Category: Mortgage (Page 50 of 60)

Smaller Down Payment Can Increase Your Rate of Return

February 20, 2017 / Tom Bonetto

As a homeowner, it is most likely that your home will be the largest asset on your personal balance sheet. For many, their home is worth more than all of their other assets and investments combined. What sort of down payment should a borrower put down to maximize their return?

“In this way, your home is both a shelter and an investment, and should be treated as such”, says Dan Green of The Mortgage Reports. In this way, when we view our home as investment, it can guide the decisions we make about our money, including that down payment.

Read more here from Dan at The Mortgage Reports.

The riskiest decision we can make when purchasing a new home? Making too big of a down payment.

A smaller down payment will increase your rate of return

The first reason why conservative investors should monitor their down payment size is that the down payment can limit your home’s return on investment.

Consider a home, which appreciates at the national average of near 5 percent.

Mr. Green uses the following analogy: “today, your home is worth $400,000. In a year, it’s worth $420,000. Irrespective of your downpayment, the home is worth twenty-thousand dollars more.”

That down payment affected your rate of return.

With 20% down on the home — $80,000 –your rate of return is 25%
With 3% down on the home — $12,000 — your rate of return is 167%

When you look at it in those terms, that’s a gigantic difference. With that said, you really should contact a qualified lender to find out more.

There’s another factor that we must consider, though. Buyers must also consider the higher mortgage rate plus mandatory private mortgage insurance (PMI) which accompanies a conventional 97% loan-to-value loan like this. Low-down payment loans can cost more each month.

Green continues, “assuming a 175 basis point (1.75%) bump from rate and PMI combined, then, and ignoring the homeowner’s tax-deductibility, we find that a low-down payment homeowner pays an extra $6,780 per year to live in its home.”

To that I say “So what?”

With three percent down, and making adjustment for rate and PMI, the rate of return on a low-down payment loan is still 280%.

The less you put down, then, the larger your potential return on investment.

Reasons for a Larger Down Payment

Remember, though, that these requirements are just the minimum. As a mortgage borrower, it’s your right to put down as much on a home as you like and, in some cases, it can make sense to put down more.

Purchasing a condominium with conventional loan is one such scenario.

Mortgage rates for condos are approximately 12.5 basis points (0.125%) lower for loans where the loan-to-value (LTV) is 75% or less.

Putting twenty-five percent down on a condo, therefore, gets you access to lower interest rates so, if you’re putting down twenty percent, consider an additional five, too — you’ll get a lower mortgage rate.

Making a larger down payment can shrink your costs with FHA loans, too.

Under the new FHA mortgage insurance rules, when you use a 30-year fixed rate FHA mortgage and make a down payment of 3.5 percent, your FHA mortgage insurance premium (MIP) is 0.85% annually.

However, when you increase your down payment to 5 percent, FHA MIP drops to 0.80%.

Increase Liquidity With A Home Equity Line Of Credit

For some home buyers, the thought of making a small down payment is non-starter — regardless of whether it’s “conservative”; it’s too uncomfortable to put down any less.

Thankfully, there’s a way to put twenty percent down on a home and maintain a bit of liquidity. It’s via a product called the Home Equity Line of Credit (HELOC).

A Home Equity Line of Credit is a mortgage which functions similar to a credit card:

There is a credit line maximum
You only pay interest on what you borrow
You borrow at any time using a debit card or checks

Also similar to a credit card is that you can borrow up or pay down at any time — managing your credit is entirely up to you.

HELOCs are often used as a safety measure; for financial planning.

For example, homeowners making a twenty percent down payment on a home will put an equity line in place to use in case of emergencies. The HELOC doesn’t cost money until you’ve borrowed against it so, in effect, it’s a “free” liquidity tool for homeowners who want it.

To get a home equity line of credit, ask your mortgage lender for a quote. HELOCs are generally available for homeowners whose combined loan-to-value is 90% or less.

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc

Mortgages for Foreign Nationals

February 13, 2017 / Tom Bonetto

Here’s an interesting observation from the National Association of Realtors – they estimate that 60% of homes purchased by international buyers were all-cash transactions, as opposed to just one-third of domestic sales.

Secondarily, did you know that many lenders are willing to extend credit to non-citizens – sometimes without a credit history in the United States? Non-citizens can even qualify for government-insured mortgages, which have the advantage of requiring low down payments.

One point to keep in mind is that the requirements for getting a home loan depend in large part on one’s residency status. Most borrowers tend to fall within one of the following groups:

Permanent residents with a green card (Form I-551)
Non-permanent residents with a valid work visa (E1, E2, H1B, H2A, H2B, H3, L1 and G1-G4)
“Foreign nationals,” whose primary residence is not in the U.S.

Source: Getting A Mortgage For Non U.S. Citizens | Investopedia

Target this important segment: Foreign Nationals & Non US Citizens

Lending to foreign nationals and non-US citizens is regulated under the Ability to Repay or QM laws – depending on the buyer and property type. But just because the buyer does not fulfill the conventional and FHA guidelines does not mean they can’t obtain approval for a mortgage.

