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Mortgages Vs. Home Equity Loans: What’s The Difference?

October 10, 2022 admin

Mortgages vs. home equity loans are two options for financing the purchase of a house. A first mortgage is an initial loan you take out to buy a property. To cover part of the cost of your property, you might opt for a second mortgage or a home equity loan. Before deciding which loan is appropriate for you, it is essential to comprehend the various distinctions between a mortgage and a home equity loan.

Homeowners used to be able to deduct interest paid on both types of loans, but this is no longer the case with the new 2018 tax law. However, interest on up to $100,000 of debt that builds or improves your home can still be deducted. Additionally, first mortgages and refinance loans are tax deductible up to a limit of $750,000.

Mortgages and home equity loans require borrowers to pledge their homes as collateral or risk the lender seizing the property. Although these loan types have this significant similarity, there are also crucial differences between them.

Mortgages

A mortgage is when a financial institution, such as a bank or credit union, gives money to a borrower so they can buy a house. In general, the lending institution will give up to 80% of the appraised value or the home’s purchase price — whichever is less. Continuing with our $200,000 example from above, if the appraisal value is at that amount, then the potential buyer would be given $160,000 and have to come up with the remaining 20%, which in this case would be $40,000, as their down payment.

The United States Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans are examples of non-traditional mortgages requiring no down payment. The Federal Housing Administration (FHA) mortgages allow customers to put as little as 3.5% down if they pay mortgage insurance.

The interest rate for a mortgage can either be fixed (meaning it will stay the same throughout the loan) or variable (which means it changes yearly). The borrower repays the borrowed amount and any additional interest accrued over time.

If a borrower falls behind on their mortgage payments, the lender can take possession of the home through foreclosure. The lender will then sell the house, usually at auction, to regain their money. If this happens, the first mortgage takes priority over any other loans that have been made against the property, like a second mortgage or HELOC. The original lender must be paid off before other lenders receive the foreclosure sale payment.

How a Mortgage Works

How a Mortgage Mortgages Vs. Home Equity Loans: What’s The Difference? — How a Mortgage Works

To qualify for a mortgage, you typically need to meet specific requirements set by the lender, which may involve:

A minimum credit score that shows a history of responsible payments.
A debt-to-income (DTI) ratio that shows you earn enough money to cover other expenses such as a car loan or credit card.
A minimum down payment.
Enough cash to cover closing costs on the mortgage.

The most frequent form of mortgage is a 30-year fixed-rate loan, although there are other choices for borrowing money for a house, such as 15-year fixed-rate loans and adjustable-rate mortgages.

Home Equity Loans

A home equity loan is also a type of mortgage. The primary difference between a home equity loan and a regular mortgage is that you take out a home equity loan after buying and accumulating equity in the property. A buyer may use a mortgage to purchase the property for the first time instead of using other lending tools such as capital gain loans or an FHA loan.

As the name implies, a home equity loan is secured by a homeowner’s equity in the property, which is the difference between the property’s value and the current mortgage balance. For example, if you owe $150,000 on a house worth $250,000 and have $100,000 in equity, you can take out an additional loan with that money as collateral.

Like a regular mortgage, a home equity loan is an instalment loan repaid over a set period. The percentage of equity lenders are prepared to provide varies, and the borrower’s creditworthiness helps influence this decision.

How a Home Equity Loan Works

A home equity loan is available after you’ve paid off the majority of your house or if you’ve already paid it off in full. If you’re still paying your mortgage, a home equity loan is a second mortgage that allows you to borrow extra money based on the value of your property.

Imagine that your home’s value is $300,000, and you still owe $125,000 on your first mortgage. You have a total of $175,000 in equity to use as collateral for a loan. Depending on other financial factors like credit score and lender guidelines, you may be able to borrow up to 80% or 85% of that value. The variables can differ depending on various conditions, such as if the home is the primary residence or an investment property and if the borrower is alone or has a co-borrower.

What’s the Difference Between a Home Equity Loan and a Home Equity Line of Credit (HELOC)?

The repayment schedule is the primary distinction between a home equity loan and a HELOC. A home equity loan is a fixed, one-time lump sum that is repaid over time, in a nutshell. A HELOC is similar to a credit card in that it’s a revolving line of credit secured by a house that you can use and pay back over time.

Mortgage vs. Home Equity Loan

Both a mortgage and a home equity loan require you to borrow money with the understanding that you will repay it. If you don’t adhere to this agreement, the lender can take your home as collateral for both types of loans. Because these loans usually come with a large sum of cash, the application process is understandably intense.

There are stages in which the home equity loan process is faster, but generally speaking, the steps for each type of loan (evaluating income, employment history, etc.) are similar.

The lender can waive the requirement for an in-person appraisal and replace it with different valuation methods that are faster and less expensive if the property is worth less than a specific value — usually under $500,000. In addition to saving time, home equity loans typically have lower closing costs. One exception: If you close your home equity loan early, many lenders will charge an early closure fee, generally equal to three years’ interest.

While mortgage closing expenses are typically lower than home equity loans, rates on home equity loans are usually higher than mortgage rates. That’s because, in most cases, the lender of the original loan is first in line to get repaid if your property goes into default.

So Can I Use the Money for Anything?

Technically, yes, you could spend the cash on anything. However, keep in mind that you’re borrowing against your house — the place where you live and raise a family. So, paying for a vacation or that boat you’ve been eyeing with the proceeds from your home equity loan may not be the most incredible idea.

Home equity is beneficial in many ways and it can finance things that will improve your life. Some people use home equity loans or lines of credit to do renovations, which raises the property’s value. Others install pools or buy new furniture with the money. You can use the proceeds for anything you like, but reviewing your options is best before committing to a long-term financial contract.

How Do Mortgages and Home Equity Loans Affect Your Credit?

Clean repayment history is one of the top things lenders like to see. It’s a great way to show financial responsibility, which can be attractive whether you’re taking out a loan or looking for other opportunities. While repaying mortgages and home equity loans on time will boost your credit score, there may be an initial dip in your score. If this happens, take a deep breath and relax knowing that your score will eventually recover and improve with punctual repayment.

Which Has Lower Interest Rates? A Mortgage or a Home Equity Loan

A mortgage typically has a lower interest rate than a home equity loan. If you can’t make your payments and default on the loan, the lender will be the first in line to get paid back for selling your house. In other words, lenders see it as less of a risk.

If your current mortgage has a low-interest rate, you may choose to borrow extra cash by taking out a home equity loan. However, remember that the funds can’t be deducted fully for tax purposes because they are used to improve your house.

Consider a comprehensive mortgage refinance if the interest rates on your existing loan have gone down significantly since you took out the original mortgage — or if you need the cash for reasons other than to pay off your house. If you refinance, you might obtain a lower rate on the rest of what you owe, as conventional fixed-rate loans are cheaper than home equity loans.

Special Considerations

Loan-to-Value (LTV) Ratio

Lenders look to the loan-to-value (LTV) ratio to determine how much money an investor can borrow. You calculate the LTV ratio by adding the loan amount to the amount still owed on the property, dividing that number by the appraised value of the property, and then totalling it up. If a borrower has made significant progress paying down their mortgage or if the value of their house has gone up dramatically, they may be eligible for a large loan.

Second Mortgages

In many situations, we consider a home equity loan as a second mortgage, such as when the borrower already has a mortgage on their house. If the property goes into foreclosure, the holder of the home equity loan does not get paid until after the first mortgage lender is reimbursed. As a result, home equity loans have higher interest rates than traditional mortgages, and their risk of default is more significant.

Second mortgages, on the other hand, are not all home equity loans. A borrower who owns their house free and clear might choose to borrow against the property’s value. In this instance, the lender is the first lienholder. These loans may have higher interest rates but require less paperwork. For example, there may be no requirement beyond an appraisal to complete the transaction.

Tax Deductibility of Mortgages and Home Equity Loans

The Tax Cuts and Jobs Act of 2017 have made home equity loans and mortgages more similar in one aspect: their tax deductibility.

According to the act, interest on a mortgage is tax deductible for mortgages of up to either $1 million (if you took out the loan before Dec. 15, 2017) or $750,000 (if you took it out after that date). This new limit applies to home equity loans as well, and the total threshold for deductions on all residential debt is $750,000.

There is, however, one catch. Before, homeowners would deduct interest on a home equity loan or HELOC no matter what they spent the money on — whether for home improvements or to pay off high-interest debt such as student loans or credit card balances. The act suspended this deduction for interest paid on home equity loans from 2018 through 2025 unless the loan is used to buy, build, or substantially improve the taxpayer’s primary residence.

