The SCOOP! Blog by ChangeMyRate.com®

If you’re looking to make home improvements, pay for your kid’s college education or pay down credit card debt, a home equity loan or line of credit can be a cheap way to borrow money. The average cost of a fixed-rate home equity loan is 5.87%, according to our most recent survey of major lenders.

A home equity loan requires you to borrow a lump sum all at once and requires you to make the same monthly payment each month until the debt is retired, much like your primary fixed-rate mortgage. It’s always been a better choice if you want to borrow a specific amount for a big one-time project and you want the security of knowing that your interest rate will never change.

Basic Requirements to Qualify for a Home Equity Loan

  • Documented capability of repaying the loan
  • A credit score of 620 or higher
  • 20% equity in your home or a loan-to-value ratio of 80%

HELOCs allow homeowners to borrow against the equity in their homes on an as-needed basis. You pay interest only on what you borrow, and the average HELOC currently costs 6.75%.

But these are adjustable-rate loans based on the prime rate — the floating interest rate banks charge their best commercial customers — plus an additional fixed rate. They were incredibly cheap for about eight years while the prime remained at a six-decade low of 3.25%.

But when the Federal Reserve started pushing interest rates higher in December 2015, virtually every bank immediately added a quarter of a point to their prime rate, raising it to 3.50% APY. Now it stands at 5.50%. So if a bank currently offers you a HELOC at 6.75%, it’s charging you prime plus a fixed 1.25 percentage points.

Qualifying for a Home Equity Loan or HELOC

Whether you choose a home equity loan or a HELOC, you’ll qualify for the best rates and biggest loans with a credit score of at least 740.

With property values rising across much of the country, only about 4.1% of homeowners with a mortgage remains underwater, according to Corelogic, owing more on their loans than their property is worth.

That means many borrowers who didn’t have enough equity in their homes to qualify for a second mortgage have a better chance of being approved.

Lenders require that borrowers maintain 10% to 20% of their equity after taking the loan or line into account.

To figure out how much you can borrow, subtract the balance you owe on your mortgage from what your home is currently worth.

If, for example, your home is worth $200,000 and you owe $140,000 on your first mortgage, you’d have 30% equity, or $60,000.

If the lender required you to retain 20% of your home’s value, or $40,000, your home equity loan or HELOC would allow you to borrow a maximum of $20,000.

You can borrow as little as $5,000 through some credit unions and regional banks, but many lenders won’t extend a loan with a limit of less than $10,000 or even $25,000.

Another recent change is that some of the nation’s biggest lenders have stopped offering home equity loans. Instead, they’re offering home equity lines of credit with the option to take a fixed-rate advance on part or all of your credit line. That means you can combine the advantages of both types of loans.

Many lenders are offering home equity loans and HELOCs with no closing costs. The only catch is that if you close your account early — usually within the first 24 or 36 months — you’ll have to reimburse the lender for those expenses.

Besides the interest and early-closure costs, you might have to pay an appraisal fee and an annual fee. Some lenders waive these fees or offer interest rate discounts if you have other products, like a checking account, at the same institution.

Make sure you know exactly which fees your bank or mortgage company is charging, and how much they are, before committing to any loan or line of credit.

Dodging these pitfalls will make you a happier home buyer now and more satisfied homeowner down the road. You’ll know that you got the best possible mortgage and won’t be overwhelmed by unexpected costs.

How Home Equity Loans and HELOCs Work

It’s also important to understand exactly how these loans work and how the minimum monthly payments will be calculated. Your home acts as collateral for this type of borrowing, and if you default on your payments, you could lose your residence.

A HELOC only allows you to tap the line of credit and borrow funds during what’s called the “draw period” over the first five or 10 years of the loan.

While the credit line is open, the minimum monthly payment only covers the interest charge on the outstanding balance. Some lenders let you pay 1% or 2% of what you’ve borrowed as an alternative to interest-only payments.

In the sixth or 11th year of the loan, the line of credit is closed and a new fixed monthly payment forces you to begin repaying however much you’ve borrowed — or in lender-speak, the principal — plus interest over the next 15 to 20 years.

Experian, one of the three major credit-reporting agencies, estimates the typical monthly payment increases almost 70% when HELOCs reach that point. Our line of credit calculator can help you do the math and determine how long it might take to pay off your credit line.

It’s also important to know that lenders can freeze or reduce your line of credit if your home drops in value or your financial situation changes. That credit may not be available when you need it.

With a home equity loan, you only get one shot at borrowing: when your loan closes. You’ll have to apply for a new loan or line if you want to borrow again. But you are guaranteed that initial sum.

The interest for both HELOCs and home equity loans is generally tax-deductible if you itemize your deductions on Schedule A and if your home equity loan balance is $100,000 or less all year.

For most homeowners seeking to borrow from their equity, a home equity loan is a lower-risk option than a HELOC, which in today’s market looks likely to become more expensive.

Source: To view the original article click here

Posted by Jackie A. Graves, President on October 18th, 2019 7:57 AM

If you take advantage of historically low mortgage rates by refinancing your mortgage, how do you know your title company will really pay off your old mortgage at the closing table?

A Cautionary Tale: Mortgage Refinancing

Customers at the PLM Title Company outside Chicago trusted their title company to pay off their current mortgage as they closed on a new mortgage with a lower interest rate.

But instead of paying off the existing mortgage, two title officials used the money to vacation, pay for a wedding and remodel the kitchen, the Chicago Tribune reports.

The title company owners ended up going to prison for 10 years, but some of the homeowners they scammed between 2005 and 2008 say they’re still paying the old mortgage and the new mortgage.