Non-QM products are a great option in this situation. These products certainly have different guidelines and interest rates compared to conforming loans. But remember, you are dealing with a very different buyer as well. These buyers understand and expect different guidelines. The agents who are successful in this niche understand these mortgage products and develop specific marketing goals to grow this lucrative segment.

In many cases, approvals are not difficult – and here are a few notes for some foreign national specific mortgages:

Up to 75% LTV
No US Credit required
12 months reserves required
Loans up to $750,000
DTI up to 50% considered
7/1 ARM and 30-year options available

The point is this – these Foreign National loans allow any reasonably qualified buyer access to capital for purchasing the home of their dreams. Serious agents and lenders must have command of these mortgage products.

Knowing Your Options

Having command of these products also includes marketing strategies focused on serving the needs of these important buyers. I spend a lot of time working with real estate agents talking about various marketing tools, product education, and compliant co-branded marketing strategies designed to grow our business. Please feel free to call, email, or text anytime if you would like to discuss some of these strategies as well.

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

Don’t Fear Multiple Credit Inquiries When Mortgage Shopping

February 6, 2017 / Tom Bonetto

Can a borrower have multiple credit inquiries without hurting their FICO score?

This question regarding credit inquiries is one that I receive all the time from borrowers and agents alike. Rightfully so, the borrower should be able to shop lenders for the best available rates and services. FICO scores play a big role in borrower’s ability to secure affordable financing. Too many hard credit pulls lowers credit scores. It is certainly a logical question – how does a borrower shop lenders when each lender needs a credit pull in their name?

Actually, there are laws in place to protect the consumer who wants to shop around for the best mortgage rate.

Credit bureaus don’t ding you for “too many credit inquiries” when you shop for a mortgage.

Source: Don’t Fear Multiple Credit Inquiries When Mortgage Rate Shopping | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

The good news is this. A borrower can pull a tri-merge credit report multiple times in the same 45-day period. Click on the article above for more details. Rest assured, you have the ability to have multiple lenders pull your credit so you can shop for the best financing for your personal situation.

According to the Consumer Federal Protection Bureau (CFPB), the impact on your credit is the same regardless of the number of inquiries, as long as the inquiries are made by mortgage brokers or lenders within a 45-day window.

However, it’s important to note that some companies are still using older FICO models. These older FICO models allow for just 14 days for multiple inquires to have the impact of just one.

For this reason, a good rule of thumb is to try to limit your credit pulls for rate shopping to two weeks.

Seeking too much credit in a short period does, however, drag down your credit score. A lower credit score typically means a higher interest rate, and a harder time getting a mortgage.

For most people, though, a credit inquiry affects their credit scores by less than 5 points.

As always make sure you get the best advice possible from qualified real estate professionals, lenders, and financial advisors.

“Your Home Is A Better Investment Than Bonds” – US News

January 30, 2017 / Tom Bonetto

Believe it or not, there’s a nice way to measure the “investment value” of your home – and you can do it via the bond market. Jeff Brown from US News and World Report has written an interesting piece on how to quantify your home as an investment – and it’ really worth the read!

Find out more from Jeff Brown at US News and World Report here…

Many homeowners look upon their homes as a valuable asset they can utilize for retirement through downsizing or a loan. They count on building equity in the traditional way, by paying off the debt month-after-month and enjoying some price appreciation.

“There’s another option: making extra principal payments on the mortgage to reduce the debt faster. Every dollar used to pay down the loan earns a “yield” equal to the loan rate, since it saves you from having to pay that amount of interest.” – Jeff Brown, US News and World Report

“If your loan charges 4 percent, prepayments earn 4 percent, a lot more than you’d get in bank savings or a 10-year Treasury note, now yielding a paltry 1.8 percent.”

“A very conservative investor who is averse to debt may find paying off his or her mortgage is the right choice,” says Eric Meermann, a planner with Palisades Hudson Financial Group in Scarsdale, New York. “If the alternative is sticking your money in a money market or savings account, you’re better off paying (the mortgage off) early.”

Brown uses the example of a homeowner with a $300,000 mortgage for 30 years at 4 percent would pay $1,432 a month in principal and interest.

By adding about $150 a month in prepayments, the loan could be paid off five years early, reducing total interest charges by about $40,500. Without the prepayments, the homeowner would still owe nearly $78,000 after 25 years.

With that said, although today’s bond yields make mortgage prepayments appealing, stocks returns could beat prepayment yields substantially. Index funds tracking the Standard & Poor’s 500 index are up nearly 8 percent this year, and averaged 6.7 percent a year over the past decade.

That’s generally much better than you’re likely to do with a mortgage prepayment.

While Americans have traditionally thought of the home as a rock-solid investment, many homeowners suffered deeply from the home-price plunge in the Great Recession, when millions ended up owing more than their home was worth.

So you can lose money investing in your home, though there’s less chance of ending up underwater if prepayments have trimmed the debt.

