiding ForeclosureAlways make your mortgage paymenton time. Consider your mortgagepayment your highest priority everymonth. Pay it before any other bill andpay it on time. If you have troublemaking the payment, cut back yourexpenses in other areas. Or, look forways to increase your income bygetting another job or workingovertime to make payments on time.


If you get into financial trouble, reachout to relatives, friends, spiritualadvisors, and others for help. It may beembarrassing to ask for help, but if ithelps you keep your home, it’s worth it.

If you fall behind on your mortgagepayments, the most important step isto talk to your lender immediately.More than half of homeowners facingforeclosure do not call for help whenthey fall behind in their mortgagepayments. Call your lender or talk tothem if they call you. Don’t deny thatyou have a problem and ignore yourlender. Explain your situation and askfor help. Many lenders have specialassistance they can offer to consumersin trouble to help them catch up ontheir mortgage payments.

Call a trained counselor who canadvise you about your options. To finda housing counseling agency near you,visit www.hud.gov or call 800-596-4287.

It may be

embarrassing to

ask for help, but if it

helps you keep your

home, it’s worth it.


Talk to your lender and develop aworkout plan. Depending on thesituation, the lender may be able tolower the interest rate on yourmortgage, lower the monthly payment,or set up a special repaymentagreement for missed payments. Makesure any plan you develop with yourlender is realistic for your budget.

If you set up a plan with your lender, itis very important to follow it. Talk toyour family and work hard to live withinthe new budget plan. If you find thatyou can’t follow the plan, call yourlender right away.

PROTECTING YOURINVESTMENT FOR YOUR FAMILY

Some lenders will offer you theoption to purchase mortgageprotection insurance. Terms andrates vary, but this insurance isdesigned to pay off yourmortgage in the event of yourdeath, so that family memberswill not be left to pay it. Keep inmind that you may already haveother means or forms ofinsurance in place to take careof your heirs in the case of yourpassing, so only considerpaying for this option if youreally need it.

Workout options that

help you avoid

foreclosure vary greatly

from lender to lender

depending on the type

of mortgage, the

mortgage’s investors,

and your credit history.

Typical Loan Workout OptionsWorkout options that help you avoidforeclosure vary greatly from lender tolender depending on the type ofmortgage, the mortgage’s investors,and your credit history. That said, hereare some common workout options ifyou fall behind on your mortgagepayments:

Reinstatement. Reinstatement iswhen you are behind in your mortgagepayments but you can make a lumpsum payment to catch up on youroverdue mortgage payments by aspecific date, including any late fees orattorney fees. Some consumersborrow funds from family or friends tomake these payments.

Forbearance. A forbearanceagreement allows you pay less thanthe full amount of your mortgagepayment, or pay nothing at all, for ashort period, with the understandingthat another option will be used later tobring the account current. This type ofagreement may be used if yourfinancial problems are short-term and ifyou will be able to pay off the missedpayments within a specific time in thefuture.

Repayment plan. If your mortgage ispast due, but you can now afford tomake payments, the lender may agreeto let you catch up by setting up aschedule of repayments over six to 12months. This plan allows you to add aportion of the overdue amount on topof each monthly payment so you canbring your account current.

Loan modification. The lender may bewilling to modify or restructure yourmortgage with a written agreement toextend the length of your loan terms orchange the due dates, the paymentamounts, or the interest rate to get youback on track.

Refinancing. If you have enoughequity in your home, you may want totry refinancing your mortgage. The newmortgage could pay off the old loanalong with any late fees and attorneyfees. Be aware that if your credithistory is poor, you may be forced topay a higher interest rate or a highermonthly payment for the newmortgage.


Selling your home. If catching up onpayments is not possible, the lendermight agree to put the foreclosure onhold to give you some time to attemptto sell your home. While this approachmay not seem ideal, it gives you anopportunity to sell the property andperhaps walk away with some of yourequity. At the very least, it couldprevent you from harming your creditthrough the foreclosure process, whichcould make it more difficult and moreexpensive to get credit in the future. Incases where you sell your home forless than what you owe the lender, thelender may accept this lesser amountas a “short sale” or a “short payoff.”

Deed in Lieu. In some cases, thelender may agree to the voluntarytransfer of the home title back to themin exchange for cancellation of yourmortgage debt. This approach couldhave a negative impact on your creditrecord, although not as much as aforeclosure. It may also have taximplications for you, and it might notbe possible if there are other liensagainst the home.

If you have enough

equity in your home,

you may want to try

refinancing your

mortgage.


our home is most likely the largestpurchase you will make in your

lifetime. You want to take care of it sothat it retains its value and, if possible,appreciates over time.

In many ways, a house is like thehuman body. Both are clusters ofcomplex systems enclosed in a fragileshell at the mercy of the environment.And like the human body, a house,especially an older house, needsregular maintenance to remain in goodcondition.

In fact, regular maintenance can helpprevent costly problems. It can helpmechanical systems run moreefficiently and last longer, and it canhave an enormous impact on ahouse’s market value. And of course, itcan make a house look better, makingyou proud, as well as keeping yourneighbors happy.

Understanding Your Home’s SystemsA house is a mix of differentcomponents that work together tokeep us safe, protected from theweather, and comfortable throughoutthe year. These components include:

� Heating and cooling system(furnace and air conditioning)

� Electrical system (wiring, lights,outlets, appliances)

� Plumbing system (sinks, toilets,baths, supply pipes and drains)

� Foundation

� Roof

� Windows and doors

� Structure (walls, siding, porches, etc.)