Bottom Line

When you take out a home equity loan or mortgage, your home is collateral. Be sure to do your research, create a budget, and develop a financial plan before taking out a mortgage or home equity loan. This way, you can figure out whether owning is in your best interest (as opposed to renting) and plan accordingly. With the correct information, both mortgages and home equity loans can help you reach your goals.

Do you have any questions about mortgages and home equity loans? Leave a comment below or Contact us for a free consultation.

Refinance

Refinancing Your Home Equity Loan: A How-to Guide

October 3, 2022 admin

Refinancing Your Home or A home equity loan can help you pay for repairs and improvements and cover other expenses that result from owning a house. With this in mind, there may come a time when you want to refinance your home equity loan. This could be for several reasons, like lowering your monthly payment or taking advantage of lower interest rates.

Not everyone should refinance their home equity loan, however. It depends on your financial goals and current circumstances. If you’re unsure whether refinancing is right for you, this guide will help clarify things by walking through the process step by step and discussing the pros and cons.

What’s a Home Equity Loan?

A home equity loan is a kind of second mortgage. It allows you to borrow against the equity in your house — the difference between the amount you still owe on it and the value of your property — and receive a lump-sum payment in return.

You pay off the loan in monthly instalments (in addition to your present mortgage) over an extended period, usually anywhere from five to 30 years. However, if you can’t return the equity on your property, the lender may foreclose on it.

Although most people use home equity loans for renovations or household repairs, that’s not all they’re suitable for. Homeowners can also use them to pay off debt with higher interest rates, cover medical bills, and even finance their children’s education.

Can I Refinance My Home Equity Loan?

You can refinance a home equity loan similarly to a regular mortgage. Some reasons you might want to do this are the following:

Lower Your Interest Rate: If current interest rates are lower than what you’re paying on your home equity loan, refinancing to get a lower rate could save you money. The amount of savings depends on how much lower the new rate is.

Reduce Your Monthly Payment: Refinancing can also reduce your monthly payment, which can help you free up cash for other financial goals or to weather a financial emergency. The easiest way to reduce your payment is to refinance into a longer-term loan or a loan with a lower interest rate.

Change Your Repayment Terms: You could extend your repayment term to reduce monthly payments but accrue more interest in the long run. If you want to save on interest costs, consider refinancing into a shorter-term loan.

Tap Into Additional Equity: You might be able to use your home equity to cover other costs if you refinance.

Switch From an Adjustable Rate to a Fixed Rate Mortgage: If you have an adjustable-rate loan (also known as a variable rate), you might want to refinance into a fixed-rate loan. With a fixed-rate loan, your interest rate will never fluctuate, making it easier for you to budget and plan financially.

Home Equity Loan vs. Cash-out Refinance

A cash-out refinance is when you get a new loan to replace your current mortgage. The new loan is for more than what you owe on your existing mortgage, and the difference is in cash. This lump sum of cash can be used for other expenses, but unlike with a home equity loan, there won’t be a second monthly payment.

You might refinance your home for cash if interest rates drop below your current loan’s rate or you just don’t want a second monthly payment. A home equity loan may be better if you want to keep the same terms on your first mortgage untouched.

If you have enough equity in your home, you may be able to do a cash-out refinance. This would enable you to use the money from the refinance loan to pay off your existing home equity loan. Lenders usually approve loans up to 80% of a borrower’s home equity for cash-out refinancing.

Pros and Cons of Refinancing a Home Equity Loan

Refinancing your home equity loan is a brilliant idea for some, but it isn’t right for everyone. Before you go through with it, think about the advantages and drawbacks.

Pros of Refinancing a Home Equity Loan

You could lower your interest rate or monthly payment: If you refinance, you could end up with a lower rate, a smaller monthly payment, or both. Your savings depends on current interest rates and the loan term you choose.

You might be able to pay off your loan sooner: If you reduce your loan term, refinancing may assist you in paying off your debt sooner.

You may be able to tap into additional home equity: Refinancing can allow you to use more of your equity in your home and receive a larger lump-sum payment if you’ve improved your position.

Cons of Refinancing a Home Equity Loan

It comes with closing costs: Home equity loans and cash-out refinancing generally come with closing costs of 2% to 6%. It might not be the best move if you’re not financially ready for this.

It puts your home at additional risk: Home equity loans are secured by your home, which means that if you can’t make the payments, the lender could foreclose your house. If you have both a home equity loan and a mortgage, you’re more likely to face foreclosure if you lose your job or run into financial trouble.

You won’t always get a lower rate: Your new interest rate will be determined by your credit and current interest rate climate. If you have a poorer credit score now than when you took out the loan, refinancing might result in a higher interest rate than you currently have.

How To Qualify To Refinance Your Home Equity Loan

Refinancing a home equity loan works similarly to refinancing the first mortgage. Lenders will evaluate your income, expenses, debt, and house value to determine if you qualify. To demonstrate that you can repay the loan you’re applying for, you’ll have to submit documents such as pay stubs, W-2 forms, bank account statements, and income tax returns (or temporarily give lenders safe access to your online accounts).

You will have to cover the entire appraised value of your home and additional appraisal types such as drive-by or automated valuation model (AVM) appraisals. Your lender uses this information about your home’s equity to help determine the interest rate. The lowest possible interest rate available to those with a FICO score rating in the “very good” or “exceptional” range is 740 – 850.

With a lower credit score of 620, you may still qualify to refinance your home equity loan at a cheaper rate. However, you will likely get a higher interest rate and might borrow less than if you had a better score. The pool of potential lenders might also be somewhat limited.

Lenders will take your current monthly debt obligations and add the monthly payment on the loan you’re applying for. If that number is over 50% of your gross income, it may be challenging to qualify for the loan. This calculation is called a debt-to-income (DTI) ratio. Some lenders have a lower maximum DTI limit, such as 43%.

Finally, you’ll need to have enough home equity after taking out the new loan to meet the lender’s guidelines for the combined loan-to-value (CLTV) ratio. This percentage is determined by dividing the total amount you’ve borrowed against your home by the property’s fair market value. Some lenders will allow homeowners with top-notch credit to borrow up to 100% of the value of their homes. However, it’s more likely that you’ll only be able to borrow 85% to 90%.

Example of a Home Equity Loan Refinance

Assume that your house is worth $250,000. You have an outstanding first mortgage of $165,000 and a home equity loan balance of $25,000. Your debt totals $190,000 and is borrowed against your home. Divide $190,000 by $250,000 to get your CLTV ratio. The result is 76%, which indicates that your home equity is 24%. The lower the amount of equity you borrow against, the cheaper your interest rate will be. Some lenders demand a CLTV no greater than 60% or 70% to obtain the lowest interest rate.

Option 1: Refinance Into a New Home Equity Loan

How It Works

You may switch to a new mortgage with the same amount of money — or more if you have enough equity. You’ll receive a new interest rate and loan term.

Pros

You may be able to decrease your monthly payment or borrow more without significantly increasing it if you get a lower interest rate and/or longer loan term. Unless you pay off the mortgage before the first 36 months, most lenders will cover most or all of your closing costs on a home equity loan. In that case, you’ll have to reimburse the lender for a proportionate share of the closing expenses it paid on your behalf.

Cons

Even if you obtain a lower interest rate, extending your loan term may result in more significant long-term interest costs. If your financial situation deteriorates, you risk losing your house if you take out a larger loan.

Option 2: Refinance Into a Home Equity Line of Credit (HELOC)

How It Works

A home equity line of credit (HELOC) might be a suitable option to pay off a home equity loan.

Pros

You can usually make interest-only payments during the HELOC draw period, which typically lasts ten years. Refinancing your home equity loan with a HELOC may result in significantly lower monthly payments.

Cons

If you take out a home equity loan, you usually have to pay a fixed interest rate. However, if you get a HELOC, the interest rate is variable. So, with a home equity loan, you’ll have a predictable monthly payment, but with HELOC, it could be higher or lower each month. In the long run, it probably will cost more because rates tend to go up over time.

Option 3: Refinance Into a New First Mortgage

How It Works

You can get a new interest rate and loan term by refinancing your home equity loan and first mortgage into one single loan. This effectively consolidates your loans with a rate-and-term refinance without increasing the amount you borrowed in the first place.

Pros

Rates on first mortgages are sometimes lower than home equity loan rates, allowing you to save money. You’ll have a consistent monthly payment and predictable borrowing costs if you refinance into a fixed-rate mortgage.

Cons

If your previous first mortgage is at a rate lower than what lenders are currently offering, it would not be profitable. Even if you can obtain a lower interest rate by refinancing, first mortgages may include significant closing expenses that can total 2% to 5% of the loan amount. In contrast, many lenders will reimburse your closing costs on a HELOC or home equity loan.

