Your Home is Not an Investment

Jim Duffy — Mon, 20 May 2013 20:38:05 +0000

A question I am asked quite often is “Should I view my home as an investment?”

And my simple answer is: No.

But I am getting ahead of myself.

We are told by many that the home mortgage is the largest indebtedness that most of us will take on in our lives. So it feels like an investment, with hundreds of thousands of dollars that look like a mature 401(k) balance.

And, some experts will say that we need to take out the largest and longest mortgage possible, and invest the difference. Others disagree, holding we should take out a short, 15 year fixed rate loan and pay it off as quickly as possible. Here is a post on the 15 year vs 30 year loan debate.

So it is easy to get confused and wonder.

I do a couple hundred home loans every year, and have seen just about every scenario. So with that experience, here is my take.

Your home is not an investment. Your home is shelter, security, a place to live.

Assuming you accept this premise, it still allows you a lot of leeway to structure debt around your home in many ways. As an example, if you are a disciplined saver/investor, and have the habit of putting some money away every month, then taking out a long term mortgage is a great way to go, especially now with fixed rates this low.

On the other hand, if you are nervous about the risk of investing right now, then plunk down the extra dollars on the mortgage and get it paid off in full. Nothing wrong with that, because it is true that there is risk in investing in the stock market, even with conservative strategies. And some economists put that risk higher now than in years past. There is no risk in paying off the mortgage. (And opportunity cost is not a risk, just a path not chosen under this option).

So a long term mortgage investing the difference or a short term aggressive strategy to pay the thing off are both okay. Here is my bottom line, though, no matter which option you choose: by the time your retire, have the home paid off.

That is important. Most of us will live on less income in retirement than we make now, while working. So to keep the same or similar lifestyle, we need to have less expense as well. So, choose the strategy that best suits you for the mortgage now; but don’t compromise on making sure it is paid in full by a comfortable retirement age.

Let me know if I can help you with your mortgage loan. Click to request a free rate quote. Or, just call me at 1.800.MY.LOANS (1.800.695.6267).

How Much House Can You Afford?

Jim Duffy — Mon, 06 May 2013 16:31:07 +0000

An important question for every home buyer to answer for themselves, this question of ‘how much house can I afford‘ has come to the forefront since the housing bubble burst and news reports everywhere have focused on those stretching to buy too much house.

I saw a lot of that stretching back then. Now, if anecdotal evidence is anything, I am seeing very prudent home buyers who are asking themselves this question very seriously, “just how much home can we afford“.

Well, last week an article about this very topic came out in Yahoo Homes. And, I was humbled to have been a source for this article on figuring how much home you can afford.

The author, Terrance Loose, began the article by setting the stage:

Are you thinking of buying a home, but not sure exactly how much home you can afford? It’s an important question. After all, there’s no return policy on houses. So if you bite off more mortgage than your bank account can chew, it could have a big impact on your life – not to mention your sleep patterns.

“You don’t want to be lying awake worrying about your loan payment. We call it the pillow test. If you’re up all night worrying about it, you probably bought too much house,” says Jim Duffy, a mortgage banker with Cole Taylor Mortgage. [emphasis added]

So, in following the flow of the article, let me highlight the 4 steps to take to make sure you are buying a home that is comfortable for your budget.

First Calculate your debt-to-income ratio:

And this is simply done, quoting the article in Yahoo:

“Things that are included in the debt-to-income ratio for most people are anything that shows up on your credit report, such as student loan payments, credit card payments, car notes. Also, the mortgage you plan to get will be factored in,” says Duffy. He also notes that alimony and child support count as well. Things like groceries, life insurance, and tennis lessons, however, don’t count.

And here is a handy calculator to use to mortgage calculate your own debt to income ratio.

Next Check Your Credit Report

Here the score is not as important as just reviewing to make sure everything on your credit report appears fairly accurate. And the best place to do that, for free, is by requesting your credit report at Annual Credit Report.com.

My advice here is to not spend too much time on this. If you are ready to get pre-approved for your mortgage, then call me and we can take the initial application and review your report together.

If you are certain that it needs work; then you could go to the above link to get your report, and be sure to check out Clean Slate Credit Services, a group that I highly recommend who will help you correct items that need it; but will also council you on establishing good, active credit lines – important today for qualifying for a mortgage.

