Apr 5, 2023 | Real Estate
If you are a homeowner thinking about a significant home renovation, you have probably already considered your budget. As with any large project, you need to have the ability to pay the expected costs plus have a little bit extra set aside, just in case. The great news is that if you are a homeowner with a mortgage, you may qualify for cash-out refinancing, which can be a helpful way to leverage some of your home equity to cover renovation costs.
In today’s blog post we’ll explore the topic of cash-out refinancing and how this unique financial product can help to solve your budget woes.
What is Cash-Out Refinancing?
If you have never heard of it before, you are probably wondering exactly how cash-out refinancing works. In short, you refinance your existing mortgage into a new one while keeping the difference in cash. For example, if you have $100,000 left on your mortgage, but your home is worth $200,000, you might decide to refinance to $150,000. You will then be left with $50,000 in cash, which you can pull out to cover the cost of renovations or for other purposes.
Note that this is different from other forms of mortgage refinancing, which may or may not increase your total balance.
Some Of The Major Pros Of Cash-Out Refinancing
As you might imagine, there are significant pros to cash-out refinancing. If you decide to use the funds for renovation purposes, you are essentially using your mortgage to increase the value of your home. That is, of course, assuming you complete renovations which boost your home’s value!
Cash-out refinancing can also provide better or more stable interest rates than a loan or a home equity line of credit. This depends on a variety of circumstances, so be sure to check with your lender.
A Few Other Considerations To Keep In Mind
As with any financial product, there are some considerations to keep in mind. You may be extending the length of your mortgage, or refinancing to a different interest rate. You also can’t just walk in and sign for cash-out refinancing. There will be a process similar to the one that you went through when you got your current mortgage.
As you can see, cash-out refinancing is an excellent option for homeowners looking to use some of their home equity to finance other expenses. To learn more about this type of refinancing or to explore other mortgage options, contact us today.
Apr 4, 2023 | Real Estate
Several generations ago, lenders required home buyers to have a 20 percent down payment in order to get a mortgage. While there were a few options out there for people who couldn’t save this substantial amount, the reality was that for the majority of people, the 20 percent down was a requirement.
It was the way to show that you were financially responsible enough for homeownership. And it was a strong way that the banks felt secure in making a home loan.
Today, however, homebuyers have many options available to them as they shop for a new home, and those mortgage options mean that the 20 percent down payment is no longer as much of a requirement. For most buyers, especially those who do not have the equity of an existing home to help with their purchase, the 20 percent down payment is not even a possibility.
Yet for those who can do so, putting 20 percent down carries some benefits worth considering. Here is a closer look at when the large down payment makes sense, and what the potential drawbacks are that buyers should consider.
How The 20 Percent Down Payment Helps
When it is possible for the buyer to save enough, the 20 percent down payment does have some benefits that are worth considering. First, when you are able to save 20 percent, you can get a mortgage that has no private mortgage insurance or similar fees. Because lenders consider a borrower with less than 20 percent for the down payment to be higher risk, they charge additional fees to serve as insurance on these loans.
Putting 20 percent down also means you are borrowing less. Because every dollar you borrow will be charged interest, the less you borrow the lower your repayment costs should be over the life of the loan. If you have the ability to save 20 percent, this is a benefit worth considering.
The Drawbacks Of 20 Percent Down
While saving 20 percent does have some benefits, it also has drawbacks that you must also consider. First, 20 percent of a home loan is a significant amount of money. On a modestly priced $100,000 house, that means you have to save $20,000. For the average home buyer, this represents years of saving. And you could be giving up years of price appreciation on the home that you could have purchased earlier by using one of the other financing options.
Also, if you are putting all of that money down as your down payment, you may find yourself cash strapped for other home buying costs, like new furniture or closing costs on your mortgage. The Consumer Financial Protection Bureau warns that this can be a significant downside, especially for first-time buyers who have a lot of expenses as they make the move into their first homes.
Many people find themselves digging into their other investments, like their 401(k), to come up with the money for the down payment. When mortgage interest rates are low, this can be an unwise move. Paying a bit more in interest over the life of a mortgage is often better than creating a serious financial bind for your future needs. Digging into your retirement also means you are not getting that vital compounding interest.
