The Pros and Cons of Refinancing

Closing costs are those costs associated with the purchase of a home that go beyond what you are providing as a down payment.

Refinancing your mortgage can be a great way to lower either your interest rate or payment or to use the equity in your home to fund other things, such as home projects or education. (Equity is the difference between what your home is worth and what you currently owe on it.)

If you’re interested in refinancing, there are two types of refinancing options available to you. The first is called a rate-and-term refinance. This is where you take no cash out of the transaction. The other type is called a cash-out refinance, and it allows you to take money out.

On the pro side, mortgage interest rates are still at relatively historic lows. With home prices increasing in many parts of the country, this means equity has grown over the last few years for many homeowners, making it easier for them to refinance their homes than it has been for some time.

On the con side, there are things you need to think through before you start the process of refinancing your home. The first is whether it’s the best option you have available at this time.

For example, if it costs you $1,500 to refinance your mortgage and lower your payment by just $40 per month, consider your payback period (how long you’ll be enjoying the payback of this lower payment). If you are planning to move in a few short years, you may want to consider other options.

Also, with increased equity in your home, you’ll have access to more funds than you might have otherwise. Tapping into this money could mean a higher mortgage payment (sometimes significantly higher than what you have now), and it will be higher for as long as you have this mortgage.

Lastly, cash-out refinances carry a higher interest rate than rate-and-term refinances.

If you have any questions about how this process works, I’d love to answer them. Just give me a call.

Can I Lock My Loan Interest Rate While I Shop for a Home?

Lenders typically ask that you are well into the approval process and likely to be approved before they are ready to lock an interest rate for you.

This means they have run your credit information and seen income and asset documentation that gives them the confidence to spend more time and resources on you. Some may require full approval before they are willing to lock your rate.

Another thing they will ask for is a signed real estate contract. People could spend months looking for and finding a home and even more time after that getting to the closing table.

Rate locks are time-sensitive and cost lenders money to put into place, so lenders want to be sure you have both enough interest in a property to sign a contract on it and enough interest in the lender to commit to following the loan to completion.

So, when is the right time to lock your interest rate? The answer is when you are eligible and have a rate that you are comfortable locking in.

After you lock your rate, you are protected from rate increases, but you may be unable to relock should the rates go down. Of course, everybody wants the very best rate, but nobody, including lenders, can predict what rates will do.

It’s best to remain in close communication with your loan officer and real estate agent to determine the best time to lock your rate during your home purchase.

If you have additional questions about rate locks, please give me a call. I’m happy to help.

How Can I Lower My Closing Costs?

Closing costs are those costs associated with the purchase of a home that go beyond what you are providing as a down payment.

These costs can include appraisals, lender fees, attorney fees, tax reserves, recording fees, and other miscellaneous fees.

While these fees normally aren’t negotiated in the purchase process, there are two tools you can use to reduce the amount of money you will need to bring to closing.

The first option is seller credits. You and your real estate agent can negotiate these with the seller. In exchange for an increased sales price, the seller will agree to pay that same amount of your closing costs, reducing the amount of money you’ll need at closing. For example, you agree to pay $2,000 more for the home, and the seller will pay $2,000 of your closing costs.

There are limits to how much a seller is able to provide to you as a credit, based on the loan program (such as FHA or conventional). I can give you more details on specific loan programs if you’d like more information.

It’s important to keep in mind that these credits may only be applied to closing costs and never toward a down payment. Down payments must come from your own funds or in the form of a gift from a qualified source, such as a family member.

Additionally, the seller credit scenario will work well if the seller is highly motivated to sell the property, but less so if the seller has multiple offers.

Buyers can also make similar arrangements with their lenders. In exchange for a slightly higher interest rate, the lender can credit back some of the fees they charge, meaning you will need less money at the closing table.

If you would like to know more about how these credits work, please feel free to give me a call.

Why Does My Lender Need So Much Documentation?

When you take out a mortgage, the process is straightforward: you start with the application and provide whatever documentation your lender asks of you, and they review it. If all goes well, at the end of this process, you’ll have a mortgage.

