Should YOU Apply for a Mortgage On Line?

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A recent article on realtor.com stated that one survey found that 64% of millennial mortgage applicants prefer to apply for their mortgages on line. Realtor.com even offered up some reasons why potential borrowers might want to apply on line.

Why do so many millennials choose online lenders?

We could say that this age group is simply attuned to doing everything on line, but there’s more.

Comparison shopping:  First is the ability to comparison shop with ease. Checking 3 or 4 websites is more convenient than making those phone calls and visiting lenders in person.

The problem with this is that until the lender has verified all of the usual details such as income, employment, credit scores, debt to income, etc. the rates and fees they quote may be far removed from what they’ll offer after a full application.

Speed: On line applications (and approvals) are supposedly fast. Quicken Loan’s Rocket Mortgage advertises that it can get a new borrower through the loan process in just 8 minutes. Their mobile app allows customers to scan their W-2 form and driver’s license from their phones – eliminating the need to present these documents in person.

The problem here is that potential borrowers are just getting a pre-qualification. This is far different from a pre-approval, which can only be issued after the verifications. It’s misleading at best.

Cost savings: Next come the low rates that many online lenders advertise. They say they can offer lower rates because they have less overhead than a “bricks and mortar” lender. We have to wonder about that. They may not need a high-traffic location, but they do need to work somewhere. Are these lenders all working from a desk in their basements?

The problem: Advertised rates and fees may not match what the borrower is offered after verifications.

What else should you consider before choosing an online mortgage lender?

There’s little personal service. Some do employ loan offers you can speak with, but they’re generally available only during business hours – not at 8 p.m. when you have a pressing question or need a pre-approval letter to back up an offer.

Online lenders are not the best choice for complicated loans. If you need a VA or FHA loan, are self-employed, or want to purchase an unusual property, you need a lender with more in-depth knowledge and experience.

Online lenders are best for simple scenarios – salaried borrowers with good credit, purchasing homes that are typical for their area.

In addition, online lenders generally won’t know the programs available to you locally, so can’t help with local buyer’s incentive programs.

Many home sellers and their agents don’t trust online bankers – and reject offers with their approvals.

This is a big one, because it could put you out of the running for a home you really want. They aren’t being snobbish, they’re reacting to past experiences.

Seasoned agents report problems such as closing late and putting the buyer in breach of contract, and not closing at all because in truth, the buyer wasn’t qualified. They know that often an online lender’s pre-approval letter is useless, because they issued it before verifying the buyer’s information. In other words, it was a pre-qualification, not a pre-approval.

And finally – online mortgage lending scams abound.

Why should mortgage lending be exempt from con artists and thieves when they’re busy in every other industry?

We all know that scams are rampant on the Internet, so we need to be diligent about giving out personal information. In this respect, the mortgage industry is no different than any other.

Online predatory lenders cover their tracks well, so if you get scammed, you might find it impossible to retrieve any lost monies.

Before even considering making an application on line, check out the lender with the Better Business Bureau and do a thorough search for comments and articles about them on line. You might also check to see if the company is mentioned on www.ripoffreport.com.

Your research could save you from monetary loss and months of grief.

If you’re looking for a reliable Texas lender with excellent customer service, low rates and terms, and speedy closings, call us. We’re the Mike Clover Group at Homewood Mortgage, and we’d love to help make your home buying experience trouble-free.

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Caution – Don’t Let Yourself Become House-Poor

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Happy family sitting  on floor with their little baby. Family spending time at home with their daughter. Father holding his little baby in hands

What is “house poor?” It’s that uncomfortable state of being in which you’ve purchased “more house” than you can comfortably afford.

It’s that state that prevents you from taking a vacation, going to a concert, eating out, or even eating the meals you’d like at home.

In other words, it’s that state where you have to watch every penny, because every penny needs to go to that monthly mortgage payment.

In general, financial advisers say you should not pay more than 30% of your pre-tax income for housing related expenses. That includes your mortgage payment, property taxes, HOA dues, homeowner’s insurance, etc. According to a report by the Joint Center for Housing Studies at Harvard University, by those standards nearly 40 million U.S. homeowners are house-poor.

Of course, whether that impacts you negatively depends upon your income and your other fixed or optional expenses.

Meanwhile… why not be careful when you buy and avoid the problem?

