The SCOOP! Blog by ChangeMyRate.com®

What is a primary residence? Plainly speaking, it’s the house or apartment that you call home. But your primary residence—sometimes referred to as your principal residence—also has important mortgage and tax implications, says Steve Albert, director of tax services at CPA wealth management firm Glass Jacobson.

Here are four crucial things you need to know about your primary residence.

What is a primary residence?

In a nutshell, a primary residence is the main home that a person inhabits. This can be a house, apartment, trailer, or houseboat where an individual, couple, or family live all or most of the year. It’s also the address that appears on an individual’s driver’s license, automobile registration, and voter registration card. And, in general, someone’s primary residence is the home that’s closest to a person’s employer.

You can have only one primary residence at a time.

Because your primary residence affects how much you'll have to pay come tax time, here's how the IRS defines a principal residence: “If a taxpayer alternates between two properties, using each as a residence for successive periods of time, the property that the taxpayer uses a majority of the time during the year ordinarily will be considered the taxpayer’s principal residence.”

How does my primary residence affect my annual taxes?

Some parts of your primary residence are tax-deductible, such as your mortgage interest, Albert says. Under the new tax plan, taxpayers can deduct mortgage interest on loans up to $750,0000 combined for both primary and secondary (vacation) homes. (The previous limit was $1 million.)

If you obtained a mortgage after 2006, you can also claim your mortgage insurance payments as part of the interest and deduct them. But to take advantage of these deductions, you’ll have to itemize your tax returns (on Form 1040) rather than taking the standard deduction—currently $6,300 for singles and $12,600 for married couples. Generally, the amount of money you can deduct in mortgage interest will exceed the amount you would receive by claiming the standard deduction.

How does my primary residence affect my capital gains taxes when I sell my home?

If you sell a home that you've held onto for more than a year before the sale, then you are taxed at the long-term capital gains rate. However, the rate varies based on your income tax bracket, says Albert. (The more money you make, the higher your tax rate will be.)

Moreover, you may qualify for a capital gains tax cut through the Primary Residence Exclusion. According to the IRS, when you sell your primary home you can exclude $250,000 of your profit from the sale of your home if you are single, or $500,000 if you’re filing taxes jointly as a married couple.

You're eligible for the exclusion if you have owned and used your home as your main home for at least two consecutive years out of the five years prior to its date of sale.

How does my primary residence affect my mortgage?

Generally, home buyers can qualify for better mortgage rates when borrowing money to buy their primary residence, since mortgage lenders are assuming less risk than when they finance a second mortgage.

Qualifying for a home loan is also easier when you’re buying your primary home because mortgage lenders require lower down payments than they do on second homes or investment properties. Also, a number of first-time home buyer programs are available only to people who are buying their primary home. For instance, the Federal Housing Administration and the Department of Veterans Affairs issue FHA and VA loans only for primary home purchases, or "owner-occupied homes."

Because of these mortgage benefits, you cannot declare a home as your primary residence if you plan to rent it out. Doing so would constitute as mortgage fraud, and if it's detected any time during the mortgage process, your loan will be declined and you will be out any funds you've already paid, such as the appraisal fee or your earnest money deposit, warns Casey Fleming, author and mortgage adviser at C2 Financial Corp.

If you're caught lying about your primary home later, your lender is likely to "call the loan," meaning the entire amount would be immediately due, forcing you to try to refinance or sell the home.Top of Form

Source: To view the original article click here

Posted by Jackie A. Graves, President on September 21st, 2018 3:37 PM

You’ve found the perfect house, located right near that cool new shopping area and the best schools. It even has the right number of bathrooms! Swoon. It's time to sign the paperwork and move in ... or is it?

Up until now, you’ve likely been blinded by the sparkling granite counters and the hardwood floors in every room. (Squee!) But before you blindly forge ahead, you'll want to get a home inspection—and before that, you'll want to check the house yourself for any red flags that might make an inspector tell you this particular piece of real estate could be more trouble than it's worth. Check out these warning signs —and what they may take to fix (brace yourself).

1. Sewer issues

What to look for: You don’t have to tell us twice that a sewer issue can quickly turn into a stinky situation. Standing water in the yard, signs of flooding in the basement, and heaved walkways are telltale signs of a blockage or break in the underground sewer line that connects to the sewer main in the front of a home, says Bill Erickson, real estate agent and national director of National Property Inspections.

The cost: Repairing sewer pipes can cost up to $100 a foot, says Erickson, citing a recent situation where a disconnected pipe resulted in an estimate for $10,000.