� Yard and landscaping

Maintaining, Repairing, and Improving Your Home

Y

Regular maintenance

can help prevent

costly problems.

Schedule of Home MaintenanceYour home systems need regular,seasonal maintenance and occasionalrepairs to keep them in good workingcondition. Here is a suggestedschedule for these important tasks.

Daily or Weekly

� Keeping your home tidy and cleanis important, not only for yourpersonal enjoyment, but foreveryone’s health and safety.

� Similar to the inside of your home,it is important to keep your home’sexterior neat and clean. Trash andrecycling should be stored in theproper bins as required by your cityor town. Debris and otherobstacles should be removed frompathways, where they could createhazards for you or your guests.Some cities require you to removesnow from the sidewalks that areadjacent to your home to preventinjuries.

� If you have a lawn, you will need towater and mow it regularly.Additionally, depending on the typeof grass, it may require periodicreseeding and fertilization.

Monthly

� Test smoke detectors.

� Change furnace/air conditioningfilters when in use.

� Ensure your interior and exteriorlights are working. This helpspromote safety and deter crime.


Quarterly

� Inspect bathtubs and sinks forcaulking and leaks; repair asneeded.

� Check operation of water pumpand sump pump.

� Review and practice emergencyprocedures.

� Survey carpet and flooring/cleanand repair if needed.

� Inspect window caulking and repairif needed.

� Remove leaves and debris fromgutters.

Annually

� Drain sediment from base of hotwater tank.

� Have heating and air conditioningsystem serviced.

� Trim or prune trees and bushes.

� Check that your roof shingles are ingood condition. Repair or replaceany damaged shingles. Leaksrequire immediate attention andrepair. If you cannot do the workyourself, contact a roofingprofessional right away.

Your home systems

need regular, seasonal

maintenance.


Planning Is CriticalLook at the big picture. Beforestarting any home maintenance orrepair project, it’s best to plan it out.First, learn about the house. Inspect itthoroughly and make a full inventory ofits current condition. Develop acomprehensive list of needed repairsand desired improvements. Set up athree- to five-year plan for homeimprovements. Make a budget andstick to it!

Get expert advice. Study home repairbooks and magazines and talk tocontractors, architects, and friendsabout your house. Listen to theiradvice and learn from their mistakes.Home maintenance and repair classesmay also be available at local housingagencies, home improvement stores,community organizations, or colleges.These classes can help youunderstand a home’s maintenanceneeds. The workshops can alsoprovide a better understanding ofcommon house-related problems andways of preventing them.

Don’t over-invest in improvements.Unless you are highly skilled and havea large budget, do not attempt totransform a home into something outof a interior design magazine. After all,a home is supposed to be aninvestment, not a money pit. Over-improving a home, compared withother homes in the neighborhood, willnot necessarily make the home worthmore when you want to sell it.

Plan ahead for maintenance. Keep inmind that sooner or later nearlyeverything installed in and around ahome is going to break or needrepairs. To reduce this eventual burden,it makes sense to use materials thatare well-designed, soundlyconstructed, and have withstood the“test of time.” Keep track of receipts,manuals, and diagrams of replacementparts. Try to make maintenance assimple as possible by using high-quality materials and buyingappliances that have long warranties. Itis also wise to set up a savingsaccount specifically for costly homerepairs such as a roof replacement orexterior painting.

Consider your skills and yourpocketbook. Be careful and realistic.Home repair projects can be stressfulfor a family, particularly if the use of thebathroom or kitchen is interrupted. Toreduce this stress, try to keep the workwithin the limits of your skills, time, andbudget.

Use high-quality building materials.As far as building materials go, use thebest materials you can afford. Ingeneral, try to repair existing materials.If replacement is required, try to atleast match the quality of the existingmaterials used in your home. It alsomakes sense to compare the “life-cycle costs” of materials. That is, try tocompare materials not just by theirinitial costs but also by theirmaintenance costs and how long theywill last. Using this standard, in thelong run a hardwood floor would be abetter investment than carpeting.

Over-improving a home,

compared with other

homes in the

neighborhood, will not

necessarily make the

home worth more when

you want to sell it.

Setting PrioritiesObviously, not everyone can afford torestore an entire house at once. Thus itis important to prioritize home repairwork with a master plan that can beimplemented over, say, a five-yearperiod. The following are somesuggested priorities for home repairs.

Critical building maintenance andlife-safety repairs. The first items youmust take care of include any lifesafety or structural repairs that, if leftundone, could damage the structure orhurt those living in it. This list mightinclude repairs to your roof, foundation,siding, porches, exterior stairs, or evenexterior painting.

Mechanical system improvements.This work would include upgrading theheating, air conditioning, electrical, orplumbing systems to be safer, moreeconomical, or just more convenient.

Energy-efficiency improvements.This area covers items that couldreduce heating and/or cooling costsand increase comfort. For example,this work might entail repairing orreplacing windows and doors, addingattic insulation or installing an attic fan.

General and cosmetic interiorimprovements. This includeseverything else, such as updating thekitchen, installing new carpeting, orrepainting interior walls.


