Buying a Second Home? Consider a Cash-Out Refinance

The recent surge in home prices has presented today’s homeowners with the opportunity to use the appreciated equity in their homes to purchase other real property. This means that you may have enough equity to do a cash-out refinance and put a down payment on a second home for your vacations and eventual retirement.

It is a great time to consider a cash-out refinance for another home purchase because you can take advantage of a trending buyer’s market. You will also be able to optimize rental income from a vacation or investment property while enjoying appreciation of value. A cash-out refinance may give you enough funds to meet the 20% down payment threshold that most lenders require on second home purchases.

With a cash-out refinance, not only do you just refinance the existing mortgage amount, but you also may be able to take cash out and finance up to 80% of your home’s value. The amount you can borrow will depend on what you qualify for in a new mortgage.

Since a cash-out refinance can give you additional down payment funds for a second home, you can benefit in several ways. Putting more money down on a second home can qualify you for a lower interest rate because it presents a lower risk to the lender. You will benefit from lower monthly payments with a higher down payment and realize more financial stability. A 20% or more down payment will also avoid you having private mortgage insurance. Using cash-out funds for a second home purchase can give you the advantage of generating some additional income if you rent it out when you are not using it.

Give me a call so we can see how your home’s equity can help you with the purchase of your second home.

How Finances Can Change when Your Home Has Appreciated in Value

One of the biggest benefits of homeownership is that a well-maintained home will likely go up in value every year. Black Knight, Inc., a financial services company, estimates that the national average for home appreciation is 3.7% per year. The equity that you are earning while your home is appreciating comes from the difference between paying down the balance on your mortgage and its gain in value.

One of the most significant changes that you can take advantage of, if your new equity position is 20% or higher, is that you will be able to ask your lender if you can eliminate paying monthly private mortgage insurance and potentially save over a hundred dollars a month. When your home’s value rises, the loan becomes less risky for the lender because your loan-to-value ratio decreases. You will need to pay for a new appraisal to validate the increase in value.

Another advantage of gaining more equity in your home is that you can refinance to a lower interest rate because you are now a stronger borrower than when you first bought your home.

Increased equity from the increase in the value of your home enables you to get cash for home improvements with a cash-out refinance. Home improvements will continue to maintain your home’s condition and increase its value into the future. Your equity can also be accessed for other debt consolidation, paying bills or for emergencies.

Please contact me so we can discuss how an increase in equity in your home can benefit your financial well-being.

Things to Consider if You Want to Refinance Your Home Again

Homeowners don’t refinance their loans every year but often evaluate getting new loans within four years of their last refinance. It usually takes that long to recoup the previous costs to refinance. You can refinance as often as you want as long as there is a financial benefit to you.

Begin by taking into account how many years are left on your present mortgage. If it is 20 years or less, talk to your lender about adjusting the term of a new loan to an equal number of years.

An adjustable-rate mortgage (ARM) typically will adjust in year five and change every year thereafter. If you have an ARM, it may be timely to refinance if the new ARM rate will be higher than the present 15- or 30-year fixed rates. Refinancing to a fixed rate will eliminate the unpredictability of what your mortgage payments will be.

The surging home values of the past four years have increased the equity positions of most homeowners. It may be timely to refinance and leverage some of that equity by eliminating any private mortgage insurance, provided you now have at least 20% equity in your home. Having 20% or more equity also enables you to be able to refinance to a better interest rate.

A cash-out refinance may be an option if your home’s value has increased and you need funds for major expenses like home improvements or education. Most loans require a six-month seasoning period before allowing a cash-out refinance.

Know your break-even point before you refinance. It will tell you if you are losing money by refinancing. Calculate your break-even point by dividing the cost of the refinance by the monthly savings. The resulting number of months tells you how long you should wait before refinancing again.

Please give me a call so we can see if a refinance will benefit you.

4 Ways to Set Up Your New Year for Financial Success

New year, new you? Make sure that your resolutions for a positive fresh start also extend to your monetary situation with these four tips for a successful financial new year.

Don’t live beyond your resources.