Third, Factor in Private Mortgage Insurance (if applicable)

And here is the quote from the Yahoo article:

First, what it is: Private mortgage insurance, or PMI as it is commonly referred to, is an insurance that protects the lender against you defaulting on your mortgage, according to “A consumer’s guide to mortgage refinancings” published by the Financial Reserve Board (FRB). The FRB says lenders usually make you pay PMI when your down payment is below 20 percent.

According to the FRB, the estimated cost of PMI is about $50 to $100 per month. However, Duffy says it can be substantially more since the formula for figuring PMI varies with everything from loan size to loan type, and even how little of a down payment you make. So it can range anywhere from .5 percent of the mortgage amount to 1.5 percent of the mortgage amount – per month.

Finally, Add in Property Taxes & Homeowners Insurance

Again, from the article on Yahoo:

We know – more insurance. And taxes are kind of a bummer, too. But it’s certainly best to plan for them now rather than calculating them during a bout of stress-induced insomnia.

First, let’s talk about homeowner’s insurance. According to the FRB, your mortgage lender will require you to carry this insurance. It protects you against physical damage to the house by fire, wind, vandalism, and other causes.

As for the cost of home insurance, the FRB estimates a cost of $3.50 per $1,000 of your home’s purchase price. So, for a $375,000 home, it would be about $1,312 annually. Divide that by 12 months – because Duffy says that often this cost is added to your monthly mortgage payment – and it comes to about $109 per month.

Now on to your property taxes. These of course vary widely depending on not only the assessed value of your home, but also the county your home is in, says Duffy.

I think it was a very good summary of the ways to calculate how much home you can afford. And, it is always a pleasure and an honor to be quoted as the expert source for national media outlets.

More importantly, I hope that it is a help for you in determining your budget and home purchase plans. I want to help, and please click here to request a free rate quote. Or, just call me, at 1.800.MY.LOANS (1.800.695.6267).

The Case to Buy a Home Now

Jim Duffy — Wed, 24 Apr 2013 13:41:30 +0000

I have spoken several times on the blog about how home affordability is at an all time high, making now the right time to buy a home.

Since a picture is worth a thousand words, let’s look at this in terms of what some remember, and all the rest of us have heard about, which is back when mortgage rates were in double digits in the early 80′s.

Courtesy: www.estateofmindinc.com

Amazingly, you can purchase a median priced home today for a lower payment than the same home would have cost 30 years ago. This is even more amazing when we consider that with inflation, that payment is a much smaller percentage of average income than it was back then.

This won’t last forever. Interest rates are historically low and once the economy improves or the Fed takes its proverbial foot off the gas pedal, mortgage rates will rise once again. As can be seen above, high rates back in the early 80′s made housing much less affordable than it is today. While we will not likely see a return to those lofty levels, even small increases in rates can make for big changes in what you can qualify for today.

Are you ready to take advantage of record affordability?

Click here for a free rate quote. Or, call 1.800.MY.LOANS (1.800.695.6267)

HARP 2.0 Extended Through 2015

Jim Duffy — Mon, 22 Apr 2013 14:22:17 +0000

The popular program for homeowners who are ‘under water’ on their mortgages, HARP 2.0, has extended from it’s original expiration date of December 31, 2013 to the new date of December 31, 2015.

Good news for Georgia homeowners who have seen their home values drop in recent years, and who may be stuck at a higher rate.

So far, we have helped hundreds of homeowners in Georgia and surrounding states to refinance under the HARP 2.0 program. Most have opted to lower their payments with a 30 year fixed rate loan; but about a quarter have opted to lower their term to a 15 year or even a 10 year fixed rate. The payment is a bit higher, of course, but the overall interest savings is well worth it.

Here is an example:

A new 30 year fixed rate on a $200K loan @ 4% interest will cost $240K in interest over that 30 years.

A new 15 year fixed rate on a $200K loan @ 3.5% interest will cost $105K in interest over that 15 years.

That is a savings of $135K by choosing the 15 year fixed rate payment. That goes a long way toward helping fund a retirement account.

Since the HARP 2.0 program has been extended for a couple more years, I suggest at least investigating the possible savings that you could realize. And while doing so, look at a shorter term as well. If the 15 year payment is a bit steep for your cash flow, then let’s look at the 20 year term. You will be surprised how comfortable that can be payment wise; and how much you will keep and not pay to the bank in interest by shortening the term.

And, the HARP refinance program is available to homeowners who have little or no equity in their home; and it is also available for second homes and investment properties.

