Tag: refinance (Page 2 of 2)

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

May 4, 2019 / Tom Bonetto

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

April 8, 2019 / Tom Bonetto

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 2^nd 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.

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.

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.

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

April 9, 2018 / Tom Bonetto

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.

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!

Cash Out Refinances for Student Loans

July 31, 2017 / Tom Bonetto

Mortgage giant Fannie Mae has once again re-tooled some of their guidelines. This time it is regarding student loans and how they are treated in debt-to-income ratios for qualifying for a mortgage. This really is fantastic news.

It gets even better for homeowners who have student loans, as Fannie Mae is offering improved pricing on cash out refinances for paying off student loans.

The Big News

Effective immediately, Fannie Mae will waive the “loan level price adjustments” (LLPA), or rate increase adjustment, on cash-out refinances when student loan are being paid off. LLPA’s are intended to adjust for the “risk based” pricing and they directly impact mortgage rates.

Here’s a practical example: a cash out refinance with a loan to value of 80% and credit scores of 740 or higher, has a price adjustment of 0.875 points! This is typically factored into the cost of the rate. (you can click here for Fannie Mae’s LLPA matrix).

The lower your credit score, the higher the adjustment is because of the anticipated higher risk for the loan. Get this….if student loans are being paid off, the extra cost of the LLPA is waived!

The Specifics

In order to qualify for the new special student loan cash-out refinance, the following must take place:

at least one student loan must be paid off;
loan proceeds must be paid directly to the student loan servicers at closing;
only student loans that the borrower (home owner) is personally obligated are eligible;
student loan must be paid off in full with the proceeds from the refi. No partial payments are allowed;
property may not be listed for sale at the time of the transaction.

Homes in the California and Arizona area have appreciated at a solid rate over the last few years. Now may be a great opportunity to eliminate student loan debts…especially with the preferred lower mortgage rate! Please do contact me for more regarding this program.

What Is A Mortgage Refinance, In Simple English

July 6, 2016 / Tom Bonetto

Simply put, refinancing gives a homeowner access to a new mortgage loan which replaces its existing one. The best part is, the details of the new mortgage loan can be customized by the homeowner, including a new mortgage rate, loan length in years, and amount borrowed.

Refinances can be used to reduce a homeowner’s monthly mortgage payment; to take cash out for home improvements; and, to cancel mortgage insurance premiums, among other uses.

Source: The Mortgage Reports – Dan Green

To refinance your home means to replace your current mortgage loan with a new one. Refinances are common whether current rates are rising or falling; and you can get one here, as you are not limited to working with your current mortgage lender!

Some of the reasons homeowners do this include a desire to get a lower mortgage rate; to pay their home off more quickly; or, to use their home equity for paying credit cards or funding home improvement.

These loans typically close more quickly than a purchase mortgage loan and can require far less paperwork.

3 Types Of Refinance Mortgages

These mortgages come in three varieties — rate-and-term, cash-out, and cash-in. The refinance type that’s best for you will depend on your individual circumstance – and mortgage rates vary between the three types.

Rate-And-Term Refinance

In a rate-and-term refinance, the only terms of the new loan which differ from the original one are either the mortgage rate, the loan term, or both. The loan term is the length of the mortgage.

For example, in a rate-and-term refinance, a homeowner may refinance from a 30-year fixed rate mortgage into a 15-year fixed rate mortgage; or, may refinance from a 30-year fixed rate mortgage at 6 percent mortgage rate to a new, 30-year mortgage rate at 4 percent.

With a rate-and-term refinance, a refinancing homeowner may walk away from closing with some cash, but not more than $2,000 in cash.

“No cash out” refinance mortgages allow for closing costs to be added to the loan balance, so that the homeowner doesn’t have to pay costs out-of-pocket.

Most refinances are rate-and-term refinances — especially in a falling mortgage rate environment.

Cash-Out Refinance

In a cash-out refinance, the refinance mortgage may optionally feature a lower mortgage rate than the original home loan; or shorter loan term, such as moving from a 30-year mortgage to a 15-year mortgage.

However, the defining characteristic of a cash-out mortgage is an increase in the amount that’s borrowed.

With a cash-out refinance, the loan balance of the new mortgage exceeds than the original mortgage balance by five percent or more.

Because the homeowners only owes the original amount to the bank, the “extra” amount is paid as cash at closing, or, in the case of a debt consolidation refinance, directed to creditors such as credit card companies and student loan administrators.

Cash-out mortgages can also be used to consolidate first and second mortgages when the second mortgage was not taken at the time of purchase.

Cash-out mortgages represent more risk to a bank than a rate-and-term refinance mortgage and, as such, carry more strict approval standards.

For example, a cash-out refinance may be limited to a lower loan size as compared to a rate-and-term refinance; or, may require higher credit scores at the time of application.

Most mortgage lenders will limit the amount of “cash out” in a cash-out refinance mortgage to $250,000.

Cash-In Refinance

Cash-in refinance mortgages are the opposite of the cash-out refinance.

With a cash-in refinance, a refinancing homeowner brings cash to closing in order to pay down the loan balance and the amount owed to the bank.

The cash-in mortgage refinance may result in a lower mortgage rate, a shorter loan term, or both.

There are several reasons why homeowners opt for cash-in refinance mortgages.

The most common reason to do a cash-in refinance to get access to lower mortgage rates which are only available at lower loan-to-values. Refinance mortgage rates are often lower at 75% LTV, for example, as compared to 80% LTV.

Another common reason to cash-in refinance is to cancel mortgage insurance premium (MIP) payments. When you pay down your loan to 80% LTV or lower on a conventional loan, your mortgage insurance premiums are no longer due.

For more, see Dan’s full article here….