Thursday, September 27, 2012

Born In The 47% (A Million Little Miracles)

You know, I kind of feel sorry for ol' Mittens Romney.  He's the only presidential candidate in my recent memory who has successfully opened up a can of whoopass on his damn self.  That said, I, like, say,47% of the country, took offense at his remarks about the 47%.  Because, unbeknownst to me until recently, I was born into the 47%, at least for a while.

Like ol' Mittens, I, too, used to be on my high horse about people on public assistance.  I would see women at the Winco with their manicured nails handing over their EBT cards or hearing in the news about folks using their EBT cards at casinos and I would think to myself, "This is just wrong.  I get up and go to work every day, took a pay cut, cut coupons, and watch every penny, and they're going to casinos and getting their nails done."  I started to look down on healthy-appearing folks on public assistance and started to voice my disdain of them to my family members.

Until my oldest brother informed me that I, too, had been on public assistance.

My oldest brother, whom I will refer to as "He Who Is Wise" (HWIW for short), told me about the real deal of my existence in my early days on this earth.  It appears (and I may be getting this wrong since it's family stuff that happened before my memories formed) that my dad loaned his car to a family member who had an accident in that car and had no insurance.  The judgment against my dad wiped him out -- our family lost the house we were living in and had to move in with friends of the family.  During that time, my dad moved out so that my mom could qualify for food stamps for their six kids, me being among them.

HWIW informed me that our dad hadn't abandoned the family; he just did what he had to do financially to, in the words of the Beverly Hillbillies, "keep his family fed."

This little fact checking of my past made me realize that the things I thought were normal about my life were indeed not normal.  That the position in which I sit now -- well-education black woman from a two-parent family where both parents had jobs, benefits and pensions despite the fact that neither had graduated high school -- was not normal at all, but the product of a million little miracles.

It was a miracle that I was born to married parents.
It was a miracle that my parents stayed together.
It was a miracle that my parents had jobs with benefits and pensions, even though neither of them graduated high school.
It was a miracle that my parents were homeowners (eventually).
It was a miracle that I went to good public schools.
It was a miracle that I graduated high school
It was a miracle that I was admitted to Stanford, Princeton and Harvard.
It was a miracle that my parents stressed education and never gave me the option of not considering college because of the cost.
It was a miracle that my parents discussed world events at the dinner table and made my siblings and me think for ourselves and sharpen our critical thinking skills.  To this day, we can spot an idiot a mile out.
Most importantly, it was a miracle that my parents were able to get off public assistance.

Sure, what my parents did is what parents should do, but there's a huge difference between "should" and "could" in America.  What I thought was normal in my life and what I've been able to do with my life is really the result, the amalgamation, if you will, of a million little miracles.  Miracles that didn't happen to many other people.

I understand that some of ol' Mittens' family were on public assistance at some time, like mine.

So before you look down on women with manicured fingernails who use EBT cards at the Winco, check yourselves.  They don't represent all folks on public assistance any more than I do, even though being on public assistance is an experience we both have in common.  There is no one type of person on public assistance or in need.

And, Mittens (and Lyin' Paul Ryan, for that matter), before you criticize folks on public assistance, you might want to make sure that you or your family weren't among them at some point in time.

That's what I learned from my brother, HWIW.

Monday, September 10, 2012

Don't Laugh. It's Paid For.

I drive a 2007 Honda Accord EX with a huge crack in the windshield.  There's nothing fancy about it other than it's color, red.

Don't laugh.  It's paid for.

You see, I hate having a car payment.  For the first six years after I graduated law school, I didn't have one.  In my family, we recycle cars.  We hand them down.  After graduation from law school in 1990, I was handed down a 1981 Honda Prelude.  Red.  That car had been purchased by my oldest sister when I graduated high school.  In 1988, she purchased another Honda and handed the '81 Prelude down to my sister The Writing Diva.  I don't recall how I ended up with it, but I did.

I literally drove it until it fell apart some 15 years after it was purchased, all my fault for taking out the undercarriage on a curb.  Given that that '81 Prelude had already survived one car accident, it was a shame how I ended up taking it out.  It ran like a dream.  All I had to do was keep the oil changed, get regular tune-ups, and replace the tires.  Whenever I came home, my dad would even wash and wax the car for me.   Even toward then end, when my friends would laugh and say, "When are you finally going to get a new car?", I would respond, "Why do I need a new car when this one is paid for?"  From 1990 to 1996, I had no car payment.  Sweet.

I bought my first car in 1996 when I totaled the '81 Prelude, trading up for a Honda Accord.  The '96 Accord was crushed by a moving van in 1998 and replaced with a 1998 Honda Accord (See a trend here?).  From 2003 to 2007, I again had no car payment.  I had every intention of driving that '98 Honda Accord until the wheels fell off.