Before you begin to shop for a home, calculate what you can afford. Do this by figuring your debt-to-income ratio. This is a comparison between how much you make and how much you owe – or will owe when the housing expense is factored in.

Your mortgage broker can help you do this calculation, but do remember that your lender might not know about some of the optional spending that is important to you and your family.

Debt-to-income, along with your down payment, your credit score, and your employment stability, is a factor lenders use in determining whether you’ll be approved for a home loan – and if so, for how much.

Remember that if you buy at the top of your allowable range, you could be putting yourself at risk of becoming house poor. While most of us expect our income to increase over time, sometimes unforeseen events come along to reduce our income. Be prepared for that.

As you contemplate that purchase, note that your down payment will not be your only up-front expense.

You’ll also need cash for closing costs, which typically range from 2% to 7% of the purchase price.

Yes, in some instances the seller will cover some of these costs, but that is less likely in a tight market when there are more buyers than homes available.

Here at Homewood Mortgage, the Mike Clover Group, we’ll be happy to do the calculations and show you just what you’ll need for a down payment and closing costs. Then, based on the interest rate we can offer, we’ll help you determine the top price you should pay for a home.

After that, remember that your mortgage payment, taxes, etc. are not your only household expenses.

All homes require maintenance from time to time, and sometimes repairs are necessary. You’ll also need to pay for utilities (which cost more, the larger the house is).

Keeping an emergency fund is a wise idea.

None of us knows what the future will bring, and while we expect only good things, sometimes we get unwanted surprises.

What if you (or your spouse) lose your job or become ill and can’t work? What if the house needs some major repair? It’s best to keep a reserve fund of 3-6 months’ worth of house payments and living expenses, just to be safe.

If you never have to use it, all the better. You’ll have had peace of mind.

Consider your overall dreams and goals before purchasing a house.

Yes, you’ll either make a payment or pay rent each month, but before you use your savings to make a down payment, consider your other goals.

Would you be better off saving to ensure a comfortable retirement? If retirement is coming in just a few years, would you rather save that money to purchase a motor home and travel the country?

If you’re a parent with school-age children – If you purchase now will you still be able to help your child get a college education? If you’re about to become an empty-nester, would you like to have the option to pick up and move to a different climate – without having to wait to sell your home?

Purchasing a home is a life-altering event, so consider all the angles before you make the decision.

And then, if the decision is “Yes,” give us a call at Homewood Mortgage, the Mike Clover Group. We offer some of the lowest rates and fees available in Texas, along with short closing times – all served with a smile.

 

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Home ownership and the new tax law

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United States Capitol Building in Washington, DC with Tax Reform stamp effect

With so many people talking, it’s hard for any of us to figure out what the new tax law will mean to us. Thankfully, folks at the National Association of Realtors examined the actual documents to see how the changes will affect both real estate professionals and homeowners.

They’ve shared their findings, including examples, at: https://www.nar.realtor/taxes/tax-reform/the-tax-cuts-and-jobs-act-what-it-means-for-homeowners-and-real-estate-professionals.

The Major Provisions Affecting Homeowners:

While you’re apt to hear politicians hollering that the tax cuts are “for the rich,” the facts do not bear out this claim.

Lower tax rates for most individual filers. As an example, if you and your spouse earned $165,000, your tax rate this year would be 28%. Under the new law it would be 24%.

No change in the exclusion on the gain of a principal residence. The National Association of Realtors fought for this one and won!

Mortgage Interest Deductions. This one has been discussed at length on TV – Often scaring people into thinking there would no longer be a deduction. There is, but it’s limited to $750,000 on loans taken out after December 14, 2017. Current loans of up to $1 million are grandfathered.

Homeowners with mortgage debts existing on 12-14-17 can still refinance up to $1 million and deduct the interest, as long as the new loan does not exceed the amount of the mortgage being refinanced. In other words, interest on funds taken in a cash out refinance ( or second mortgage) cannot be deducted unless the proceeds were used to substantially improve the residence.

Interest on second homes is still deductible – subject to the $1 million / $750,000 limits.

Deductions for State and Local Taxes. This has not been wiped out, as many newscasters stated. Instead, it is limited to $10,000 for the total of state and local property taxes and income or sales taxes. This limitation applies to both single and married filers.

