The Lending Coach

Coaching and teaching - many through the mortgage process and others on the field

Category: Refinance (page 2 of 9)

Delayed Financing – A Great Purchase and Financing Option

Paying cash for a house has its advantages. Purchasing with cash rather than getting a mortgage could help you as the buyer win a bidding war when buying a new home. You may even be able to negotiate a lower price on the home if you’re paying cash.

After all, cash in hand is a sure thing, and a mortgage approval can take some time and isn’t always guaranteed.

Delayed financing is a specific program that allows the buyer to take cash out on a property immediately in order to cover the purchase price and closing costs for a property they had just purchased with cash.

How Delayed Financing Works

Delayed financing is a mortgage that is originated on a property after you already own it, in comparison to a typical mortgage that is used for the acquisition of a property. The delayed financing mortgage option allow buyers to compete with all-cash buyers when purchasing the property. 

By financing the property after the initial cash transaction, the borrower/buyer is able to regain their liquidity because the money isn’t tied up in the house after the delayed financing is completed.

Keep in mind that the value of the property might not the same as the purchase price. Borrowers will need an appraisal done by their new lender to determine the value.  Moreover, your new loan can’t be more than what you paid for the property plus your closing costs and lender fees.

Why Delayed Financing?

Delayed financing is generally helpful for:

  • Investors who want to compete with all-cash buyers’ short timelines
  • Investors who want to have more bargaining power because they’re paying with cash
  • A property that has multiple offers and the seller doesn’t want to wait on financing
  • Investment properties, vacation homes, and primary residences
  • An investor who wants to take their cash out and buy another investment property

The primary reason to utilize delayed financing is that buyers can stay liquid. Investors use delayed financing to recover their cash and be able to purchase another property.

Generally, delayed financing is right for an investor who wants to take advantage of all of the benefits of purchasing a home using all cash. They can often negotiate a lower price, close faster and compete with multiple other buyers. An investor who doesn’t immediately qualify for conventional financing may also opt for delayed financing.

An Investor’s Point of View

In this case, the buyer is an investor and purchases a property using all cash.  The buyer then wants to free-up some cash back to buy another property.

The buyer can then delayed financing to recoup the cash and take a loan out on the new property, utilizing the cash back from the initial transaction!

A Primary Occupancy Borrower’s Point of View

The buyer can also use this option to compete with all-cash buyers and negotiate better terms. Delayed financing can be done as quickly as three weeks after purchasing the property, which is different from a standard “cash-out refinance” transaction, where the borrower must wait six or more months.

How Long Do You Have to Wait to Refinance?

If you’re doing a delayed financing transaction on a property you purchased in the last 6 months, you’re allowed to take cash out immediately without any waiting period.

Under normal circumstances, if you bought a home with a mortgage instead of cash, you have to be on the title at least 6 months before you can take cash out and refinance your home, so delayed financing is a notable exception.

Delayed Financing Qualifications

There are certain qualifications that need to be met in order to qualify for a delayed financing transaction.  Most specifically, the property must have been originally purchased using all cash.

Lenders generally have the following qualifications for this type of transaction:

  • Arm’s Length Transaction: You can’t be related to or have a personal relationship with the seller
  • Closing Documents: Closing statement from the property purchase
  • Proof of Funds: Showing where you got the funds to purchase the property
  • New loan amount can be no more than the actual documented amount of the borrower’s initial investment in purchasing the property plus closing costs.
  • Appraisal: Ordered by the lender and paid for by you, generally $500-plus

There can be more needed and other regulations may apply, but these listed above are most standard.

Although you may have just ordered an appraisal when you originally purchased the property, as mentioned previously, the lender will want to conduct their own appraisal before they approve your loan.

It would be my pleasure to help any borrower with a delayed financing transaction, so don’t hesitate to reach out to me for more information or to get started!

How to use a cash-out refinance to purchase another home

Photo courtesy gotcredit.com

I work with a fair amount of second home buyers and investors – and am asked how to best go about financing these properties (and second homes), as well as their required down payments.

I recently ran across this article from Peter Miller at The Mortgage Reports – and it’s a great read for those looking to tap into home equity to purchase another home.

I’d invite you to read the full article here – and I’ll mention a few key highlights:

How much equity do you have?

At first, it may seem that the equity issue is simple. You bought a house for $150,000 and it’s now worth $275,000.

You’ve paid down principal, too, so your current equity is $190,000.

Can you really get a check for almost $190,000 from lenders?

Lenders generally will allow cash-out refinancing equal to 80 percent of your equity. They will see a property value of $275,000 and subtract 20 percent ($55,000). That will leave around $220,000. This money will be used to first repay the existing loan of $85,000. The balance – $135,000 – represents the cash available to the borrower.

With some program, you might do better. The VA cash out mortgage allows qualified borrowers to refinance up to 100 percent of their equity while the FHA cash out loan will go to 85 percent. However, these programs come with various charges and insurance costs that many borrowers with equity will want to avoid.

Cash-out refinance to buy another home

With cash-out refinancing, you can use the equity in your home for many things — but not for all things. For instance, you can use the money to pay for college tuition, to purchase a business, or buy another property.

Buying a second home or investment property

In terms of real estate, you can use real estate equity to immediately buy a second home or to purchase an investment property.

As soon as you close the cash-out refi, you can use those funds as a down payment on another home — or to buy the house outright — if you plan to keep the current home as your primary residence.

How to Go About a Refinance

Reach out to your lender to begin the application process.  He or she should be able to coach you through the process – and identify the key pieces that will help you make an informed decision.

I’ve helped numerous investors with this process, and I’d be glad to see if this option might work for you, as well!  Give me a call for more….