2. Faulty electrical system

What to look for: If the home that’s caught your eye was built before the ‘70s, you might have more than lingering shag carpet and wood paneling to worry about. Hazardous electrical wiring such as knob and tube wiringand aluminum branch circuit wiring are two of the biggest offenders that could put your home at risk of fire.

Numerous extension cords can be a big tipoff that your electrical system is stuck in the disco era, says Kathleen Kuhn, president of national home inspection franchise HouseMaster. Another sign is a lack of ground-fault circuit interrupter (GFCI) circuits near a water source, such as in the kitchen or bathroom. These are designed to protect you from electrical shock because they monitor electricity flowing in a circuit and sense a loss of current.

The cost: If you need to upgrade the electrical panel to make your system more efficient, expect to spend about $1,000 to $3,000, depending on your area and the size of the panel, Kuhn says. Each additional outlet will cost $150-plus each, she says. Rewiring the home will run about $10,000 and up.

3. Foundation cracks

What to look for: Don’t worry about every little hairline or corner crack, says Erickson, since for the most part they are caused by normal settling and are relatively easy to repair. But be aware of cracks that are a quarter-inch wide anywhere on the foundation or horizontal cracks, which generally result from hydrostatic pressure against the home’s foundation, says Kuhn.

In fact, this one is such a big deal that ”usually only flippers, developers, and people considering demolishing a house will consider a property with foundation damage,” says William Fastow, associate broker with TTR Sotheby’s International Realty in Washington, DC.

The cost: Foundation repairs can vary dramatically depending on the cause and remedy, but rarely is the repair under several thousand dollars, Kuhn says. A localized repair can possibly be achieved for as little as $1,500 to $5,000, but varying foundation types and significant or widespread issues can easily exceed $10,000, especially if excavation is needed.

4. Worn roofing

What to look for: The best way to confirm roof life is to go up on a ladder to check it out, of course, but there are ways you can speculate about a faulty roof by staying on solid ground.

“Water stains on the ceiling could indicate a leaky roof, and freshly painted ceilings could be a sign that the sellers are attempting to cover up the problem,” warns Erickson. Also look for excessive vegetation outside, which could be hiding roof damage, as well as curling, buckling, or missing shingles.

The cost: A new roof can range from $2,000 to $10,000 and up, Erickson says. You’ll want to note if it’s a single or double roof, as that will determine the cost. With a single layer of shingles, another can go right over the first layer; but if it’s a double layer, code requires both layers to be removed, leaving you to start from scratch.

5. Old pipes

What to look for: Turn on the faucet to see if the water pressure is low and to listen for gurgling: Either could indicate that your house has older galvanized piping or inadequate piping, Kuhn says. You also should check exposed pipes for signs of corrosion (e.g., discoloration and flaking).

If your house was built between 1978 and 1995, it might have polybutylene water supply pipes, which were part of a class-action lawsuit in the 2000s that found the pipes degrade and break down, causing leaks, says Scott Brown, owner of Brightside Home Inspections in Syracuse, NY.

“They will eventually fail, so homeowners risk flooding their home if they don’t replace these faulty pipes,” he warns.

The cost: Full replacement with a more modern product like PEX will cost $5,000 and up, or double that for copper pipes, Brown estimates.

Source: To view the original article click 
Posted by Jackie A. Graves, President on September 20th, 2018 2:54 PM

U.S. homeowners are sitting on record amounts of home equity, but they’re reluctant to tap it. If they did, though, they’re most likely to spend it on adding value to their homes, according to a new Bankrate.com survey.

Nearly three-quarters of homeowners say making home improvements or repairs is a good reason to withdraw cash from their home equity. Meanwhile, respondents cited other favorable uses for home equity, such as consolidating debt (44 percent); paying for tuition or other educational expenses (31 percent); keeping up with regular household bills (15 percent); and making other investments (12 percent).

Nine percent of homeowners said it was a good idea to use home equity to purchase big-ticket items like appliances or furniture. Just 3 percent cited vacationing and 1 percent said buying a boat were good uses for home equity. Fewer than 1 percent of homeowners said using home equity cash for plastic surgery was a good move.

Homeowners have shied away from using home equity loans or home equity lines of credit (HELOCs). But their growing penchant toward debt might make it tempting to tap into their home’s value, says Greg McBride, CFA, chief financial analyst for Bankrate.

Non-housing debt hit $3.86 trillion in the second quarter of 2018, a 4.3 percent increase over $3.7 trillion in the second quarter of last year, according to an analysis by the Center for Microeconomic Data at the Federal Reserve Bank of New York.