What happened in Chicago is rare, says David Townsend, president and CEO of Missouri-based Agents National Title Insurance Company, which sells title insurance to local title companies.

Since the national title insurance company is the one paying out the claims when local title companies run off with other people’s money, it constantly audits the local company’s bank accounts to make sure what’s in the files and records matches what’s in the bank, he says.

And yet, title company crooks sometimes get away with embezzling funds by making monthly payments on the old mortgages instead of paying them off completely.

What To Do Before Refinancing Your Mortgage

If you’re the one whose old loan doesn’t get paid off, it’s going to be a huge headache.

There are two ways to make sure your old note gets paid off:

  1. Call your old mortgage company and check to make sure your loan was paid off.
  2. Buy an extra insurance policy.

Going with the phone call?

Wait 10 to 20 days after the closing for the paperwork to clear. Use a speaker phone because you could be on hold awhile. Have your loan number at hand (it’s on your monthly statement). Write down the name of the person you spoke to and note the time and day you called.

Even if you verify by phone, you should still get a statement of mortgage satisfaction in the mail. That’s a letter from the old lender saying you paid off the mortgage.

File that somewhere you’ll be able to find it later, just in case you need to prove you paid off the old mortgage when you go to sell or refinance your house in the future.

For $25 to $30, you can buy a closing protection policy that covers you. Lenders already have this coverage, so you’re really buying duplicate coverage.

The lender’s coverage says that if the payoff funds are misused, the title company will cover the loss.

“The standard closing protection letter also contains language that covers the borrower. There might be a little deviation by some states, but you get a two-for, you both get coverage,” Townsend explains.

If you had a loan with Bank of America and you refinanced with Wells Fargo but Bank of America isn’t paid off and goes to foreclose, Wells Fargo would collect on the title insurance policy.

 

Source: To view the original article click here

Posted by Jackie A. Graves, President on October 17th, 2019 8:04 AM

Quick and Easy Refinance with VA Loan

It’s not only easier to buy a home with a VA loan, it’s easier to refinance a home with one, too.

Because so few veterans default on their mortgages and the Department of Veterans Affairs guarantees 25% of the home’s purchase price to the lender if it has to foreclose, these loans are less risky for lenders.

That means you can have more debt, a lower credit score and less equity in your home than you’d need to qualify for a traditional loan. Indeed, you don’t need any equity in your home to refinance with a VA mortgage.

Yet VA loans don’t require borrowers to buy mortgage insurance and have lower interest rates than conventional mortgages.

The average cost for a 30-year fixed-rate VA loan (for purchasing and refinancing) is 4.41%, according to Ellie Mae Inc., a California-based mortgage technology firm whose software is used by many lenders.

That’s around a quarter of a point less than the average cost of a conventional mortgage and represents a particularly good deal for borrowers with dinged credit who normally would have to pay more than average rates without government help.

VA Refinance vs. Conventional Refinance

Source: Ellie Mae Inc., April 2019 Origination Insight Report.

VA loan refi

Conventional refi

Average FICO credit score

696

739

Average debt-to-income ratio

41%

36%

Average home equity

10%

36%

Your path to a new VA loan depends on whether you just want to lower your monthly payment, want cash back from your refinancing or have been delinquent on your VA loan.

Here are your three options:

Option 1. Lower your monthly payments.

If all you want to do is take advantage of lower interest rates, the streamline loan (or interest rate reduction refinance loan) is for you.

It’s available to veterans who want to refinance an existing VA home loan with a history of on-time payments. One mortgage payment that was less than 30 days late in the last 12 months is OK, as long as you’re current now.

A streamline loan can be easy because the VA does not require you to obtain a new certificate of eligibility, document your income, have your house inspected or appraised, or even undergo a credit check.

Although lenders are not prohibited from requiring a full appraisal, they’re much more likely to depend on a computer-generated value that doesn’t require an appraiser to examine the inside of your house.

While the VA does not have a minimum credit score requirement, lenders typically want to see a score of at least 620.

Changes in the way lenders evaluate applications also mean borrowers who have been turned away before may now qualify for a VA refinancing or be approved to borrow more than before.

If, for example, you pay off your credit card balances in full and on time each month, or if you’ve been carrying a credit card balance that you will pay in full at or before closing, it won’t count against your debt-to-income ratio like it did in the past.

In parts of the country that still have depressed real estate values, a streamline loan may be your only option for refinancing because lenders don’t have to require an appraisal.

You will pay closing costs, points and funding fees as with any refinance, but these costs can be rolled into the new loan. Or you can take a slightly higher interest rate in exchange for the lender paying the loan costs.

Other than the amount of your closing costs, you aren’t allowed to borrow more than you need to refinance the balance on your current loan.

The purpose of the program is to reduce your monthly payments, so you’re not allowed to get cash back or consolidate other loans, no matter how much equity you have.

There’s an exception to this rule: You may receive up to $6,000 in cash to pay for renovations that make your home more energy efficient and were made within 90 days of the closing on your new loan.

A higher monthly payment is also allowed if you refinance:

  • From an adjustable-rate mortgage into a fixed-rate mortgage.
  • Into a shorter-term loan, such as going from a 30-year to a 15-year mortgage.

If your new monthly payment will be at least 20% higher than your old one, the VA requires lenders to underwrite your loan, meaning you’ll have to provide pay stubs, pass a credit check and do all the other things a streamline loan doesn’t normally require.

Option 2. Do a cash-out refinancing.

If you have equity in your home and you need cash to pay off other debts, improve your home, buy a car, pay tuition or use for any other lender-approved purpose, choosing a cash-out refinance is your best bet.

To qualify, you must live in the home and not be underwater. You can refinance up to 100% of your home’s appraised value, plus a little extra if you need it to make energy-efficiency improvements or pay the VA funding fee.