Finally, saving 20 percent often means you can’t buy a home quite as quickly. Since home prices historically tend to rise, not fall, the longer you wait, the more you may spend on your home. If home prices rise by 5 percent a year, which is fairly standard, waiting two years to purchase the home means $10,000 in extra costs for a $100,000 home. The higher purchase price counters any savings you may have when you put down 20 percent.
Can You Buy With Less Than 20 Percent Down?
So can you buy a home with less than 20 percent down? The answer to that question is yes, and often it makes more financial sense to do so. In fact, according to Freddie Mac, 40 percent of homebuyers in today’s markets are making down payments of less than 10 percent. So if you are going to buy a home without saving the 20 percent, what are your options?
If you have strong credit, many lenders are still offering piggyback loans. These loans allow you to take out a smaller loan for part of your down payment, then a traditional loan for the rest of the purchase price. You may still need about 5 percent of your own money to put down on the purchase. Then you can work with your lender to borrow 15 percent with a smaller, and many times shorter-term loan, and the remainder with a conventional mortgage.
Down payment assistance is another option to consider. These programs, which are available through non-profit organizations or government-run programs, give homeowners a hand in coming up with the down payment they need to purchase the home.
Finally, consider the low down payment options that are out there. USDA loans, VA loans, FHA loans and similar loan products are designed for those with just a little bit to put down on the home. The FHA loan, for example, is a government-backed loan that requires just 3.5 percent down on the home.
Forbes indicates it is even possible to get a conventional loan with as little as 3 percent down. In some instances, like the USDA home loan program, you can even buy a home with no down payment.
While these home loans do have additional costs, like the funding fee for the VA loan or private mortgage insurance for conventional low down payment loans, they give you the ability to buy now without 20 percent down so you can start enjoying the benefits of homeownership sooner.
When buying a home, getting sound financial advice is always wise. Whether you choose to put down a large amount on your home or take advantage of these different loan options to buy with a smaller amount down, make sure you weigh your options before making your choice.
Mar 31, 2023 | Real Estate
If you plan on buying a house in the near future, there are a few mortgage options available. One potential option is called a VA loan. This is a loan that has been backed by the Department of Veterans Affairs, and it could provide you with some added flexibility that you can use to purchase a house. Is a VA loan right for you? There are a few points to keep in mind.
Who Qualifies For A VA Loan?
First, not everyone is able to access a VA loan. This is a loan that is generally only available to active members of the US military, veterans of the US military, and surviving spouses of service members. There are different service requirements that you need to meet before you can qualify for a VA loan, so if you have questions about your service record, consider reaching out to an expert who can clarify whether you meet the requirements.
What Are The Top Benefits Of A VA Loan?
There are a few reasons why you might want to take advantage of a VA loan. First, you don’t need to put any money down. You can take out a home loan for 0 percent down, making it easier to purchase the house of your dreams. Second, even though don’t put any money down, you don’t need to pay for mortgage insurance, helping you save money. While you can still put money down if you would like, there is no requirement for you to do so.
Overall, the closing costs tied to a VA loan are significantly lower, so you don’t have to worry about exorbitant fees at the closing table. Finally, if you decide to pay off the loan early, you should not have to worry about incurring a prepayment penalty.
Consider Applying For a VA Loan
There are a lot of unique requirements that you need to meet if you want to qualify for a VA loan, but it could help you buy a home without having to put anything down at all. You should partner with an expert who has experience navigating this situation. That way, you can find the best loan option to meet your needs.
Mar 30, 2023 | Real Estate
You just found your perfect home, and you feel like everything is right including the price. But, what could be wrong with your ideal home? Maybe, it is being sold as a short sale, and that could present a major challenge if you want to become be the eventual homeowner.
Short sales are different from other conventional real estate transactions since the property in question is usually listed at a price that is much lower than the amount of the outstanding mortgage debt.
Unlike a regular sale, the homeowner must obtain permission from the lender before proceeding with the transaction. Whether you are a veteran property buyer or a first-time home buyer, closing a deal on a short sale can be a challenging and stressful experience. We compiled the top three tips for buying a home in a short sale.
Consult a Short Sale Expert
First, you should consider getting help from a short sale expert who will help you identify homes that are being offered as short sales, help you determine a reasonable purchase price and also advise you on what to include in your offer to make it attractive to the seller.
