When you’re thinking of buying a home, friends and family often come forth to advise you, caution you, and tell you the rules regarding home mortgages.

While some of these rules have served a purpose in the past, now is a good time to ignore them, because things have changed.

Interest rates are no longer low. In fact, recently they’ve been at 20-year highs.

Mythical rule #1: Always use a 30-year fixed rate mortgage.

That was true for a while, but now, with interest rates much higher, it’s time to take another look at Adjustable Rate Mortgages. (ARMs)

ARMs come in many sizes and styles, with 6 details to examine and consider before deciding upon an ARM. These are:

• The initial interest rate compared to a fixed rate mortgage
• The adjustment frequency – how often can the bank change the rate? In some cases, it could be monthly, so be sure to check.
• The adjustment indexes. This refers to a benchmark, index, or asset such as Treasury bills. Ask your lender what would determine an interest rate change in the ARM you are considering.
• The margin: This refers to index again – you’ll agree at the outset to pay an interest rate that is a set percentage higher than the adjustment index.
• The caps: This indicates how much the rate can change at each adjustment period. The cap could also refer to the monthly payment, but beware. A cap on the monthly payment could put you into a negative amortization situation – owing more after 10 years than the original loan.
• The ceiling: This important number tells you just how high the interest rate can go.

Mythical rule #2: You have to wait to buy a home until you have a 20% down payment.

This rule has actually never been true. It’s good thinking, because a larger down payment will generally result in a lower interest rate. In addition, if you’ve paid 20% down, your loan will not be subject to mortgage insurance – thus saving you money.

However, FHA offers loans with as little as 3.5% down and VA and USDA–backed loans are available at zero down. (Yes, there are closing costs, but no down payment.)

Whether it’s wise to take out a loan with a low or no down payment depends upon your circumstances and details such as how much you must pay for rent and how long you expect to remain in the community.

Mythical rule #3: Never ask sellers to pay your closing costs.

This was true while interest rates were low and buyers were getting into bidding wars over homes. Sellers simply did not have to make any concessions to buyers in order to sell their houses.

Now the tide is turning. Rising interest rates have made it more difficult for buyers, so there are fewer buyers. Wanting to buy a house doesn’t translate to being able to buy a house – especially when home prices are still high.

Many savvy buyers are now asking sellers to pay closing costs in lieu of asking them to accept an offer lower than list price. This makes sense for cash-strapped buyers because it reduces the number of dollars they’ll need at closing.

Mythical rule #4: Don’t pay to buy down your interest rate.

As you may know, it is possible to pay mortgage points and buy down the interest rate on your home mortgage. Essentially, that means paying interest up front rather than having it spread over the life of the loan.

One point equals 1% of the loan amount. While the actual number varies from lender to lender, you can generally expect that buying one point will reduce your interest rate by 0.25%.

Since paying points means paying more at closing, many discourage it, but for buyers who will remain in the house for several years, and who can afford the initial outlay, it could be a wise move.

Consider a 30-year fixed-rate loan for $200,000 at 7.3%. The monthly payment would be $1,371.14. If the interest rate was reduced by .25%, the payment would be $1,337.33, or $33.81 less per month. If the borrower paid one point ($2,000) for that reduction, it would take 59.15 months to come out even.

After the 5-year mark, this borrower would be saving $405.72 each year.

A second benefit to paying points depends upon your income tax status.

Discount points paid to buy down interest rates are the only portion of your closing costs that are tax-deductible. So if you paid the $2,000 as noted above, you could take a $2,000 deduction on your taxes. And If this deduction happened to put you in a lower tax bracket you’d be getting a huge bonus.

The bottom line: Look at all the numbers, do the calculations, and speak with a trusted mortgage lender before making decisions of this magnitude.

We here at Homewood Mortgage, the Mike Clover Group, will be happy to help you determine which is the best course of action for your specific financial situation.

Call us today at 800-223-7409

Before you decide to simply take the standard deduction for 2022, check to see if your home ownership gives you a better break.  

The 2017 Tax Cuts and Jobs Act of 2017 did reduce your allowable deductions. However, there is still an opportunity to save, especially if your mortgage is in its early years.  

Do check the year-end statement from your mortgage lender to see how much you paid in mortgage interest during 2022. 

The standard deduction for 2022 is $12,950 for individuals, $19,400 for heads of household, and $25,900 for couples filing jointly.  

If your mortgage interest plus other home ownership deductions bring you to or near these numbers, look at your other expenses.  If you file Schedule A to claim mortgage interest, then you can also claim property taxes, state and local income taxes (up to a combined $10,000), charitable contributions, and medical expenses that exceed 7.5% of your income. Together these may well bring you above the standard deduction.  

Mortgage Interest is probably the largest number. 