In most of the country, housing markets are a lot stronger than they were in the years after the financial crisis. But although a nationwide price collapse is very rare, they do occur here and there from time to time, so assess your local market before committing more money to your home.

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc

FHA Appraisals and Inspections

January 23, 2017 / Tom Bonetto

Appraisals are used by lenders to determine a property’s value to protect their own interest and the homebuyer’s investment. Interestingly, there are different types of home appraisals based on the type of financing used for the home, including conventional mortgage loan appraisals and Federal Housing Administration (FHA) appraisals.

If you are planning to use an FHA loan to buy a house, the property will have to be appraised by a HUD-approved home appraiser. This individual will determine the current market value of the property, and will also inspect it to ensure it meets HUD’s minimum property standards.

Conventional Mortgage Appraisals

Mortgage loans issued by private lenders like banks and credit unions are called “conventional loans”. The appraisals used for conventional mortgages are typically focused on the value of the home and property being appraised. Conventional mortgage appraisals use one of three valuation methods to determine a point of value.

During this process, the appraiser will look at comparable properties that have sold recently, in the same area as the one being purchased. They will also visit the “subject property” and evaluate it both inside and out. After this review process, the appraiser will write a report to detail his findings. It will include an estimated value of the home, as well as any required repairs.

The report will then be sent to the mortgage lender for review.

FHA Mortgage Appraisals

Because the FHA insures their mortgage on behalf of eligible borrowers, the FHA requires their home appraisal address certain factors of the home before granting financing. While the FHA orders an appraisal to protect their investment, the basic concept of these appraisals is that everything in the home functions as intended. For example, windows should close tightly and doors should lock properly.

FHA appraisals aim to ensure the home the FHA is insuring is safe and secure for its occupants.

When an FHA loan is being used, the appraiser has two objectives. The Department of Housing and Urban Development (HUD) requires the current market value be determined, as with any appraisal. But they also require a property inspection to make sure the home meets HUD’s minimum standards for health and safety. That’s what makes the FHA appraisal process unique.

Overview of FHA Appraisal Guidelines

According to the 2016 FHA appraisal guidelines, a licensed, HUD-approved home appraiser must appraise all properties being purchased with an FHA-insured mortgage loan.

At a minimum, the appraiser must complete the following steps:

Visually inspect the subject property both inside and out.
Take photos of the property to be included within the loan file. The photos must show the sides, front and rear of the home, as well as any value-adding improvements such as a pool or patio.
Take a photo of each comparable sale transaction that is being used to support the appraisal.
Obtain and provide a copy of a street map that shows the location of the property and each comparable sale used during the valuation.
Take photos that show the grade of the lot, if it’s a proposed construction.

What does an FHA Appraiser Looks for During an Inspection?

Certain things will be noted in an FHA appraisal, but due to the unique characteristics of each individual home, certain items may be subjective to the appraiser’s opinion. In general, FHA appraisals are meant to determine if everything is in working order, if there are any issues that present a safety or health concern, and if there are any issues that would affect the marketability of the home.

Here is a comprehensive list of what an FHA appraiser generally inspects during the appraisal of the home:

Utilities must be turned on to test the systems and appliances for functionality
Proper drainage must be found around the perimeter of the home
Active termite infections must be addressed and cured
Windows must open and close with no broken panes
No chipping, peeling or flaking paint on homes built before 1978 for danger of lead-based paint
No defective paint or bare wood for homes built after 1978
No dangling wires from missing fixtures
Smoke and carbon monoxide detectors must be present and meet local ordinances
Adequate water pressure and testing of both hot and cold water
Water heater must be in working order and meet local code requirements
Attic must have appropriate venting, no damage, no exposed or frayed wires, or sunlight beaming through
Crawlspaces must have no signs of standing water or foundation issues
Electrical outlets must be in working condition with appropriate cover plates
Firewall from the garage to the home should be intact
Roof should not be leaking and must have at least two years of economic life left. The FHA will not accept roofs with over three layers of existing roofing.

Making Repairs After the Inspection

There’s a common misconception that FHA appraisals are unnecessarily strict, and that any inspection “hits” will end your chances of getting a loan. This is incorrect, as most discrepancies are fully correctable. If they are corrected before the final inspection (when the appraiser follows up on the original list), the loan can still move forward.

In most cases, the only real issues that would prevent a closed sale are serious safety issues that cannot easily be corrected. An example would be a bedroom with no windows or doors, and therefore no egress in the event of a fire. Another example would be an older home with a deteriorated roof and holes in the floor. In both of these cases, the discrepancies create hazardous conditions and most likely cannot be quickly fixed.

In most cases, however, discrepancies can be resolved fairly easily — if the seller is willing to fix them. If the items are repaired or corrected to the appraiser’s satisfaction, the sale can move forward.

FHA standards are quite firm, but there may be instances when the appraiser must use their best individual judgment in how the spirit of FHA might apply. A home can also be rejected if the site is subject to hazards, environmental contaminants, or excessive noxious odors or noises affecting the safety and livability of the property.