Click here to request a Free rate quote. Or, call and let’s get your rate quote right away, at 1.800.MY.LOANS (1.800.695.6267).

3 Steps to To Take Before Buying Your First Home

Jim Duffy — Wed, 17 Apr 2013 16:48:51 +0000

Buying your first home is a big step. Do it right, and you will be very happy that you did.

Especially now, with home affordability near all time highs.

Yet, before you buy, you will want to make sure you are in the best possible position to own your home. When you buy right, home ownership will be the American Dream for you, too.

Pay Off Debt. Especially credit card debt. The temptation could be to put credit card balances on hold and just make minimum payments, in order to save up for the down payment on a home. Even though it will take a bit longer to pay off debt and then save for the down payment, you should do so in that order. The reasons are multiple. Large balances on credit cards can lower your credit score, which can cause your mortgage interest rate to be higher. And, those same balances increase your ‘debt-to-income’ ratio, causing you to qualify for less of a mortgage. And, most importantly, carrying large credit card balances and other debt into home ownership often will cause you to be stressed homeowners, suffering under the weight of the debt.
Check Your Credit. The percent of credit reports that contain errors is reported as somewhere between 5-80%, depending on the study you read. While that number is so vast it is unreliable, the fact is that some credit reports do contain errors. You will want to correct those prior to writing the offer on the home. More common than errors, in my experience, are items that you may have simply forgotten about. Negative items that are legitimately on the report, and just slipped into the time-worn and forgotten past. So, review your report, and you can get the report for free Here.
Find Out How Much You Can Afford. Certainly I can calculate this for you as your loan officer; but it is quite helpful to calculate the purchase price and loan amount that you can afford. And, it is revealing for many home buyers to run these calculations themselves and see the factors that go into a home mortgage payment – the principle, interest, property taxes, homeowners insurance and any homeowners association fees, along with PMI payments, if applicable. Just as enlightening is taking into account the positive tax implications of a mortgage over paying rent. Many homeowners ignore the income tax breaks a mortgage affords; but this is very real, and should be weighed. You can use this excellent mortgage calculator.

I really enjoy helping readers of my blog with their home loan, and I would like to help you. Click here for a free rate quote. Or, call me at 1.800.MY.LOANS (1.800.695.6267).

Should You Lock or Float Your Rate?

Jim Duffy — Mon, 15 Apr 2013 15:46:49 +0000

You want to get the lowest rate you can, to keep your mortgage payment as affordable as possible.

So, the question arises in every home loan transaction – should I lock or float the rate?

Locking the rate in through the closing of your loan ensures that particular rate at closing. And if it is a fixed rate mortgage, then it is ensured for as long as you have the home loan. And with rates this low, that pretty much ensures you will have that interest rate as long as you own the home.

When deciding, think of it this way – locking your rate transfers the risk from you to your lender. Because if rates go up, then the lender loses the ability to collect higher interest on your home loan.

But what if rates go down once you have locked? Doesn’t that mean that you lose?

Not necessarily. Here at Cole Taylor Mortgage, we have a very aggresive float down policy. If you lock, and rates improve between you initial loan approval and closing, then we will float the rate down. The reason is simple. We lose a little potential revenue from the higher rate; but we gain a happy homeowner who, potentially, will refer others to our company and even return yourself when you have another need for a home loan.

Either way, your loan officer should be watching the bond market closely. And while no one can accurately predict a short term mortgage rate movement, a mortgage professional should be able to provide you with the general direction of the market and thus rates, and be a guide in deciding whether the risk of floating your rate is one worth taking or not.

I enjoy helping my blog readers with their mortgage needs. If I can help you, please click here for a free mortgage rate quote.

Or, just call me, at 1.800.MY.LOANS (1.800.695.6267).

6 Credit Mistakes to Avoid

Jim Duffy — Mon, 08 Apr 2013 13:07:49 +0000

Whether buying a home or just living life, good credit will save your hundreds, or thousands of dollars. Especially now, as lower credit scores will still get a very good rate on an FHA loan, for example, soon down to a 600 credit score. And yet, it will still cost you in the form of the increased cost of FHA mortgage insurance. So if you are buying a home in the near future, here are common mistakes to avoid. Doing so will increase your credit score and help you qualify for lower rates and even lower mortgage insurance costs, should you have a down payment of less than 20%.