You can even use this loan to refinance from a non-VA home loan into a VA home loan.

You’ll also need to obtain a certificate of eligibility, just as you did when taking out your first VA mortgage. It’s easiest to have a lender obtain it for you.

The cash-out refinance process will take a little more work than the streamline option. You must requalify and have your home appraised. Home values continue to increase, so you might qualify now even if you couldn’t before. Like any refinance, you’ll pay closing costs. You can use some of your cash proceeds to pay these charges.

Borrowers can pay the VA funding fee out of pocket, but most add it to the loan. The fee is waived for veterans who have a service-connected disability.

Option 3. Refinance a delinquent mortgage.

It’s a catch-22 for many people. You’re having trouble keeping up with mortgage payments and other bills. A lower interest rate would help, but you can’t refinance a delinquent mortgage.

If you have a VA mortgage, however, you’re in luck.

Being delinquent does not make you ineligible to refinance. You will have to submit your application for what the VA calls “prior approval” and go through credit approval and underwriting to refinance a loan 30 days or more past due. But it can be done with either of the above options.

The VA’s guidelines even let borrowers refinance late payments and late charges from the old loan, as long as doing so won’t result in an unaffordable monthly payment.

After you apply, your loan officer will analyze your case and determine whether your reasons for falling behind on your payments have been resolved. For example, you might have been unemployed or ill but are back at work.

They also must determine that you’re willing and able to make the proposed new loan payments after you refinance.

You can’t simply have been careless with bill-paying and still expect to get a loan.

Finally, whether you’ve been delinquent or not, the VA wants to make sure borrowers benefit from any refinancing.

The government requires lenders to show you the interest rate and monthly payments for the new loan versus the old loan, as well as how long it will take for you to recoup your closing costs from refinancing with the lower monthly payment on your new loan.

Source: To view the original article click here

 

 

Posted by Jackie A. Graves, President on October 16th, 2019 8:02 AM

What is an FHA Loan?

If you have too much debt to qualify for a conventional mortgage, low credit scores, or little money saved for a down payment, consider buying a home with an FHA loan.

The Federal Housing Administration, a division of the Department of Housing and Urban Development, was created 80 years ago to help low and moderate income families borrow the money they need to buy a home. The FHA doesn’t actually make home loans. It guarantees that lenders will be repaid if you default on the loan.

That guarantee allows banks and mortgage companies to work with borrowers who might not be able to qualify for conventional home loans and at surprisingly competitive interest rates.

The majority of lenders make these mortgages, and about 1 in 6 new home loans is backed by the FHA, according to Ellie Mae, a California-based mortgage technology firm.

There are limits on how much you can borrow with an FHA loan for a single-family home. The FHA raised limits for 2019 up to $314,827 for single-family homes in most parts of the country or as much as $726,525 in high-cost cities such as New York and San Francisco.

(Here’s where to find the FHA loan limits in your area.)

Top 4 Advantages of FHA Loans

If the amount you need falls within the guidelines above, here are the advantages to getting an FHA loan.

Advantage 1. A smaller down payment.

Most FHA mortgages require a 3.5% down payment — that’s $3,500 for every $100,000 you borrow — and the average down payment on an FHA home loan is about 5%, according to Ellie Mae.

That’s far less than the 19% average for conventional home loans.

Your down payment can be a gift from a relative, a friend or an organization that provides financial assistance.

Many conventional mortgages require the down payment to come from a borrower’s savings or other assets, such as proceeds from the sale of another home.

Advantage 2. You can qualify with below-average credit.

The average FICO score for buyers who finance FHA loans is 674, according to Ellie Mae.

That’s considerably lower than the average score of 754 for conventional, non-FHA financing. So what’s the secret to qualifying if you have a credit score in the low 700s or high 600s?

Successful applicants usually have a two-year history of steady employment and paying their bills on time.

You can get an FHA loan if you’re self-employed. Just be ready to document your income with tax returns and financial statements from your business.

The same big financial problems that derailed FHA applications in the past continue to do so. If you:

  • Declared Chapter 7 bankruptcy, you usually must wait two years from the date of discharge before qualifying.
  • Lost a home through foreclosure, you must wait three years. However, if you can prove that the foreclosure was caused by involuntary job loss or income reduction, and your payment history has been good since then, the waiting period can be as little as one year.
  • Are delinquent on a federal debt, such as a student loan or income taxes, you can’t get an FHA loan.
  • Have a credit score lower than 500, you won’t qualify under FHA guidelines. Most lenders have a higher minimum of 600.

Advantage 3. You’re allowed to carry more debt.

According to Ellie Mae, the average borrower with a new FHA loan spends 29% of their gross, pretax income on housing costs — everything from mortgage payments and taxes to insurance and homeowner association fees.

That homeowner also spends 44% of their income on all debt payments, which would be their housing costs plus car loans, student loans and credit card bills.

The average buyer who finances with a conventional loan only spends 24% of their income on housing costs and 36% of their income on all recurring debt payments.

Advantage 4. The interest rate is competitive.

With the government standing behind your debt, lenders charge a much lower interest rate than your credit scores and debt might warrant.

Ellie Mae says the average cost of a 30-year fixed-rate FHA loan, including both purchase and refinancing, is around 4.63%. That’s just slightly higher than the average cost of a conventional loan, which is around 4.52%.

What’s the Disadvantage to FHA Financing?

All borrowers, regardless of loan term or down payment, must pay the 1.75% up-front mortgage insurance premium at closing.

That means you pay a $1,750 insurance premium on every $100,000 borrowed.