Yard work and landscapingimprovements. This work includeswork on your yard, from simplyplanting flowers to more expensive andinvolved work, such as planting treesor building a barbecue patio.

Once priorities for home repairs andimprovements are established, itdoesn’t mean that you have to followthe priorities one-by-one down thechecklist. After you have taken care ofall critical building maintenance and lifesafety repairs, you can rearrange thelist to strike a compromise among yourneeds, desires, and pocketbook.

Saving for Routine Maintenance and RepairsIt’s a good idea to set aside a portionof your monthly savings for routinehome maintenance and repairs. Theamount will vary depending on the ageand condition of your property, but agood rule of thumb is to save at least1% of your home’s purchase priceover a one-year period (for example,1% of a $120,000 home over 12months is $100 per month).

At minimum, you will want to have ahome repair fund of $2,000 to $3,000set aside to cover repairs. If you don’tset money aside to do routinemaintenance and make small repairswhen needed, you might end uppaying costly credit card charges forthis work. Worse yet, if you ignore themaintenance, you could end up withserious, expensive problems in thefuture.

It’s a good idea to

set aside a portion

of your monthly

savings for routine

home maintenance

and repairs.


Sample Schedule of Seasonal Maintenance Tasks

Winter Maintenance ScheduleTask Frequency Who Will Do Date(s) Done

Change furnace filters Monthly (during heating season) ________________________ ______________

Humidifier: thoroughly clean Each week ________________________ ______________water in reservoir, if applicable

Spring Maintenance ScheduleTask Frequency Who Will Do Date(s) Done

Window cleaning spring and fall As needed ________________________ ______________

Window caulking (especially for Spring and fall air-conditioned rooms) or as needed ________________________ ______________

Plans for outside care, such as Annually as needed ________________________ ______________washing or painting siding

Defrost manual freezer Annually before new preservation seasons begin ________________________ ______________

Summer Maintenance ScheduleTask Frequency Who Will Do Date(s) Done

Clean air conditioner filter Monthly or per manual directions ________________________ ______________

Fall Maintenance ScheduleTask Frequency Who Will Do Date(s) Done

Heating system serviced Before system is needed ________________________ ______________

Remove leaves from gutters Once or twice during fall ________________________ ______________

Clean and store yard tools, discard As needed ________________________ ______________or store yard chemicals properly

Clean fire extinguisher, refill or Annually ________________________ ______________replace as needed

Adapted from Ohio State University Extension.

Making Home ImprovementsIn addition to making these necessaryhome repairs, you will also have theopportunity to improve your propertyover time to make it more convenient,efficient, safe, or attractive. Many ofthese repairs and improvements areexpensive. Therefore, it’s important toplan ahead so you can save for thiswork and get it done when you arefinancially ready instead of beingforced to address these issues as partof a crisis.

Doing Simple Home Repairs andMaintenance YourselfThere are many ways to learn how todo home repairs and maintenancechores. While some home projects arelarge and complex, many are simple,small tasks that most homeowners canlearn to do themselves. Here areseveral ways to learn more aboutmaintaining and improving your home:

Learn from neighbors, relatives,contractors, and associates at homeimprovement stores. It is probablysimplest to learn home improvementskills directly from someone else. Withone-on-one instruction, you can askquestions, watch the person makesimilar improvements, and test outyour skills while the instructor watches.Good advice can save you time andmoney.


Take a home repair class. Manyschools, colleges, nonprofitorganizations, and home improvementstores offer classes on home repairsand improvement projects. Theseclasses provide homeowners with theopportunity to get “hands-on”experience in making home repairsunder the supervision of a skilledteacher.

Read books, watch videos, and visitweb sites. Reading home repairbooks, watching videos or cableshows and checking online resourcesare valuable ways to learn more abouthome repairs and improvements. Whilethese approaches won’t allow you toask questions, they can be very helpfulin providing detailed backgroundinformation and providing creativesolutions to common problems.

Work alongside a contractor you’vehired. Not all contractors are willing towork directly with homeowners, but it’sworth asking. Some contractors willwelcome having a homeowner whocan act as a helper to fetch parts andtools as they work. This gives you anopportunity to watch them in action,ask questions, and learn new skillsfrom an experienced professional.

Good advice can save

you time and money.


Hiring Contractors In the course of maintaining a home,you will occasionally have to makerepairs that require professional helpand you’ll need to call in a contractor.To ensure that the relationship with acontractor goes smoothly, it’s a goodidea to follow these suggestions:

Be specific about the work. Beforecalling contractors, you should have aclear idea of what you want. Wheneverpossible, describe dimensions,materials, colors, style of cabinets orfixtures, and so on. Write these ideasdown and give a copy to eachcontractor you meet with so that theyunderstand what you want. For largerprojects, it’s worthwhile working withan architect or a construction managerto develop plans and specifications.

Shop for contractors and checkreferences. Talk to friends or checkwith the local homebuilder associationabout reliable contractors. Everyreputable contractor should providethe names of several recent customersas references. Call these referencesand, if possible, visit their homes toinspect the work. Be thorough inasking questions about thecontractor’s timeliness and workhabits. Also, make sure the contractorsare licensed, if applicable, in your areaand that they have current liabilityinsurance coverage.