Should You Do a Cash-out Refinance To Pay off Your Home Equity Loan?

A cash-out refinance is a strategic way to get out of an equity loan early if you also want to refinance your first mortgage and borrow more money. Cash-out refinancings generally have higher interest rates than home equity loans, although not as high as rate-and-term refinances. Your creditworthiness will determine the rate.

Homeowners should always be weary of owing more to their homes than they can afford to pay back. Payments become unmanageable when employment is lost or cut, preventing you from making the necessary monthly payments. If you fall too far behind, your home could go into foreclosure.

Is It Worth Paying the Closing Costs To Consolidate Your First Mortgage and Home Equity Loan?

You’ll need to figure out your breakeven period and see how many months you’ll have to repay the new loan before you break even after paying closing costs. The shorter the breakeven period, the better. If you finance your closing costs, it will alleviate some of the pain in the short run. However, by spreading closing costs over the years, you will pay interest on them for years to come.

Paying higher interest rates is another way to avoid paying closing costs. However, this isn’t the ideal method if you’re trying to get a lower rate by refinancing.

Should You Refinance Your First Mortgage When You Refinance Your Home Equity Loan?

Are you in a position to pay the extra money for closing costs if refinancing your first mortgage? If not, what factors prevent you from doing so, and how will that impact your financial situation? What questions do you have about refinancing your first mortgage?

Do you have an adjustable-rate mortgage (ARM) that you wish to replace with a fixed-rate loan because interest rates are rising?
Is your loan interest rate higher than current market rates?
A conventional loan may be cheaper if you have an FHA loan and your credit has improved. This is because your home equity may have increased.

What if You Don’t Qualify To Refinance Your Home Equity Loan?

Contact your loan advisor as soon as possible if you can’t refinance your home equity loan and the payments have gotten too expensive. If you’ve had a financial problem, your service provider may be willing to modify your loan terms to make the payments more affordable.

The Bottom Line

You could lower monthly payments by refinancing your home equity loan into another home equity loan, HELOC, or first mortgage. To ensure you’re getting the best deal, apply for multiple loans with different lenders and compare their offers. Your credit score won’t be affected as long as you shop around within a 45-day window and submit all applications on the same day.

You’ll be able to obtain a lengthy loan quote for each application. Determine which offer provides you with the most excellent mix of short-term affordability and long-term financial stability. If refinancing isn’t an option, contact your home equity loan advisor about a loan modification.

Do you have any questions about refinancing your home equity loan? Leave a comment below or contact us for a free consultation.

Refinance

Understanding The VA Cash-Out Refinance (Refi)

September 27, 2022 admin

Understanding The VA Cash-Out Refinance (Refi): The Veteran’s Aid and Assistance (VA) is a government program that financially assists veterans or their families. A cash-out refinance with a VA guarantee allows you to replace your current loan with a new one on more favorable terms. If you want to withdraw money from your home equity or refinance a non-VA loan into a VA-backed loan, a VA-backed cash-out refinancing may be the answer. Continue reading to learn more about how refinances work and if a VA cash-out refinancing is right for you.

What Is a VA Cash-out Refinance?

A VA cash-out refinance, also known as a “refi” is a government-backed mortgage that allows you to exchange your existing mortgage for a less expensive alternative. It enables veterans, active duty service members, members, and surviving spouses who meet the requirements to borrow up to 100% of the appraised value of their house. All mortgage borrowers — including those with a VA loan — may use the VA cash-out refinance if they meet the required conditions. You can refinance into a larger loan and use the extra money for many things, such as home improvements or paying closing costs by using the cash-out alternative.

Another option is an interest rate reduction refinance loan (IRRRL), which is only available to people with a VA loan. It works similarly to refinancing a standard loan, allowing you to obtain a lower interest rate, extend your term, or modify other conditions. It’s also possible to refinance a non-VA loan into a VA loan, which often has better conditions than a conventional loan.

Who Is Eligible for a VA Cash-out Refinance?

To begin with, you don’t need to have a VA loan already to participate in the program. It’s possible to get a VA cash-out loan regardless of what type of conventional mortgage you have. However, you must be eligible for the program, and only certain people are qualified.

Applicants must fulfill the following criteria to be eligible for a VA loan:

Served on active duty for a minimum of 24 continuous months or mobilized for 90 days.
Mobilized before August 1st, 1990, for at least 181 days.
Provided six years of creditable service in the Reserves or National Guard or at least 90 days under Title 10 or Title 32, with at least 30 being consecutive.
If you were medically discharged, service time requirements may be waived.
Be the surviving spouse of a service member who died in the line of duty.

To obtain VA loan benefits, you’ll need a copy of a Department of Veteran Affairs Certificate of Eligibility (COE), which confirms that you’ve satisfied the minimal prerequisites necessary to get a loan. Any veterans and service members wanting to apply must have been honorably discharged and have a credit score of 680 or more. You can only cash out 90% of your home’s equity if your credit score is less than 680.

How Does a VA Cash-Out Refinance Work?

The federal government backs VA loans, so these loans pose a lesser overall risk to lenders. That indicates that borrowers who use these programs can get financing with better terms than those who apply for personal loans through banks or other lending institutions. The application procedure for a VA cash-out loan is comparable to a conventional loan. It begins by researching lenders, examining loan conditions, and — after comparing each lender’s terms — selecting a financial institution to work with, then submitting a loan application.

VA Cash-Out Refinance Cost and Fees

All VA loan applicants must pay a fee to the Department of Veterans Affairs, known as the VA funding fee. This is a one-time expense that helps keep the program running. The funding fee varies depending on whether you are using your first VA home loan or not:

First-time borrowers: 2.3%
Borrowers who have taken out a VA loan in the past: 3.6%

The interest rate has a significant role in the overall cost of the mortgage. Because the government partially insures VA loans, they are considered less risky than standard mortgages. As a result, VA cash-out refinancing rates are typically lower than those for traditional cash-out refinance loans. Before applying for a VA cash-out refinance, compare loan alternatives from several lenders to ensure that it is a good financial fit for you.

When to Consider A VA Cash-Out Refinance

There are a few situations when a VA cash-out refinance makes sense. For example, if you:

Need Help Paying For Closing Costs: Unlike a VA streamline refinance, a VA cash-out refinancing does not allow you to roll your closing costs into your loan balance. However, you can use the cash you receive to cover those expenses. Closing charges can range from 2% to 5% of your overall loan amount, a significant sum of money you may not be able to pay upfront.
Need Help Paying Other Expenses: Another incentive to go with a VA cash-out refinance over an IRRRL is the opportunity to obtain financing for essential expenditures at a low-interest rate. You may use the money to pay off other high-interest debt, pay for college, or make home improvements to boost the value of your home.
Want To Refinance a Non-VA loan Into a VA Loan: There isn’t a need to take out cash, so you could always just refinance and utilize the cash-out option to acquire a VA loan.

How Can I Get a VA-Backed Cash-Out Refinance Loan?

Find a Lender

To get a cash-out to refinance loan, you’ll go through a private bank, mortgage firm, or credit union. Terms and costs may differ, so talk with several lenders to see what fits your needs.

Request Your Certificate of Eligibility (COE)

You’ll need to provide your COE, which will serve as proof that you qualify for the home loan benefit to your lender.

Give Your Lender Any Necessary Information

You’ll also need to supply your lender with the following items:

Copies of paycheck stubs for the most recent 30-day period.
W-2 forms for the previous two years.
A copy of your federal income tax returns for the last two years (required by many, but not all lenders).
Any other information your lender requires.

Follow Your Lender’s Process for Closing on the Loan, and Pay Your Closing Costs

You may be charged a VA funding fee at closing. Because the VA mortgage program does not demand down payments or a monthly mortgage insurance payment, this one-time charge reduces the cost of the loan for American borrowers. Your lender will also charge interest on top of any closing costs.

How To Find the Best VA Cash-out Refinance Lenders

Not all lenders are authorized to provide VA loans, even though these loans are funded by private lenders rather than the VA itself. You’ll need to locate an approved lender to apply for a VA cash-out refinancing. Because criteria and terms differ, comparing rates from several vendors is a good idea before filling out an application.

Look into banks, credit unions, and internet lenders to discover the best VA mortgage provider for you. Keep in mind that many internet lenders will allow you to submit a few key details and will provide an estimate immediately instead of going through the whole application procedure and a rigorous credit check.