While that sum can be added to your loan amount so you don’t have to bring more cash to the table, it’s still an extra charge. And if you finance it, you’ll pay interest on it, too.

Most borrowers will also have to pay monthly insurance premiums, which were actually reduced in January 2015 for 30-year fixed-rate mortgages.

For a 30-year loan with a down payment of less than 5%, your premiums will be 0.85% (down from 1.35%) of the outstanding balance each year.

That cost is typically divided into 12 monthly payments and added to your mortgage payment. That’s $850 per year, or about $70 per month, per $100,000 of loan balance.

If you put more than 5% down on a 30-year loan, your annual premiums will be 0.80% (down from 1.30%).

It used to be that you only had to carry this insurance for at least five years on all loans longer than 15 years, or until the balance on your mortgage was down to 78% of the original purchase price, whichever took longer.

Since mid-2013, new FHA borrowers who put down less than 10% have been required to pay these premiums for the life of the loan. This rule isn’t changing.

If you keep your FHA financing for 30 years, you’ll pay significantly more in mortgage insurance premiums than you would with a conventional loan and private mortgage insurance.

That’s because on non-FHA loans, borrowers can usually drop private mortgage insurance once the loan balance is down to 80% of the purchase price and after as little as one year.

Conventional loans also allow you to count home price appreciation toward obtaining the needed equity. FHA mortgages do not.

Source: To view the original article click here

Posted by Jackie A. Graves, President on October 15th, 2019 10:07 AM

Should You Pay Your Mortgage Off Early?

Paying extra on your mortgage can be a good idea.  It can cut years off your home loan and save tens of thousands of dollars in interest charges. The one thing you should not do, however, is sign up for an accelerated payment plan from a mortgage service company that costs hundreds of dollars.

There are better ways, like refinancing, to cut that home loan down to size. Here are three free and easy options, and one that isn’t free but can still save you tons of money.

1. Increase your monthly checks by one-twelfth.

The additional money you’re sending reduces the balance of your principal, which is the actual amount you owe on the house without interest. The biggest share of your early mortgage payments goes to paying interest, so paying a little extra on principal now makes a huge difference in the years ahead.

2. Make one extra payment a year.

This works especially well if you get an annual bonus or always receive a sizable income tax refund. Just add the money to your next monthly payment. Once again, you’re chopping away at that principal ahead of schedule.

3. Pay half of your regular monthly payment every two weeks.

Although a few lenders allow customers to switch to biweekly payments at no charge, most won’t do that, nor will they accept partial payments. You can have the money automatically transferred from your checking account to a savings account every two weeks and then transferred to your lender at the end of every month. Ask your bank or credit union for help setting up online transactions, if necessary.

By the end of the year, you’ll have made 26 half payments, which adds up to 13 full payments — or, again, one full extra payment.

Caution: Paying down the principal on your home loan more quickly will never reduce the minimum monthly payment or allow you to skip a payment.

It simply shortens the length of the loan and reduces the total amount of interest you have to pay.

 

Extra payments add up.

Additional monthly payment

Total savings

$100

$37,070

$200

$61,161

$300

$78,259

A $200,000 30-year home loan with an interest rate of 5% would cost $186,512 in interest with the traditional 12 payments a year. Make the equivalent of 13 monthly payments every year, and the loan will be retired in 26 years and you will pay only $153,813 in interest — a savings of $32,699.  Generally, the faster you pay your mortgage, the more money you will save.

Of course, you don’t have to keep your home loan for decades to benefit from extra payments.

You’ll immediately begin adding to your equity (the difference between what your home is worth and how much you owe on your loan). That lets you ditch private mortgage insurance sooner, saving you as much as a couple hundred dollars a month.

If you ever have an emergency, you’ll have more equity to take out a home equity loan. And, of course, the less you owe on your mortgage, the more money you pocket if you sell your home.

Our accelerated mortgage payoff calculator can figure out how quickly you can pay off your home loan and how much you’ll save.

The biggest challenge to following through with a faster payoff plan is maintaining self-discipline. It’s easy to start paying extra — until you have extra expenses or you forget an extra payment.

Avoid Bi-weekly Payment Services

Mortgage service companies say they can help you pay off your mortgage faster. When you buy an accelerated biweekly payment plan from one, you’re essentially asking the company to make you pay off your loan early. They collect your biweekly checks and fine you if you miss one of your voluntary payments.

According to them, the threat of those penalties and the hundreds of dollars they charge in setup and maintenance fees are worth it to save tens of thousands of dollars in the long run. But they’re not.

Start-up fees begin at $300, and many service companies also charge processing fees of anywhere from $2.50 to $10, plus monthly or annual maintenance fees. Some service companies pay interest on the money they’re holding, but that won’t come close to covering the fees.

The U.S. Consumer Financial Protection Bureau sued one company, Ohio-based Nationwide Biweekly Administration, in 2015, accusing it of misleading consumers about the potential savings from its plans.

Nationwide was charging a start-up fee of $995, plus yearly administrative costs of up to $101.

The protection bureau noted that someone who signed up for the plan with a 30-year mortgage of $160,000 at 4.5% would have to stay in the program for nine years to recoup their fees. (Nationwide suspended operations after the suit was filed.)Even if you only pay a $300 initial fee and then $10 a month, you’ll spend $420 in the first year and $2,700 over 20 years. If you don’t make all 26 payments a year on time, you’ll have late fees added to that and wind up paying even more.

That’s the kind of help you don’t need.

Consider Refinancing Your Mortgage For A Shorter Term

This brings us to the option that isn’t free but can potentially save the most money. If you really want to discipline yourself to pay off your home loan sooner, consider refinancing for a shorter time period.