Bid the job competitively. Unless thejob is very small or very urgent, it iswise to have several contractorscompete for the opportunity to do thework. Try to obtain two or three bids.Contractors spend considerable timepreparing bids, so be fair. Don’t ask acontractor to bid on a project unlessyou are willing to award them the job ifthe price is right. Make sure thatcontractors are providing bids (firmprices) rather than estimates (roughcalculations) for the work. Ask abouthourly rates for any extra work. Readthe written bids carefully to ensure thatall the contractors are bidding onsimilar work.

Sign a contract. Prepare a contractthat describes the work to becompleted, including plans andspecifications; the time schedule; thepayment schedule; and any warrantiesthat are provided. The contract shouldalso note who is responsible for clean-up, utility costs, obtaining permits, andpaying applicable permit fees duringthe construction period. Beforesigning, read the contract carefully toensure that the terms are agreeable.This legal document is meant toprotect both parties.

Talk to friends or

check with the local

homebuilder association

about reliable

contractors.

Don’t pay in advance.Many smallconstruction jobs are completedquickly so that only one payment atthe end may be necessary. On largerjobs, or at the contractor’s request, youmay want to make progress payments.The amount of these payments shouldbe written into the contract andfollowed closely. It is wise to hold backa substantial amount of the contract(up to 10 to 30%) for the final paymentto ensure the job is completed in atimely manner and all the loose endsare tied up. Of course, you shouldn’tmake this final payment until you arefully satisfied with the completed work.

During construction, keep changesto a minimum. Try to avoid makingchanges in the contract because latechanges will increase costs and usuallythe time required to complete theproject. However, in the event they dooccur, any changes should beapproved by both parties in writingwith a listing of any extra material andlabor costs.

Keep a written record. Keep a writtenlog of your construction projects. Therecords should detail the progress ofthe work, payments made, approvedchanges in the work, and importantconversations with the contractor.These records could help resolvedisagreements at the end of theproject.


Show good faith. Throughout theconstruction process, try to maintain agood relationship with the contractor:be available for consultations, help outwhere possible, or have a cold drinkavailable after a long day’s work.Remember, a little cooperation andcourtesy can go a long way towardpreventing tensions between you andthe contractor.

The ContractA contract is a legally binding writtenagreement. A contract should bewritten for all construction projectsbetween homeowners andcontractors. This agreement should besigned by both parties and anychanges to the contract should bemade in writing and be approved byboth parties.

Ideally, the contract should include thefollowing information:

� Names and addresses of bothparties

� Date the contract is signed

� Scope of work (be specific: plans,specifications, lists, materials, etc.)

� Total cost of the specified work

� Work schedule (date when work willbegin and end)

� Payment schedule (when paymentswill be made; with at least 10%held until the end)

� Warranties for the work or materials

� Hourly labor rate for any extra work

� Responsibilities for clean-up,utilities, and permit fees

� Requirements for liability insurancecoverage

On larger jobs, or at the

contractor’s request,

you may want to make

progress payments.


key priority for maintaining yourhome is paying attention to

safety issues. Home accidents are amajor source of injuries — but you cando a lot to prevent them and/or limitthe harm they cause. Here are a fewstrategies to improve the safety of yourhome:

Keep a first aid kit handy. Keep a firstaid kit in a convenient place in yourhome such as the bathroom orkitchen, and make sure everyoneknows where it is located. These typesof kits can be purchased at most drugstores or outdoor stores for less than$25. The first aid kit should includesterile bandages, sterile gauze pads, 2-inch gauze bandage, adhesive tape,antibiotic ointment, latex gloves, facemasks, antiseptic wipes, burn gel,aspirin, antihistamine, eye wash, athermal blanket, and chemical icepacks.

Post emergency phone numbers inthe kitchen and by all phones. Printout emergency phone numbers for thepolice, fire department, doctor,pharmacist, hospital emergency room,and nearby relatives or neighbors. Postthese numbers close to all of thephones so they can be easily foundand used. Train everyone in the familyto use these numbers in case of anemergency. Even young children canlearn to dial 911 in case of anemergency.

Prevent fire damage by installingsmoke detectors and purchasingfire extinguishers. Your house shouldhave direct-wired smoke detectorsinstalled on the ceilings outside allbedrooms and other living spaces inthe house. If you have questions aboutthe location or condition of smokedetectors, contact your local firedepartment — they often provide freehome safety inspections. Thedetectors should be tested regularly tomake sure they are working. Detectorsin good working order will sound analarm loud enough to awakeneveryone in the house if smoke isdetected. A fire extinguisher can beused to put out a small fire. Keep anextinguisher in the kitchen, garage, andupstairs. Keep extinguishers awayfrom children and check their gaugesregularly to ensure they areoperational.

Have an evacuation plan. In case of afire or some other emergency, youneed an evacuation plan to make sureeveryone gets out of the house safely.Talk to everyone about alternativeways they can get out of the housequickly and safely (through windowsand/or doors) if there is a fire or otheremergency. Have a plan to meet up ata neighbor’s house or another specificlocation.

Home Safety and Emergency Preparedness

Home accidents are a

major source of

injuries — but you

can do a lot to prevent

them and/or limit the

harm they cause.