Saving Money With a Cash-out Refinance

Regarding your mortgage, there are several ways to save money. For example, you might refinance to obtain a loan with better terms and rates. You may also use your home equity to pay off high-interest debt or increase the value of your property by leveraging. A VA cash-out refinance loan might also help you accomplish these goals. This refinancing option, however, does not always result in savings. It’s essential to crunch the numbers and be sure that it is worthwhile for your circumstances before pursuing this option.

Suppose your primary goal is to receive money. In that case, there are other choices you can explore, including a home equity loan or line of credit (which does not charge a VA funding fee), as well as less expensive refinancing alternatives that don’t include a cash-out component.

VA Cash-out Refinance Guidelines

To get a Certificate of Eligibility (COE), which tells potential lenders that you meet the VA’s standards for getting a VA loan, you need to meet specific VA loan requirements.

Length Of Service: For example, if you’re an active service member or veteran, you’ll need to have served for a set amount of time in most cases.
Veterans Must Have Been Honorably Discharged: A dishonorable discharge will prevent you from receiving a VA loan.
Credit Score: The Department of Veterans Affairs does not have any particular credit score, debt-to-income (DTI) ratio or down payment requirements for cash-out refinance eligibility. However, many lenders have their criteria and demand a score of at least 620 to qualify.
Loan-To-Value (LTV) Ratio: You can refinance up to 100% of your LTV in most situations. On the other hand, some lenders may restrict you to 80% – 90% of your home’s appraised value.

The Bottom Line

For qualified borrowers, a VA cash-out may provide a fantastic chance to put more money back in their pocket to help pay for repairs and improvement, save for retirement, or cover educational costs. Refinancing might help you obtain better loan conditions, such as reduced interest rates, smaller monthly mortgage payments, or removed mortgage insurance fees.

Applying for a VA cash-out loan might be an intelligent way to improve your overall financial health or even extend the time it takes you to repay your debt. Make sure you qualify before beginning the application process and shop around while looking at different lenders. Wondering just how much you could save by applying for a VA cash-out refinance? Contact us for a free consultation.

Mortgage

Are Mortgage Rates Really High? A Historical Comparison

September 20, 2022 admin

Mortgage rates rose sharply in 2022. However, throughout history, mortgage rates have often been higher — sometimes much higher — than they are today. In 2020, mortgage rates decreased after the Federal Reserve decided to lower rates in response to COVID-19. Rates have risen slightly since then but are still near historic lows. The long-time average for 30-year mortgage rates is over 7%. So even though today’s mortgage rates are hovering around 5%, they’re still a good deal by comparison.

Mortgage Rates Chart For 2022

During the COVID-19 pandemic in 2020 – 2021, mortgage interest rates fell to all-time lows. The Federal Reserve took emergency actions to help push mortgage rates below 3% and keep them there. However, with inflation reaching four-decade highs, mortgage interest rates have been rising this year. More Federal regulation might drive them even higher. Those who can lock a rate sooner rather than later may be wise to act quickly.

Historical Mortgage Rates Chart

Despite recent increases, today’s 30-year mortgage rates are still below average by historical standards. Freddie Mac has been keeping records since 1971, and from April 1971 to June 2022, 30-year fixed-rate mortgages averaged 7.77%. Even with the 30-year FRM above 5%, today’s rates are still relatively cheap compared to previous mortgage rates.

The 1970s

Freddie Mac had access to reliable information on 30-year fixed-rate mortgage rates since 1971. Rates started at 7% in 1971 and gradually rose until they hit 9.19% in 1974. They fluctuated between the mid-8% and high-8% range before climbing to 11.20% during a time of significant inflation that peaked early in the following decade.

The 1980s

In the 1970s and 1980s, the United States went into recession due to an oil embargo imposed by the Organization of Petroleum Exporting Countries (OPEC). Hyperinflation resulted from this, causing prices for goods and services to skyrocket.

The Federal Reserve raised short-term interest rates to combat this hyperinflation, which made money in savings accounts more valuable. On the other hand, all interest rates increased, so borrowing money became more expensive.

According to the Freddie Mac data, interest rates approached their all-time peak in 1981, when the yearly average was 16.63%. Fixed rates fell from there but remained above ten throughout the decade. It was difficult to borrow money during the 1980s due to high-interest rates.

The 1990s

During the 1990s, inflation began to somewhat recede. By 1990, the average mortgage rate was 10.13%, but it gradually decreased until it hit 6.94% in 1998. According to a paper published by the Economic Policy Institute, one crucial reason for the economic growth and declining inflation that emerged later in the decade was the widespread takeover of the internet. The government invested more in the research and development of cutting-edge technologies, resulting in economic expansion.

The 2000s

Mortgage rates dropped from an average of 8.05% in 2000 to the upper 5% range by 2003. However, it wasn’t all rose-colored. The housing market collapse resulted from property values plummeting dramatically until they hit their lowest point in 2008. Many homeowners were left owing more on their houses than the properties were worth following this descent. To offer some comfort and stimulate the economy, the Federal Reserve lowered interest rates to make borrowing easier.

After an initial delay, the Federal Reserve announced a final interest rate cut from 0.25% to 0.00%. The Bank of England took the hint and cut its benchmark lending rate by 50 basis points, or one-half percent, to 5%, in August 2016. Since then, long-term rates have increased significantly above their figures before the recession. The 10-year Treasury yield is now at 2.43% after briefly dipping below 2% earlier this year (see Graph 1). This change has made borrowing money cheap for banks and caused mortgage rates to plummet almost a whole percentage point on average — to 5.04% in 2009 (see Graph 3).

The 2010s

Mortgage rates began the new decade at around 4.69%, riding the wave of cheap borrowing costs. They steadily fell throughout the decade and were in the mid-3% range by 2012. In 2013, mortgage rates rose to 3.98%. The market became a little jittery when the Federal Reserve announced that it would cease buying bonds.

The yields on mortgage bonds go up due to a scarcity of purchasers, which attracts buyers and leads to a rise in mortgage rates. In 2014, mortgage rates increased to 4.17%. Mortgage rates declined back to 3.85% in 2015 as the market settled down after being turbulent for several years.

Despite their higher start in 2016, rates ended at 3.65%. With worldwide uncertainty on the rise, investors sought refuge in the United States bond market to guarantee their asset stability.

After the 2016 presidential election, rates began to climb. They peaked at the end of 2018 and the beginning of 2019. The average rate on a 30-year fixed rate mortgage (FRM) was 3.95% on the low and 5.34% on the higher side.

The 2020s

According to Bankrate data, the 30-year fixed rate fell just under 3% in January 2020, with an average of 3.38% for the year. Fearful investors were drawn to safer products like Treasury and mortgage bonds, pushing yields and rates lower during the epidemic.

Rates began to rise again in 2021, but COVID-19 variants stopped them. That has not been the case so far in 2022. Mortgage rates have displayed the quickest and most enormous run-up in 28 years, with inflation hitting a 40-year high. The Federal Reserve is preparing to shift rapidly to a policy of tighter money and higher interest rates.

Will Mortgage Rates Go Back Down?

Rates on 30-year fixed mortgages surged to the highest level since 2016 during the week of July 22 and then dropped quickly, leading many people to panic buy. Rates have continued to fluctuate in recent weeks due to this struggle. “Mortgage rates remained volatile owing to the tug of war between inflationary pressures and a clear economic slowdown,” Freddie Mac stated on August 4.

In other words, it’s almost impossible to predict what will happen to mortgage rates by the end of 2022. The Federal Reserve will likely continue raising interest rates, usually followed by higher mortgage rates. However, if the Fed’s actions cause a recession, mortgage interest rates may fall. As a borrower, it doesn’t make much sense to attempt to time your rate in this market. Our top advice is to purchase when you are financially stable and can afford the house you desire, regardless of current interest rates.

Remember that your mortgage rate isn’t set in stone. If interest rates drop substantially, homeowners may always refinance later to save money.

Are Houses Less Affordable Than They Were in Past Decades?

Other critical aspects of housing include the property’s monthly cost and the mortgage interest rate at the time of purchase. You’ve probably noticed more news stories about how buying a house is becoming increasingly difficult. The headlines are correct — it is less affordable to buy a home today than a year ago. However, it’s essential to consider the context. Is today’s house purchase less expensive than it was in 2005? What about 1995? What will happen if we go back to 1985? Or even 1975?

The cost of a house has skyrocketed in the last 45 years. So have the prices of milk, bread, and almost every other consumable item. Inflation occurs over time — as we all know. Furthermore, Freddie Mac‘s most recent statistics reveal that there have been only two times in the last 45 years (2010 and 2020), adjusting for inflation, that purchasing a home was less expensive than it is now. However, the previous years have stressed the significance of one’s house in a meaningful way. As a result of the COVID-10 pandemic, many individuals switched from renting to ownership. In contrast, others began reconsidering their present home and whether or not they should make a move to one that better fits their current living style and demands.