Most fixed-rate mortgages are 30 years, but you can get loans that last 20, 15 or even just 10 years. Loans that run for shorter periods generally come with lower interest rates. The combination of a lower rate and less time can really add up.

Let’s look at that $200,000 mortgage again, this time for only 15 years. A 15-year loan runs about one percentage point cheaper than a 30-year loan. With a 15-year mortgage at 4%, you’d pay about $66,288 in interest over the life of the loan.

That’s a savings of more than $120,000 in interest over a 30-year loan at 5%.

Of course, your monthly principal and interest payments would go up significantly, from around $1,074 to $1,479, so you would need to make absolutely sure you could handle that increase. You’d also have to pay some loan closing costs, although most usually can be wrapped into your loan. If you’re positive you can swing it, shortening the time of your mortgage can be the shortcut to huge savings — even the day you own your home free and clear.

Source: To view the original article click here

Posted by Jackie A. Graves, President on October 14th, 2019 8:34 AM

Paying Mortgage Points for a Lower Interest Rate

Paying mortgage points to get a lower rate on a mortgage is almost always a losing proposition. Most homeowners don’t keep their mortgages long enough to do more than recoup the up-front cost of paying points. A point is 1% of your loan amount. If you take out a $250,000 mortgage, 1 point equals $2,500.

In the mortgage world, there are two types of mortgage points:

  • Origination points are a fee you must pay a bank or mortgage company to give you a loan.
  • Discount points (the focus of this story) lower the interest rate on your loan and reduce your monthly payments.

Borrowers get a lower rate for paying discount mortgage points because they’re prepaying a portion of the interest on their loan. Indeed, discount points are tax-deductible, just like the interest you pay with each monthly mortgage payment.

How much can you lower your interest rate by paying points?

Anywhere from one-eighth to one-quarter of a percentage point per discount point. A range like that makes it absolutely critical to compare offers that include points to those that don’t and determine how much you’re really saving by paying thousands of extra dollars up front.

Some banks and mortgage companies actually promote interest rates in their advertising that are only available by paying mortgage points. They hope you’ll be so wowed by a rate that looks like it’s lower than competitors are charging that you won’t notice the additional up-front cost.

The key question you need to ask is: How long will it take me to recoup what I spend on points through lower monthly mortgage payments?

Considering two typical 30-year fixed-rate mortgages quickly shows how much paying a point will save (or cost) you on a $100,000 mortgage.

·          

    • Mortgage Option 1: 4% interest rate with no mortgage points
    • Mortgage Option 2: 3.875% interest rate with 1 point

Paying Mortgage Points vs Not Paying

Loan

Terms

Monthly Payment

Total Payments Over 30 Years

Loan 1

4%, No points

$477.42

$171,869.51

Loan 2

3.875%, 1 point

$467.38

$168,257.40

Savings from paying points

$10.04

$3,612.11

 

Recouping the Cost of Mortgage Points

If you pay 1 point, or $1,000, to get the 3.875% rate, you lower your monthly payments by about $10 a month. (Our mortgage calculator will determine the monthly payment for any amount or interest rate.) That means it would take 100 monthly payments, or more than eight years, to recoup the up-front cost of that point. You won’t really start saving any money until then, and therein lies the problem.

Chances are, you won’t keep your loan much longer than that since the typical homeowner pays off a loan in just over eight years, according to data compiled by Bloomberg News. Selling or refinancing before the break-even point means you’ll actually wind up paying extra interest on the loan.

If you’ve just bought your dream home and know you’ll keep your low-interest mortgage until your kindergartner graduates from high school, paying points may seem like a smart move. With interest rates remaining historically low, chances are you won’t need to refinance to reduce your rate. Others might be forced to refinance or sell before breaking even on point if they face an unexpected life challenge like divorce, death of a spouse, disability or a job loss or transfer.

That’s why Richard Bettencourt, a mortgage broker in Danvers, Massachusetts, and former president of the Association of Mortgage Professionals, says paying mortgage points typically isn’t a good financial move.

“The only way I see a point making sense is for that rarity of the person who says, ‘I’m going to make all 360 payments (on a 30-year home loan) and never move,'” he said.

What about having a home seller pay points to buy down your rate? Isn’t that a good deal for a buyer?

“Do you want the seller to reduce your monthly payment by $20 for the next 30 years or give you $7,500 to refinish the kitchen now?” Bettencourt asked.

Another way to look at mortgage points is to consider how much cash you can afford to pay at the loan-closing table, says Mark Palim, vice president of applied economic and housing research for Fannie Mae, a government-owned company that buys mortgage debt.

“If you use up some of your savings toward prepaying your interest, which makes your payment lower on a monthly basis, you have less savings if the water heater breaks,” he pointed out. “Does it make sense to put more of your savings into the transaction to lower the monthly mortgage payments?”

To view the original article click here

Posted by Jackie A. Graves, President on October 13th, 2019 10:43 AM

Buying a home for the first time can be exciting, a little scary, and very expensive. First-time homebuyers won’t always qualify for the best mortgage rates, but given that homeownership in the United States has dropped over the last few years, many lenders are eager to provide mortgages to new borrowers, even when their credit scores are less than stellar. To make that possible, many lenders now offer “first-time home buyer programs” that allow individuals to purchase homes they otherwise wouldn’t be able to afford.

What Are First Time Home Buyer Programs?

Using favorable interest rates, tax breaks, low-to-no down payments, and grants, first-time home buyer programs can increase a buyer’s chance at owning a home. Depending on the lender, these loans might be offered in particular geographic areas, or to individuals who work in certain industries. There are also specific programs for active-duty military, veterans, and other high-risk or low-paying careers. Since the programs vary by state, you’ll need to research what’s available in your area and calculate how much you can afford — from monthly payments to a down payment — to help narrow down your search.