Missing a Payment: This one may seem obvious. And generally the larger the account that the payment is missed on, the larger the drop in credit score. It could be up to 100 points. Now for the good news. If it is just one isolated 30 day late payment, then the negative effect will go away with time. After 12 months, you will be close to the score you started with.
Opening too Many Accounts: Especially opening them too quickly and not giving the accounts time to mature. It generates a hard inquiry, which affects your score by some 0-5 points. More importantly the length of credit history is important for your score to be optimal. New accounts have not had time to positively affect your score with a good history.
Too Few Accounts: Somewhat counter-intuitive to the last point, too few accounts make for a thin credit history. Ideally you want 3-5 items on credit, with a good mix of types of credit. For example, a major credit card, a store card, installment loan, and, of course, a mortgage will all be a nice mix and help your credit score climb high enough to get the best scores.
Maxing Out a Credit Card: This is one of the most common. In preparation for applying for the mortgage, try to be sure all cards are paid down to 30% of the available credit. The common theme is to get one card with a 0% introductory rate, and transfer balances to the card until it is maxed out. That is a big hit to your credit score. Spread out balances and pay the cards down. You will save big on the big purchase – your home.
Closing Accounts: This is one that seems like it would help, to close old accounts that you no longer use. But it does not help, it hurts your score in the short term. You see, length of credit history is 35% of your score. So closing out old accounts in good standing will do more harm than good. Keep them open until after you close on your dream home.
Disputing Accounts: You may not agree with the way a particular creditor reported something on your account. That’s okay; but don’t put an official dispute on your account. If it carries a balance, Fannie Mae will no longer let you close on your home loan with the open dispute. Instead, document the mistake, and let your mortgage professional help you to see if you can remove the negative item from your report, rather than file a dispute.

If you have good credit going into a home loan, it will save you a lot in interest or insurance. If you don’t, then plan ahead and look into using a professional service to help right the negatives as you prepare. I recommend Clean Slate credit to help maximize your credit score several months before your home purchase. I have seen great results with them.

As always, I would like to help you with your home purchase loan or refinance. Click here to request a free quote, or just call me at 1.800.MY.LOANS (1.800.695.6267).

15 Year Fixed vs 30 Year Fixed Rate

Jim Duffy — Mon, 18 Mar 2013 18:54:12 +0000

The most fundamental question these days (i.e. post housing crunch) when applying for a mortgage is, “Should I take out a 15 year fixed rate loan, or fall back on the lower payments of a 30 year fixed rate loan?”

And that one simple question is fundamental to both your current and future financial well-being. The question of a 15 year fixed rate loan or a 30 year fixed rate loan should be one that you spend time answering for your situation. Don’t gloss over this one.

The Real Difference between a 15 year fixed and a 30 year fixed rate mortgage

As a rule of thumb, for the same closing costs and points, a 30 year fixed rate will be a 0.5% higher rate than a 15 year fixed rate loan. It does vary with (bond) market conditions. But that is a safe rule to base your decision on.

While the rate is lower for a 15 year mortgage, the monthly payment is higher, which stands to reason as the loan is being paid off in half the time.

How much higher? That is the unknown that scares a lot of mortgage borrowers. Truth is, a 15 year fixed rate mortgage is $210-240 per $100k loan amount higher than the corresponding 30 year fixed rate payments. The lower the mortgage interest rate, the higher the difference in payment. For example:

$100,000 loan amount:

15 Year @ 3.0%: $691 per month 15 Year @ 6.0% $844 per month

30 Year @ 3.5%: $449 per month 30 Year @ 6.5% $632 per month

Difference $242 $212

Paying more every month, but for only half the number of months, has big savings over time. You will pay roughly 2.5 times the interest on a 30 year mortgage than you will on the corresponding 15 year mortgage. Based on the first set of numbers above, on $100,000 in principle the 30 year fixed borrower will pay $61,656 vs the 15 year fixed rate borrower who will pay $24,305.

At a glance, so long as you can afford the monthly payment without inhibiting cash flow, you should take out the 15 year fixed rate mortgage. The long-term savings is just too great.

And this is comparing the pre-tax savings. As you know, mortgage interest and property taxes are tax deductible. Rent is not. So, the after tax cost of the mortgage is important to quantify as well.

Based on the numbers above, here is a chart of the real cost of that same mortgage, considering a 28% income tax bracket.