The Standard Deduction. Congress doubled the standard deduction to $12,000 for individuals and $24,000 for couples. This change is indexed for inflation.

The Repeal of Personal Exemptions. Under prior law, filers could deduct $4,150 per person, including dependents. This has been repealed. However, taxpayers with children 16 years of age and younger will now claim a $2,000 tax credit per child – up from $1,000.

The phase-out level for child tax credits has also been increased from $55,000 single/$110,000 married to $500,000.

Like-kind exchanges. You may have heard that this was eliminated. It was – for personal property such as art work, auto fleets, and heavy equipment. It was retained for real estate.

Not related to home ownership, but interesting for those who were under the impression that the new tax bill greatly benefited the rich, is Denial of Deductibility of Entertainment Expenses.

Having a box at the opera or the stadium where you can entertain clients will no longer be deductible. Nor will your country club membership.

As the bill reads, no activity generally considered to be entertainment, amusement, or recreation will be a deductible expense. Never mind those who say half of the agreements made by business people are reached on the golf course.

Meals are an exception. If you travel for work and must eat in restaurants, or if you buy lunch for a client while you discuss business, you’ll still be able to deduct 50% of your expenses.

With median home values in Texas under $200,000 and the median selling price in Dallas just under $300,000, the new standard deduction may wipe out the need to itemize for many Texans. As always, consult with your tax advisor before making any decisions.

And… if you’re ready to refinance or purchase a new home, call Homewood Mortgage, the Mike Clover Group.

No matter what tax bracket you’re in, you’ll appreciate our low rates, low fees, and fast, friendly service.

Call today: 800-223-7409

 

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How much do YOU know about getting a home mortgage loan?

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A recent survey by FreeandClear.com, a site that provides mortgage education, found that many Americans lack basic knowledge of mortgages and the home-buying process.

The Consumer Finance Protection Bureau is there to help and to provide advice, but while 24% of potential borrowers search for mortgage information on line, only 2% visit this true “authority” site.

To begin their survey, Free and Clear decided to learn where borrowers got their information. It might make sense that learning about finances, including mortgages, would be part of a high school or college education. Has it been? For most, the answer is no.

Only 14% of respondents learned about mortgages in high school, while 17% learned in college.

So where do people turn to learn about mortgages? 24% turned to the Internet, while another 24% learned from a lender. 15% learned from their real estate agent, and only 5% from “School.”

This would seem to indicate that while high school and college might have introduced the subject to up to 17% of the students, only 5% believe they learned something.

A full 30% answered “other” to this question. My guess is “other” stands for friends, family, co-workers, and possibly their hairdresser.

When asked how knowledgeable they felt on a scale of 1 to 10, 55% chose 6 or higher. Unfortunately, the answers they gave later in the survey showed that to be false confidence.

For instance:

20% did not know that it IS possible to purchase a home with less than 5% down. FHA, VA, and USDA programs all allow down payments of 3 ½% or less – with VA offering zero down to veterans.

84% did know that the payment on adjustable rate mortgages can change from time to time. However, a shocking 18% believed that a fixed rate mortgage can change, and 20% did not know that an interest-only loan will eventually change to principal plus interest – causing a dramatic increase in the payment.

When asked how much of their gross income borrowers should spend on housing expense and other debt, respondents were surprisingly conservative, with 50% choosing only 34%. The true figure is 43-50%. 16% said they simply didn’t know.

72% of borrowers did know that the shorter the loan term, the less interest you’ll pay. Only 9% thought that a 30 year loan carried the least interest.

Answers to next question are bound to cause a few chuckles among those who have been paying attention to the news since the mortgage crisis began.

The question was: Who is Fannie Mae? 10% answered incorrectly, with 6% believing she was the first female U.S. Senator.

How much effort do borrowers put into finding the right lender and the right loan?

Perhaps less than they should.

36% went with the first lender they spoke with, while another 28% interviewed only two lenders. Only 10% compared 4 or more lenders.

Because different lenders have different programs available – in addition to different attitudes and levels of customer service – Free and Clear recommends contacting at least 4 lenders before making a choice.

How do people find their lenders?

In spite of all the hoopla about using the Internet for almost everything, only 9% said they found their lender via the web. 30% stuck with an existing bank relationship, while 29% acted on a referral from their real estate agent. 18% trusted a recommendation from a friend. This seems to indicate that relationships count!

