Can I Pay My Own Taxes and Insurance?

Escrow accounts are a common aspect of mortgage terms and agreements. These accounts hold the funds that will be used to pay the taxes and insurance on a home.

Each month, the buyers pay a portion of these fees with their regular mortgage payment. The lender then holds these funds until the insurance or taxes are due and disburses the payments appropriately.

In many cases, these escrow arrangements are required by the lender as part of the terms of the mortgage.

But what if you want to pay your own taxes and insurance? You may or may not be able to do this. The answer depends on a couple of factors.

First is your loan type. FHA requires that you keep an escrow account. With conventional mortgages, you may have the option of paying your taxes and insurance on your own, but there are usually stipulations. The lender may add a premium to your interest rate, which your payment will reflect. They may also ask for a higher down payment or require a higher credit score for you to qualify for a loan without an escrow account.

Why are lenders so concerned with these payments?

In many cases, the taxing body (county, city, state, or other entity) has the right to take possession of your home if you get behind on your taxes. They may be able to do so even if you are current on your regular mortgage payments. This is the last thing you and your lender want.

Keeping insurance current is also important. If your coverage lapses and a disaster occurs, the lender may be left holding the note on a pile of rubble.

With these situations in mind, it’s easy to see why a lender wouldn’t be willing to take the risk of allowing buyers to control their tax and insurance payments.

Still, lenders allow buyers to do so in some situations. Each lender has guidelines on what they will accept.

Contact our office to review the escrow and tax payment options available to you.

When Should You Refinance Your Home?

Mortgage interest rates are at near-record lows. If you think you may want to refinance your home, now is a good time to at least look at your options.

You might want to refinance for one of several reasons. The first is to lower your monthly housing payment. The second could be to pull cash out of your home. Last, you may want to change the type of mortgage you have.

Moving from an FHA loan to a conventional loan could lower or eliminate your mortgage insurance premium, thereby saving you money each month. You may also want to consider switching from a 30-year mortgage to a 15-year term. With this option, your monthly payment could actually increase, but looking at the big picture, your interest savings over the life of the loan could make the move worth it.

The HARP program, which allowed refinance transactions for borrowers with little or no equity, ended at the end of 2018. However, you still have options. The good news is that both Fannie Mae and Freddie Mac have programs that can address some of the concerns that HARP loans addressed.

Another important point to keep in mind is that, unlike with purchase transactions, you can finance your closing costs in the course of a refinance transaction.

Do these options sound appealing? Are you wondering whether your home’s value would qualify your mortgage for a refinance?

Contact our office with any questions. We can discuss your options to see whether you could start saving money by refinancing your home.

A Look at Low and No Down Payment Options

Of all the options that you have for financing or refinancing a home, you will more than likely be taking out a conventional, FHA, or VA loan. While the Veteran’s Administration loan is the only one of the three that offers a true zero down payment option, each of the three options has its pluses and minuses.

VA loans: The challenge of VA loans is qualification. Only buyers with military backgrounds are eligible.

Conventional loans: These loans follow the underwriting guidelines of Fannie Mae and/or Freddie Mac. A down payment of just 3% is available with conventional loans, but the credit score requirements are much higher than those of either of the other two programs. This disqualifies many buyers.

FHA loans: These loans have a minimum down payment of 3.5%. FHA is the option many buyers take when they want a low down payment but their credit is less than stellar. These loans are fairly easy to qualify for; however, they can prove costly over time.

This cost lies in the mortgage insurance. Unless you are putting down at least 10% (which is contrary to the idea of a low down payment), the mortgage insurance will remain in place until the loan is paid off through a refinance, the sale of the property, or the end of the term of the loan. This extra fee can add up over the life of the mortgage.

Which loan type is best for your situation? Get in touch with your questions so we can discuss low and no down payment mortgage options that may be available for you.

Yes, There Are Alternatives to a 30-Year Mortgage

Mortgage rates have risen over the past year, and they could continue to do so in 2019. With this in mind, buyers planning to purchase or refinance a home may want to consider 15-year and 10-year mortgage options.

Why? There are a couple of reasons.

First, interest rates on shorter-term loans are normally lower than they are on loans with 30-year terms.

The second reason is that, over time, you could save tens of thousands of dollars in interest expense with a 10-year or 15-year loan.

Of course, since your payments are spread over a shorter period of time, each payment will be higher.