While you see this procedure from the consumer’s perspective, your lender sees it from the investors’ point of view. Soon after you sign the closing papers, the lender will likely sell your mortgage (along with many others like it) to investors.

This is called mortgage bundling, and this is what keeps the funds flowing back and forth between lenders and investors.

Investors send money to lenders, who send loans back to them so they can send more money.

What does this mean for you as a consumer? It means your lender must make detailed efforts while putting together your mortgage file. They must ensure it will pass an investor audit so it can be sold to investors.

If the file has too many defects (missing or incorrect documentation or lack of compliance with laws), investors can decline the file. This is the last thing any lender wants.

To avoid this situation, lenders are extra careful when they are putting together your file, and they will go out of their way to make sure it is of adequate quality.

Often, this means requesting additional information and documentation from you.

Please let me know if I can answer any additional questions you have about this process. I’m here to help.

What Is a Property Survey and Why Is It Important?

A property survey, often called a Plat of Survey, is a document created by a surveyor that shows the property lines and other details of a property you are planning to purchase.

Depending on the lender and how recently the last survey was done on the property, the lender may require a current survey as part of the loan process.

Why is it important for your lender to know the property lines of a home for which it intends to lend money? It’s often less about the property lines themselves than what’s on them.

One example is fences. If there is a fence that you believe to be on your neighbor’s side of the property line and it turns out to be on yours, there could be unforeseen costs for you down the road.

These include maintenance and possibly replacement. Keep in mind that you can’t go by any “agreement” the current owner has with the neighbor for this, based on the property lines they believe to be correct.

The same goes for trees, which need occasional trimming and may eventually need to be removed altogether.

In more extreme situations, there could be an object such as a permanent shed that sits on both sides of a property line. These situations can get sticky, so it’s important to complete a current survey that clearly delineates property lines and establishes what is and is not on the property.

If the survey reveals encroachments or other property issues, real estate attorneys can help you sort through these issues. They are invaluable to have in your corner during real estate purchases, especially when situations such as survey issues arise.

If you need a real estate attorney, I can recommend trusted professionals from my preferred provider list who can help guide you through this process. I am also happy to answer any other questions you have about surveys and lender requirements for them. Just give me a call.

What Credit Score Do I Need to Buy a Home?

Before I answer this question, I want to let you know that while a higher credit score will definitely open up more financing options for you, credit is just one part of your entire borrower profile. Other parts include your down payment and what you have in the way of other assets.

That being said, I have many loan options that can accommodate a wide range of credit scores and profiles.

The majority of buyers today are using one of two programs to finance a home: conventional and FHA.

Conventional loans, which also go by the name Fannie Mae or Freddie Mac, are the most common loans.

To qualify for this type of loan, you’ll ideally want a credit score in the range of 720 or higher.

You can still qualify for these programs with lower credit scores, but you may pay more in lender adjustments and/or a higher interest rate. For the down payment, you’ll need 5 percent or more, based on your credit score.

FHA, another option, allows as little as 3.5 percent down, and ideally your credit score will be in the 620 or higher range.

Also keep in mind that even if you start your home ownership journey with a different credit score than you would have liked, in some cases you can improve this score in a short period of time.

If you would like me to check your scores or provide more details on how credit scores are a part of the home-buying process, give me a call. I’m here to help.

Should I Refinance My Mortgage Now?

If you are considering refinancing your home, now is a great time to at least look into your options. There are a few reasons why.

The first is that mortgage interest rates, as of fall 2019, are still at near-historic lows. If the reason for refinancing your home is to lower either your interest rate or your monthly payment, the market is favorable for this right now.

Another reason to look into refinancing at this time is that home prices have continued to increase in many parts of the country.

What this means for you, as an existing homeowner, is that you’ll be in a better equity position than you may have been a year or two ago.

Your equity is the difference between what you owe on your home and what it’s now worth.

If you’re looking to take money out of the property to pay for college for the kids, home improvements, or other expenses, more equity will allow you to take out more money.

Even if you aren’t looking to take out any cash from the property, more equity means better terms on the mortgage that you take out.

As far as what this will cost you, many refinance transactions will allow you to incorporate the costs of the new loan directly into the loan, meaning you’ll need little to no money at closing.