Opportunity Cost

Yet, advocates of the longer term mortgages will at this point throw a yellow flag and whistle “No! Take out a long term fixed mortgage and invest the difference. The opportunity cost is just too great not to take out the low monthly payment mortgage loan.”

This is the age-old debate between the ‘heady’ financial planners, exemplified by Ric Edelman, and the baseline experiential financial consultants, exemplified by Dave Ramsey. The former would say, in a nutshell, to take out a long-term mortgage and invest the difference. The latter would argue that it is more in tune with the human condition to focus on one thing, and pay off that debt asap. Then focus on the next.

Both would argue that their way reduces risk.

Let that sink in for a moment…both argue that their way reduces risk. Huh.

Well, again simplifying things greatly: the former would argue that saving the $225/month that the 30 year rate is NOT costing you, and seeing a return on that savings/investment, you have an insurance policy built in against calamities such as major medical expenses, job loss, etc, etc. While the latter would argue that investing carries risk in itself (i.e. stocks in 2008), and being debt-free removes all risk. The problem? Both are right, depending on who you are. So let’s look in broad strokes at who should choose either type of mortgage.

If you want to explore the long mortgage while investing the difference, you will really enjoy this 15 Year vs 30 Year mortgage calculator.

When to choose one over the other

Here is where it gets a little hairy. You see, I am a mortgage professional with a lot of years in the business – through housing booms and housing busts – and I have seen a lot of personal situations both really good, and the bad ones. I can offer advice based on that hyper-acceleration of experience on the topic.

But, I cannot (or will not ) pay that mortgage for you. So, no matter how sage the advice I can dish out, the ultimate decision for the loan that is right for you is, well, yours.

That said, let me give you some food for thought.

First time home buyer

You will hear that buying a home is cheaper today than renting. And with mortgage rates this low, that is generally true.

And yet.

If you have not owned a home in the past, then I recommend taking out a 30 year fixed rate mortgage for the purchase of your first home, in most cases. Because of reserves, maintenance and future options.

A lot of first time home buyers are young, and don’t have a lot of money in savings and investments yet. It is important to develop the habit of saving part of your monthly income as reserves, to build a liquid net worth, and just to have for the rainy day when that minor emergency hits. Because it will. So my advice would be to take out a longer term mortgage yet calculate the difference between a 30 year and 15 year mortgage payment. Discipline yourself to save the difference. Finances, like anything else, is a consequence of habits. And a habit can be good or bad. Take the first home purchase as a time to solidify good financial habits.

Owning a home is cheaper than renting a comparable home right now. Except when the water heater explodes.

The added cost of maintenance and repairs is real and you do have to save for them. That is the other reason for a longer term mortgage – even though it comes down to a similar reason, which is developing or solidifying the habit of adding monthly to savings because unexpected expenses do happen in life. This habit, early in home ownership life, will pay dividends in over time.

Finally, especially right now while homes are at an all time high in housing affordability, home buyers may want options that they have not thought through up to the present. And one of those options when the home buyer is ready to move up in home – or across town to the better school district when Junior appears on the scene – may be to hang onto that asset which is the home and convert that to a rental property. Cash flow could work out much better and even be the difference in allowing that option with a 30 year fixed rate mortgage on the home.

Headed toward retirement

The other end of the spectrum happens often times when the kids are grown and the next becomes empty again.

Retirement, while still a reality for many, is quickly becoming less cut and dried. But whether you will face a very official ‘retirement’ and fall back to a life of golf and grand kids or not, there will at least be a slowing down, and a mandatory pulling from your retirement accounts rather than so actively adding to them.

At that time, when you begin pulling from the savings, you want to balance out the outflow as well. You will want to pull for basic living expenses only – and at that point it will be time to have retired all critical debt. In other words, you will want to have paid off the mortgage in full, along with the car loans, credit cards, etc.

You will chose whether to carry debt on income-producing assets such as investment property. But the roof over your head is, at that point most especially, security, not an investment.

So, you will want to structure your home mortgage as a 15 year fixed rate at some point in your 50′s. That will ensure that, entering later years when you begin to pull from retirement accounts, that active, earned income has paid off all debt, and the accumulated funds pay only ongoing living expenses.

What is best for you?

I suppose that I would sum it up this way. If your principle focus in on accumulating wealth at this point in your life – to cover emergencies without breaking the bank or to be ready to one day slow down the active income in favor of living off of that accumulation – then the bias is toward a longer term, 30 year fixed rate.