Think intelligently about your spending. Just because you can afford something, do you really need to spend money on it? You could find your finances being sapped by unimportant instant gratification, whereas you’ll thank yourself later if those incremental savings help you make a down payment on a new house.

Have multiple savings pots.

It’s all well and good to add to your savings, but splitting it up into different pots will help you keep track of what you’re saving for and how much more you need. For example, have one pot for vacations, one for shopping and one for that house down payment.

Prioritize saving.

This doesn’t necessarily mean you shouldn’t spend anything, but when your paycheck comes in, allocate your savings amount before you consider how much you’ll spend on other things. Doing this will help you keep your finances in shape and ready for the important payments instead of accidentally frittering them away too soon.

Keep tabs on your spending.

There are many apps and tools that help you look back on what types of things your money goes to each month and how much. Many online banks also have the feature built into online accounts so you can properly budget and keep track of where you might want to pull back or have leeway to increase.

Is It Possible to Buy a Home if I Have Student Loans?

The good news is that if you have student loans, it is possible to buy a home. But student loans can affect what you are eligible to borrow and do have an impact on the mortgage application process. Here’s the scoop.

Credit scores are key factors in loan origination. Whether your student loan debt is $10,000 or $100,000, it will not negatively affect your credit score if you have a proven history of making payments on time. A good credit score helps assure lenders that you are not high-risk and will give you access to the best loan options. Work on building up your credit score to 760 or higher.

Lenders will give strong consideration to the amount of your total debt and how it compares to your income. This is your debt-to-income (DTI) ratio. A 43% ratio may qualify you for a federally insured loan. FHA and VA loans have more lenient lending requirements with minimum down payments needed. There are also some down payment assistance programs available for first-time buyers.

To qualify for a conventional loan, lenders prefer a DTI less than 36% so you have more flexibility in paying your mortgage. Paying down or consolidating your debt and raising your available income by cutting back on spending will lower your DTI.

When you have student loans, it is often more difficult to have any substantial down payment funds. The best rate and terms will be found with conventional loans by putting 20% down. With strong credit, you can put as little as 3% down.

Refinancing your student loans may be an option for improving your debt-to-income ratio. Refinancing can reduce how much you will be spending over the loan term for your student debt.

If you have student loan debt, call or email me, and I can help you navigate the available opportunities.

Terms to Know when You’re Applying for a Mortgage

The best way to understand what happens during the mortgage process is to familiarize yourself with these common terms and definitions.

Adjustable-rate mortgage (ARM): a loan with a low start rate, adjusting every six months along with a monthly payment change.

Affordability: the amount of money you can comfortably afford to spend after factoring in your income, debts and down payment.

Debt-to-income ratio (DTI): a ratio comparing debt against income.

Down payment: the amount of the purchase price that the buyer must put down, often dictated by the loan type.

Fixed-rate mortgage: principal and interest payments are the same for the life of the loan. Interest rate is fixed.

Housing ratio: total housing costs of paying principal, insurance, taxes and mortgage insurance compared to borrower’s gross income.

Loan estimate: loan terms, monthly payment and loan costs in a lender-provided document three days after loan application is signed.

Loan-to-value (LTV): loan amount divided by the property value.

Preapproval: full verification of a borrower’s income, debt and assets to determine how much can be borrowed. Recommended prior to looking for a home.

Call or email me to further your understanding of the mortgage application process. I am always here to help.

Does the Buyer or the Seller Pay for Closing Costs?

When it comes to who pays for closing costs in a real estate transaction, there will be closing costs that are unique to both buyer and seller. The buyer can incur costs that are equal to 3% to 6% of the sales price of the property. Each party is responsible for paying their own costs at closing. However, if the market is in the buyer’s or seller’s favor, it may determine if either party negotiates paying some of the other’s fees and costs in order to make a deal.

Most of the buyer’s costs are associated with the loan. The biggest costs incurred for a loan will be the loan origination fee and any discount points paid to buy down the interest rate. Other costs may include those for an appraisal, HOA assessments, prorated insurance and taxes.

The seller’s biggest closing cost liability is paying the real estate commission. Other fees would include paying the title insurance, transfer taxes and prorated property taxes.