Unfortunately, the 30% who stick with “their own” bank may be making a mistake. As we’ve mentioned before, it’s best to interview more than one lender, because different companies have different programs available from a variety of banks. Banks are generally stuck with their own products.

50% still contact the “Big Box Banks.”

In spite of bad press in recent years, borrowers are still at least contacting the big banks when looking for a mortgage loan. 38% contact local banks, and 28% contact local mortgage brokers. 38% said the contacted both local banks and mortgage brokers.

What makes borrowers choose one lender over another? The rate.

43% said the rate mattered most, while 15% said the APR – which is smart. The APR is the rate, plus the additional fees and costs that drive a payment upward. Hand-in-hand with this finding is the fact that 14% cited the lowest payment. Only 7% stressed customer service.

Are borrowers happy?

Overall, yes – 90% felt they got a good deal on their mortgage.

Bait and switch is not rampant…

70% said their rate did not change from the time they contacted a lender until their loan closed. 78% said their fees did not change. This in spite of claims that lenders lure borrows in with promises of low rates and fees, then fail to deliver at closing.

In spite of satisfaction, borrows did not enjoy the process.

In fact, 75% compared getting a mortgage loan to having an annual physical or going to the dentist.

22% said it was like doing business with a good friend – which is the result we strive for here at Homewood Mortgage, the Mike Clover Group.

What’s the most challenging?

For 56% of home buyers, it’s the paperwork. All these documents are designed to protect the buyers and sellers, but the sheer volume can be overwhelming.

Others are still confused and frustrated by loan qualifications, loan terminology, and understanding the rates and fees. Half the respondents rated the challenge at 7 or above on a scale of 1 to 10.

On a happier note, most do trust their mortgage lenders. 70% rated trust at 7 or higher. This is surprising in view of the scandals that came to light during the mortgage crisis. In addition, a whopping 86% rated their lenders as knowledgeable and 78% said they were satisfied with their lender – again, each  at 7 or higher.

Are you thinking of purchasing a home or refinancing the home you have now?

If so, give us a call. We at Homewood Mortgage, the Mike Clover Group, will be glad to talk with you and to answer all questions. We have time to make sure you understand all the terminology and to explain the rates and fees.

Here at Homewood Mortgage we’re proud to offer some of the lowest rates and fees available in Texas – along with fast service, delivered with smiles.

Call today: 800-223-7409

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Three good reasons to visit a lender before you’re ready to buy a home

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If you’re dreaming of buying a home but know that you are not yet in a position to do so, visiting a lender is probably the farthest thing from your mind.

It’s time to re-think that idea.

It’s a good idea to go ahead and visit your lender even when you think:

  • Your credit isn’t so good
  • Your income isn’t high enough
  • You have too much debt

Why?

Because your lender can show you exactly where you stand and help you overcome those issues.

Start with your credit. One of the first things your loan officer will do is look at your credit score, your credit history, your monthly liabilities, your income, and your assets. In other words, they’ll examine your entire financial picture.

If your scores are too low to qualify for a mortgage – or too low to qualify for a good interest rate – they can show you where and how to improve. Your lender knows which debts are causing the biggest drain on your scores.  He or she can advise you on which debts to pay off first, and let you know if there’s something there that will force you to wait another year or two.

If your income is a problem, your lender will let you know how much more you need to earn in order to qualify for the home you want. Or – he or she can tell you just how much you can spend per month on a home, and what that translates to in terms of home prices.

If you have too much debt, your loan officer can help you go over your monthly spending habits and find ways to reduce that debt. The fact is, for every dollar of debt you have, you must have two dollars of income to offset it when making a loan application. In addition, if more than 15% of your income is going to consumer debt, you’ll have to bring it down in order to qualify for a mortgage loan.

In other words, it’s worth your while to stop charging and start paying off those bills.

A lender can also advise you on whether or not bringing in a cosigner would be a good idea.

Go ahead and make that appointment with a lender.

Tell him or her up front that you don’t think you’re ready, but you’d like help in getting there.  If the lender isn’t willing to talk with you on those terms, find a different one. The truth is, a good lender can be your strongest ally in your quest to own a home.

