Category: Mortgage (Page 44 of 60)

The New Refinance Movement

November 12, 2017 / Tom Bonetto

Tapping into home equity by refinancing is more of a possibility today and becoming very popular for many borrowers.

As housing values across the country continue to steadily increase, homeowners now have access to a much larger source of equity.

With current mortgage rates low and home equity on the rise, many think it’s a perfect time to refinance your mortgage to save not only on your overall monthly payments, but your overall interest costs as well.

It’s really about managing the overall assets that you have in order to maximize the returns. Make sure you are working with the right mortgage lender to help in figuring out which product is best.

Cash-out refinance – what is it?

A mortgage refinance happens when the homeowner gets a new loan to replace the current mortgage. A cash-out refinance happens when the borrower refinances for more than the amount owed on their existing home loan. The borrower takes the difference in cash.

Home Equity is on the Rise

Since rising home values are returning lost equity to many homeowners, refinancing can make a good deal of sense with even a small difference in your interest rate. Homeowners now have options to do many things with the difference.

More home equity also means you won’t need to bring cash to the table to refinance. Furthermore, interest rates can be slightly lower when your loan-to-value ratio drops below 80 percent.

Here’s what many of my customers are doing with that equity:

Purchase a 2^nd Home or Investment Property (or a combination of both)
Home Improvement – upgrades to kitchen, roof, or pool
Consolidate higher interest debt
Eliminate Mortgage Insurance

Benefits of Cash-out Refinances

Free Up Cash – A cash-out refi is a way to access money you already have in an illiquid asset to pay off big bills such as college tuition, medical expenses, new business funding or home improvements. It often comes at a more attractive interest rate than those on unsecured personal loans, student loans or credit cards.

2^nd Home or Investment Property – many borrowers are utilizing the value of the cash in their home to purchase rental properties that cash flow better then the monthly payments of the new loan.

Improve your debt profile – Using a refinance to reduce or consolidate credit card debt is also a great reason for a cash-out refinance. We can look at the weighted average interest rate on a borrower’s credit cards and other liabilities to determine whether moving the debt to a mortgage will get them a lower rate. Some borrowers are saving thousands per month by consolidating their debt through their mortgage.

More stable rate – Many borrowers choose to do a cash-out refinance for home improvement projects because they want a steady interest rate instead of an adjustable rate that comes with home equity lines of credit, or HELOCs.

Tax deductions – Unlike credit card interest, mortgage interest payments are tax deductible. That means a cash-out refinance could reduce your taxable income and land you a bigger tax refund.

Reasons NOT to Refinance

Terms and costs – While you may get a lower interest rate than your current mortgage, your cash-out refi rate will be higher than a regular rate-and-term refinance at market rate. Even if your credit score is 800, you will pay a little bit more, usually an eighth of a percentage point higher, than a purchase mortgage. Generally, closing costs are added to the balance of the new loan, as well.

Paperwork headache – Borrowers need to gather many of the same documents they did when they first got their home loan. Lenders will generally require the past 2 years of tax returns, past 2 years of W-2 forms, 30 days’ worth of pay stubs, and possibly more, depending on your situation.

Enabling bad habits – If you’re doing a cash-out refinance to pay off credit card debt, you’re freeing up your credit limit. Avoid falling back into bad habits and running up your cards again.

The Bottom Line

A cash-out refinance can make sense if you can get a good interest rate on the new loan and have a good use for the money. But seeking a refinance to fund vacations or a new car isn’t a good idea, because you’ll have little to no return on your money.

On the other hand, using the money to purchase a rental property, fund a home renovation or consolidate debt can rebuild the equity you’re taking out or help you get in a better financial position. It would be my pleasure to see if this type of plan might be a good one for you.

Just remember that you’re using your home as collateral for a cash-out refinance — so it’s important to make payments on your new loan on time and in full.

Conquering Credit Trouble – A Case Study

November 7, 2017 / Tom Bonetto

There are some that are able to pay cash for a new home with savings or inheritance.