Before you go for a particular short sale expert, ask them how many buyers they have helped purchase homes on short sales and how long they have been in business.
Good Deals Take Patience
Secondly, remember to be patient when engaging in a short sale deal. There is a high likelihood that most buyers will get impatient after several weeks of waiting and walk away from the deal leaving you in a strong position to negotiate.
If you understand that the initial offer on any short sale can take a long time before the lender accepts or rejects it, you will be in a better position to get a good deal since there will be no stiff competition. However, you should keep in mind that the lender might reject your offer.
Get a Full Loan Approval Early
Lastly, make sure that you get approved for a loan and not just pre-approved. Go through the trouble of getting approved if you want to stand a good chance of landing your dream home through a short sale.
Keep in mind that there will be multiple bids on the property and most of the prospective buyers will be pre-approved. Since you want to get the home at the best possible price below the market prices, being fully approved will make your offer stand out with the lender since you no longer face the risk of your financing falling apart at the last minute.
Entering into a short sale transaction will require patience and diligence. One of your best partners will be your trusted real estate professional.
Mar 29, 2023 | Real Estate
If you are getting ready to retire, you need to make sure you have income to support yourself during your golden years. One popular option is a reverse mortgage, and you can use it to supplement the benefits you receive through Social Security. On the other hand, you may have also heard about a home equity conversion mortgage. What are the differences between them, and which one is right for you?
A Reverse Mortgage
A reverse mortgage is a popular option because you can tap into the equity you have in your home to receive funds from a specific lender. In some cases, they will provide you with a single lump sum, but in other cases, they may provide you with monthly installments. You are not required to make any monthly mortgage payments, and you simply have to pay the money back when you sell your home. Your name will remain on the title of your home even as you tap into the equity to support your retirement. There are multiple types of reverse mortgages, and a home equity conversion mortgage is one popular option.
A Home Equity Conversion Mortgage
A home equity conversion mortgage is one specific type of reverse mortgage that is insured by the Federal Housing Administration. It provides you and your heirs with certain protection, and it is only available to borrowers who are 62 years of age or older. If you take out this type of reverse mortgage, you must use the funds to pay off any remaining balance you have on the original mortgage. Then, any funds that are left over will be provided to the homeowner. There are a number of factors that will dictate the amount of money you can receive. They include the age of the youngest borrower, the expected interest rate, and the national lending limit insured by the FHA.
Is This Option Right For You?
If you own your home outright, a reverse mortgage could be a great way for you to support yourself during retirement while also protecting any inheritance you passed down to your heirs. Consider reaching out to a professional who can help you decide if this is the right option to meet your needs.
Mar 23, 2023 | Real Estate
Right now, the real estate market is very competitive, and you might be tempted to use a few white lies to make your offer seem more competitive. No matter how much you want to purchase a home, you need to make sure you are completely honest and open when you go through the process from start to finish. What or a few examples of common white lies that people tell that could jeopardize your application or your mortgage as a whole?
Lying About Your Primary Residence
If you plan on living in the house full-time, make sure you say so. You might get a lower interest rate if you tell the lender you are going to use the house as your primary residence. On the other hand, if you plan on renting out the house, you need to be honest on the application. If you lie about living in the house, it could be considered mortgage fraud, which is a crime.
Not Disclosing The Source Of Your Assets
Lenders have a legal duty to make sure money laundering is not taking place. If the source of your down payment is coming from someone else, such as a parent, there is certainly nothing wrong with that. On the other hand, you need to be honest about where the money came from. If you look like you are hiding the source of your money, it will only make the application process more complicated.
Omitting Sources Of Debt
No matter how small you might think your debt might be, you need to disclose every single source. A few examples include student loans, car loans, and credit card debt. There is a detailed underwriting process that has to take place, and if your mortgage lender finds out that you lied on your application, they could deny your application outright, no matter how competitive you might be.
Be Honest When You Apply For A Mortgage
Lenders have a legal duty to review each application in full. Every question has a purpose, and you need to be honest when you answer them. If you need help applying for a mortgage, you should reach out to an expert who can help you put your application in the best position possible to be successful.