On the other hand, if you can see on the horizon the time when you will begin drawing down your hard earned accumulated wealth, then the bias is toward a 15 year fixed rate loan. The goal will be to retire all debt by the time the active income slows.

And, if you opt for the opposite, then live it fully.

In other words, if you are a first time home buyer and opt for the 15 year fixed rate in order to retire all debt snowballs as soon as possible, then do so only while living fully the entire plan that such a decision entails. Have all other debt retired. Have your emergency fund. Put 20% down. And be maxing out your retirement savings. Short of that, don’t risk your financial future on a desire to follow a particular plan. Only actions count here.

And, if you follow the other camp of taking out a very long term mortgage and never paying it off, if possible, then also follow that plan to the letter. Actually do save the difference. And work closely with your financial adviser who both subscribes to and understands the risk or lack thereof that your investments must have.

I have seen the take out a long mortgage and invest the difference plan work very well. And I have seen the get out of debt as quickly as possible plan work very well.

And I have witnessed both approaches, lived partially, fail miserably to the heartache and duress of the people attempting them.

So the final word on this post is, you have to decide whether a 15 year fixed rate or a 30 year fixed rate mortgage is right for you. In deciding you need to be brutally honest about your own financial disciplines. And, if you are not prepared to follow either extreme financial plan to the letter, then take my advice. Start with a 30 year fixed rate and develop sound financial disciplines around that. Then migrate to a short term mortgage as retirement approaches.

And, as always, I enjoy helping readers of my blog with your mortgage. If I can help you, please call me at 1.800.MY.LOANS (1.800.695.6267).

Or, just click here to request a free mortgage quote.

To Escrow or Not to Escrow

Jim Duffy — Thu, 07 Mar 2013 19:30:48 +0000

A mortgage comes with an option of including the property taxes and homeowner’s insurance with the mortgage payment every month, or not. Including those funds as part of the mortgage payment is called an ‘escrow’ account or an ‘impound’ account.

The escrow account can be said to be either a convenience factor, so that the homeowner does not have to budget for taxes and insurance separately from the loan, or a forced savings account, depending on your perspective. What happens is the total estimated annual property tax bill and the total homeowners insurance premium (and flood insurance, if required) is added together, and 1/12th of that amount is collected with the mortgage payment each month.

Then, when those bills come due, the mortgage company collecting the payments pays out the respective amounts to the insurance company or the County or City where taxes are due.

The Option to Waive Escrows

For home buyers who put at least 20% down payment on the home when they buy, they have they option to ‘waive’ escrows, or, in other words, to simply not include their insurance and tax funds as part of the monthly mortgage payment. Similarly, those who are refinancing have the same option, so long as they have 20% equity in the property at the time they refinance. Some homes have fallen in value, as we are all well aware, and now qualify for a HARP refinance. By definition of HARP there is no longer 20% equity in the property, so escrows are always required.

With the majority of loans, this costs .25% in discount – or .25% of the total loan amount to waive the impounds. At least that is the case with most Fannie Mae and Freddie Mac backed loans.

And that begs the question from most savvy home owners, “Why is Fannie Mae penalizing me for managing my own taxes and insurance payments?”

And a valid question it is.

The reason is equally valid. Because an unpaid property tax lien is the only thing that can trump a first mortgage lien. Therefore, if the lender controls that the taxes are being collected and paid on time, then they are protecting their first lien position and therefore their investment. To no control that puts the first lien in jeopardy, at least in theory, so they are charging for the perceived risk involved in not controlling the tax collection and payout.

And, regarding the .25% fee for waiving escrows, very often that is not charged to the borrower, as the lender may have enough ‘yield’ in the rate quote to pay that for her. So, it does not always show up on the Settlement Statement as part of closing costs; and some loan products will not charge that fee at all. Others, such as FHA financing, do not have the option of waiving escrows.

Establishing Escrows while Refinancing

This is a question that take a bit of thought and planning to see what you, the home owner considering refinancing your mortgage, should weigh along with the longer term goals of refinancing.

Many homeowners come into a refinance with an existing escrow account on their current mortgage. Most, in fact. And many of those plan to set up an escrow account with their new, refinanced mortgage as well.

In those cases, the current lender always refunds the full balance of the current escrow account. They send it to the home owners home address within 3-6 weeks after closing.