For the most of us, however, we need a mortgage to buy a home. The qualification process isn’t that intuitive (work with a reputable mortgage lender for that type of help) and qualification requires adequate income and a solid credit profile.

A few investors will approve borrowers with sub par credit, but there’s a limit to low they’re willing to go.

If you’ve been turned down for a mortgage due to credit problems, here’s some good news: You can make your credit better, and faster than you might think!

I’m linking here to an article from NerdWallet – and I highly recommend that you take a look!

The author spoke to three consumers who had credit problems, did their research and made their calls – and then were able to successfully buy homes. Here’s one of those success stories….

Credit Report Cleanup

At the beginning of the year, this potential borrower’s credit score was 535 and had more than $20,000 of debt. On top of that, he had multiple 3 of his accounts were delinquent accounts. The consumer had to stop the collectors and find a way out of debt.

First Step – CHECKING CREDIT

First off, the consumer made a plan. He visited annualcreditreport.com and collected his credit reports from all three bureaus. He then outlined each debt, the date each account went delinquent and the date the last payment had been made, his account numbers, the collection notices and any other pertinent details.

Second Step – VERIFYING DEBTS

Unfortunately, the cutomer hadn’t kept great records, but he saw some debts on his credit report that he didn’t recognize. So he took action.

“Next, I challenged every single item, ensuring that each collector could verify the debt and had the proper paperwork to validate their collection efforts,” he says. “This resulted in four or five items being dropped.”

Third Step – NEGOTIATING BALANCES

His next step was to reduce each verified debt. “I went bottom-up, calling each debt collector starting with the lowest value, making offers by telling them exactly how much I could budget as an offer to settle,” he says. He also asked each if it would remove the delinquent account from his credit report entirely. He says it’s not common for creditors to do this, but some did.

“Across the board, I settled for less than half of what I owed in every case,” he says.

Fourth Step – TRANSFORMING CREDIT

Last, the consumer began restoring his credit. He was taking college courses on a tuition reimbursement program, but he applied for a student loan anyway.

This helped him establish enough credit to qualify for a basic credit card.

He also began monitoring his score monthly and stuck to smart financial habits, such as paying his bills on time. About a year later, his credit score hit 640 — the minimum required for him to get an FHA loan at the time.

Just 26 months after beginning his efforts, his credit score skyrocketed from 535 to 733. Nowadays, it hovers around 800.

His words….“Through disputing, negotiatingg, settling and rebuilding, I was able to go from needing a large deposit for an apartment to buying a home of my own,”

“As rent continues to rise, this investment has paid off several times over, and I have built equity in the house itself. I couldn’t have done this without learning how to [restore] my credit.”

Conclusion

This borrower’s story can be of great hope to those who are intent on home ownership. As you can see, it took time and effort, but it really paid off for this particular buyer.

It would be my pleasure to help you through this process in and into a new home, as well!

Photo Credit: Cafe Credit via Flickr, under the Creative Commons License

The Mortgage Lenders That Are Changing Home Buying

October 30, 2017 / Tom Bonetto

If you’re looking for a mortgage, there’s one less reason to walk into a bank these days.

Alternative mortgage lenders — non-bank companies without customer deposits — have been transforming the mortgage industry.

The buyer-focused lender’s goal is to offer rate transparency, multiple options, and help coach the buyer through the home loan process quickly and efficiently.

Source: Nerdwallet and Hal Bundrick

The biggest banks, once major players in the $1.5 trillion mortgage industry, have backed away from a large portion of the business, citing low profit margins and high legal risks. It’s a result of the enhanced regulatory environment that followed the 2008 housing meltdown.

A number of new players jumped into the void — alternative lenders testing new business models and leveraging technology to improve the process of getting a home loan or refinance.

Online mortgage lenders seek to shorten the home loan process.
Marketplaces and brokers assist potential borrowers shopping for mortgages and the best interest rates
Non-bank lenders offer solutions to credit-challenged consumers.

Interestingly, the structure and capabilities of these alternative lenders vary widely.