To compare the two, let’s use a $125,000 mortgage as an example. This loan, at 4.5% for 30 years, will carry a payment of $633.36 before taxes and insurance. The same loan amount with a 15-year term and a rate of 4.25% will have a payment of $940.35. The 10-year option will carry a payment of $1,280.47.

Yes, there is a significant difference in the amount of the payment, but, over time, you’ll make $228,009.60 in payments on the 30-year loan, $103,009 of which is interest. With the 15-year option, you’ll spend $169,263 in payments, of which $44,263 is interest.

The difference in interest expense between the two is $58,746.

If you’re unable to swing the higher payment but want to reduce your interest expense over time, you could add additional money to your monthly payment.

In fact, on a 30-year mortgage, if you add just 1/12 of your principal and interest to your payment each month, you’ll reduce your total loan term by close to four years. In our example above, this would require paying an additional $52.77 with the $633.36 monthly payment.

Interested in paying off your house faster? To learn how you can save on your mortgage, contact me to review your payment options. I’m here to help!

Biggest Financing Mistakes Buyers Make

Successfully financing a home requires several key steps. Too often, buyers are unaware of what is involved in this process, and they suffer from missteps. Here are three of the most common blunders (and how to avoid them):

1. Failing to Think Long Term

Purchasing a home is one of the most significant financial investments you’ll ever make. You’ll probably do this only a handful of times in your life, so you must really think it through.

The key is to think long term. Consider: Will the loan payment you are taking on remain manageable for the foreseeable future? Will changes in family status or employment status impact your ability to continue to make your payments month after month? Will you still be able to save money each month after covering all your expenses?

Carefully considering these questions up front will help you avoid making a purchase that you later regret.

2. Underestimating the Cost

Unless you qualify for certain Veteran’s Administration loan programs, you’ll need some sort of down payment to purchase a home. Beyond this, you will also need to cover closing costs, and you may have to come up with cash for taxes and/or other escrow reserves.

Be sure to incorporate all these costs as you determine your price range and negotiate your purchase.

3. Ignoring Their Personal Credit Profile

More than anything else, your credit will determine what loan terms you’ll qualify for and the interest rate you’ll pay. Your credit report is a window into your finances. Take a look through it. Your lender will. Depending on what they see, the lender may ask you to pay down or pay off debt to improve your score before you can purchase a home.

While this may be simple enough to do, it may also take time. This makes it important to determine your credit needs early in the process.

Reach out to learn how you can put yourself in the best possible position to purchase a home.

What Is Home Equity and What Does It Mean for Me?

Equity is the difference between what you owe on your home and what it’s worth. If you purchase a home using a small down payment, you’ll have a small amount of equity.

However, as time passes, your mortgage balance will decrease and (hopefully) your property value will increase. This will strengthen your equity position.

There are several things you can do with this built-up equity in the property. If you decide to sell the property, you could take that equity and use it as a down payment for the next property you buy.

You may decide to stay where you are and use the equity in the property for your own purposes. Some property owners use their equity for home improvement, to pay down higher-interest debt, or to pay for college for their kids.

How would you access this equity? Your lender could help you take out a home equity loan or establish a home equity line of credit.

Each has both benefits and challenges. The home equity loan will most likely give you a fixed rate, but once you take it out, you would need to pay back the entire loan before being able to reuse that portion of your equity.

The home equity line of credit, on the other hand, works similarly to a credit card. You can pay it down or off, then reuse the same money again and again. But your variable interest rate is tied to an economic indicator, meaning your payment could go up significantly over time.

Get in touch with our office to learn more about your equity loan options.

What Does a Mortgage Underwriter Do?

A mortgage underwriter is the person at the mortgage company who takes all the information related to your mortgage file and reviews it. Then, based on lender requirements, the underwriter makes a decision as to whether the lender will extend a loan to you.

To complete this process, the underwriter reviews documents such as bank statements and tax returns. He or she also looks at credit reports, property surveys, titles, and appraisals.

Just as important, the underwriter is also making sure that the loan is compliant with federal regulations. Keep in mind that, by law, your lender has to provide you with certain disclosures within certain time frames, and you must acknowledge in writing that you received them.

If any of this information is missing, or if documents were dated outside of the allotted timeline, then the loan is out of compliance. If this isn’t caught by the underwriter, it could cause significant issues for the lender if this were to be discovered after the loan is sold.

Selling loans to investors after the loan is closed is a common lender practice, so these details are crucial. When the lender sells a loan, they receive money from investors that they can then use to write new loans.