Here at Homewood Mortgage, the Mike Clover Group, we’re always willing to talk with future home owners, and always willing to give advice and guidance. So please feel free to call.

In fact, why not call right now, before you forget.

Call today: 469.621.8484

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Fried Quail Recipe for the Holidays

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Quail - Hand Coloured Engraving

I got this recipe from a old timer I used as a guide. He we nice enough to share, so I am going to share. Its really good.

QUAIL OR ANY MEAT MARINADE

1 Tablespoon Black Pepper (fresh ground if possible)

2 Tablespoon Kosher Salt

2 Cups Buttermilk

4 Beaten Eggs

2 Tablespoon Tabasco Sauce

1 Quarter Cup Dill Pickle Juice

Mix all ingredients thoroughly and add meat, let it marinate at

least 4 hours preferably overnight.

 

BATTER

4 Cups Flour

1 ½ Teaspoons Black Pepper (fresh ground if possible)

1 ½ Teaspoons Garlic Powder

1 ½ Teaspoons Onion Powder

1 Tablespoon Kosher Salt

Remove all silver membrane from meat before adding it to the

marinade

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If you’re a veteran or active military, check out VA home loans

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If anyone deserves a little help with home ownership, it’s our Veterans and active military. Thankfully, they get that help. Veterans Affairs home loans are even more beneficial now than they were twenty years ago.

Benefits include:

  • More lenient loan requirements
  • No down payment or mortgage insurance
  • Lower closing costs

Loan requirements:

VA borrowers can qualify with credit scores of around 620, while conventional home loans require a score of 620 to 700. In addition, VA borrowers are allowed higher debt-to-income ratios.

No down payment:

Saving for a down payment of even 3% can be difficult on a military paycheck, so VA borrowers don’t have to. In most locations, veterans or active military can purchase a home of up to $424,100 with no down payment. In areas where homes are higher priced, that number is also higher.

This is not to say there is zero money out of pocket. VA buyers must make an earnest money deposit, and there will be buyer’s closing costs to cover:

  • Appraisal
  • Credit report
  • Origination fee
  • Recording fee
  • Survey
  • Title insurance and title fees

However, while the borrower is allowed to pay these costs, up to 4% can be paid by the seller. If the seller isn’t prepared to net less for the house, borrower can offer a higher price to offset the closing costs.

Another plus for the VA buyer – the lender’s origination and underwriting fee is limited to 1%.

Depending upon the amount of the earnest money deposit, VA buyers often receive reimbursement at closing if the seller is paying more closing cost than was needed.

No mortgage insurance:

Both conventional financing and FHA loans come with a requirement for mortgage insurance if the buyer is paying less than 20% down. This is significant, as it can add $200 or more per month to the mortgage payment.

Instead, VA charges a “funding fee” which can either be paid up front or financed along with the house. This tax-deductible fee helps the VA cover its losses on homes that go into foreclosure.  This fee is waived for veterans with a service-connected disability.

Assistance with appraisals:

In most cases, lenders and agents are not allowed to communicate with appraisers. Not so in the case of VA loans.

The appraisers notify lenders in the event that a home is not going to come in high enough to meet the offered price. The buyers and the agents then have 48 hours in which to supply additional information that might alter the determination. This could be upgrades that the appraiser didn’t know about, or a more accurate list of comparable sales.

If you’d like to learn how a VA loan can help you achieve home ownership, call us! We at Homewood Mortgage, the Mike Clover Group, will be glad to talk it over with you.

Call today: 800-223-7409

 

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Want to buy a home? Heed these lessons from the past.

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Mid adult Hispanic couple discuss where to put furniture in their new home. The both point in different directions in the emply living room. Custom artwork is digitally imposed on the photo. The artwork contains a sofa, chair, plant, lighting fixture and framed artwork.  Custom artwork copyright is wholly owned by Steve Debenport Imagery, Inc.

The American Dream has long been that of home ownership. It makes you feel settled, and a part of a community. It gives you pride in ownership.

But still, purchasing a home is not a decision to be made lightly, and it’s not a decision to be made if you’re heavily in debt.

In fact, financial guru David Ramsey believes that you should not only be out of debt, you should have a hefty emergency fund set aside. And… if you simply can’t wait long enough to pay cash, you should at least wait until you can pay 20% down.

That’s why our rule #1 is: Make the largest down payment you possibly can.