“With the sorry state of emergency savings and increasing levels of consumer debt in a rising interest rate environment,” McBride says, “it’s a matter of ‘when’ not ‘if’ more homeowners turn to home equity to fund home improvements and repairs, or consolidate debt.”

Views on tapping home equity to pay household bills show income divide

Lower-income households — those earning less than $30,000 a year — were almost twice as likely to view home equity as a viable way to keep up with their household bills as those earning $50,000 to $74,999. And when compared with the highest-earning households, lower wage earners were more than three times as likely to consider tapping home equity to pay household bills.

This result indicates that many households lack cash reserves to cover unexpected expenses, or even expected ones. A recent Federal Reserve report found that 44 percent of Americans couldn’t cover a $400 emergency expense out of their pocket.

“That nearly 1 in 6 Americans view ‘keeping up with regular household bills’ as an appropriate reason to borrow from home equity speaks to how far some households are stretched on a monthly basis,” McBride says.

Overall, though, respondents tended to agree on poor uses of home equity. Nearly half (45 percent) of homeowners cite plastic surgery as the worst reason to tap home equity, followed by 21 percent who believe buying a boat and 18 percent who say taking a vacation are the worst uses for home equity.

Homeowners are flush with home equity, but aren’t using it as much

Building wealth through homeownership has long been regarded as a smart financial move. And homeowners are swimming in home equity these days.

Among the homeowners Bankrate polled, the median home value is $250,000; 28 percent of homeowners said they owned their homes free and clear. Meanwhile, the median amount owed on mortgage balances is $146,000 — a loan-to-value ratio of 58 percent.

Looking at national data, homeowners aren’t rushing to use their equity. Tappable equity rose by $256 billion in the second quarter of 2018, pushing the total growth for the year to a record-high $636 billion, according to new data from Black Knight. The total amount of tappable equity exceeded $6 trillion by the end of the second quarter — the first time that’s happened in history — and is nearly three times higher than July 2012 when available equity hit rock-bottom.

Homeowners withdrew $65 billion in equity using cash-out refinances or HELOCs in the second quarter, which was a seasonally expected bump up from the first quarter. Year over year, though, home equity usage fell by more than 3 percent to 1.13 percent, the lowest share since the first quarter of 2014 when rates also climbed, Black Knight found. This means that during that period, 1.13 percent of all the home equity available was being actively drawn.

Rising interest rates and memories of the housing crash may have tempered homeowners’ desire to cash in. The average 30-year fixed mortgage rate jumped more than half a percentage point to 4.69 percent in the second quarter this year, up from 4.14 percent a year ago, according to Bankrate’s historical rate data. Meanwhile, the average HELOC rate surged 44 basis points to 5.88 percent from 5.44 percent over the same time period.

Things to consider before withdrawing your home equity

Your house isn’t an ATM, and withdrawing its equity can have financial consequences. Experts recommend caution and remember that you risk losing your home if you can’t repay a home equity loan or HELOC.

Here are some considerations McBride offers to help you determine when to use home equity or other sources of financing.

Home improvements or repairs: In general, using home equity to pay for home improvements that add value to your home can help you rebuild the equity you take out. Plus, the new tax law allows you to deduct the interest you pay on home equity loans and HELOCs if you finance improvements that add significant value to your home. You lose that tax perk if you tap your home equity for other reasons.

Debt consolidation: Map out a clear repayment plan, stick to a budget, and carry cash to avoid the temptation to charge. Without the discipline to accelerate debt repayment and to avoid running up credit card or other high-interest debt all over again, you’re just moving debt around and draining your net worth.

Tuition or other educational expenses: Before tapping home equity, pursue scholarships, grants, and work study. Next, max out any federal student loan options (with the student as the primary borrower). Federal student loans carry favorable terms that other borrowing options lack: deferment, forbearance, income-based repayment, and possible debt forgiveness.

Other investments: If you bought stocks with your home equity and they sink, your home is still at risk until you’ve repaid the loan in full. You may see higher returns in quality investments over time, but it’s worth consulting a professional to determine the risk and reward.

Big-ticket items: See if you qualify for same-as-cash or other deferred-interest financing programs, or credit cards offering 0 percent interest on purchases for extended periods. You’re generally better off with these shorter-term options than using home equity to splurge on furniture or appliances.

Using home equity — no matter the reason — requires self-control and a plan. It also requires tracking your budget closely.