Next Generation Mortgage Lenders Streamline the Process

Alternative lenders, for example, are online mortgage originators – and they are becoming more of a force in the industry. These next generation lenders strip away layers of delays built into the old system by using automated loan-decision algorithms, electronic document gathering and secure online communications.

The good lenders with an online presence offer another twist on the process. Some companies provide a concierge service, with advisors guiding you through the home loan selection process. It’s more of a hands-on process, in which the broker works closely with you and the lender to complete your loan package.

The most successful lenders also help teach and guide the borrower through the complex waters of the process.

Non-bank Alternative Lenders Can Actually Help Those with Less-than-Perfect Credit

In some ways, the mortgage industry is coming full circle, back to where it started. Wells Fargo, JPMorgan Chase, Bank of America and other huge lenders — battered by Justice Department fines, federal lawsuits and growing regulation as a result of the housing crisis — are shying away from mortgage lending, especially FHA loans, which have long catered to first-time homebuyers and borrowers with lower credit scores.

As more of the large, national banks move to lending only to the most-qualified borrowers, community home lenders are filling the void.

Non-bank lenders are much like the original mortgage bankers; many are locally owned and family-run businesses serving their hometowns. These smaller lenders often face fewer federal regulations and still welcome borrowers with less-than-perfect credit, and they have bolstered the FHA-backed lending that big banks have been avoiding.

You have more mortgage options than ever

Alternative mortgage lenders now account for almost half (45%) of all home loans, according to the Federal Reserve — the largest share in 20 years. These originators are transforming the mortgage loan process with faster approvals plus online application and document processing, and they are powering a more competitive market.

Choosing whether to go with a big bank or a direct lender is a personal choice, based on your comfort and familiarity with the home loan process and how much guidance and advice you prefer.

But it’s empowering to know that when it comes to financing a home, you have more options than ever. It would be my pleasure to help you when the time is right!

How to Beat a Cash Offer with a Financing Bid

October 23, 2017 / Tom Bonetto

Cash buyers always seem to have a leg up in the real estate game. Many are investors in the market looking for rental properties. They’ve unsettled the purchase market a bit by swooping in with cash offers and are giving families looking to buy homes via financing some stiff competition.

How can a loan-backed buyer separate themselves from multiple cash offers?

Interestingly, most of the homes these investors are snapping up are the ideal choices for first-time homebuyers. With that said, what possibilities are there for buyers looking to compete against all cash buyers?

Here are five things that I’ve seen help buyers win a loan-backed offer against an investor or cash buyer:

Make sure you have the right approval and right lender

A five-minute conversation with a lender that produces a generic pre-qualifying letter just won’t do in today’s market. Before you are even close to submitting that offer, have your loan pre-approved, contingent upon appraisal of the home’s value. Make sure you have an “fully TBD underwritten approval” – and have your agent relay this to the seller. You can find out about this here…

By doing this, you will be on the same level as cash buyers. The seller’s agent will see your approval ‘as good as cash.’

Work in close contact with your mortgage lender

As a buyer, take the time to know your lender well – and share your current situation honestly. Let them get to know you, too! Your lender is a super important part of this transaction, and as a quality partner will make sure you know exactly what you need to have to make a complete offer.

Have your lender reach out the seller’s agent

I’ve made many phone calls to selling agents (with the permission of the buyers, of course) to let them know the specifics about the borrowers and their qualifications. This phone call right after your offer can give the agent great peace-of-mind. It will bolster your position with the seller and let them know that your bid really is as good as cash.

Make sure your agent presents the seller with a clean contract

The last thing you want to give to the seller is a sloppy offer via the contract. It’s unprofessional and won’t represent you well. Not only that, it creates more work for the seller’s agent – which can and will be held against you. Look at it this way…if an agent is perplexed or slowed down by your contract offer, they’ll reject it and go on to the next one.