I ended up handing it down to my nephew and buying the 2007 Honda Accord that is officially mine, all mine, today.   The '98 Accord is still running.   And now I'm gunning for my family's continuous car ownership record, held by my middle sister -- 22 years of driving the same car.

We're a buy and hold kind of family when it comes to cars.  We typically drive our cars until the wheels fall off and duct tape will no longer do.  Why?  Because we HATE having car payments.  My oldest sister who replaced her '81 Honda Prelude with an '88 Honda Accord drove that '88 Accord until 2007, 19 years.  But the family champ is my middle sister, who drove a '78 Toyota Corolla until 2000, replacing it with a 2000 Honda Accord.  Twenty-two years she rode in that Corolla, with duct tape on the bumper and red tape on the rear tail lights at the end.  I'm looking to beat her record and buy my next car used and for cash.  Right now I'm competing with my dad, who's been driving a '98 Acura for a while.

And yes, I'll get that cracked windshield fixed now that I no longer have a car payment.  I refuse to make an insurance claim.  I've already made enough of them on this car.

But don't laugh.  It's paid for.

Thursday, September 6, 2012

My Family's Revolution: Home Ownership

Well, my family's revolution has come to an end.  And a beginning, of sorts.  We've discussed family mission statements, credit, budgets, sou-sous, gentle nudges,  financial literacy, estate planning and career planning, and entrepreneurship.  The last two modules of our series of talks, titled, "Something to Think About," were to address home ownership and educating our children.

While we were cruising our way toward finishing up the modules on home ownership and educating our kids, real life got in the way.  A revered elder was stricken with cancer but has not only survived, but thrived with chemo.  Another family member faced a life-threatening illness but continues to fight back.  God is good, all the time.

Needless to say, we all got a little distracted, and family meetings had to be postponed.  We finally finished in August, and I'm going to devote separate blog entries to the home ownership module and the education module.  This one is for home ownership.

First things first:  Despite the housing market meltdown, I'm still a believer in home ownership.  Why?

Because a home is usually the largest asset in the average American's portfolio, and most of us aren't savvy enough to make money off of stocks, bonds, and other investments alone.

Because of the mortgage interest deduction, for however long it lasts.  For the life of me I can't understand paying rent for your entire life, getting a paltry renter's credit, if at all, and having nothing to show for all the rent you paid when you retire.  I just don't get it.

Because home ownership, done properly, creates stability in your family.  I've been on the poopy end of the rental stick, having been given 60 days' notice to move out of our rental solely because the landlord wanted to move back in.  As long as I pay my mortgage, I have a place to stay that can't be taken away from me at someone else's whim.  This is especially important when you have children.

Mind you, even if you pay off your home, you're not going to make a lot off of it in the long run unless there's another real estate bubble.  That said, it is an asset that you can control and, to a certain extent, borrow against for large future expenses should you so choose, which I would not.

Because once you pay it off, you can hand it down to your children.  A house is the biggest intergenerational wealth transfer for most average Americans.  The ability to hand a house down to your children can, if done wisely, help them to maintain a middle-class lifestyle.  Because we African Americans tend to have lower home ownership rates than whites, we tend to hand down less wealth to our children.  However, home ownership rates for southern African Americans have usually been higher than for African Americans in other parts of the country.

I did not present the module on home ownership.  Mary Assadi, an extraordinary realtor with Keller Williams and a friend of Black Man Not Blogging (BMNB), did.  Mary outlined the basic home buying process and help us understand the different kinds of real estate loans you can get.  More on that later.

What I did provide was a list of all the things BMNB and I did right and wrong in buying our home.  They are: 


1.      Not checking out our realtor.  We used our realtor (who was not Mary -- we didn't know Mary was a realtor when we bought) because his mother had name recognition and expertise in our real estate market.  Although we did have access to her through him, we should have found someone who was more experienced and who listened more to what we wanted. 
 
2.      Not seeking a mortgage through an independent mortgage broker.  We got our mortgage through Wells Fargo because 1) they did FHA loans; 2) they did CalPERS loans; and 3) BMNB banked with them (my credit union did not do CalPERS loans).  An independent mortgage broker has access to a variety of loan products; a bank will only sell you what they have to offer, and they probably won’t keep your loan in their portfolio.  In our case, Wells Fargo eventually sold our loan to Citibank, who later sold it to another bank.

3.      Not being clear on how much we wanted to spend.  I wanted to spend more, BMNB wanted to spend less.  The realtor agreed with me, for obvious reasons.  BMNB had to set him straight.  It wasn't pretty. 

4.      Buying a home in a new and incomplete neighborhood.  We were lured to our relatively new neighborhood by signs saying “School coming soon” and “Park coming soon.”  Well, soon never came, and neither did the school and the parks.  Both the school district and the city ran out of money.  Never buy in a new neighborhood that isn’t completely built out.