“For a disciplined homeowner, using home equity to consolidate debt at a lower interest rate can be a savvy way to cut interest costs and accelerate debt repayment,” McBride says. “But for undisciplined homeowners, it ties up an asset that is put at further risk of foreclosure while the temptation to run up high-cost debt all over again proves difficult to resist.”

Survey methodology

The study was conducted online in GfK’s Omnibus using the web-enabled “KnowledgePanel,” a probability-based panel designed to be representative of the U.S. general population, not just the online population. The sample consists of 1,000 nationally representative interviews, 719 of which are homeowners, conducted between Sept. 7-9, 2018 among adults aged 18+. The margin of error is +/-3.7 percentage points.

Source: To view the original article click here

Posted by Jackie A. Graves, President on September 19th, 2018 5:59 PM

Getting “pre-qualified” today when preparing to buy a home is so 80’s. Getting pre-qualified then meant talking to a loan officer over the phone or in an office and having a conversation about various aspects of your financial life. The loan officer asks about your job, how long you’ve worked there and how much money you make. The loan officer asks about your general credit history, whether it’s excellent, good or maybe needs a little work.

 

What about other debt? What sort of monthly payments are you obligated to pay each month? The loan officer would then take that information, plug in current market rates (back in 1981 the average 30 year rate hovered around 17%. No, really) and give you an amount you can qualify for. Maybe even the loan officer typed up a prequalification letter you could carry around.

 

Not anymore. If all you have is a prequalification letter it’s possible your real estate agent will ask that you go back to your loan officer and get pre-approved. The terms do sound somewhat alike but sellers, lenders and real estate agents alike know the difference.

 

A preapproval ups the qualification game by verifying the conversation you had with your loan officer. Instead of a conversation over the phone, you’ll be asked to submit a completed loan application. The key word here is “complete.” Well, almost. You don’t have a property picked out yet so you’ll leave that part blank. What you can expect to provide is proof of your income instead of a conversation. This means the most recent copies of your pay check stubs. To make sure you’ve been working for at least two years, your W2 statements for the last two years will also be reviewed.

 

If you’re self-employed, you may not have pay check stubs. Regardless, you’ll need to provide your last two years of income tax returns, both personal and business.

 

In addition, a year-to-date profit and loss statement should also be prepared. This P&L doesn’t necessarily have to be completed by an accountant or otherwise certified, you can put one together on your own if you want.

 

Regarding your credit history, you’ll also be asked to sign a Borrower’s Authorization form which allows the lender to pull your credit report and credit scores. You’ll need funds for a down payment and closing costs so copies of recent bank statements must be at the ready.

 

In short, you need to get your preapproval application to the point where all you need is a property to buy along with a signed sales contract. Now, not only can you shop in confidence, but the sellers and the seller’s real estate agent can put you at the top of the list when considering your offer.

 

Today, absolutely everyone should be shopping for a home with a solid preapproval letter in hand. There’s no question about it.

 

Source: To view the original article click here

Posted by Jackie A. Graves, President on September 18th, 2018 9:02 AM

VA loans, for those eligible, are the ideal option when coming to the closing table with as little as possible is a primary goal. VA loans don’t require a down payment whatsoever and one of the few zero-down options in today’s mortgage marketplace. The VA loan program also carries with it an inherent guarantee to the lender should the loan go into default (which is rare for a VA loan.) The guarantee is 25% of the loss to the lender. This guarantee is financed by what is referred to as the Funding Fee and is rolled into the final loan amount. In addition, there is no additional monthly mortgage insurance payment that can be found on other low down payment programs.

 

But beyond all of these advantages, there is another that comes into play when someone decides to refinance an existing VA loan. Maybe rates have fallen or home owners want to switch from a hybrid to a fixed. With a refinance, either or both can be accomplished. When replacing an existing VA loan with a new one, borrowers can take advantage of the Interest Rate Reduction Refinance Loan, or IRRRL. However, most in the industry refer to this process as a VA “streamline” primarily due to the lack of documentation needed to approve and close the refinance request.

 

With a standard VA mortgage, borrowers are asked to provide evidence of employment and income for the past two years with either pay check stubs and W2s or income tax returns for those that are self-employed. While there is no need for a down payment there will be closing costs involved so lenders need to verify sufficient funds to close which is accomplished by providing copies of bank statements. To establish a final value, a new appraisal will be ordered. Yet with a VA streamline you can ignore all of this.