A

Take steps to prevent accidentalinjuries caused by falls. Falls accountfor almost half of accidental deaths inthe home, and the elderly areespecially susceptible to these injuries.Here are some simple steps that canhelp prevent these accidents:

� Keep floors in good repair andmake sure all rugs have nonskidbackings

� Avoid running electric cords acrossrooms and pathways

� Keep floors and pathways clear oftoys and other obstructions

� Make sure that stairs and steps arewell-lit and free of obstructions

� Provide sturdy handrails on allstairs

� Be cautious around wet andslippery floor surfaces

� Install nightlights in hallways andbathrooms

� Install nonskid mats in bathtubsand showers

� Install sturdy grab bars in bathtubsand showers

� Install window guards for childrenon upper floors

� If you have small children, installgates at the top and bottom ofstairways


Prevent lead contamination. Mosthouses built before 1980 have paintthat contains a significant amount oflead. If this lead-based paint is peeling,chipped or sanded, it can be a hazardto a home’s occupants, especiallyyoung children who may eat or breathein these paint particles. Many studieshave shown that lead can havesignificant negative health effects onchildren. If you suspect your home haslead paint, get it tested by aprofessional before you do any repairsand renovations that may disturbpainted surfaces. Clean up any paintchips or dust with a wet sponge mopto avoid spreading it through yourhouse. Contact your county healthdepartment for useful publications andadvice on this topic.

Conduct a home safety inspection.Inspect your doors and windows fromthe outside to ensure that they closeand lock properly. Repair or replaceany locks, doors or windows that arebroken or not working. Deadboltsshould be installed on all of your entrydoors. If crime is a problem in yourneighborhood, you may want toconsider installing a security alarmsystem. You may want to start aneighborhood watch program withyour neighbors.

Simple steps can help

prevent accidents.


Emergency and DisasterPreparednessDisasters can strike unexpectedly andwreak havoc on your life. Though youcan rarely control or prevent disasters,you can certainly plan and be preparedfor these emergencies. Even a smallamount of preparation can help reduceyour losses from these disasters. TheUniversity of Florida IFAS Web siteprovides an excellent online manualabout disaster preparedness athttp://disaster.ifas.ufl.edu/default.htm.Here are some general guidelines tofollow:

Pay attention to advance warnings.Public officials can often provideadvance warnings about pendingdisasters such as floods, tornadoes,hurricanes, severe windstorms,extreme heat waves, and snowstorms.Pay attention to these warnings andtake steps to prepare your householdfor the potential emergency. Tune in toradio and television reports forupdated conditions. Don’t ignore thesewarnings and continue with “businessas usual.” Remind your family aboutyour evacuation plans and alertrelatives about the potential situation.

Have emergency supplies storedand ready. Even a modest storm cancause temporary power outages andprevent your lights from working. Ifthese outages are longer term, you canbe uncomfortable and your safetycould be at risk unless you have someemergency supplies stored and readyfor use. See the Emergency SupplyChecklist for specific items to includein your kit.

Keep an up-to-date inventory ofhousehold possessions. A key toputting your life back together after adisaster is having a thoroughhousehold inventory and securestorage for important documents. Thehousehold inventory should include adescription of your possessions(including model and serial numbers),proof of the date you bought each itemand its cost (ideally, including a copy ofthe receipt and/or a photograph of theitem). In fact, photographing orvideotaping your possessions is agreat way to keep an inventory. Evenrelatively inexpensive items such astools or clothes should be inventoried.

Protect valuable household records.It is critical to keep your importanthousehold documents in a locked,fireproof, and waterproof container toprevent these documents from beingdestroyed in a disaster. If you do nothave a bank safe deposit box to storethese documents, you shouldpurchase a home storage safe that isfireproof and waterproof.

Emergency Supply Checklist

� Water: one gallon of water perperson per day for at least threedays, for drinking and sanitation,and water purification tablets

� Food: at least a three-day supply ofnonperishable food

� Battery-powered or hand-crankradio and a NOAA Weather Radiowith tone alert and extra batteries

� Flashlight and extra batteries

� First aid kit

� Whistle to signal for help

� Dust masks, to help filtercontaminated air and plasticsheeting and duct tape

� Moist towelettes, garbage bagsand plastic ties for personalsanitation

� Wrench or pliers to turn off utilities

� Can opener for canned food

� Local maps

� Tissues and plastic bags

� Plastic tarp, thermal blankets, andemergency ponchos

� Cell phone batteries and rechargers

� Candles and waterproof matches

� Cash, credit cards

� Emergency telephone numbers

� Paper and pencil

Source: U.S. Department of Homeland Security.


Getting Involved in Your Community

Meet your neighbors,

visit your local library

or community center,

and read your city

newspaper to learn

more about activities

and important issues

in your area.

hen you bought your home, youalso “bought into” the

neighborhood in which your home islocated. This may be a neighborhoodthat is new to you or one in which youlived previously. In your new role as ahomeowner in the neighborhood, youwill probably want to find ways to getmore involved in your community tohelp protect your investment and makeit more enjoyable to live there.

Get to Know the NeighborhoodTo be an active member of thecommunity, you must first get to knowyour neighborhood. Meet yourneighbors, visit your local library orcommunity center, and read your citynewspaper to learn more aboutactivities and important issues in yourarea. You may wish to get involvedwith a local Neighborhood Watchassociation, or the parent organizationat your child’s school. If you would liketo learn more about civic affairs, youcan attend town or city councilmeetings, or contact your local, state,or federal elected officials. You canobtain the names of your electedofficials online, or at your local library.