5.      Not checking out the finances of the school district and the city.  We should have never believed the parks and schools signs and should have read the financial reports for both the city and the school district to see if they really did have the money to finish the parks and the schools.  They didn't.

6.      Not double-checking the amount that needed to be impounded for taxes.  When you don't put down at least 20% for your house, your lender will require you to pay money in addition to your mortgage each month to cover the twice annual property tax bill, private mortgage insurance bill, and homeowner insurance bill.  This additional money is held by the lender, or "impounded," until these bills become due, and the lender pays them.  The bank got the amount of our monthly impound wrong, and we had to play catch-up to pay back the amounts that weren’t impounded.

7.      Not checking on whether the neighbors next door were renters.  Not that all renters are bad – we were renters, too.  When you buy, however, you don’t want to live next door to a rental house because you never know who your neighbors are going to be for the long haul.  We specifically asked our realtor to check on this but he didn’t, and we didn’t follow up.  Our next-door neighbors to the north are renters.

8.      Not checking on future development plans for nearby neighborhoods.  We didn’t know that a new neighborhood was slated to be constructed near our neighborhood.  The school district doesn’t have the money to build additional schools, and our neighborhood school is crowded as it is.  When the new neighborhood comes on board, our neighborhood school will be overcrowded and the streets may be gridlocked with morning commuters.

9.      Not negotiating to have all or part of our Mello-Roos bond paid.  A Mello-Roos bond is a bond that all buyers of new houses in California are responsible for paying to pay for the neighborhood infrastructure such as sewers, lighting, etc.  They run from twenty to forty years.  You can negotiate to have the seller pay part or the entire Mello-Roos bond or to lower the price of the home to compensate for the price of the Mello-Roos bond.  Buyers don’t like to buy houses with huge Mello-Roos bonds, which will ultimately make our house harder to sell.  Yep, we're pretty much sitting on rental property.  Thanks, Henry Mello and Mike Roos.
 
10.  Not checking on where the local utilities are located in relation to our house.  We knew that the railroad tracks were two blocks behind our home.  What we didn’t know was that there’s a petroleum gas line that runs right alongside the railroad tracks.  Think San Bruno.

Here are the successes BMNB and I had in buying our home:


1.      Using our own inspector.  We wanted an inspector who didn’t have an interest in the outcome, such as someone who was referred to us by our realtor. 

2.      Checking out future freeway plans for the neighborhood.  We knew that a freeway bypass was slated to come through our neighborhood, but we went to the CalTrans office to make sure the bypass wasn’t going to be too close to our house.

3.      Buying a home that will suit us for the next ten years.  BMNB and I knew we planned to adopt, so we wanted a home that would be big enough for the family we planned to have, not the family we had.

4.      Getting a CalPERS loan.  CalPERS no longer does home loans, but one of the requirements of the loan program was to keep fees low.

5.      Buying in a neighborhood with a Home Owners Association (HOA).  A lot of people don’t like living in neighborhoods with HOA’s because they don’t like all the rules.  We like the rules because the rules keep your neighbors from doing things to their property that brings down the value of yours, e.g., painting their houses hot pink or parking their cars on the front yard.  It works for us, but it may not be for everybody.

6.      Buying a foreclosure.  Relatively speaking, we got a good deal.  The down side?  The house continued to lose value.  That’s why we had to make sure it was someplace we’d be happy to stay in for a while.

7.      Checking out the neighborhood at all times of the day and night before buying.  BMNB and I made trips to our neighborhood during all hours of the day and night to get an idea of what the neighborhood was really like – the sights and sounds during all hours of the day – and to see how we would be received.

8.      Buying a house that suited our life style.  BMNB and I are homebodies who like suburban life.  We like living someplace that is quiet, safe, family-oriented, and away from congested cities.  We chose our neighborhood because it was affordable, safe, quiet and family-oriented.  Think about your own lifestyle – e.g., whether you are an urbanite who likes to walk to the grocery store and ride your bike to work – before you buy your house.

9.  Getting a fixed rate loan.  We got an FHA (Federal Housing Administration) 30 year fixed loan, which means that our monthly mortgage payments will be the same for the entire 30 years of the loan.  No adjustable rates, no balloon payments, no interest-only loans.
 
 
Here is A VERY BASIC GUIDE to home buying process as laid out by Mary Assadi with notes added by me.  You should definitely consult a realtor and learn more about the process:
 
1.  Initial consultation and market education:  This is where you meet with your realtor to discuss what you're looking for and for your realtor to educate you about the real estate market you'll be dealing with.  A good realtor tries to find out what you want and what your lifestyle is and then tries to find houses to fit you, not the other way around.  And no good realtor should try to talk you into a house you cannot afford.  (The old rule of thumb I'd always heard was that your home should not cost more than 2-3 times your gross annual income, but that may not always apply.)
 