 

As long as the existing loan is a VA mortgage and replaced by a new VA loan the streamline is an option. The lender will verify there are no payments made within the past six months more than 30 days past the due date and no more than one such payment over the last twelve. There needs to be evidence the new rate is lower than the old one, the borrowers are switching to a shorter term or they are refinancing out of an adjustable rate loan or hybrid and into the stability of a fixed. VA guidelines simply think that if someone has made their payments on time for the last year at the old, higher rate than it makes sense they can continue to do so at a lower rate.

 

The VA loan comes with a lot of advantages that other loan programs simply do not have, and making available the streamline option is yet another one.

 

Source: To view the original article click here

Posted by Jackie A. Graves, President on September 16th, 2018 10:28 AM

Learn about government programs that make it easier to purchase a home.

 

Programs to Help You Pay for a Home

The Department of Housing and Urban Development (HUD) offers a variety of federal programs that may be able to help you purchase a home if you qualify for assistance:

FHA Loans for First-Time Homebuyers

  • The Federal Housing Administration (FHA), part of HUD, insures mortgages, making it easier for potential homeowners to afford loans. FHA also offers HUD homes for sale. Learn more about FHA Loans.

Homeownership Vouchers

Indian Home Loan Guarantee Program

  • The program also known as Section 184 is a home mortgage specifically designed for American Indian and Alaska Native families, Alaska Villages, Tribes, or Tribally Designated Housing Entities.

Programs for Servicemembers and Veterans

Programs for Rural Residents

State Programs

In addition to all the programs, HUD funds approved housing counseling agencies throughout the country that can provide advice on many housing-related topics, including buying a home. Use this map to find one in your state.

Foreclosure Properties 

If you are interested in a foreclosure-related property, reach out to a licensed real estate agent who will be able to advise you on when the property may be available for purchase.

FHA Loans and HUD Homes

If you’re a homebuyer, the Department of Housing and Urban Development (HUD) has two programs that may help make the process more affordable.

FHA Loans

The Federal Housing Administration (FHA) manages the FHA loans program. This may be a good mortgage choice if you’re a first-time buyer because the requirements are not as strict compared to other loans.

Am I eligible?

Determine your down payment, closing costs and credit score before applying:

  • Cash down payment can be as low as 3.5% of the purchase price.
  • Your credit score doesn't need to be high.
  • Closing costs may be partly covered or lower than other loans.

How Do I Apply?

The FHA doesn't lend money directly to people. It insures mortgage loans from FHA-approved lenders against default. To apply for an FHA-insured loan, you will need to use an FHA-approved lender.

How do I complain?

If you have a complaint about an FHA loan program, contact the FHA Resource Center.

HUD Homes

When homeowners default on their FHA-insured mortgage, HUD takes ownership of the property because HUD oversees the FHA loan program. These properties are called either HUD homes or HUD real estate owned (REO) property.

Am I eligible?

Your qualifications to buy a HUD home depend on your credit score, ability to get a mortgage, and the amount of your cash down payment. You can also use an FHA-insured mortgage to buy a HUD home. Learn more about buying a HUD home.

How do I apply?

Use the HUDHomestore to find listings of HUD real estate owned (REO) properties for sale. Click on the agent tab to find contact information to learn more about the property.

Where do I call for extra help?

If you have a question or need more information about FHA loans or HUD homes, you can email or call the FHA Resource Center or check their list of frequently asked questions.

Homeowner Voucher Program

If your family is low-income or in public housing and you want to buy a home, the Department of Housing and Urban Development (HUD) Homeownership Voucher Program may help you meet your monthly mortgage payments and other home expenses.

Am I eligible?

Eligibility is based on the requirements set by HUD and your local public housing agency or authority (PHA).

  • Must be a first-time buyer as defined by HUD
  • Must meet a minimum income requirement set by the local PHAs
  • Must have at least one adult working full-time and for at least one year
  • Must complete homeownership and housing counseling program

How Do I Apply?

Contact your local PHA. If it does not administer a homeownership program, you can contact HUD’s PIH Customer Service Center.

How Do I Complain?

Is There Anything Else I Need to Know?

  • If you sell the home, you will not be able to use the program for your next purchase because this is a program for first-time buyers.
  • You are not required to work with specific real estate agents for your home search or to work with any specific lender when getting a home loan.

 

Source: To view the original article click here

Posted by Jackie A. Graves, President on September 15th, 2018 7:56 AM

Once you have signed a contract for the purchase of your new home (or condominium or cooperative apartment), and assuming you do not have all of the cash in your bank account, you will need to obtain a mortgage loan.