Enjoy the BenefitsWith all this hard work, it is importantto remember that homeownershipcomes with many benefits. Here arejust a few:

� Having pride of ownership

� Enjoying a home value that mayincrease over time (3 to 6%nationwide over past 20 years,according to financial experts)Note: figure from lendingtree.com

� Receiving tax advantages

� Having the control to makeimportant choices about when andwhere repairs and improvementsare made

� Enjoying a garden or a yard for yourchildren and/or pets to play in

� Experiencing a sense of communityas you and your family get to knowneighbors, schools, and parks

� Having choices when it comes todecorating and renovating

� Investing in your home’s equity bypaying your mortgage instead ofpaying a landlord

� Creating a valuable asset for yourfuture

� Having a recognized voice in yourcommunity — elected officials anddecision makers valuehomeowners’ opinions on localmatters, including school issuesand traffic concerns

� Creating stability for you and yourfamily in a place of your own

Welcome HomeFor you, the dream of homeownershipis now a reality. You made the rightchoice in buying your home and nowyou must live up to the challenge ofmaintaining and protecting yourimportant investment. Yes, you havehard work ahead of you, but you alsoget to reap the many rewards of beinga homeowner. Congratulations.

W


Actual Cash Value: An amount equalto the replacement value of damagedproperty minus depreciation.

Adjustable-Rate Mortgage (ARM):Also known as a variable-rate loan, anARM usually offers a lower initial ratethan a fixed-rate loan. The interest ratecan change at a specified time, knownas an adjustment period, based on apublished index that tracks changes inthe current finance market. Indexesused for ARMs include the LIBORindex and the Treasury index. ARMsalso have caps, a maximum andminimum that the interest rate canchange at each adjustment period.

Adjustment Period: The time betweeninterest rate adjustments for an ARM.There is usually an initial adjustmentperiod, beginning from the start date ofthe loan and varying from 1 to 10years. After the first adjustment period,adjustment periods are usually 12months, which means that the interestrate can change every year.

Amortization: Paying off a loan overthe period of time and at the interestrate specified in a loan document. Theamortization of a loan includes in eachmortgage payment the payment ofinterest and a part of the amountborrowed.

Amortization Schedule: Provided bymortgage lenders, the schedule showshow, over the term of your mortgage,the principal portion of the mortgagepayment increases and the interestportion of the mortgage paymentdecreases.

Annual Percentage Rate (APR): Howmuch a loan costs annually. The APRincludes the interest rate, points,broker fees and certain other creditcharges a borrower is required to pay.

Application Fee: The fee to coverprocessing costs that a mortgagelender charges the borrower to applyfor a mortgage.

Appraisal: A professional analysisused to estimate the value of theproperty. This includes examples ofsales of similar properties.

Appraiser: A professional whoconducts an analysis of the property,including examples of sales of similarproperties, to develop an estimatedvalue of the property. The analysis iscalled an appraisal.

Appreciation: An increase in themarket value of a home due tochanging market conditions and/orhome improvements.

Arbitration: A process where disputesare settled by referring them to a fairand neutral third party (arbitrator). Thedisputing parties agree in advance toagree with the decision of thearbitrator. There is a hearing whereboth parties have an opportunity to beheard, after which the arbitrator makesa decision.

Asbestos: A toxic material that wasonce used in housing insulation andfireproofing. Because some forms ofasbestos have been linked to certainlung diseases, it is no longer used innew homes. However, some olderhomes may still have asbestos in thesematerials.

Asset: Something of value anindividual owns.

Assumption: A homebuyer’sagreement to take the primaryresponsibility for paying an existingmortgage from a home seller.

Balloon Mortgage: A mortgage withmonthly payments based on a 30-yearamortization schedule, with the unpaidbalance due in a lump sum payment atthe end of a specific period of time(usually five or seven years). Themortgage contains an option to “reset”the interest rate to the current marketrate and extend the due date if certainconditions are met.

Glossary

Bankruptcy: A legal declaration thatyou are unable to pay your debts.Bankruptcy can severely affect yourcredit record and your ability to borrowmoney.

Cap: A limit to how much anadjustable rate mortgage’s monthlypayment or interest rate can increase.A cap protects the borrower from largeincreases and may be a payment cap,an interest cap, a life-of-loan cap or anannual cap. A payment cap is a limiton the monthly payment. An interestcap is a limit on the amount of theinterest rate. A life-of-loan cap restrictsthe amount the interest rate canincrease over the entire term of theloan. An annual cap limits the amountthe interest rate can increase during a12-month period.

Capacity: Your ability to make yourmortgage payments on time. Thisdepends on your income and incomestability (job history and security), yourassets, your savings and the amountof your income that remains eachmonth after you have paid yourhousing costs, debts and otherobligations.

Closing (Closing Date): Thecompletion of the real estatetransaction between buyer and seller.The buyer signs the mortgagedocuments, and the closing costs arepaid. It is also known as the settlementdate.

Closing Agent: A person whocoordinates closing-related activities,such as recording the closingdocuments and disbursing funds.

Closing Costs: The costs to completethe real estate transaction. These costsare in addition to the price of the homeand are paid at closing. They includepoints, taxes, title insurance, financingcosts, items that must be prepaid orescrowed and other costs. Ask yourlender for a complete list of closingcost items.

Credit: Credit is the ability to borrowtomorrow’s money to pay forsomething you get today. Credit isextended based on a lender’s goodopinion of a person’s financial situationand reliability.

