Category: Refinance (Page 5 of 11)

April 2, 2018 / Tom Bonetto

That House Will Probably Cost More The Longer You Wait

Today’s potential home buyers have many questions about local real estate markets and how it relates to the purchase of a new home. The one I hear the most is:

‘Does it make sense to buy a house in now, or would it be better to wait until next year?’

Click on the video above to find out more,

Well, there are some things we just can’t predict with certainty, and that includes future housing costs….however,

most economists and forecasters agree that home values will likely continue to rise throughout 2018 and into 2019. Secondly, these same experts also predict that interest rates will continue to rise.

Houses Are INCREASING in Value and Are Getting More Expensive

As usual, it’s a story of supply and demand. There is a high level of demand for housing in cities across the country, but there’s not enough inventory to meet it. As a result, home buyers in who delay their purchases until 2019 will likely encounter higher housing costs.

According to Zillow, the real estate information company, the median home value for Arizona increased to over $233,000 – a year-over-year increase of 6.7%. In California, the median home value is over $465,000 – an increase of 8.8%. Looking forward, the company’s economists expect the median to rise by another nearly 5% over the next 12 months. This particular forecast projects into the first quarter of 2019.

Other forecasters have echoed this sentiment. There appears to be broad consensus that home values across the country will likely continue to rise over the coming months.

The Supply and Demand for Housing

It is the supply and demand imbalance that’s the primary factor in influencing home prices. So it’s vitally important for home buyers to understand these market conditions.

Most real estate markets, including California and Arizona are experiencing a supply shortage. Inventory is falling short of demand, and that puts upward pressure on home values.

Economists and housing analysts say that a balanced real estate market has somewhere around 5 to 6 months worth of supply. In both California and Arizona today, that figure is in the 2.5 to 3 month range. Clearly, these markets are much tighter than normal, from an inventory standpoint. This is true for other parts of the nation as well, where inventory levels are in the 4-month range.

Interest Rates

There has been a slow increase in interest rates since September of 2017 – and a quicker jump in the last few months. Bond markets haven’t seen pressures like this in over 4 years – and things are trending higher.

Many investors believe inflation is bound to tick up if the labor market continues to improve, and some market indicators suggest inflation expectations have been climbing in recent months.

This is a general reflection better economic data, rising energy prices and the passage of sweeping tax cuts. Many think could provide a further boost to the economy – giving consumers more money at their disposal.

If positive labor and economic news keep pouring out (as most analysts believe things will continue to improve), then the prospect of inflation will put pressure on bonds and interest rates.

The Federal Reserve has suggested that they will have 3 to 4 interest rate increases in 2018, and most experts see a .5% to 1% overall increase in mortgage rates this year.

In Conclusion

So, let’s take a look at our original question: Does it make sense to buy a home in 2018, or is it better to wait until 2019?

Current trends suggest that home buyers who delay their purchases until later this year or next will most likely encounter higher housing costs. All of these trends and forecasts make a good case for buying a home sooner rather than later. Please reach out to me for more, as it would be my privilege to help!

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.

Understanding Discount Points – A Primer

August 28, 2017 / Tom Bonetto

There is a fair amount of confusion from prospective buyers about mortgage “points”. What are they? Why do they exist?

Discount points are a one-time, upfront mortgage closing costs, which give a mortgage borrower access to “discounted” mortgage rates as compared to the market.

In general, one discount point paid at closing will lower your mortgage rate by 25 basis points (0.25%).

Do they help or hurt they buyer?

The answer, of course, is “it depends”.

Dan Green at The Mortgage Reports does a fantastic job in highlighting the definitions and costs/benefits of the paying points. You can find out more here….

By the way, the IRS considers discount points to be prepaid mortgage interest, so discount points can be tax-deductible.

What Are Mortgage Discount Points?

When your mortgage lender quotes you the interest rate, is typically quoted in two parts.

The first part is the mortgage rate itself, and the second part is the number of discount points required to get that rate.

You’ll notice that, in general, the higher the number of discount points you’re charged, the lower your mortgage rate quote will be.

Discount points are fees specifically used to buy-down your rate.

On the settlement statement, discount points are sometimes labeled “Discount Fee” or “Mortgage Rate Buydown”. Each discount point cost one percent of your loan size.

Assuming a loan size of $200,000, then, here are a few examples of how to calculate discount points for a mortgage loan.

1 discount point on a $200,000 loans costs $2,000
0.5 discount points on a $200,000 loan costs $1,000
0.25 discount points on a $200,000 loan costs $500

Discount points can be tax-deductible, depending on which deductions you can claim on your federal income taxes. Check with your tax preparer for the specifics.

How Discount Points Change Your Mortgage Rate

When discount points are paid, the lender collects a one-time fee at closing in exchange a lower mortgage rate to be honored for the life of the loan.

The reason a buyer would pay discount points is to get the mortgage rate reduction; and, how much of a mortgage rate break you get will vary by lender.

As a general rule, paying one discount point lowers a quoted mortgage rate by 25 basis points (0.25%). However, paying two discount points, however, will not always lower your rate by 50 basis points (0.50%), as you would expect.

Nor will paying three discount points necessarily lower your rate by 75 basis points (0.75%)

As outlined by Dan Green in his Mortgage Report article, here’s an example of how discount points may work on a $100,000 mortgage:

3.50% with 0 discount points. Monthly payment of $449.
3.25% with 1 discount point. Monthly payment of $435. Fee of $1,000.
3.00% with 2 discount points. Monthly payment of $422. Fee of $2,000.