2.  Loan prequalification or preapproval:  Prequalification is when your banker or mortgage broker reviews your credit, income and assets and determines how large a mortgage they think you would qualify for.  Preapproval is when the banker or mortgage broker actually commits to you that you are approved for a certain amount of a mortgage.  I would highly suggested getting preapproved instead of prequalified so you don't waste the realtor's time.  With preapproval, you can lock in a mortgage rate for a certain number of days to allow you to find a home.
 
3.  Viewing property
 
4.  Finding a home and submitting an offer.  This is where you need to engage and trust your realtor.  There can be some strategy to submitting an offer, especially if you are competing with other buyers.  Your realtor's experience will be crucial to helping you put in an offer that stands out from all the others.
 
5.  Negotiating terms.  Your seller may reject your offer and provide a counteroffer.  Negotiating the terms of the offer is an area of expertise for your realtor.
 
6.  Accepted Offer!  Yay!  Now, the transaction enters three separate tracks that lead to closing, e.g., when you sign the loan documents.
 
a.  Inspections, disclosures, and contingencies
i. Schedule home inspection and review seller's disclosures of defects or things that need repair.
ii. Have home inspection and, if necessary, request that the seller make repairs before the transaction can go forward. 
iii.  Remove contingencies, e.g., conditions that need to be met in order for the buyer and/or seller to agree to the sale, such as requests for repair.
 
b. Escrow and Title
i.  Open an escrow account and have earnest money deposited.  An escrow account is an account controlled by a neutral third party, typically an escrow or title company, into which money for the sale of the house is deposited and held until all the contingencies are met.  Earnest money is money you pay to show that you are serious about the transaction, and it is credited against the total price of the house.
ii. Get a preliminary title report and homeowners insurance information.  A title report shows all the times the house has been sold and who bought it.  It helps you know that the person who is selling you the house actually owns it.  The title report will also reveal if there are any liens against the property.  You will want all liens to be paid before closing.
 
c.  Loan application
i.  Submit a formal loan application and collect documentation for the loan.  You will need bank statements, income tax returns, and all kinds of documents in order to qualify for a mortgage.
ii.  Order appraisal; loan package submitted to underwriter.  The bank will order an appraisal of the house to make sure it's worth what you're paying for it and worth the mortgage they're going to give you for it.  Your loan application, once completed with all the proper documentation, will be sent by your banker or mortgage broker to their underwriting department, who will determine whether you qualify for the loan or if they have additional questions you need to answer in order to get the loan.
iii.  Loan approval and responding to conditions:  Your mortgage loan may be approved, but with conditions, e.g., explaining where you got your earnest money from, explaining things on your credit report.  Once your respond to the underwriter's conditions in a way that satisfies the underwriter, you get your mortgage loan.
 
7.  Sign loan documents at title company and provide a cashier's check for the required closing funds, also called "closing."  Your closing costs may include fees related to the cost of escrow, the title search, the inspection, etc.  You should get a Good Faith Estimate (GFE) in advance of signing the loan documents so you know how much of your own money you need to have in cashier's check at the time.
 
8.  Lender funds the loan.  Once you've signed all the loan documents and paid all the closing costs, the lender pays the amount of the mortgage loan to the buyer.
 
9.  Title is recorded in your name and confirmation is received.  Once the lender funds the loan, ownership, or "title," passes from the seller to the buyer by recording "title" with the county assessor.  Once title is recorded, the house is officially yours.
 
10.  GET THE KEYS TO YOUR NEW HOME!
 
 
Here are some examples of types of mortgage loan programs, courtesy of Mary Assadi:
 
Conventional Loans
  •  20% down payment (no mortgage insurance)
  • 3-5% down payment (mortgage insurance w/lower debt to income ratio)
  • 3.875 interest rate (as of 5/4/12) for a 30-year fixed
  • 3.00% interest rate (as of 5/4/12) for a 15-year fixed
  • Impounds optional
FHA (Federal Housing Administration) Loan
  • 3.5% down payment (up front and monthly mortgage insurance)
  • 3.75% interest rate (as of 5/4/12) for a 30-year fixed.
  • Impounds required
CALHFA w/FHA
  • 1 % down payment (upfront and monthly mortgage insurance)
  • 3% down payment by CALHFA is a silent second mortgage on home (due upon sale with simple interest)
  • Higher credit scores required
  • Same interest rate on FHA loan for the first mortgage
HomePath
  • 3% down payment without mortgage insurance
  • Only available on Fannie Mae foreclosure properties
  • Interest rate usually 1 - 1.5% higher than available FHA rate

Resources

Mary Assadi http://maryassadi.com/
Eric Tyson and Ray Brown, "Home Buying Kit for Dummies "