There are no crystal balls. While the banking industry is being a bit more careful about handing out loans now that it was prior to the housing crash, and while prices are now escalating, home values could drop.

If you purchased a $200,000 home with a 3% down payment and the market suddenly dropped by 20% – or even 10% – you’d be instantly under water. If you needed to move, you’d owe far more than the house would bring.

If you paid 10% or 20% down – or paid cash – you’d be in a much better position.

Lesson #2: Never spend all you can.

Because your lender only knows about the obligations you put on paper, he or she has no idea what your budget really looks like. You may have personal obligations, such as a promise to help support an elderly relative. You may feel that you actually need a skiing vacation each winter in order to re-charge and keep working. You may have children who just “have” to attend an expensive summer camp each year.

In addition, if you and your spouse both work, consider what would happen should one of you become ill or lose your job. Could you make a house payment on just one income?

Before you commit to a monthly payment just because a lender says you qualify, go over your own spending and make your own decision about how much you can spend. A good rule of thumb is to keep your mortgage payment below 25% of your monthly take-home pay.

Lesson #3: Stick with a fixed-rate mortgage.

The foreclosure crisis was due in large part to Adjustable Rate Mortgages (ARM’s) that let buyers in with low interest and low payments for a few years. Then, the rates adjusted, monthly payments skyrocketed, and the buyers were unable to make the payments.

Led by promises of refinance, they didn’t worry going in. But when those homes were no longer worth the mortgage balance, all hopes of refinance went out the window.

When you have a fixed rate mortgage, there are no surprises. Aside from changes in property taxes and insurance premiums, the payment can’t change for the life of the loan. Hopefully, your income will grow over time and the payments will become easier and easier to meet.

15-year mortgages offer lower interest rates than 30-year mortgages, but may strain your budget. However, there’s nothing to prevent you from adding a few extra dollars to each mortgage payment in order to bring the balance down faster – and thus reduce the total interest you’ll pay.

Lesson #4: Think ahead.

Buying a starter home in order to build equity so you can move up in a few years is a good plan, but do consider that you may be there longer than you anticipated. Another down turn in the market could wipe out that equity.

With that in mind:

  • Consider whether you and your family will still fit in the home a few years from now. Buying a 1-bedroom cottage when you plan to start a family is probably not a wise move.
  • Consider whether you’ll be happy in the neighborhood long-term.
  • Do hire a home inspector so you don’t get caught unawares and find yourself with major repairs in the near future.
  • Consider whether the house will have good resale value. Your real estate professional can point out the pros and cons of any home you are considering.

Before you begin to shop, call on Homewood Mortgage, the Mike Clover Group, to get pre-approved for a home loan. (At the same time, do remember lesson #2.) We’ll be glad to talk with you, show you the available loan programs, and determine the interest rate you’ll be offered based on your employment, income, expenses, and credit history.

We’ll also help you determine what you should spend on your new house based on your own examination of your spending habits.

Call any time: 800-223-7409

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Should you refinance your home mortgage loan?

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Refinancing your home mortgage loan can be a benefit or a detriment to you, depending upon a few factors.

First is the reason for the refinance. If the purpose is to lower your interest rate and/or reduce the remaining years on your loan, it’s a good idea.

It’s an even better idea if you have an FHA loan with a mandatory mortgage insurance payment each month. If you’ve acquired 20% equity in the house and your credit is good, you can refinance into a conventional loan and do away with the mortgage insurance payments.

It can also be a good idea to refinance and take some cash out if the cash is going to be used to do renovations and increase the value of the house.

If the purpose is to extend the length of the loan or take cash out for an unnecessary expense – such as a new car or a vacation – it’s a very poor idea.

Second is the rate of interest you’re paying right now, compared to the rate you would pay on a new home mortgage loan.

Third is your future plans. If you plan to stay in your home until the loan is paid off, then shaving $100 or more off each months’ payment is a really good idea.

If you plan to sell within a year or two, the cost will outweigh the benefit.

Remember that a new loan is not free. You’ll pay for an appraisal, title insurance, and a variety of closing costs and transaction fees. Sit down with your lender and calculate both the costs and the savings. Then you’ll see how many months it will take you to “break even” on the costs of the loan.

Will refinancing harm your credit?