First Time Home Buyer Programs

Conventional Loans

A conventional loan follows guidelines set by Fannie Mac and Freddie Mae and are not backed by government agencies. These loans are a great option for first-time borrowers with good credit who can afford some sort of down payment. They’re also a good option if you aren’t planning to stay in your home very long and want a shorter-term, adjustable-rate mortgage. While many other loans require an upfront “funding fee,” with a conventional loan, there are no upfront mortgage insurance fees.

Conventional 97 Loan

A Conventional 97 program is meant for borrowers who qualify for a conventional loan but can’t afford a large down payment. Similar to a conventional loan in many ways, the minimum down payment on a Conventional 97 is 3%, the property must cost less than $484,350, and buyers must pay for mortgage insurance.

VA Loan

VA loan is designed to help military service members, veterans, and surviving spouses buy a home. Funds are provided by private lenders like banks and mortgage companies. The VA guarantees a portion of the loan, which allows the lender to offer better terms. A VA loan does not require a down payment or private mortgage insurance. Qualified recipients can also use cash-out refinance loans to take cash out of their home’s equity to fund school, pay off debt or make home improvements.

USDA Loan

USDA loan is designed for moderate-to-low income home-buyers in eligible rural and suburban areas. These loans are 100% financed which means there is no money down, and no up-front closing costs. There are strict geographic restrictions and income limits for borrowers, so check your eligibility at USDA.gov.

Fannie and Freddie 3% Down Loan

Fannie Mae and Freddie Mac now offer loans for certain individuals that require just a 3% down payment for either a home purchase or a refinance. These loans are meant for people with low-to-moderate income levels and credit scores as low as 620. Despite the credit score leniency, certain loans are subject to income limits unless one buyer is a first-time home-buyer.

FHA Energy Efficient Mortgage (EEM)

An FHA Energy Efficient Mortgage isn’t necessarily geared toward first-time buyers but toward people who want to make extensive energy-saving adjustments to a home. Still, first-time home buyers could use an FHA EEM loan to lower their costs, though any home-buying savings might be outweighed by up-front energy-saving costs in the short term. This program helps lower utility bills by offering financing for energy-efficient improvements. To qualify, the buyer must get a home energy assessment to identify opportunities for improving energy efficiency.

Fannie Mae’s HomePath ReadyBuyer Program

If you’re interested in learning more about the home-buying process, the Fannie Mae HomePath ReadyBuyer Program offers incentives for education. First-time buyers can receive up to 3% of the purchase price in closing cost assistance on particular HomePath properties by taking and completing an online homebuyer education course. Buyers must prove they’ve completed the course and must reside in certain, qualified properties.

Good Neighbor Next Door

The Good Neighbor Next Door program is designed for law enforcement officers, teachers and first responders. The program is offered through HUD and offers 50% off the list price of eligible homes. Buyers must commit to living in the property for 36 months, and only certain homes are available through the program.

Interest Rates and Down Payments

Before jumping into buying a home through certain programs, it’s important to consider interest rates and how much of a down payment you can afford. Even small changes in interest rates can have a significant impact on your mortgage rate and you need to be sure you can afford that payment. For instance, on a $100,000 mortgage on a 30-year term, a 5% interest rate means a $476/month payment. Add just 1% to that and the payment $533.

Down payments can also make an impact on your total cost, though usually not as dramatically as your interest rate. On a $100,000 mortgage with 4% interest, providing a $1,000 down payment makes your monthly payment $464. Adding $1,000 to that payment only brings your monthly payment down to $455. You won’t begin to see a significant decrease in monthly payments unless you can provide a substantial down payment.

The impact also depends on your lender’s mortgage insurance requirements. Homebuyers who can’t afford a 20% down payment are a higher risk for financial institutions, so lenders will require borrowers to pay private mortgage insurance (PMI) premiums when they can’t make a 20% down payment. A PMI premium is usually between 0.5% and 1%.

Source: To view the original article click here

Posted by Jackie A. Graves, President on October 12th, 2019 9:53 AM

For some homeowners looking to save money over the course of their mortgages, it could be a great time to refinance. The average 30-year fixed-rate mortgage has dipped below the 4.0% mark, and by any historical measure, home loans remain incredibly cheap. If you can shave at least 1 percentage point from your primary mortgage rate by getting a new loan, then refinancing probably makes sense.

For many homeowners, the financial goal of a refi is often as simple as getting lower monthly payments over a new loan term. If your current home loan originated during a time of higher interest rates than today, and if your credit score has improved, chances are a refinance mortgage can save you money over the life of the loan.

As an example, let’s say you have a 30-year mortgage at 5.5% APR. You’re 15 years in, paying $1,520 in monthly mortgage payments with $118,000 remaining. Refinancing at today’s lower interest rates (let’s say 3.5% on a 15-year refinance) would reduce your monthly payment to around $850, a monthly savings of about $670, and save you around $120,000 in interest that you would have paid toward the original loan.

The best deal for most borrowers is usually the one that offers the lowest interest rate, with no points and lender fees of $2,000 or less.

Top 3 Ways to Refinance Your Home

1. Refinance with a Conventional Loan

Property values have increased in most parts of the country, boosting the amount of equity homeowners hold. The more equity you have — the difference between the balance on your current mortgage and your home’s current market value — the easier it is to refinance.

Borrowers with good credit and 20% equity can qualify for a conventional loan, which is the most common, and usually the cheapest, way to go for most borrowers. The average cost of a 30-year conventional loan was 3.68% in September. Borrowers who successfully refinanced their homes had an average FICO credit score of 741 and 36% equity.