There are many different loans on the market - and many different loan programs from which to choose. You should contact at least three different lenders, and ask them to give you a list of the loans which they can offer you. Take careful notes, and remember one important thing: do not give any lender any money until you are absolutely certain this is the lender - and this is the loan - you want to obtain.

The three basic loan programs are as follows:

1. Conventional: this type of loan in generally available from a bank, a mortgage broker, or a credit union. Within the category of conventional loans, there are various options available, such as a fixed 30 year loan, or an adjustable rate loan (called an ARM).

ARMs adjust on a periodic basis, although in most cases they will run for a period of thirty (30) years. Generally speaking, the shorter the term of the adjustment (such as a one year ARM) the lower the initial interest rate will be. However, when the adjustment period comes around, the interest rate for the next adjustment will either go up or down, depending on the economy at the time of the adjustment. When interest rates are falling, an ARM seems like a good deal. However, when interest rates are rising (as they are now doing), the consumer who obtains a one-year ARM is almost guaranteed to see the interest rate hike as high as 2 percentage points at the end of the first year.

This is not a complex issue, and all lenders have (or should have) a written explanation of the way their particular ARM works. Read it carefully and seek assistance from your financial and legal advisors if you have any questions.

2. VA Loans: This type of loan is generally available from mortgage brokers, It is called a VA loan, since only military veterans can obtain such loans. They are guaranteed by the Veterans Administration. There are certain conditions which you must meet if you want a VA loan, and you should make sure that your potential lender provides you with all the details, up front.

3. FHA loans: This loan is insured by the Federal Housing Administration. FHA will guarantee the lender against a default by the borrower, but the borrower will have to pay an insurance premium for this coverage. Once again, there are conditions which must be met before such loans can be obtained, and you should discuss all these terms with the potential lender.

It is not possible in a short article to fully discuss all the various mortgage loans on the market. Furthermore, creative lenders are always coming up with new programs in an effort to be competitive. However, not all these loans are in your best interest.

You should shop around, and don't accept the first loan that is offered. While the real estate agent and often the seller may give you loan information - and the name of potential lenders - only you can make the final decision as to what is best for you. After all remember that the life of the loan may be as long as 30 years — and that's a long time to be stuck with an uncomfortable loan.

Source: To view the original article click here

 

Posted by Jackie A. Graves, President on September 14th, 2018 8:46 AM

What is debt-to-income ratio? This equation, comparing how much money you owe to the money you make, affects whether you can qualify for a mortgage—but let’s unpack this important term into plain old dollars and sense.

You know what debt and income each mean independently. Debt is money you owe to another party. As a consumer, your debt load is what you owe in obligations like credit card payments, student loans, car loans, installment loans, car loans, personal debts, alimony, or child support. Meanwhile, income is the sum of the money you make from your job, part-time work, alimony, or income-producing assets such as real estate or stocks.

So, what do debt and income have to do with obtaining a home loan?

What is debt-to-income ratio?

Your debt-to-income (DTI) ratio helps lenders figure out how (or whether) a home purchase can fit into your financial picture. To calculate your DTI ratio, you simply divide your ongoing monthly debt payments by your monthly income.

For revolving debt like a credit card, use the minimum monthly payment for this calculation. This might not match what you typically pay each month—hopefully, you're paying off your credit cards as quickly as possible, in order to reduce how much money you pay in interest—but the minimum payment is what most lenders use when calculating DTI.

For installment debt, which is money you owe in fixed payments for a fixed number of months—such as installments you owe on the washer/dryer or A/C unit you purchased—use the current monthly payment.

So, let’s say you're paying $500 to debts and pulling in $6,000 in gross (meaning pretax) income. Divide $500 by $6,000 and you've got a DTI ratio of 0.083, or 8.3%. However, that's your DTI ratio without a monthly mortgage payment. If you factor in a monthly mortgage payment of, say, $1,000 per month, your DTI ratio increases to 25%.

Why does it matter?

Lenders use your DTI ratio to assess your ability to pay for a loan. Lenders like this number to be low. Why? Because evidence from studies of mortgage loans shows that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments, says the Consumer Financial Protection Bureau (CFPB).

As a general rule, if you want to qualify for a mortgage, your DTI ratio cannot exceed 36% of your gross monthly income, says David Feldberg, broker/owner of Coastal Real Estate Group in Newport Beach, CA. A higher DTI ratio could mean you’ll pay more interest, or you could be denied a loan altogether.