At times, lenders will waive documents that are normally required, such as appraisals. Since these can cost hundreds of dollars, this waiver will lower your overall cost of the transaction significantly.

With these benefits in mind, it’s likely that refinancing your mortgage could put you in a better position financially.

If you are thinking about what a refinance could do for you or are interested in more details about how the process works, please give me a call. I can go over your options and help you determine if refinancing makes sense for you.

The Inside Scoop on Buying a Townhome or Condominium

If you’ve ever thought of moving into a community of low-maintenance living, such as a townhome or condominium development, either of these may be the perfect place for you.

There are, however, a few things to keep in mind while you are shopping for one.

Townhomes, from an ownership perspective, are more like owning a single-family home than a condo.

You own the structure and the land on which it sits, and you are part of the association, which may have dues that are paid each month. With a townhome, while the fees may be lower than in a condo, you may still be responsible for items such as keeping up parts of the property’s exterior and minor landscaping maintenance.

In a condo, you own the structure, but the land under it is part of a larger parcel. Fees here are often higher than with townhomes, and rules can be more restrictive.

Whichever of the above developments you choose, make sure that you and your attorney go over the rules and regulations and the finances of the respective associations, to make sure they are sound.

Your lender may want to do the same, as any given lender may want to finance only a certain number of units in a given development, in order to limit its exposure.

Financing either of these properties is similar to financing a single-family home, with the above exceptions.

If you have any questions about financing a condo or townhome, please give me a call. I’d be happy to review your options.

Will My Mortgage Payment Change Over Time?

This is a good question, and one you should consider before you start looking for a home; you don’t want to fall in love with a property that it turns out you can’t afford.

The simple answer to this question is that if you take out a fixed rate mortgage, your payment will stay the same for the life of the loan.

If you take out an adjustable rate mortgage, you should expect some fluctuation in both the interest rate and the payment.

The more in-depth answer is that, regardless of what type of mortgage you take out, you will always have fluctuations in your total housing expense, which is more than just the mortgage payment itself.

These additional items, mainly property taxes and property insurance, can go up over time (and most likely will). Whether they are included in your mortgage payment or you pay them separately, they are part of your monthly housing expense.

All of this points to the fact that when you are planning to purchase a home, you should expect some changes in these variable factors that make up your overall housing expense.

How can you get an idea of what property taxes and insurance will look like over time? To answer these questions, I can put you in touch with the experts.

A real estate agent can pull up historical tax records for properties in the area where you are looking.

As far as property insurance rates go, events such as severe weather, regardless of whether or not they impact your area, can affect the insurance rates of everyone involved in the larger insurance pool. One of my local insurance agent partners can provide a wealth of information on this and other insurance issues.

If you have questions about any of this, please give me a call. If I’m unable to answer any of your questions, I’ll put you in touch with someone who can.

Buyer Fears: Will I Even Qualify for a Mortgage?

This is the big question for buyers who believe they’re on shaky financial ground. One thing is for sure: unless you at least try, you’ll never know if you’ll qualify for a mortgage. It costs nothing to find out if you do, and you very well could qualify for more than you think.

If you are even remotely close to considering buying a home, it would be worth your time to give me a call and learn about your options.

There are three reasons for this. The first is interest rates. Currently, these are still at near historic lows. Low rates mean you’ll be able to obtain a higher loan amount than you would be able to in a higher interest rate environment.

The second is home prices. In many parts of the country, limited housing inventory is pushing prices higher. Why not shop before the prices go up even more?

The third is planning. If I review your financial details and determine that you aren’t in a ready-to-buy position, we can put a plan together to get you there.

This plan (which may be very simple) will normally focus on one of two areas: assets or credit. Assets refer to having enough funds for your home purchase, such as down payment, closing costs, and asset reserves.

Credit refers to paying down or paying off debt. Having high credit card balances, for example, increases your monthly obligations, which raises your debt ratios.

As straightforward as it may be, it could take time to see these plans through to their completion, so it’s good to get started as soon as possible.

Give me a call today to learn about your current and future home-buying options.