Credit Bureau: A company thatgathers information on consumers whouse credit. The company sells thatinformation to credit lenders in theform of a credit report.

Credit History: A record of creditconsisting of a list of individualconsumer debts and a record ofwhether these debts were paid on timeor as agreed. Credit institutions havecreated a detailed document of yourcredit history called a credit report.

Credit Report: A document used bythe credit industry to examine your useof credit. It provides information onmoney that you have borrowed fromcredit institutions and your paymenthistory.

Credit Score: A computer-generatednumber that summarizes your creditprofile and predicts the likelihood thatyou will repay future debts.

Creditworthy: Your ability to qualify forcredit and repay debts.

Debt: Money owed from one person orinstitution to another person orinstitution.

Debt-to-Income Ratio: Thepercentage of gross monthly incomethat goes toward paying your monthlyhousing expense, alimony, childsupport, car payments and otherinstallment debts, and payments onrevolving or open-ended accountssuch as credit cards.

Deed: A legal document transferringownership or title to a property.


Deed of Trust: A legal document inwhich the borrower transfers the title toa third party (trustee) to hold assecurity for the lender. When the loanis paid in full, the trustee transfers titleback to the borrower. If the borrowerdefaults on the loan, the trustee will sellthe property and pay the lender themortgage debt.

Default: Failure to fulfill a legalobligation. A default includes failure topay a financial obligation, but it alsomay be a failure to perform someaction or service that is non-monetary.For example, when leasing a car, thelessee usually is required to properlymaintain the car.

Depreciation: A decline in the value ofa home due to changing marketconditions or lack of upkeep on thehome.

Down Payment: A portion, usuallybetween 3% to 20%, of the price of ahome. This portion is not borrowedand is paid up front.

Earnest Money Deposit: The depositto show that you are committed tobuying the home. The deposit is notrefunded to you after the seller acceptsyour offer unless one of the salescontract contingencies is not fulfilled.

Equity: The value of your home abovethe total amount of liens against yourhome. If you owe $100,000 on yourhome, but it is worth $130,000, youhave $30,000 of equity.

Escrow: The holding of money ordocuments by a neutral third partybefore closing. It also can be anaccount held by the lender (or servicer)into which a homeowner pays moneyfor taxes and insurance.

Glossary

Collateral: Property that is used assecurity for a debt. In the case of amortgage, the collateral is the houseand property.

Commitment Letter: A letter fromyour lender stating the amount of themortgage, the number of years torepay the mortgage (the term), theinterest rate, the loan origination fee,the annual percentage rate and themonthly charges.

Concession: Something given up oragreed to when negotiating the sale ofthe house. For example, the sellersmay agree to help pay for closingcosts.

Condominium: A unit in a multi-unitbuilding. The owner of a condominiumunit owns the unit itself and has theright, along with other owners, to usethe common areas. The owner doesnot own the common elements, suchas the exterior walls, floors, ceilings orstructural systems outside of the unit;the condominium association ownsthese. There are usually condominiumassociation fees for buildingmaintenance, property upkeep, taxesand insurance on the common areas,and there are reserves forimprovements.

Contingency: A plan for somethingthat may occur but is not likely. Forexample, your offer may be contingenton the home passing a homeinspection. If the home does not passinspection, you are protected.

Counter-offer: An offer made inresponse to a previous offer. Forexample, after the buyer presents hisor her first offer, the seller may make acounter-offer with a slightly higher saleprice.


Housing Expense Ratio: Thepercentage of your gross monthlyincome that goes toward paying foryour housing expenses.

HUD-1 Settlement Statement: A finallist of the costs of the mortgagetransaction. It states the sales priceand down payment, as well as the totalsettlement costs required from thebuyer and seller.

Index: The published index of interestrates used to calculate the interest ratefor an ARM. The index is usually anaverage of the interest rates on aparticular type of security, such as theLIBOR.

Individual Retirement Account (IRA):A tax-deferred plan that can help youbuild money for retirement.

Inflation: An increase in prices.

Inquiry: A request for a copy of yourcredit report. An inquiry occurs everytime you fill out a credit application orrequest more credit. Too manyinquiries on a credit report can hurtyour credit score.

Interest: The cost you pay to borrowmoney. It is the payment you make toa lender for the money it has loaned toyou. Interest is usually expressed as apercentage of the amount borrowed.

Keogh Fund: A tax-deferredretirement savings plan for smallbusiness owners or self-employedindividuals who have earned incomefrom their trade or business.Contributions to the Keogh plan aretax deductible.

Liability: A debt or other financialobligation.

Lien: A claim or charge on property forpayment of a debt. With a mortgage,the lender has the right to take the titleto your property if you do not make themortgage payments.

Loan Origination Fee: A fee paid toyour mortgage lender for processingthe mortgage application. This fee isusually in the form of points. One pointequals 1% of the mortgage amount.

Lock-In Rate: A written agreementguaranteeing a specific mortgageinterest rate for a certain amount oftime.

Low–Down Payment Feature: Afeature of some mortgages, usuallyfixed-rate mortgages, that helps youbuy a home with as little as a 3%down payment.

Margin: A percentage added to theindex for an ARM to establish theinterest rate on each adjustment date.

Market Value: The current value ofyour home based on what a purchaserwould pay. Sometimes an appraisal isused to determine market value.