Why Are Homes So Affordable Today?

The one-two punch of historically cheap mortgage rates and increased demand has kept housing more affordable than it’s been in years. Although several variables influence the overall calculation, low mortgage rates play the most significant role today.

Of course, many people find homeownership frightening since it involves a significant investment with a down payment. But the fact is that today’s home purchases are typically less expensive than other kinds of investments in terms of the total cost.

When you include the purchase price of your property plus any down payment needed, including mortgage interest, property taxes, homeowners insurance, and any cash payments required at the beginning of the project, the cost of home ownership is often less than what many people believe. Furthermore, with a house, you get what you put into it. As a result, when you pay off your mortgage, your investment generally appreciates above what you paid for, becoming a nice safety net or asset.

Slower Home Price Growth

Home prices rose by nearly 20% last year, owing to a lack of supply and high demand. As rising rates make monthly mortgage payments less affordable, the rise in home prices might slow down. According to Taylor Marr, deputy chief economist at brokerage Redfin, there is a historical link between higher interest rates and reduced house price growth. When mortgage rates go up by 1%, the typical year sees a 5% decrease in a price increase.

Less Competition

Some potential homebuyers will be priced out of the market due to higher rates. It’s terrible news for those individuals but good news for those who remain in the market. According to Marr, the current monthly mortgage payment on a typical house is at an all-time high of $2,123. As rates continue their slower and steadier climb later this year, some buyers will have to take a step back.

More Housing Stock

When demand drops, houses stay on the market longer to allow inventory to build. The longer a home sits on the market, it’s less likely it will sell for its original list price, which is positive news for buyers. There were already indications of a minor improvement in housing supply when there was a smaller drop in active listings compared to last year. While no one expects a wave of homes to appear out of nowhere and fix the shortfall overnight, there are encouraging signals.

Better Savings Rates

Home prices are not the only economic indicator that is increasing rapidly. Consumer price inflation reached 7.9%, the highest level in 40 years. The Ukraine conflict and subsequent sanctions against Russia can raise prices even more, especially since oil imports are already pushing gasoline costs up.

If you’re thinking of buying your first house or upgrading to the one you’ve always desired, it’s vital to understand how mortgage rates impact the overall cost of your property. With that in mind, purchasing while mortgage rates are as low as they are now may save you a significant amount of money over the life of your home loan.

What Is The Bottom Line?

Finally, if you want to buy a home, do not be dissuaded by the media’s reports on affordability. You won’t be able to get the same deal as your friend did last year, but you will obtain a better bargain than your parents or grandparents did 20 or 40 years ago. So, if you’re ready to purchase a house this summer or fall, you may save money based on historical affordability trends.

Do you have any questions about mortgage rates and loan facilities? Leave a comment below or contact us for a free consultation.

Mortgage

What Type of Mortgage Program Is Best for You?

September 14, 2022 admin

You will come across multiple types of mortgage loans as you consider buying a home, whether you’re a first-time homebuyer or a practiced house flipper. Many different types of mortgage loans are available on the market today, and choosing the right one for you can be a daunting task. Understanding the six most common types of home loans and what options they offer is instrumental as you negotiate your way through this complex purchase. To help you make the best decision for your individual needs, let’s take a look at six of the most common types of mortgage loans.

Six Types of Mortgage Loans

Mortgages come in all shapes and sizes. While the 30-year fixed-rate mortgage might be the most traditional, it’s far from your only choice. Your lender will ask you about your income, credit, and the type of home you’d like to buy. Based on that information, they’ll recommend the types of loans that work best for you.

In this article, we’ll discuss the six most common types of mortgage loans on the market and go over a few other important details — like what loan term you need and whether a fixed or adjustable interest rate makes more sense for you. Let’s dive in.

six type of mortgage loans — Six types of mortgage loans

Conventional Loans

If you have a decent credit score and a steady income, your bank will most likely check to see if you are eligible for a standard loan. A conventional loan is any mortgage provided by a private lender, such as a bank, that isn’t backed or insured by the government. Conforming loans are the most common type, whereas non-conforming loans are not.

The main distinction is the size of your mortgage. Conforming loans are intended to be sold to Fannie Mae and Freddie Mac, and the government has maximum amounts established for them — $510,000 in most counties (in 2020) — that must be paid back over 30 years. Additionally, other restrictions and criteria may apply, including a minimum credit score of 620, in most situations, and a minimum down payment of 3% for some qualified applicants.

Pros Of Conventional Loans

Conventional loans are perfect for individuals with excellent credit looking for the cheapest interest rates and a user-friendly application procedure. These mortgages are less expensive than most other kinds of home loans, such as FHA loans, as long as you qualify.

Cons Of Conventional Loans

If you have poor credit, you may be unable to qualify for a traditional loan. Also, keep in mind that if you put down less than 20%, you’ll almost certainly need to obtain private mortgage insurance, which will increase the overall cost of your loan.

FHA Loans

If you’re concerned you may not qualify for a conventional loan, an FHA loan could be an option. FHA loans are mortgages issued by private lenders which are insured by the Federal Housing Administration. The government guarantee may help you qualify for a mortgage you may not have been able to get otherwise.

However, it’s important to know that not all applicants will be approved, and you might be required to make a 10% down payment with a credit score between 500 and 579. With credit scores of 580 or higher, you might be able to make a down payment as low as 3.5%.

Pros Of FHA Loans

The FHA is a government-sponsored mortgage program that provides low-interest loans to individuals who meet specific requirements. Because the federal government backs them, these loans have some significant advantages over conventional mortgages. If you qualify for an FHA loan, it might be easier than getting a regular mortgage since you don’t need a high credit score as with other lenders. They may also enable you to purchase a house with little down payment if applicable.

Cons Of FHA Loans

FHA loans are more expensive than home loans since the federal government’s guarantee costs pass on to you. The FHA requires each loan in its program to be insured by mortgage insurance. This is paid in two ways: a one-time charge at closing, known as an upfront payment, and a monthly insurance premium.

VA Loans

You may be eligible for a VA loan if you’re a veteran or serve in the military. If you meet specific requirements, you may be able to borrow money through the VA. These loans are insured by the United States Department of Veterans Affairs and help service members, veterans, and eligible family members purchase houses. You’ll borrow these mortgages from a private lender, with the federal government guaranteeing a portion of the debt.

Even with the government guarantee, you must meet your lender’s credit and income requirements to qualify for a VA loan. There is no minimum credit score requirement, but lenders will comprehensively investigate your finances to ensure you can repay your mortgage.

Pros Of VA Loans

They can be an excellent bargain if you qualify for a VA loan. You won’t have to put down any money in many situations. The VA also provides better terms and interest rates than other lenders, especially if your credit is terrible. Another advantage: VA financing doesn’t require mortgage insurance premiums.

Cons Of VA Loans

To obtain a VA loan, you must apply for a certificate of eligibility, which goes into your military service history. To be eligible, you must have served for a specific time, ranging from 90 days to two years, depending on when you joined the military.

USDA Loans

If you’re buying a property in a rural location, you may qualify for a USDA loan. The United States Department of Agriculture (USDA) is the agency that administers several government-backed loans to assist low and middle-income individuals purchase homes in rural areas. These initiatives provide direct financial aid or backstop private lenders’ loans based on the eligibility criteria.

Also, the direct loan program may be a good fit if you don’t have adequate housing or can’t afford traditional loans. You must live in an area with fewer than 35,000 people to qualify. These fixed-rate loans don’t usually require a down payment and aren’t available everywhere. You’ll apply for these directly through your USDA Rural Development office.

Pros Of USDA Loans

As we mentioned, USDA loans are best for people with low and moderate incomes who live in rural areas.

Cons Of USDA Loans

You might not qualify. While there are no credit score minimums, you must prove that you can pay back the money. Your monthly home payment should not exceed 29% of your monthly income.

Jumbo Loans

If you’re purchasing a high-priced property, you’ll almost certainly need to apply for a jumbo loan. A jumbo loan is a mortgage that exceeds the Freddie Mac and Fannie Mae conforming loan limits by $50,000 or more. A jumbo mortgage might be worth anywhere from $500,000 to $2 million.

Pros Of Jumbo Loans

Jumbo loans are ideal for individuals requiring a mortgage for a sum greater than the average home price in the United States.