Offer slightly more than the listing price

One of the great things about your position as a financed buyer is that you can offer a bit more, and it won’t cost you all that much. For example, if you add $5,000 to your offer, it might cost you $5 to $15 more per month in your payment, depending on your interest rate. That might be a fantastic trade-off to get your dream home right now and separate you from that cash offer.

FHA Loans – Closing Costs and Down Payments

October 16, 2017 / Tom Bonetto

One of the reason FHA home loans are so popular is their low down payment requirement. As long as your credit score exceeds 599, you are eligible for 96.5 percent financing, with a 3.5 percent down payment.

The big question is….how much will your down payment and closing costs be?

Source: The Mortgage Reports – Gina Pogol

FHA Down Payment: Higher Is Better For Bad Credit

If your credit score is 600 or higher, your minimum down payment for FHA financing is 3.5 percent.

Keep in mind that being eligible for financing is not the same as being approved for financing. You can apply, but very few people with the minimum scores get approved for FHA home loans. So if your credit score is marginal, consider coming in with a higher-than-required down payment.

With that said, with credit scores over 640, buyers should generally be OK regarding credit and FHA loans.

Down Payment Gifts

With FHA homes loans, you can get your entire down payment as a gift from friends or family. Your employer, church or other approved organization may also gift you down payment funds.

Gift funds must come with no expectation of repayment. The loan applicant must show that the giver intends the funds to be a gift, that the giver has the money to give, that the money has been transferred to the applicant, and that the funds did not come from an unapproved source.

If you’re lucky enough to be getting a gifted down payment, you’ll need to do the following:

Get a signed “gift letter” from the giver, indicating the amount of the gift, and that it is a gift with no expectation of repayment.
Document the transfer of funds into your account — a deposit receipt or account statement is good.
Get a copy of the most recent statement from the giver’s account, showing that there was money to give you.

The reason for all this documentation is making sure that the gift does not come from the seller, real estate agent, or anyone else who would benefit from your home purchase.

Help From Sellers

As noted above, you can’t get a down payment gift or loan from the home seller, or anyone else who might benefit from the transaction. However, you can get help with your closing costs from a motivated seller.

FHA loans allow sellers to cover closing costs up to six percent of your purchase price. That can mean lender fees, property taxes, homeowners insurance, escrow fees, and title insurance.

Naturally, this kind of help from sellers is not really free. If you want six percent of the sales price in concessions, you’ll have to pay six percent more than the price the buyer is willing to accept.

That’s okay, as long as the property will appraise at the higher price.

FHA Closing Costs

Closing costs for FHA loans are about the same as they are for conventional loans, with a couple exceptions.

The FHA home appraisal is a little more complicated than the standard appraisal, and it often costs about $50 more.
FHA requires an upfront mortgage insurance premium (MIP) of 1.75 percent of your loan amount. However, most borrowers wrap that charge into their loan amount.

If you wrap your FHA insurance into your loan amount, your mortgage starting balance looks like this:

$200,000 purchase with 3.5% down = $193,000 loan with $7,000 down
Add 1.75 percent of $193,000 = $3,378
Total loan amount: $196,378

Note that you can wrap the FHA MIP into your new loan amount, but not your other closing costs. When you refinance, if you have enough equity, you can wrap all your costs into the new loan.

Help From Your Lender

If your seller isn’t interested in covering your closing costs, your lender might be. Here’s how that works.

There are many ways to price a mortgage. For instance, here’s what you might see on a rate sheet for a 30-year fixed mortgage:

The rates with negative numbers have what’s called rebate pricing. That’s money that can be rebated to the borrower and used for things like closing costs.

So if you have a $100,000 loan with a three percent rebate (the 4.125 percent rate in the chart above), you get $3,000 from the lender to cover your closing costs.

How can lenders do this? They do it by offering you a higher interest rate in exchange for an upfront payment now. So, you’d get 3.75 percent if you paid the normal closing costs, while 4.125 percent would get you a three percent rebate. If you only keep your loan for a few years, you can come out ahead with rebate pricing.

Contact me to find out more about FHA pricing and options – it would be my privilege to help!