So the question that needs to be answered is whether to bring the funds to closing to fund the new escrow account, then wait for the refund to reimburse those funds, or to roll the new escrow funds into the loan balance.

Pros and Cons

There is a lot to be said for bringing funds to closing to set up the new escrow account.

Doing so reduces the new loan balance, closer to the original balance, and therefore intensifies monthly savings and reduces, by a small amount at least, the total interest paid over the life of the new loan.

And, most often, the escrow refund arrives in the mail prior to the new mortgage payment coming due. So, it feels a lot like bringing a payment to closing, then waiting for the refund.

In some cases, though, the refinance may be a cash out refinance to consolidate debt and pay off credit cards or some other debt which may be eating into the household cash flow.

In those cases, it may be best to roll both closing costs and escrows into the new loan, simply to maximize the cash out to consolidate the debt. The cash out at closing could be added to the eventual escrow refund to total an amount to pay off other debt.

Especially in the case of debt consolidation, it can be good to include escrows in the new loan amount. (And, cut up the credit cards once they are paid off. It’s a financial habit thing.)

What to do about escrows is one of the toughest things to figure out. I hope this overview helps to make the best decision for you and your home.

As always, if I can help you with your refinance, give me a call at 1-800-MY-LOANS, or just fill out this form for a Free rate quote.

5 Reasons to Buy a Home Now

Jim Duffy — Tue, 05 Mar 2013 16:19:33 +0000

Circumstances make for a good time to invest in or buy certain items at the right time, or to stay away from them for a while.

The housing market is no different. In hindsight, 2006- 2007 would have been a good time to rent for a while rather than buy. The last few years have seen some very good deals on homes and record low or near record low rates to compliment those home prices.

But, there was no urgency as rates were stable and plenty of homes were hitting the market. I think that 2013 will be the year that we see that trend turn. And here are 5 reasons to buy a home this year:

1. Mortgage rates will rise soon

It’s no secret that the Fed has been and is buying mortgage backed securities (MBS), those bonds that dictate the prevailing mortgage interest rates. And until recently, that was uncontested among the Fed voting members. Not so now. Signs are showing that the Fed is growing tired of subsidizing the housing market, and could end the MBS buying program in the next few months.

What that means for you: Don’t wait to lock in your rate. If you are in the market for a home purchase, move sooner rather than waiting until later. A tick up of 1% in mortgage rates equals a 10% move in the price of the home when calculating monthly mortgage payments.

2. Home Prices are on the Rise

Followers of this blog know the Home Affordability Index has been at or near all-time highs for some time now. And that looks to be changing, slowly now, more quickly when rate do begin to rise. The latest Case Schiller Home Price Index shows that around the Country, home prices are nicely on the rise.

Real estate is local, and this graph is national. So whether you missed the bottom of the market or not in your market, you are still hanging on to good real estate prices, and exceptional (and subsidized) mortgage rates.

3. Mortgage Offerings are Opening Back Up

While some in the mass media continue to tout how difficult it is to get a mortgage these days, the reality is that mortgage offerings continue to increase.

While mortgage insurance costs have risen and are set to rise again on FHA loans – the traditional low down payment loan option – we have rolled out a new conventional purchase loan with just 3% down payment. And, the MI is less than you would pay with 3.5% down and an FHA loan.

Jumbo loans require less down payment than they did a year ago. And both conventional loans and FHA loans can be made with a 600 middle credit score.

So if the mortgage offerings kept you from buying in the past couple of years, it may be time to get pre-approved again. I think you may be pleasantly surprised what you may qualify for.

4. Rents are on the Rise

Some markets around the Country are reporting median rent increases of 5% over last year.

And locking in a fixed rate mortgage on a home you buy will reap benefits for years to come.

5. You can Buy Again After… Sooner than you Think

Nearly every day I run into people who say something like, “I would like to buy a home, but you see I had a (bankruptcy, foreclosure, short sale, late payment…) a few years ago, so I know I cannot do anything for 10 years or so.

False.

You can buy again after each of those negative credit experiences much sooner than you think. Let’s check it out and see if you are able to be approved now. You will very likely be surprised that you are.

Those are the 5 top reasons to buy a home in 2012. Many more could be added to the list; and some can only be added by you, since the reasons for buying are as personal as each homeowner who opts in this year.

If I can help you with the pre-approval process, just drop me a line here for your free pre approval.