Cons Of Jumbo Loans

To obtain a jumbo loan, you’ll generally need excellent credit and the ability to make a substantial down payment. Remember that jumbo loans have a higher interest rate than standard mortgages.

Reverse Mortgages

A reverse mortgage is a kind of home equity loan for people who are 62 and older and need money. It’s a form of home equity loan developed for seniors who wish to use the value of their property for additional retirement income. When you leave the house, you’ll usually owe the remaining amount, or your spouse or heirs will have to repay the lender if you die.

The amount you’ll be able to borrow in a reverse mortgage will depend on:

How old you are.
The value of your home.
Market interest rates.
Your ability to pay taxes and other household expenses.

Pros Of Reverse Mortgages

Reverse mortgages work best for those 62 or older who need funds to help pay for healthcare or other regular expenses.

Cons Of Reverse Mortgages

The amount you owe on a reverse mortgage increases as interest and costs are added to the principal. This means that you, your spouse, or heirs will have to sell the property to repay the loan if you move out of the house (or after you pass away).

What Else Should I Think About Before I Take Out a Mortgage?

When looking for a mortgage, there are numerous things to think about. When considering your loan type, remember that other factors may come into play. Your loan term is something to consider as well. Loans with terms ranging from 15 to 30 years are the most common, but other durations are possible depending on your lender.

The Bottom Line

First, check your credit report before choosing a loan to see where you stand. You are entitled to one free credit report per year from each of the three major reporting agencies. Then, talk to a mortgage lender after you’ve identified and fixed any errors, working on reducing debt and improving your record of late payments.

You should also consider using one of the best credit monitoring services presently accessible to you to further protect your credit report from mistakes and other suspicious details. Pursuing financing before looking at homes and making offers can be an advantage. You’ll be able to act faster and might be taken more seriously by sellers if you have a pre-approval letter.

Still confused? Feel free to contact us and we will guide you to the best possible mortgage for your needs.

Mortgage Refinance

Is Now a Good Time to Refinance Your Mortgage?

September 6, 2022 admin

According to mortgage analytics company Black Knight, over 1.3 million well-qualified U.S. homeowners might save up to 0.75 percentage points on their mortgage by lowering their rate. These borrowers would save a sum of $405 million each month, or $320 per homeowner each month. When refinancing, the lower your interest rate, the more money you’ll save over time. According to most mortgage experts, a reduction of at least 0.75 percentage points (from 6.5% to 5.75%, for example) is ideal. However, a drop of as little as 0.50 percentage points may be beneficial in some situations.

If you are considering a refinance this year, it may make sense to do so sooner rather than later. Mortgage rates are expected to keep climbing—which means waiting could reduce (if not eliminate) your chance of finding a better interest rate. If you are unsure whether a refinance is the right move, read on for more information that will help you decide.

When Does Refinancing Make Sense?

When people notice mortgage rates falling below their current loan rate, they typically consider a refinance. However, there are other compelling reasons to refinance, such as:

If you’re trying to pay off your debt sooner and with a lesser term.
If you have enough equity in your property, you can refinance a loan without mortgage insurance.
You want to borrow money against the equity in your home, but you don’t want to take on a lot of debt.

When Should You Refinance Your Mortgage?

A homeowner may refinance their mortgage to reduce monthly payments, pay off an existing loan and replace it with a new one, or both. There are several reasons why homeowners might want to refinance their mortgage:

To obtain a lower interest rate.
To shorten the term of their mortgage.
To convert from an adjustable-rate mortgage (ARM) to a fixed-rate loan, or vice versa.
To tap into their equity to address a financial crisis, make a significant purchase, or consolidate debt.

An initial mortgage is far more expensive than a HELOC, but homeowners must weigh the costs against the benefits of refinancing to make an informed decision. Refinancing may cost anywhere from 3% to 6% of a loan’s principal. Much like an original mortgage, refinancing also requires an appraisal, title search, and application fees, so it’s critical for homeowners to evaluate whether it is a smart financial move.

What Is a Reasonable Mortgage Rate?

Many individuals expect mortgage rates to follow when the Federal Reserve lowers short-term interest rates. However, mortgage rates do not always move in step with short-term rates. Avoid focusing on a low mortgage rate you’ve seen or read about because mortgage refinancing rates change daily. Furthermore, your rate may be higher or lower than the current published rate each time you call to find out.

The interest rate on your mortgage refinance is mainly determined by your credit score and the equity you have in your house. As long as your credit score is good and you can show proof of consistent income, you’ll be more likely to find a competitive quote.

What Is a Reasonable Mortgage Rate?

According to Freddie Mac, the current average mortgage rate for a 30-year fixed-rate loan is 5.30%. If you can lower your current interest rate by at least 0.5 percent, it’s probably worth considering a mortgage refinancing. Lowering your interest rate from 6% to 5% will save you approximately $95 each month or $1,140 per year. If you can reduce the rate from 6% to 5%, your monthly savings would be $188 or $2,256 per year.

You don’t have to refinance into a 30-year loan. If your financial status has improved and you can make larger monthly payments, you may refinance a 30-year loan into a 15-year fixed-rate mortgage, which you can pay off faster while saving on interest. Two important things to take into account, besides your monthly savings, are the expenses of changing loans and the time it will take you to recover or break even.

The last component of the refinance puzzle is to balance your refinancing objectives with the change in loan length. Refinancing into another 30-year loan means you’ll be paying a mortgage for 40 years rather than 30 if you’re ten years into a 30-year mortgage. If your main goal is to lower your monthly payment, refinancing into a 30-year mortgage makes sense. However, if your objective is to save money on interest and shorten the duration of your loan, refinancing a 30-year mortgage to a 15-year mortgage may be the better option as long as you can afford the higher monthly payments.

How Much Does It Cost To Refinance Your Home?

Various factors will determine the overall cost of refinancing your home loan. The current value of your property and the sort of lender you deal with can influence the price. Typically, when refinancing, you should anticipate spending around 2% – 6% of the total value of your loan. This amount will cover all other closing charges, such as:

Application Fees: Even if rejected, your lender may charge you for your application.
Appraisal Fees: When you refinance, your lender will likely demand an appraisal. An appraisal usually costs between $300 and $500.
Attorney Fees: An attorney may be required to review and file paperwork for your refinancing loan, depending on your state. The fees also vary depending on the region.
Title and Insurance: Your lender will likely want a title search during the refinancing procedure.

Some homeowners may be able to include these closing costs into their total loan amount. However, it depends on the lender, the loan type, and how much equity you have. As a result, you may accept a greater mortgage rate in return.

How Long Does It Take To Refinance Your House?

You can get involved in speeding up the time needed to refinance your house. Prepare and research ahead of time if you want the process to move at a faster pace. Having essential documents on hand will help simplify things. So be sure to keep the following information on hand:

W-2 forms
Tax returns
Pay stubs
Bank statements
Business financial statements
Proof of employment
Investment or retirement income
Billing statements
Homeowners’ insurance policy information

In most situations, this information must be current. Lenders usually want to see statements from the two previous years. So, before meeting with a lender, make sure you have the most up-to-date versions of all the documents mentioned earlier.

The Bottom Line

Refinancing can be a wise financial decision if it lowers your mortgage payment, extends the term of your loan, or helps you build equity faster. It may also be a valuable instrument for managing debt responsibly. Take some time to examine your finances and ask yourself these questions before refinancing: How long do I expect to live in my house? What money am I saving by refinancing?

The total cost of refinancing will depend on your current interest rate and the amount you borrow. It’s also important to remember that a mortgage refinancing costs 3% to 6% of the loan’s principal. It takes years to recover this expense with the savings generated by a lower interest rate or a shorter term. So, if you don’t expect to stay in your house for more than a few years, the fees will eat any potential savings from refinancing.

It’s also important to remember that a clever homeowner is always looking for ways to lower debt, enhance equity, save money, and terminate their mortgage payment. Taking money out of your equity when refinancing will not help you achieve any of those objectives.

Still confused? Feel free to contact us. We will guide you to the best possible outcomes.

Mortgage

Is 2022 a Good Time To Buy a Home?

September 1, 2022 admin

Is it a good time to buy a home in 2022? That is s the question that many people are asking themselves right now. Housing forecasts predict house prices will increase in the upcoming year, but mortgage rates are still low. Read on if you are considering buying a property this year or the next! We will go through everything you need to know about purchasing real estate in 2022, including what to anticipate from the housing market and how to get the most refined mortgage loan for your needs.