It’s Time To Seriously Consider a Refinance

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

As interest rates have moved lower in the last 3 weeks and housing values across the country continue to steadily increase, homeowners now have access to a much larger source of equity and possibly better payment terms!

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.

What is a Cash-Out Refinance?

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.

Rates Are Down and Home Equity is Up

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:

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

Benefits of Cash-out Refinances

Free Up Cash – A cash-out refinance is a way to access money you already have in your home 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.

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.

2nd 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.

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 refinance 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.

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. 

With that said, seeking a refinance to fund vacations or a new car might not be that great of an idea, because you’ll have little to no return on your money. 

It would be my pleasure to see if this type of plan might be a good one for you.

Refinance 101 – Now Is The Time To Estimate Your Monthly Savings

Featured Image: Jake Rustenhoven (gotcredit.com), Flickr

Tapping into home equity with a mortgage refinance is becoming very popular for many borrowers.

Many borrowers can now save hundreds, possibly thousands on their overall monthly payments by consolidating debt inside of a new mortgage.

As housing values across the country have appreciated nearly 35% over the last 5 years, homeowners now have access to a much larger source of equity.

With current mortgage rates still historically low and home equity on the rise, 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 – and take best advantage of today’s tax implications.

Improve Your Debt Profile

Using a refinance to reduce or consolidate other debt like credit cards, student loans, home-equity lines, and car payments is 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.

An Example

Let’s assume that you purchased your home 6 years ago (or longer) for $270,000 and you currently have a little less than $200,000 remaining on your existing mortgage.

Well, that home today may well be worth in excess of $350,000!

Even if you’ve refinanced since and have an interest rate in the 4% range, if you have any other sources of debt, a refinance will most likely result in a large monthly savings.

Debt List

Let’s assume you have a debt list that looks something like this – or a combination of similar liabilities:

A few credit cards, a car payment, and a student loan (or even a home-equity line of credit) can easily total nearly $50,000 overall and over $1,000 per month.  Many of the customers that work with me are in situations very similar to the one listed above.

New Payment and Monthly Savings

So, when you combine all of your liabilities into the mortgage, here’s what your new overall payment looks like:

Note that the monthly savings is nearly $900 per month!!

New Loan

Here’s what a new refinanced loan might look like:

Your loan amount has increased by about $50,000 – and your mortgage interest rate has also increase by over 1.25%. However, your OVERALL interest rate of all debt will most likely be similar to where you are today (assuming credit card debt is more like 15% or more). Also, you will only have one payment to manage – versus balancing multiple payments.

Better Options

Now, let’s do a little more math…

Let’s say you take that $900 in savings every month and apply it to the new mortgage:

That’s right – you would save $55,000 over the life of the loan and reduce your number of payments by 213! You would be turning your 30-year mortgage into a 12.25 year version.

The numbers are staggering.  One other thing to do would be to check with your CPA or financial advisor, as the interest on the new loan would most likely be tax deductible, whereas any home equity lines and credit card interest are generally not tax deductible.

Please do reach out to me right away and we can take a look at your current scenario to see if a refinance might be a good option for you, as it would be my privilege to help!

Homeowners See Biggest Equity Increase in 4 Years – Another Great Reason to Buy or Refinance

Rising home prices might be a little frustrating for would-be buyers right now.

But let’s take a look what’s happening for those who already own a home to see the true benefits of ownership. Home equity increases are being seen throughout the country – and this bodes well for the economy – and those who purchase or refinance a home in the coming months.

According to new data from CoreLogic, the average homeowner saw their home equity jump by more than $15,000 last year alone – the biggest increase since 2013.

Aly Yale at The Mortgage Reports has put together a fantastic piece – see the entire article here.

It Pays to Own Your Home

According to CoreLogic’s recent Home Equity Report, American homeowners saw a 12 percent year-over-year jump in equity from 2016 to 2017. Though the average homeowner gained $15K in equity for the year, in some states, it rose as high as $44,000.

Frank Nothaft, CoreLogic’s chief economist, credits rising home prices for the uptick in equity.

“Home price growth has been the primary driver of home equity wealth creation,” Nothaft said. “The average growth in home equity was more than $15,000 during 2017, the most in four years.”

Though increased equity certainly spells good news for existing homeowners, it also bodes well for the country’s economy at large.

“Because wealth gains spur additional consumer purchases, the rise in home equity wealth during 2017 should add more than $50 billion to U.S. consumer spending over the next two to three years,” Nothaft said.

What This Means For Today’s Buyers

Owning a house provides the owner with a valuable asset and financial stability. By purchasing a home, you’ll have an asset that, in most cases, will appreciate in value over time. A $200,000 home today should see an increase in value to $250,000, $300,000, or more—depending on how long you plan to live there and market conditions.

This makes your home one of the best investments you can make and a way to establish a financial foundation for future generations (aka your kids).

A home can be the ultimate nest egg, providing you with a great investment for retirement. The longer you own your home, the more it should eventually be worth.

As you get older, you can sell the home and use the proceeds to purchase or rent something smaller. Another option: Rent out the house to maintain a steady income stream so you can travel or use for other recreational activities.

Why Now?

Despite rising home prices, American housing is actually quite affordable – and now is really a good time to make that purchase.

According to the latest Real House Price Index from First American Title, today’s home buyers have “historically high levels of house-purchasing power.”

And though real home prices increased 5 percent over the year, they’re still 37.7 percent below their 2006 peak. They’re also more than 16 percent below 2000’s numbers.

Because mortgage rates are lower than historical averages, home-buying power is up. Find out more regarding home affordability here….

The Refinance Market

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.

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.  Find out more about the new refinance movement here…

It would be my privilege to help would-be-buyers or refinancers understand the current marketplace and the loan options that can help you own a part of the American dream!

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