Some lenders will loan money to people with DTI ratios exceeding 36%, but it's rare. After all, if you default on your mortgage and your lender has to foreclose on your home, your lenders may not be able to recoup their full investment. And it's bad for you too: As a borrower, defaulting on your mortgage can destroy your credit score, which would make it more difficult for you to qualify for another mortgage.

To verify income, a mortgage lender will want to see recent pay stubs and W-2 tax forms for the past two years. If you’ve recently had a change in pay, such as a raise, you’ll need to get a statement from your boss confirming your new salary. And, if you generate income from a source outside your primary job—such as part-time work or side gigs that pay only commission—you’ll have to provide W-2 forms for these as well.

To verify debt, you’ll have to provide official documents, such as credit card statements, that show the debts you currently owe.

How much home can I afford?

Curious what price home fits within your budget? Try a Home Affordability Calculator. It lets you plug in important financials, including your debt, income, and down payment, and uses your location to determine today’s interest rate, the tax rate in your area, and the cost of home insurance. Once you have that information, you can connect with a mortgage lender that will help you get a home loan.

For more smart financial news and advice, head over to MarketWatch.

Source: To view the original article click here

 

 

Posted by Jackie A. Graves, President on September 13th, 2018 8:19 AM

If you feel like you’re drowning in debt, you’re not alone. According to Experian’s State of Credit report, the average household has $24,706 in non-mortgage debt. That means things credit cards, medical bills or car loans. With such a heavy debt load and high interest rates, digging yourself out from that debt can be challenging.

That’s where debt consolidation can be a big help. And, if you own a home, tapping into your home equity instead of taking out a debt consolidation loan can be a smart choice. Learn more about how debt consolidation works and how to decide if it’s right for you.

What is debt consolidation?

Traditionally with debt consolidation loans, you work with a bank or other financial institution to take out a personal loan for the amount of your current outstanding debt. Once the lender approves you and disburses the loan, you use it to pay off your old debt.

Going forward, you have just one loan with one interest rate. The new loan has different terms than your old debt, such as repayment term, interest rate and minimum monthly payment.

Benefits of debt consolidation

There are several benefits to consolidating your debt.

1. You’ll have just one payment

If you previously had medical debt, credit card debt, a personal loan and a car loan, you know how frustrating and confusing it can be to keep track of multiple payment due dates. With so many to juggle, it’s easy to forget and fall behind.

By consolidating your debt, you have just one payment, rather than several. That makes it simpler to stay on top of your debt.

2. You’ll know when your debt will be paid off

With credit cards and other forms of debt, high interest rates can cause your debt to balloon. And because credit cards are revolving forms of debt — meaning you can continue using them and add to your balance — coming up with a payoff date can be tricky.

A debt consolidation loan streamlines the process. When you take out a loan, you have a set repayment term, such as three to five years. You can circle that date on your calendar and know that’s when you officially will be debt-free.

3. You can get a much lower interest rate

The average interest rate on variable-rate credit cards is 17.32 percent as of Sept. 5, according to Bankrate data, though they can often be much higher. With such a high interest rate, your debt balance can grow over time and you can end up owing far more than you originally charged.

By consolidating your debt, you can lock in a much lower interest rate. For example, you could consolidate your debt with a home equity loan — the current average interest rate on these loans is just 5.77 percent, according to Bankrate data. That way, more of your monthly payment goes toward the principal rather than interest charges.

4. You can save money

Debt consolidation can help you save a substantial amount of money. With a lower interest rate and set repayment term, the savings can be significant.

For example, pretend you had $10,000 in credit card debt at 15.54 percent interest. If you made only your minimum payments, you’d end up paying a total of $14,445. Thanks to interest fees, you’d have to pay an additional $4,445 to pay off your debt.

By contrast, say you consolidated your debt to a five-year home equity loan and qualified for a 5 percent interest rate. By the end of your loan, you’ll have repaid just $11,323. Taking just a few minutes to consolidate your debt would help you save over $3,000.

Use Bankrate’s debt consolidation calculator to find out how much you can save.

How to consolidate debt with home equity

Taking out a debt consolidation loan is one of the most common ways to consolidate debt. However, if you own your own home, there might be another way: You can tap into your home’s equity to better manage your debt.

Your home’s equity is its current value minus what you owe on your home. When it comes to a home equity loan or home equity line of credit (HELOC), you can typically borrow up to 80 percent of the equity. Depending on the lender, you can sometimes borrow up to 85 percent of your home’s equity.