In a buyer’s market, it may have been negotiated that the seller pay for some of the buyer’s closing costs, called seller concessions. In a seller’s market, a buyer may offer to pay for some of the seller’s closing cost liability, such as the title insurance or the home warranty plan. If a buyer does this, it increases the seller’s net proceeds and gives the buyer an advantage in a seller’s market.

Whether you are a buyer or seller, I can help you use the anticipated closing costs to help complete a sale to your advantage. Call or email me today and we can go over your specific goals and circumstances. I am always here for you to provide guidance and help you navigate all aspects of the sale.

What Is a Mortgage Preapproval and How Do You Get It?

A mortgage preapproval is most valuable when you can get it prior to your home search. Provided by a lender, it determines how much of a mortgage you can afford. Your credit history, income, assets and debts will be reviewed in order to arrive at a price point for homes you can comfortably consider buying.

Having a mortgage preapproval in hand when presenting an offer to a seller demonstrates to that seller your serious intent to purchase with the ability to close on the sale. Even though you have been through the process to get preapproved, the approval is not a guaranteed commitment to lend. The property you select will still have to appraise for the negotiated sales price, and you will have to qualify for whatever interest rate and terms you chose.

To obtain a loan preapproval, you need to meet with a lender, who will ask you about your financial history and pull a credit report. Your credit score will be the most important factor in determining preapproval qualification. The lender will also want to verify your income and assets. Be prepared to provide pay stubs, 1099s, evidence of any other sources of income and bank statements. This proof of income and assets adds strength to the preapproval letter the lender will generate for you. It also helps in deciding which kind of loan works best for you.

Please contact me. I am here to help you get the home-buying process started by guiding you through the loan preapproval process.

Get Your Finances in Shape Before You Buy or Refinance

Before you contact a lender to buy or refinance a home, a smart move would be to take time to look at your financial status through the eyes of a lender. Give yourself as long as six months to get your financial house in order prior to applying for a loan. There are some things you can do in advance so that a lender will view your creditworthiness in a positive manner.

Even if your credit score is as high as 740, work on bolstering it to a higher number to assure the best rate and terms for your loan. The same holds true if your score is around 660. Control your credit balances and your payment record, both of which are the major influencers of your credit score.

Since your credit balances make up 30% of your credit score, it is important to pay them down as much as possible before you submit a loan application. Evaluate your budget and start reducing how much you spend on nonessential items. Direct those dollars towards reducing your credit balances. Ultimately, the amount of debt you have will factor into your debt-to-income ratio, a number that helps a lender determine how much new housing debt you can qualify for.

Since borrowers who exhibit the strongest financial standing get the best loan terms, you can further improve your position by increasing the amount of your savings. A lender will want to see that you have enough funds to cover your down payment and closing costs. You should also have enough savings to cover a few mortgage payments in the event your income stream gets interrupted.

You want to get yourself in the best financial shape possible before you buy or refinance. It’s never too early, so please contact me for further guidance. I am always here to help.

Here Are 4 Ways to Meet Your Neighbors

Whether you’re getting settled in a beautiful new home or you’re a longtime resident looking to make new friends, meeting your neighbors for the first time can be as daunting as making new friends in a new school. Here are four ways to help smooth out the process and make it as easy and natural as possible.

Get out of the house.

It sounds obvious, but if you spend plenty of time sprucing up your front yard or walking around the local area, you’re bound to cross paths with your neighbors eventually. Introduce yourself and be open about the fact that you’re new to the area; you’ll likely get some good tips on the neighborhood.

Look for online local community groups.

Many neighborhoods have Facebook groups, Nextdoor.com pages, WhatsApp groups and other online communities residents can join. Especially during the pandemic, these became important places for neighbors to cooperate, ask for help and share updates.

Offer a helping hand.

If you notice a neighbor pruning their garden or fixing a fence, offer to help them. Not only will your kindness be greatly appreciated, you’ll also be able to chat and get to know each other while you’re working on the task at hand.

Host a housewarming party.

Everyone loves being invited to a party, and what better way to make friends with your new neighbors than to host one of your own? Not only will it help you meet other residents, but it could also help others get to know each other too!