Buy Now or Wait? The Big Question in 2022

Many people try to time their purchase of a home or investment property right. They want the lowest rates, prices, and, ideally, an all-out buyer’s market. Unfortunately, such circumstances are rare. If you’re waiting for the ideal opportunity, you might end up waiting a long time. There’s no perfect moment to buy a home — it will always be a challenging feat, no matter the conditions. However, if you do your research and are financially prepared, 2022 could be an excellent year to purchase a property. The following graph can help you understand the scenario.

Current Market Conditions

Any looking into purchasing a home needs to be aware of the current circumstances of the housing market. According to most recent reports, prices are only going up from where they currently sit. While this may seem like good news for sellers, it could create some challenges for buyers who don’t have a large budget.

If you’re considering buying a home in 2022, you first need to save as much money as possible. Even if you’re not planning on putting down 20%, every little bit will help when it comes time to negotiate with sellers. The market situation is shifting, making it more straightforward for some homeowners and difficult for others. So here are a few of the most important things to consider before buying property.

Interest Rates Are Going Up

In 2022, interest rates dropped to historically low levels, making home buying more appealing. However, the Federal Reserve is raising interest rates for the first time in two years to combat inflation. It’s terrible news for borrowers because monthly mortgage payments will go up. However, it’s important to remember that these rising rates are still lower than many borrowers have previously committed to.

Home Prices Will Continue to Increase

With home values continuing to rise, some buyers might be driven out of the market. On the other hand, the prices are anticipated to grow slower than in 2021.

It’s Still a Seller’s Market

There are fewer homes on the market than people are looking for, making it a seller’s market. However, this year’s supply of available homes is expected to rise, making it more straightforward for buyers to locate the house they want.

Homes Are Selling Quickly

For several years, properties have been selling rapidly, impacting potential buyers. Buyers may need to make compromises or offer a higher price to stand out to sellers. Considering your budget before starting your search is critical to knowing what you can and can’t afford.

How Have Mortgage Rates Changed in 2022?

We don’t know what’s in store for mortgage rates as 2022 ticks along. There’s reason to believe that rates will continue to climb.

Should You Buy a Home in 2022?

Now is an excellent time to buy a house — and U.S. consumers agree. According to Fannie Mae’s National Housing Survey:

Mortgage rates dropped in July.
More homes are available for sale nationwide.
Sellers are willing to cut prices.

Today, over two-thirds of renters would buy a home if their lease ended. Most expect rents to rise sharply into 2022–2023. The housing market could favor buyers now, too. New credit scoring rules gave millions of U.S. consumers 22 extra credit score points, which means that the math of whether it’s better to rent or buy a home has changed. While mortgage rates and housing market situations are undoubtedly important, there are several circumstances to consider. Whether you should buy a home in 2022 depends on your finances.

You’re in a solid position to buy a home if you have:

A steady job.
A down payment was saved up.
An excellent credit score.
Low levels of debt.

Conclusion

Purchasing a home is a huge decision that no one should take lightly. If you’re thinking of buying a home in 2022, make sure you do your research and prepare financially before making any decisions. Keep an eye on current market conditions and work with a lender to get pre-approved for a mortgage loan. If you have any questions, reach out to the experts at Home Loan Center — we’re here to help you through every step of the process! We can’t wait to help you find your dream home!

Mortgage

15-Year Vs. 30-Year Mortgage: Which One Is Right For You?

August 30, 2022 admin

When buying or refinancing a home, one of the first major decisions you have to make is whether you want a 15-year or 30-year mortgage. While both options offer a set monthly payment for many years, there are several distinctions between the two other than just how long it will take you to pay off your property. But which one is better for you? Let’s look at the benefits and drawbacks of each mortgage so you can choose which one works best for your budget and long-term financial goals.

What Are the Differences Between 15-Year And 30-Year Mortgages?

The length of each loan is the most significant distinction between a 15-year and a 30-year mortgage. A 15-year mortgage allows you to pay off the total amount you borrow to purchase your house in 15 years, whereas a 30-year mortgage allows you to pay off the same amount in double the time.

Fixed-rate loans are the most common type of mortgage. When you get a 15-year or 30-year mortgage, for example, you will lock in an interest rate at the time of application and keep that same interest rate for the duration of your loan. You will also usually have the same monthly payment throughout the whole term of your loan.

Pros Of A 15-Year Mortgage

Faster Payoff: You’ll be mortgage debt-free in half the time of a traditional, 30-year mortgage if you take out a 15-year loan.

Pay Less Interest: You will save interest money if you make fewer payments. This can be a difference of tens of thousands of dollars over the length of the loan, depending on your loan size.

Lower Interest Rate: Lenders typically demand lower interest rates on a 15-year mortgage than they do on a 30-year loan, resulting in additional savings over the lifespan of your loan.

More Equity, Faster: You will pay more of the principal over time with a 15-year loan, which means you’ll have equity in your home sooner that you can use if necessary.

Cons Of A 15-Year Mortgage

Smaller Loan Amount: If your ideal house is on the higher end of your affordability range, you might not be able to obtain a 15-year loan. A more expensive house means a more significant payment, so you may not qualify for as big a mortgage.

Higher Monthly Payment: Short-term loans are almost always higher priced than regular unsecured personal loans. With a shorter loan, you will probably pay considerably more each month. Your payment may be 40% greater than it would be on a 30-year mortgage, and even more in some cases.

Pros Of A 30-Year Mortgage

Lower Monthly Payment: When you take out a 30-year mortgage, your monthly payment will be far less than if you took out a 15-year mortgage.

Easier to Qualify: The lower monthly payment makes it easier for consumers to fulfill debt-to-income ratio criteria and get a loan.

More Room In Budget: A lower payment means you’ll have more money to spend on other things.

Cons Of A 30-Year Mortgage

More Interest Paid: You will pay way more interest over 30 years than on a 15-year mortgage.

Higher Interest Rates: Lenders consider a 30-year mortgage riskier and will charge higher rates.

Slower Equity: You’ll pay less in the long run if you take smaller initial payments, so it will take longer to build equity. It might also extend the time to pay for private mortgage insurance.

Should You Choose A 15 Or 30-Year Mortgage?

So, how do you decide? Take a look at your finances and see what options are available to you.

A 15-Year Loan Is Best If:

You Can Comfortably Afford a Higher Monthly Mortgage Payment: On a 15-year loan, your monthly principal and interest payments will be dramatically higher. Only consider this option if you have extra cash in your budget and can still pay other bills, such as credit card debt.
You Want To Build Equity More Quickly: You’ll pay less interest on a 15-year mortgage than on a 30-year mortgage since you’re paying more each month toward your principal. This allows you to build equity in your property at a faster rate. Additional equity enables you to get a cash-out refinance, home equity loan, or home equity line of credit for other financial objectives sooner because it frees up cash earlier. It also implies that you’ll be free of your mortgage much sooner.
You’re Buying a House That’s Well Within Your Means: Obtaining a loan for 15 years or less is feasible if you take the 15-year option. This could be a better alternative if you know you can pay it off sooner.
You Plan To Stay In Your Home Short Term: If you know you’ll have to sell relatively soon, a 15-year loan might help you develop more significant equity and earn more money when reselling. You’ll make an enormous profit once all the costs and commissions are deducted because you’ll pay more principal than interest.

A 30-Year Loan Is Best If:

You Want a Lower Monthly Mortgage Payment: Your repayment term is longer with a 30-year loan. This spreads out your mortgage payments over a more significant period, making them more affordable.
You Want More Room In Your Budget: A lower monthly mortgage payment gives you more wiggle room for budgeting and focusing on other financial goals, such as boosting your emergency fund or retirement savings.
You Want the Option To Pay Off Your Mortgage Faster Without Being Tied Down: If you borrow a 15-year loan, you’re committing to a higher monthly mortgage payment for the entire loan term. However, a 30-year mortgage allows you to pay extra money toward your principal and shave time off your repayment term whenever you have the financial bandwidth to do so.
You Want To Buy the Best House You Can Afford: You’ll likely qualify for a larger loan with a 30-year mortgage, which means you can buy a more expensive house.

Conclusion

There is no right or wrong answer when choosing a 15-year or a 30-year mortgage. It depends on your unique financial situation and what you’re looking for in a home loan. If you can afford the higher monthly payments of a 15-year mortgage and you’re confident that your income won’t fluctuate much over time, this may be the best option. On the other hand, if you want more flexibility and lower monthly payments, then a 30-year mortgage may be the way to go. Ultimately, it’s up to you to decide which one makes the most sense for your circumstances.

Have you ever considered a 15-year or a 30-year mortgage? Contact us for a free consultation.

Mortgage

How To Maximize Your Home Equity? Best Ways To Tap Into Your Home Equity.

August 25, 2022 admin

Housing Prices have risen dramatically over the past few years and continue to increase across the country.