Mortgage: A loan using your home ascollateral. In some states the termmortgage also describes thedocument you sign (to grant the lendera lien on your home). The term alsomay indicate the amount of money youborrow, with interest, to purchase yourhome. The amount of your mortgage isusually the purchase price of the homeminus your down payment.

Mortgage Broker: An independentfinance professional who specializes inbringing together borrowers andlenders to complete real estatemortgages.

Mortgage Insurance or PrivateMortgage Insurance (MI or PMI):Insurance needed for mortgages withlow down payments (usually less than20% of the price of the home).

Mortgage Lender: The lender whoprovides funds for a mortgage.Lenders also manage the credit andfinancial information review, theproperty and the loan applicationprocess through closing.

Glossary

Fixed-Rate Mortgage: A mortgagewith an interest rate that does notchange during the entire term of theloan.

Foreclosure: A legal action that endsall ownership rights in a home whenthe homeowner fails to make themortgage payments or is otherwise indefault under the terms of themortgage.

Gift Letter: A letter that a familymember writes verifying that he or shehas given you a certain amount ofmoney as a gift, and that you do nothave to repay it. For some mortgages,you can use this money toward aportion of your down payment.

Good-Faith Estimate: A writtenstatement from the lender itemizing theapproximate costs and fees for themortgage.

Gross Monthly Income: The incomeyou earn in a month before taxes andother deductions. It also may includerental income, self-employmentincome, income from alimony, childsupport, public assistance payments,and retirement benefits.

Home Inspection: A professionalinspection of a home to determine thecondition of the property. Theinspection should include an evaluationof the plumbing, heating and coolingsystems, roof, wiring, foundation, andpest infestation.

Homeowner’s Insurance: A policythat protects you and the lender fromfire or flood, which damages thestructure of the house; a liability, suchas an injury to a visitor to your home;or damage to your personal property,such as your furniture, clothes orappliances

Principal: The amount of moneyborrowed to buy your house, or theamount of the loan that has not yetbeen repaid to the lender. This doesnot include the interest you will pay toborrow that money. The principalbalance (sometimes called theoutstanding or unpaid principalbalance) is the amount owed on theloan minus the amount you haverepaid.

Private Mortgage Insurance (PMI):See Mortgage Insurance.

Property Appreciation: SeeAppreciation.

Radon: A toxic gas found in the soilbeneath a house that can contribute tocancer and other illnesses.

Rate Cap: The limit on the amount aninterest rate for an ARM can increase ordecrease during an adjustment period.

Ratified Sales Contract: A contractthat shows both you and the seller ofthe house have agreed to your offer.This offer may include salescontingencies, such as obtaining amortgage of a certain type and rate,getting an acceptable inspection,making repairs and closing by a certaindate.

Real Estate Professional: Anindividual who provides services forbuying and selling homes. The sellerpays the real estate professional apercentage of the home sale price.Unless you specifically havecontracted with a buyer’s agent, thereal estate professional represents theinterest of the seller. Real estateprofessionals may be able to refer youto local lenders or mortgage brokers,but they generally are not involved inthe lending process.


Refinance: The process of getting anew mortgage and using all or someportion of the proceeds to pay off theoriginal mortgage.

Replacement Cost: The cost toreplace damaged personal propertywithout a deduction for depreciation.

Securities: A financial form that showsthat the holder owns shares of acompany (stock) or has loaned moneyto a company or governmentorganization (bond).

Title: The right to, and the ownershipof, property. A title or deed sometimesis used as proof of ownership of land.

Title Insurance: Insurance thatprotects lenders and homeownersagainst legal problems with the title.

Truth-in-Lending Act (TILA): A federallaw that requires disclosure of a truth-in-lending statement for consumerloans. The statement includes asummary of the total cost of credit,such as the APR and other specifics ofthe loan.

Underwriting: The process a lenderuses to determine loan approval. Itinvolves evaluating the property andthe borrower’s credit and ability to paythe mortgage.

Uniform Residential LoanApplication: A standard mortgageapplication your lender will ask you tocomplete. The form requests yourincome, assets, liabilities and adescription of the property you plan tobuy, among other things.

Warranty: A written guarantee of thequality of a product and the promise torepair or replace defective parts free ofcharge.

Glossary

Mortgage Rate: The cost or theinterest rate you pay to borrow themoney to buy your house.

Mutual Fund: A fund that pools themoney of its investors to buy a varietyof securities.

Net Monthly Income: Your take-homepay after taxes. It is the amount ofmoney that you actually receive in yourpaycheck.

Offer: A formal bid from thehomebuyer to the home seller topurchase a home.

Open House: When the seller’s realestate agent opens the seller’s houseto the public. You do not need a realestate agent to attend an open house.

Point: 1% of the amount of themortgage. For example, if a loan ismade for $50,000, one point equals$500.

Pre-Approval Letter: A letter from amortgage lender indicating that youqualify for a mortgage of a specificamount. It also shows a home sellerthat you are a serious buyer.

Predatory Lending: Abusive lendingpractices that include makingmortgage loans to people who do nothave the income to repay them, orrepeatedly refinancing loans, charginghigh points and fees each time and“packing” credit insurance onto a loan.

Pre-Qualification Letter: A letter froma mortgage lender that states that youare pre-qualified to buy a home, but itdoes not commit the lender to aparticular mortgage amount.


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