Borrowers are often surprised by how much detail that mortgage lenders and their underwriters ask for when the borrower’s loan is being processed. The list of items can often seem overwhelming, but the many details provided are used to demonstrate to potential investors that everything that needs to be there is accounted for.

The last thing that any lender wants is what is called a defective loan. Depending on the nature of the defect, the lender may have to repurchase this loan from the investor. To avoid these costly mishaps and keep the process moving smoothly for everyone, the underwriter ensures all the buyer’s and lender’s ducks are in a row for each transaction.

Do you have additional questions about underwriting? Contact your mortgage professional for more details.

What’s the Highest Mortgage Rate in History?

Mortgage interest rates have been steadily increasing over the past year, and they may continue to do so through 2019. However, looking back over the past few decades, we discover that today’s rates are minimal compared with the heights they’ve reached in the past.

Less than 40 years ago, home buyers saw rates that would be inconceivable to today’s mortgage consumer. Let’s take a quick trip back in time and see what we discover.

The Past: February 1982. Home buyers seeking to obtain a 30-year fixed rate mortgage paid an interest rate of 17.60%. This is after giving their lender 2.5% of the loan amount to get this rate. A loan of $150,000 for 30 years set them back $2,211.70 per month. Within a year of this peak rate, interest rates dropped into the 13% range. While still extreme in the face of today’s much lower rates, this drop allowed consumers to borrow quite a bit more money.

The Present: Coming back to today’s market, let’s compare those historical rates with what we saw in 2018. In November, home buyers could obtain a 4.87% rate for that same 30-year fixed rate mortgage. The payment for a loan of $150,000 would have been just $793.36.

The Future: Will fixed mortgage rates ever get that high again? With government regulation in place to control economic growth, it would be unlikely.

The takeaway from all of this is that rates fluctuate, and no one can predict for sure where the market is headed. If you’re thinking about financing a home, now may be a good time to look into your options. Contact your mortgage professional for more details.

Why Does My Lender Need My Bank Statement?

When you think of tools that lenders use to determine your qualifications as a buyer, the first thing that may come to mind is a credit report.

This is an invaluable tool for lenders, since it shows patterns, and lenders are very interested in borrower patterns. They want to see trends of successful management of payments month to month. They also want to know how much debt you currently have. The credit report will provide all of this information.

Still, it doesn’t provide all the data the lender needs. Another tool they use to evaluate buyers is the bank statement. This offers a day-to-day window into how you manage your finances. The lender is specifically looking for overdrafts and proper accounting for all deposits that appear on the statement.

Overdrafts: Overdrafts, especially when there are a lot of them on a regular basis, will draw the attention of lenders. The lender will have several questions about these occurrences: Are you short of funds each month, or do you need to balance your checkbook better? How are you recovering from the overdrafts? What will keep this from happening in the future, once we lend you our money?

Deposits: All deposits on a bank statement must be accounted for. Electronic payroll deposits normally need no explanation, as the dates and amounts can be cross-checked with pay stubs. Other infrequent or large deposits will need to be explained and documented.

Lenders are looking for specific things regarding these deposits. They want to confirm steady sources of income that can be used for future mortgage payments. They also want to check for any gifts you may have received to help you secure a mortgage. If this occurs, the funds must have come from an eligible source. The lender may require a letter of explanation to confirm the legitimacy of any such gifts that show up on your bank statement.

To learn more about this process and how your bank statement affects your buying power, contact your mortgage professional.

Is There a Best Time of the Month to Close on a Home?

The answer to this question depends partly on whether you are paying off an existing mortgage at the time of closing. Let’s look at an example to illustrate this process.

In our sample scenario, you are purchasing your first home, and the closing date is set for May 10. At closing, you’ll pay interest charges from that date through the end of the month (May 31). That means you’ll pay 22 days of interest at closing. Your tax assessment will also be based on this date. Thus, the nearer to the end of the month you close, the lower your out-of-pocket charges are for this closing expense.

After closing on May 10, your first mortgage payment will be due July 1. Contained in that July payment will be interest charges for the month of June. The August payment will then cover the interest charges for the month of July, and so on. Interest charges for any given month will be paid at the beginning of the following month.

If you are refinancing or paying off an existing mortgage, the date of closing is less important. If you close on the 27th of the month, you will have a lower interest expense on the new mortgage than if you close earlier in the month, but you are still going to be paying interest on the prior loan for the first 26 days of the month.

In short, you will always be paying interest charges to one lender or another. There will never be a gap when no interest is due to anyone.

Do you have additional questions about this process? Contact your mortgage professional for more information.