During the pandemic, millions fled major cities to find more extensive and comfier spaces to work from home in the suburbs, raising demand and driving up costs. Meanwhile, material shortages worldwide continue to raise new home construction costs. The housing market’s low supply coupled with cash-wielding house hunters continues to squeeze an already tight market even further, and experts predict this trend will continue well into the rest of 2022.

This same scenario is excellent news for a homeowner’s equity. Over the past several years, people in the industry have discovered that the real estate gold rush is on. Home values have increased dramatically, helping homeowners gain over $55,000 in equity in less than a year, all between the fourth quarters of 2020 and 2021.

Overall, $3.2 trillion in total equity was added across the country during the same period, with a 29% increase year over year, according to CoreLogic, a real estate data analytics firm. While many homeowners have plenty of equity, it’s locked until they sell their home, use their equity through a cash-out refinance, or obtain a home equity financial product such as a HELOC or home equity loan.

Your home is most certainly one of your most valuable assets, and as with other assets, you can profit from your house’s value in various ways. The cash-out refinance, HELOC, and a home equity loan are three popular methods for withdrawing equity from your property without selling it. These investment products allow you to access your home’s equity for various uses, such as remodeling your house or funding your children’s education. However, if you sell your property, you’ll have to repay it over time or in one lump sum. So, before you decide what to do, consult with a home equity professional about the benefits and drawbacks of each choice.

Maximize Your Home Equity:

Here are some of the most popular ways to access your house’s worth while it is still increasing in value.

Cash-out refinances, HELOCs, and Home Equity loans

Cash-Out Refinance

A cash-out refinance is a mortgage loan that helps you access the equity in your home. With this type of loan, you replace your current mortgage with a new one and receive the difference in cash. The main advantage of a cash-out refinance is that it usually has lower interest rates than other types of loans, such as home equity loans. Additionally, it allows you to borrow more money than a home equity loan. A few drawbacks of cashing out include:

Risk of foreclosure: If you cannot repay your loan, you could lose your home. Unsecured loans are far less risky.

Closing costs: Mortgage loans demand high up-front closing costs, which must be paid no matter what, whether you roll them into your loan balance, write a check, or take a higher rate. To close your loan, you’ll spend between several hundred and several thousand dollars, and you need to add that amount to the costs of wherever you’re spending the money.

HELOC

A home equity line of credit, or HELOC, is a loan that allows you to borrow against the equity in your home. With a HELOC loan, you can withdraw money as needed up to the limit of your credit line. The advantage of a HELOC loan is that it usually has lower interest rates than other types of loans and allows you to borrow money over time. One disadvantage of HELOCs often stems from a borrower’s lack of discipline. Because HELOCs let you make interest-only payments during the draw period, it’s easy to access cash impulsively without considering the potential financial ramifications. Another thing to consider is that the interest on a HELOC is not tax deductible.

Home Equity Loan

A home equity loan is a type of loan that allows you to borrow against the equity in your home. However, you receive the money in one lump sum. In addition to offering a stable interest rate, home equity loans are secured by your property, and they typically offer a lower rate than unsecured forms of borrowing such as personal loans or credit cards. The disadvantage is that you could lose your home because it’s being used as collateral for the loan. Furthermore, you’re responsible for the loan balance if you sell your home. Since the loan is tied to your home, you must pay off the loan if you choose to sell it.

As you can see, there are several ways to access your home equity without selling your home. Each option has advantages and disadvantages, so it’s essential to consult a home equity professional to determine which loan suits your circumstances. With home values on the rise, now is a great time to tap into that equity. By doing so, you can use the money for home improvements, debt consolidation, or other financial needs.

Important Factors To Consider

Even if you think your home’s equity is a good alternative for funding your house’s makeover or lowering your debt, there are certain factors to consider before doing so.

maximize your home equity.

Your home’s value can decline.

Keep in mind that there’s no assurance that your property’s value will rise dramatically over time. Your home may even depreciate in an economic slump or be damaged by fire or extreme weather. If you borrow money on a HELOC or take out a home equity loan and the value of your house decreases, you may end up owing more on the loan than what your house is worth. You are said to be “underwater” on your mortgage when this happens.

Say, for example, that you have a mortgage worth $300,000, but the housing market in your area has collapsed, leaving your property’s market value at only $200,000. Your mortgage would be $100,000 greater than the real estate. Getting accepted for debt consolidation or a new loan with better terms is considerably more difficult if your mortgage is underwater.

There’s a limit on the loan’s amount.

You can only borrow up to 80% – 85% percent of the value of your house with a HELOC or home equity loan, minus any existing mortgage debt. Even if you have $300,000 in equity, most lenders will not allow you to borrow that much. Your loan-to-value ratio or LTV determines the amount you may borrow, and that number varies from person to person. It’s tied closely to one’s credit score, financial history, and current income.

How not to use your home equity.

A common reason to tap into home equity is for non-essential personal expenses such as an extravagant vacation or a luxury car that is not in line with your budget. While spending money on something other than house payments may be appealing, creating a savings plan to cover these entertaining expenses is the best way to go. A good rule of thumb is not to borrow more than you need, don’t overspend, and not put your house at risk of foreclosure for a frivolous home equity purchase.

Even if you use your home equity to add value to your house or improve your financial position in some other way, keep in mind that if you don’t repay a home equity loan or HELOC, you risk losing your house. Run the numbers and ensure you can continue paying your mortgages while using home equity money.

Do you have any questions about how to access your home equity? Leave a comment below or contact us for a free consultation.

Sponsor Story

How West Capital Lending is competing with the nation’s biggest mortgage brokers West Capital offers fast closing times, great pricing and bespoke communication.

December 16, 2021 admin

The housing market is still tight, which means potential home buyers and current homeowners can’t afford to lose time with any missteps. What’s one part of the process that can make or break a deal, especially in a seller’s market, but that’s entirely within a borrower’s control? Choosing the right lender for their mortgage.

Here’s a look at how one local firm, which happens to be the nation’s fastest-growing mortgage broker, is setting itself apart from other lenders.

According to Eric Hines, co-founder of West Capital Lending, in today’s market, lenders need to offer a few non-negotiables.

“Fast closing times, stellar communication, multiple lenders and programs available and great pricing,” he said. Without those, a buyer will likely not get that dream home they’re eyeing.

For Hines and his co-founder, Daniel Iskander, the clients always come first – and that philosophy is what allowed them to grow from a combined team of about 60 loan officers to over 180 in a little over six months. In less than a year, while dealing with all the curveballs of the market and the pandemic, they firmly established West Capital Lending as the number one broker partner of Rocket Pro, the country’s largest residential mortgage lender. What does that mean for their clients?

“A dedicated team of underwriters and support staff, along with the best pricing and service equals an exceptional client experience,” said Hines.

By partnering with Rocket Pro, West Capital can both “communicate to the client in their preferred channel and do so while completing the transaction faster than normal,” added Iskander. Their average closing time is under 25 days.

That speed and agility happens despite the industry’s countless challenges: working through forbearance guidelines, unforeseen FHFA fees for refinancing borrowers, appraisals that take up to eight weeks for delivery or cost as much as $2,700. While West Capital can’t make the market loosen up, they can offer clients both direct lending and access to over 40 lenders where necessary, said Iskander. That means they’re well-equipped for any curveball.

Hines said they can also go far beyond conventional mortgages, with products as diverse as low down payment options with little or no private mortgage insurance, jumbo loans, no-cost programs and even programs for people with no income or who are self-employed. They offer FHA and VA loans, hard-money loans, reverse mortgages, down payment assistance programs, rental income loans for investors – and the list goes on.

Couple those options with a team of experienced loan officers, and West Capital can help clients navigate the constant changes in the industry due to the pandemic. They don’t just say “no.”

“If you don’t have somebody who knows that these changes are coming, you might have somebody that just tells you ‘no,’ when you could be very well-qualified or when you’re looking to go through the process without the risk of the virus,” said Iskander.

That flexibility and support extends to their team as well.

“I was looking for a platform that would support my growing mortgage origination business,” said Shawn Wyns, Vice President at West Capital. “I was looking for a company that was flexible with my needs and those of my division, who constantly supports high performing teams. West Capital Lending is providing all those things.”

And, Wyns added, “I feel appreciated and supported here. I know my business will continue to thrive for years to come – all while having a healthy work-life balance.”

That matters to Hines and Iskander. They founded West Capital because they take the American Dream of homeownership seriously – and want clients and the team to enjoy that dream.

When it comes time to choose a mortgage lender, don’t settle. Learn what West Capital Lending can do for you.

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