2. Refinance with an FHA Loan

You can refinance with an FHA loan even if you have little or no equity in your home, a much lower credit score or higher debt than lenders usually accept. The Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development, doesn’t actually make loans.

It guarantees that private lenders will be repaid, even if you default. But you’ll pay for that guarantee in the form of up-front and monthly mortgage insurance. With the government standing behind you, banks and mortgage companies can make loans they wouldn’t normally offer at competitive interest rates that could cut your monthly payments by hundreds of dollars.

The average cost of an FHA loan was 4.63%, according to Ellie Mae. (It’s the mortgage insurance FHA loans require, with significant up-front and monthly premiums, that ultimately make them more expensive.) Borrowers who successfully refinanced their homes with an FHA loan had an average FICO credit score of 662 and 21% equity.

3. Refinance with a VA loan

An even better option is to refinance with a VA loan, which we consider to be the best mortgage program around. Millions of veterans, as well as anyone on active duty and those in the National Guard and reserve units, are eligible. With the Department of Veterans Affairs standing behind these loans, they’re also less risky for lenders.

That means you can have a lower credit score and less home equity than you’d need for a conventional loan and, in some cases, a higher debt-to-income ratio. Indeed, you can have no equity and qualify for a new mortgage, and there’s never any mortgage insurance required with a VA loan.

The average rate on a VA loan 30-year fixed rate mortgage is 3.25%, or about a third of a point less than for conventional mortgages. Borrowers who successfully refinance their homes with a VA loan had an average FICO credit score of 699 and 10% equity.

If you’re going to refinance, you’ll need patience

A little more patience is the one thing you’ll need, whatever type of loan you decide to pursue. Lenders are now taking an average of 46 days to process refi applications. Before you decide on a lender, make sure you shop around for your the best deals out there.

With all the factors to consider, you don’t want to rush. You need to familiarize yourself with the terms and conditions of your current mortgage as well as those of the new loan. Your current loan may have a penalty for early payoff of the mortgage balance. Similar to your original mortgage, the new one won’t be free. The refinance loan will have origination fees, an application fee, an appraisal fee, and more. All costs need to be considered to ensure you don’t negate the savings you hope to achieve with the mortgage refinance.

National Average Mortgage Rates

Type of loan

Current average

Record-low average

Established

30-year fixed rate

3.83%

3.50%

Dec. 5, 2012

15-year fixed rate

3.20%

2.75%

May 1, 2013

30-year fixed jumbo

3.77%

3.54%

Sept. 7, 2016

5/1 ARM

3.65%

2.63%

May 1, 2013

Our refinancing calculator can help you evaluate any offer more precisely by showing how much your monthly payment will decrease and how long it will take to recoup any fees and closing costs.

Source: To view the original article click here

Posted by Jackie A. Graves, President on October 11th, 2019 2:23 PM

There is a certain pride in completing a project with your own hands that you simply can’t get from shopping in a store or hiring professionals. But with the booming DIY market, not all projects end in pride and money saved.

 

Taking on home improvement projects by yourself can lead to mistakes and injuries that end up costing more than letting the professionals handle it. Of course, having insurance adds a level of protection to the possible downfalls, but which projects are ultimately worth taking the chance?

 

We asked over 1,000 homeowners about their attempts at DIY home improvement projects and got some words of wisdom for those thinking of picking up a hammer. Keep reading to find out where projects go wrong, and which projects may be worth the risk.

 

Why DIY?

It can be hard to truly understand do-it-yourself projects until you, well, do one yourself. Perhaps experience plays a role in baby boomers being the most knowledgeable about DIY when it comes to home improvement projects.

 

Compared to more than 46 percent of baby boomers reporting to be knowledgeable about these DIY projects, less than 40 percent of millennials admitted as much. Ironically, though, millennials are the most likely to handle home improvement projects by themselves and baby boomers the least.

 

If the majority across all generations doesn’t consider themselves particularly knowledgeable about DIY projects, why are so many people doing them?

 

Eighty-five percent take a project upon themselves as a way to save money, and almost 80 percent do one to improve their home. While many DIY home improvements can often be the best option for budgets, they have positive effects on more than just your wallet.

 

Thirty-eight percent attempt DIY projects simply because they find them fun, over 23 percent feel they help them express themselves and offer a creative outlet, and almost 22 percent receive a sense of joy from doing projects themselves.

 

If saving money isn’t enough of a perk, studies have shown that creative self-expression aids in cognitive, psychosocial, and physical health.

Luckily for our respondents, 95 percent had homeowner’s insurance. The added buffer in case of a mistake may make people more comfortable undertaking DIY home improvement projects.

 

Worth the Work?

The majority of people turn to DIY projects as a way of saving money, but is this route the most effective? When it comes to tiling a roof, creating a shelving unit, and installing hardwood floors in a bedroom, doing it yourself seems to be the best option for saving money.

 

Compared to the lowest potential price for a professional, DIY can save you $9,050, $1,490, and $1,500 for each project, respectively. It’s important to take the type of project into consideration, though.

 

Doing it yourself may save you some money, but the extra expense for professional help may be worth it for the more dangerous projects like electrical repairs and those involving gas appliances.

 

The type of project will also help determine if calling a professional might break the bank. For some projects, it may be cheaper than attempting a DIY job. Replacing a shower head by yourself will cost you around $40, but the lowest potential price for getting a professional to do the dirty work is only $50.

 

Installing a kitchen sink not only falls under projects not recommended for DIY-ers but is also a project that is potentially more expensive to do yourself. Installing one yourself can run around $200, while the lowest potential price for a professional installation is only $99.

