A home is a good investment, but a nest egg is important too.
By MONICA BOND
VINDICATOR TRUMBULL STAFF
YOUNGSTOWN -- Owning a home provides a sense of stability in an unstable world, a financial planner told those attending the sixth annual Ohio Women and Money conference at Youngstown State University.
Jill Gianola, owner of Gianola Financial Planning, LLC, of Columbus and Yellow Springs, spoke about homeownership, one of nine topics at the conference Friday, hosted by the Ohio Treasurer's Office.
The state offers continuing financial education for women; the information offered through these seminars help women take control of their financial future.
Gianola, a certified financial planner, reviewed basic steps for making a wise investment when buying a home.
Check your credit
The first thing every person should do, Gianola said, is check her credit report and credit score. Ohio residents are now able to get free reports from all three credit report agencies, but must still pay for their credit score.
"The type of mortgage you'll get depends on your credit score," she said.
Every person should figure out how much they can afford to put into a house, because "mortgage companies may qualify you for a loan you can't afford," she said.
She encouraged people to research many houses thoroughly -- she recommended about a dozen -- before deciding to buy. She suggested researching schools, neighborhoods and commuting time.
A tip for finding an affordable home is to look for a "diamond in the rough," Gianola said; "sweat equity" can often make a dream home out of an inexpensive house with a few cans of paint and some new carpet.
"When it comes to houses, research pays off," she said.
A person should also figure out where they will get the money for a down payment; 20 percent of the cost of the home is typical, Gianola said.
Down payment options
There are several options for the down payment. If a person cannot come up with the cash, there is a so-called piggyback loan; one loan is for the mortgage, and another loan, paid off faster and with a higher interest rate, is for the down payment.
"The point is to get into a house sooner, rather than later," she said.
When buying a home, a person should make sure they have an emergency fund set aside specifically for their home.
"The emergency fund should be about two or three months of your mortgage payment," she said.
In addition, Gianola said, about 1 percent of the cost of the house should be earmarked for maintenance each year.
Finally, make a reasonable offer and be willing to negotiate.
Gianola offered some figures to help guide financial decisions when buying a house: Principal, interest, taxes and insurance should not exceed 28 percent of gross income; the loan should be about 2 1/2 times annual income; all debt payments -- credit card, student loans, car loans, and mortgage -- should not exceed 36 percent of income.
A home is also a good investment and a way to build equity, as the mortgage is paid down while the home value goes up, Gianola said. Interest payments can be deducted from taxable income.
Gain from selling a house can be deducted from taxable income up to $250,000 for a single person or $500,000 for a married couple, if someone has owned the house and lived in it as their principal residence for two of the past five years.
"A house is the one part of your investments that actually does better in inflation times," she said.
Other topics were budgeting, credit and debt management, estate planning, identity theft, insurance, kids and money, investments and retirement planning.