You’ll note that when you pay discount points come, it costs at a cost, but it also generates real monthly savings.

In the above example, the mortgage applicant saves $14 per month for every $1,000 spent at closing. This creates a “breakeven point” of 71 months.

Says Green, “Every mortgage loan will have its own breakeven point on paying points. If you plan to stay in your home beyond the breakeven and — this is a key point — don’t think you’ll refinance before the breakeven hits, paying points may be a good idea.”

Otherwise, points can be waste.

“Negative” Discount Point Loans (Zero-Closing Cost)

Green highlights another helpful aspect of discount points is that lenders will often offer them “in reverse”.

“Instead of paying discount points in order to get access to lower mortgage rates, you can receive points from your lender and use those monies to pay for closing costs and fees associated with your home loan,” he says.

The technical term for reverse points is “rebate”.

Mortgage applicants can typically receive up to 5 points in rebate. However, the higher your rebate, the higher your mortgage rate.

Here is an example of how rebate points may work on a $100,000 mortgage:

3.50% with 0 discount points. Monthly payment of $449.
3.75% with 1 discount point. Monthly payment of $463. Credit of $1,000.
4.00% with 2 discount points. Monthly payment of $477. Credit of $2,000.

Homeowners can use rebates to pay for some, or all, of their loan closing costs. When you use rebate to pay for all of your closing costs, it’s known as a “zero-closing cost mortgage loan”.

When you do a zero-closing cost refinance, you can stay as liquid as possible with all of your cash in the bank.

Rebates can be good for refinances, too, as loan’s complete closing costs can be “waived”. This allows the homeowner to refinance without increasing its loan size.

When mortgage rates are falling, zero-closing cost mortgages are an excellent way to lower your rate without paying fees over and over again.

Please do reach out to me to find out more about how utilizing discount points can help you in your next transaction!

New Regulatory Changes Help More Borrowers Qualify

August 13, 2017 / Tom Bonetto

I have some good news for those looking to get a mortgage in the near future — as 20% of U.S. consumers could see their credit score increase this fall.

Credit Changes

The nation’s three major credit rating agencies, Equifax, TransUnion, and Experian, will drop tax liens and civil judgments from some consumers’ profiles if the information isn’t complete.

Because of the combination of these two dramatic changes, many potential borrowers that did not qualify for a home loan might now be eligible under these new regulations.

These credit bureaus will also be restricted from including medical debt collections. If the debt isn’t at least six-months old or if the medical debt was eventually paid by insurance, it can’t be listed.

The reason is that medical debts, unlike that of credit charges, are unplanned and doctors and hospitals have no standard formula for when they send unpaid debts to collection.

Debt-to-Income Changes

In addition to the FICO changes, mortgage titans Fannie Mae and Freddie Mac are allowing borrowers to have higher levels of debt and still qualify for a home loan. Both are raising their debt-to-income ratio limit to 50 percent of pretax income from 45 percent. That is designed to help those with high levels of student debt.

This move by the mortgage leaders will dramatically increase the number of people who will now be able to qualify for a home loan. Most industry experts agree that this is a welcomed and much needed change for millennials and first-time homebuyers.

If you have been considering a home purchase or refinance, now is a great time to take a look at it.

Contact me to find out if these changes might benefit you or someone you know!

Keys to a Fast Mortgage Approval – Have These 6 Items Ready

August 1, 2017 / Tom Bonetto

Before you get set to make that offer on your dream home, it’s vitally important to be qualified for that mortgage, if you will be financing the property.

With that in mind, there are a half-dozen necessary documents that you will need to prove your reliability to a mortgage lender.

Here are the documents you’ll want to make sure you have when the time comes for pre-qualification and approval.

Recent Paystubs

It can be more difficult to gain mortgage approval if you have inconsistent work history or are self-employed, so you’ll need to show 2 months of recent pay stubs to prove consistent employment.

Copy of Driver’s License and Social Security Card

Our underwriters will need to verify your identity against your credit report and other items.

Previous Tax Returns and/or W2s

In order to ensure the earnings information you’ve provided to the lender is correct, you’ll most likely need to provide your federal tax returns for the two years prior to your mortgage application. In addition, you may also be required to provide your W-2s as backup documentation.

Bank Statements

In order to identify where the down payment or closing costs are coming from, you’ll need to present bank or savings statements to show that you have the money necessary for the transaction. If you are planning on receiving a gift from parents or relatives for that down payment, you’ll need a letter to show where the funds are coming from and to show that the funds are, in fact, a gift.

Investment and Asset Statements

It’s certainly a good sign to the lender if you have a healthy balance in your checking and savings accounts, but you’ll also need to provide any statements for mutual funds and other investments. While they may not be necessary to prove financial soundness, they will help with approval if you have a lot of money saved.

A List Of Your Debts

This process might not be the most fun, but your lender will also want to know about any outstanding debts like auto loans, credit card payments or student loans. The majority will show on the credit report obtained by the lender, but don’t fail to tell your loan officer about all debt related issues.

The mortgage application and approval process isn’t easy, but it isn’t rocket science, either! Having the appropriate documentation and being upfront about your debts, you may be able to speed up the timeframe. If you’re currently looking at your mortgage options, don’t hesitate to contact me to find out more. It would be my pleasure to help!