 

Installing a screen door is another project that may be worth getting a professional to do. Doing it yourself can cost around $100, the same as the lowest potential price for a professional. Of course, however, these prices vary by location and are heavily influenced by the scope of work and the quality of the materials used.

 

Cost of Mistakes

Professional or DIYer, mistakes happen. But when you’re taking projects upon yourself to save money, the mistakes may end up costing more than hiring a professional would. On average, people spend $137.50 fixing mistakes made during DIY home improvements. Millennials report spending an average of $200 fixing DIY mistakes – four times as much as baby boomers.

 

The significant difference between generations regarding money spent on mistakes may be due to the difference in types of mistakes most commonly made by each generation. Sixty percent of baby boomers start DIY projects without the necessary supplies or tools – the most common mistake made across all generations.

 

Gen Xers used the wrong paint more than baby boomers and millennials, and the youngest generation was the most likely to skimp on materials.

 

Improvement Injuries

Most people attempt home improvement projects by themselves with the notion that they’ll successfully hit the nail on the head. However, slip-ups happen, and cuts, bruises, and serious injuries may occur.

 

Of those we surveyed, 1 in 4 homeowners had been injured while attempting a DIY home improvement project. Around 75 percent of injuries involved cuts from sharp tools or project materials, and 58 percent of respondents said they hit themselves with a hammer or other tool.

 

DIY injuries often need more than just a small bandage, though. Data from the National Electronic Injury Surveillance System (NEISS) shows the most ER visits are due to injuries by ladders, with fractures being the most common result.

 

Studies have shown these injuries aren’t necessarily involved in the height from which one falls, but rather, severity is dependent upon the person’s age. Almost 45,000 ER visits are due to accidents involving nails, screws, or tacks, which often result in puncture wounds.

 

Heed the Advice

If you’re thinking of taking up a home improvement project by yourself, take advice from those who have made the mistakes for you. The biggest piece of advice from our respondents is to only work within your skill level.

 

Attempting to complete projects that might be too technical is a quick way to get injured. Stick to what you know and the project is more likely to go smoothly without ending in mistakes or injuries. Respondents also recommended purchasing the correct materials and tools and having a set plan.

 

Accidents Happen

Not heeding the warnings or taking advice from experienced DIY-ers can lead to some of the horror stories above. If the mistakes are severe enough, it may be more than just money you’re gambling with.

 

Stay Protected

 

Do-it-yourself projects have become more and more popular, especially in the home improvement department. While some of these projects can save you a ton of money, consider the price of a professional before getting your hands dirty.

 

If doing it yourself seems to be the best option, make sure you’re prepared and operating within your skill level. Mistakes and injuries can happen — turning a home improvement project into a potential home-wrecking disaster.

 

Wearing protective gear while attempting projects can save your fingers, but what about your home? Insuring your home with homeowner’s insurance is the best way to protect against DIY mistakes. Picking insurance doesn’t have to break the bank, though.

 

At Clovered, we help you find the best plan to cover your needs at a cost you’re comfortable with. Whether your home is a house, condo, or an apartment, we’ve got you covered. Before you pick up that hammer, visit us online today.

 

Methodology and Limitations

 

We collected responses from 1,015 homeowners by administering online surveys via Amazon’s Mechanical Turk. Of the total 1,015 people polled, 12.0 percent identified as baby boomers, 31.9 percent as Gen Xers, and 56.1 percent as millennials.

 

All other generations were excluded from certain breakdowns due to insufficient sample sizes. To qualify for the survey, participants were required to be homeowners and to have attempted a do-it-yourself (DIY) home improvement project.

 

The highest and lowest potential prices for DIY home improvement projects were determined by averaging project estimates gathered from reputable online sources, which included: fixr.comhomewyse.comangieslist.com, and homeadvisor.com.

 

The main limitation of this project is that DIY price points were solely based on participant estimations

 

To determine the number of estimated annual visits to the emergency room, we collected data from the National Electronic Injury Surveillance System (NEISS) for 2017 (latest year available). The data was filtered to enable our team to analyze injuries occurring in the home and as a result of using home improvement tools or hardware.

 

The information we are presenting relies on documented ER visits and does not include unreported injuries.

 

Source: To view the original article click here

Posted by Jackie A. Graves, President on October 10th, 2019 3:21 PM

Homeowners can do plenty to spruce up their home and make it more enticing for buyers. But when they're narrowing their list, what are a few quick fixes that can have a big impact? Besides a fresh coat of paint, Redfin highlighted some additional ideas on its blog, including:

Update the door.

A new front door can be a cost-effective update that can make a big difference, real estate pros say. “Solid wood doors are always a classic style for homes not to go out of style anytime soon,” Redfin notes on its blog. “They’re solid and typically last much longer than alternative materials like fiberglass. Additionally, front doors with inlaid glass can also give your entryway more natural light for the interior of your home.”

Modernize the lighting.

First, make sure all interior lights have the same color temperature so it’s consistent throughout the home. “Updating your light fixtures, ceiling fans, and even your hardware on doors and cabinets is an easy and cost-effective way of increasing the perceived value of your home,” Redfin notes. For example, replace dated brass light fixtures to more contemporary ones, like lights with a black finish. Find fixtures that will add more light and brighten your home too.

Upgrade your mailbox.

It may sound trivial, but the look of the mailbox is all part of helping to build a strong first impression from the curb. “It’s also the easiest home improvement you can do,” Redfin notes at its blog. “It could just be a new mailbox that replaces the old, weathered one you’ve had for years. … Or you could upgrade to a ‘next generation’ mailbox that allows USPS to deliver large packages to your mailbox instead of your front door.”

Source: To view the original article click here

Posted by Jackie A. Graves, President on October 9th, 2019 12:14 PM

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