Refinancing your home mortgage loan will have an effect on your credit, but it will be negligible in comparison to the benefit of paying less each month – and therefore less overall – for your home.

The effect on your credit will largely depend upon the FICO version your lender is using.

When you shop for a new loan, each lender will pull what’s called a “hard inquiry” on your credit report. Since the credit bureaus recognize several mortgage loan inquiries in a short time as shopping, your credit score will only be affected by one inquiry.

But what is considered a short time? Under the latest version of FICO scoring, 45 days is a short time. Under older score models, it’s only 14 days.

Also, since refinancing requires closing an old loan to open a new one, you could lose the benefit of your payment history with your current loan. Since payment history makes up 35% of your credit score, this will have a slight impact, depending upon the scoring model used.

Some models will eliminate that history while others will continue to report your payment history for the closed account.  However, the impact of hard inquiries and possible loss of payment history on your current loan will fade over time as you build a payment history with your new loan.

If you’re thinking of refinancing and aren’t sure if it’s the right thing for you, call us! We at Homewood Mortgage, the Mike Clover Group, will be glad to talk it over with you.

Call today: 800-223-7409

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Make your mortgage go away faster…

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You’ve purchased a fine new home and now you have a fine new mortgage. Even though you would have been spending those dollars on rent had you not made the purchase, looking at 30 long years of payments can feel like a heavy burden.

The good news is, you can make that payment go away much faster.

You may have noticed that in the first years of your loan, far more of your payment goes to interest than to paying down the principal. You may also have noticed that over time, those numbers change. Every dollar you pay toward the principal is a dollar that is no longer accruing interest.

Say you take out a loan for $200,000 at 4.5% interest. Your monthly payment is $1,013. Of your first payment, $750 will go to interest and only $236 to principal. Each month the numbers shift by one dollar- with one dollar less going to interest and one dollar more going to pay down the loan. It will take approximately 17 years for the balance to shift – more to principal and less to interest.

However, you can change that balance in your favor, simply by paying a little more, especially in the early years of your loan.

You can make one extra payment per year

If you get an annual bonus or always get an income tax refund, use part of that money to make an extra payment on your loan. In the example above, you’d be knocking 4.29 months off the length of your loan – or one year for every 3 years that you make the additional payment.

You can add a little extra every month.

Adding just $50 or $100 each month will shrink the number of years on your loan – but what if you could add an extra $236 per month? You’d effectively be making 2 payments rather than one – and eliminating $750 in interest that you will never owe.

Create your own amortization schedule.

Decide how long you want to keep making those mortgage payments, then create an amortization schedule based on the interest you’re paying today. It’s like refinancing, but without the reduction in interest OR the fees and loan costs that you’d pay for a refinance.

You can find amortization scheduling programs on line, or simply give your lender a call.

You can refinance.

If you’re still paying a high interest rate, it could be in your best interest to refinance. This is especially true if you now have 20% equity in your home and can finance OUT of an FHA loan. As you are probably aware, FHA loans carry mortgage insurance for the life of the loan – eliminating that will give you extra money to pay down your loan.

We at Homewood Mortgage, the Mike Clover Group, will be glad to go over the numbers with you so you can see exactly how a refinance would affect you.

Should you try to pay your mortgage off early?

You should if your goal is to become debt-free and you can answer yes to these questions:

  • Have I paid off my high-interest credit cards? (These should come first!)
  • Do I have an emergency fund set aside?
  • Have I got savings put aside for retirement and/or my children’s college expenses?

If you’re considering a refinance …

  • Is my income stable enough to support higher payments?
  • Is my credit score good enough to get me a low interest rate?
  • Do I plan to stay in the house long enough to benefit from the lower interest rate?

Take care of your day-to-day obligations and nest eggs first. Then think about cutting years off your loan. Considering the amount of interest you’ll save, paying down that mortgage could be more beneficial to you than putting the money in a savings account – and more “sure” than putting it in the stock market.

It’s most beneficial if you plan to stay in the house until it’s paid off, but can also help you build equity that can go in your pocket should you decide to sell at some time in the future.

When you’d like to explore your options, call us at 800-223-7409.

We at the Mike Clover Group will be glad help you see how each of these scenarios will affect your finances.  We’ll also be glad to get you pre-qualified so you’ll know what interest rate you’d pay for a refinance.

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