For example, if you have a $300,000 home and owe $200,000 on it, your home’s equity is $100,000. At 80 percent cumulative loan-to-value, the total amount of outstanding borrowing would be limited to $240,000 ($300,000 x 0.80 = $240,000). You must retain 20 percent equity in the home, which is $60,000 ($300,000 x 0.60 = $60,000). So, subtract the amount you have to retain from your total equity, and you’d be able to borrow $40,000 ($100,000 - $60,000 = $40,000).

HELOC is a revolving line of credit rather than a lump sum loan. That means you can use the HELOC again and again as needed. A HELOC can give you greater flexibility for your future needs rather than a one-time, lump-sum debt consolidation loan. And, HELOCs are secured types of debt, meaning that your home secures the loan as a form of collateral. That difference can help you get a much lower interest rate than you’d get with other forms of loans.

If you decide to pursue a HELOC, you can apply for one with your local bank, credit union or online lender.

What to consider before tapping into your home equity to consolidate debt

Before moving forward with an application, there are some pros and cons of HELOCs to keep in mind.

1. HELOCs take time

Debt consolidation loans in the form of personal loans tend to be very fast. You can usually apply online within a few minutes, get approved nearly instantly and have the money deposited into your bank account within a few days.

HELOCs tend to take more time. It’s almost like a second mortgage on your home, so it takes a lot more paperwork and time to process before you can access your money. If you need the money right away, a traditional debt consolidation loan might be a better option for you.

2. HELOCs can be more risky

Debt consolidation loans are usually unsecured forms of debt, meaning that you don’t need to put down any form of collateral. If you fall behind on your payments, you can end up in collections and your credit score can be ruined, but your creditors can’t seize any of your assets or valuables.

HELOCs work differently. Because they’re secured by your home, missing your payments has more serious consequences. You could even lose your home. Only move forward with a HELOC if you can comfortably afford the payments.

3. There can be hefty fees

Home equity loans typically charge closing costs, while HELOCs typically charge low or no closing costs.

Depending on the bank you work with, you could face added charges like closing costs, appraisal fees and annual fees, all which can add to the cost of your loan. When shopping around for a lender, make sure you understand the closing costs each company charges and how it’ll affect how much you borrow.

4. You don’t get the tax benefits

Previously, you could deduct the interest you paid on a home equity loan or HELOC on your taxes, regardless of its use. However, the new tax law changed that. Now, you can deduct only the interest paid on your loan if you use the money to buy, build or renovate your home. Using a HELOC or home equity loan to pay off credit card debt does not qualify for the tax deduction.

HELOCs vs. debt consolidation loans

If you decide that a HELOC is right for you, it’s a smart idea to shop around with several different home equity loan lenders to ensure you get the best rates and terms.

Regardless of whether you select a HELOC or a debt consolidation loan, make sure you have a plan in place to pay off the debt as quickly as possible and avoid racking up credit card debt in the future. By coming up with a strategy, you’ll use your loan or HELOC wisely and set yourself up for a more secure financial future.

Source: To view the original article click here

Posted by Jackie A. Graves, President on September 12th, 2018 7:07 AM

The Federal Reserve is nearly certain to announce a quarter percentage point hike in interest rates at their Sept. 26 meeting. The increase won’t have much impact on fixed-rate mortgage rates, but adjustable rate mortgages, or ARMs, could rise.

“Mortgage rates are unlikely to see any significant impact from this rate hike. It would take a surge in inflation to push mortgage rates meaningfully higher,” says Greg McBride, CFA, chief financial analyst for Bankrate.com. “All of the financial troubles in emerging markets, Turkey and Argentina most notably, are sustaining demand for safe-haven Treasuries and keeping a lid on both bond yields and mortgage rates.”

ARM borrowers are more exposed because those loans are indexed to short-term interest rates. Borrowers with hybrid ARMs, that are set to adjust within the next year, should consider refinancing now.

“If you took out a 5/1 ARM in the last year or two you still have that low initial rate for another three or four years. You might not want to run out and refinance that just yet,” says Frank Nothaft, chief economist for CoreLogic. “But if you took out your 5/1 ARM four or five years ago, you’re coming up to that adjustment period. Your interest rate will go higher. Depending on the terms in your contract, it could jump up a couple of percentage points.”

For homebuyers in the market now, you can still lock in low rates, but you might not want to wait too long. Nothaft predicts these sub-5 percent rates will come to an end by next year.

“By the time we get to the end of 2019, fixed-rate mortgage rates are maybe up half a point compared to where they are right now, so that would put us at 5 percent,” says Nothaft.

Source: To view the original article click here

Posted by Jackie A. Graves, President on September 11th, 2018 8:10 AM

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