Note the changes. If you took out your loan before December 15, 2017, you can deduct interest on up to $1 million in mortgage debt. ($500,000 for single filers.)  

If you took out your loan from that date forward, you can deduct interest on only the first $750,000 of mortgage debt.  

Not that this $750,000 does include home equity loans and home equity lines of credit.  

Note the restriction on Home Equity debt interest. 

Interest on home equity loans is deductible ONLY if the money was used to make improvements to the home. Using it to consolidate credit card debt, pay for a wedding, or take a cruise, renders it non-deductible.  

So if you take out a home equity loan or home equity line of credit to remodel the kitchen, be sure to save your receipts. Should you be audited you’ll need to show proof of where that money went. 

Points you paid to buy down your interest rate. 

Since discount points are essentially pre-paid interest, you can deduct them along with your mortgage interest. Each point is equal to 1% of your mortgage loan, so if you paid 2 points on a $400,000 loan, you can deduct $8,000.  

Private Mortgage Insurance is no longer deductible.  

Property tax deductions are also limited. 

While you can claim property tax deductions for all the properties you own, there’s a $10,000 deduction cap on the combined amount of property taxes plus state and local income taxes. In states without income tax, you can deduct sales tax, but still only up to the combined limit of $10,000. 

Energy Efficient upgrades to your home. 

If you added solar panels or a solar water heater last year, you can deduct up to 30% of the cost, including installation.  

In addition, if you upgraded exterior windows, doors, or skylights, or if you added insulation or paid for an energy audit, you can take advantage of a credit for up to $500. In general, the credit is limited to 30% of the cost of improvements. This credit expired on December 31, 2022.  

However – Passage of the Inflation Reduction Act renewed and expanded the credit to up to $1,200 annually for property placed in service on or after January 1, 2023. 

The home office deduction still stands, but… 

The rules have changed and this deduction has gone away for W-2 employees who have a company office that they could use. 

Self-employed people who actually have dedicated office space in their homes are still entitled to the deduction. Under the simplified home office deduction, they can deduct $5 per square foot of office space, up to 300 square feet.  

Do note that your bedroom or dining room doesn’t count, just because you have a computer and printer, or a file cabinet set up in the corner. It must be a space used only for work.  

Refinancing takes time.  In fact, it can take anywhere from one to two months depending upon your lender and depending upon your own diligence in getting your paperwork submitted and in answering questions immediately. 

Given the fact that interest rates are rising you might wonder why anybody would refinance. 

There are a few reasons. First, some people still have high interest rates from years ago. They didn’t refinance when rates were really low, perhaps because of a financial problem, but now they can qualify, and they want to lower their rate. Or, perhaps they want to pull some equity out of their house. Still others would like to stretch out their payments a little longer. 

Whatever the reason, if you want to refinance, there are a few things you can do to ensure a smoother transaction. 

First research your options. Talk with your current lenders and let them know that you’re thinking of refinancing. They may offer you an attractive interest rate and perhaps a break on the closing cost, just to keep your business. Then do check with other lenders. Let them know that you’re shopping for the best rates, and you will refinance with the lender who offers you the lowest price both in interest rates and closing costs. 

Because interest rates fluctuate from day to day, once you’ve narrowed your choices, check rates with each lender on the same day.  

If time is of the essence for you, ask each lender how long it might take to complete your refinance. The fact is that some lenders put refinances at the bottom of the pile because purchase transactions have deadlines. They need to get those done first.  

Next get your documents gathered and fill out your loan application completely. If you leave blank spots the lender will send it back to you to complete, so get it all done right the first time. Talk to the loan officer in advance so you know exactly what documentation you’re going to need to submit with that application. 

It should include at least your proof of income, copies of your bank account and investment account statements, and the last two years of your tax returns. Be sure the documents have been generated within the last month. You’ll also need a copy of your homeowners insurance and possibly a copy of your deed of trust and a property survey. Again, your lender can advise you on the paperwork you need to submit.  

It’s likely that your lender will have questions or need documents that you haven’t supplied, so respond quickly to any Email, text, or phone call from your lender.  if you delay, your refinance will be delayed. 

Once you’ve submitted your completed loan application and all your documentation, your lender will be required to supply you with a loan estimate and loan disclosures within 3 days. Read the estimate carefully to ensure that the interest rate, closing costs, and other details are the same as those that were quoted verbally. The estimate should include your monthly payment information, your interest rate, your closing costs, and, unless closing costs are wrapped into your new loan, how much you will need to bring to closing.  

Be sure you know exactly what costs you will be required to pay at closing. The last thing you want at this point is to come up short and be scrambling for funds the day of closing. 

Assuming that you are satisfied with the lender’s interest rate and costs, and that the lender has conditionally approved your loan, the next step is the appraisal. You need to be on hand to let the appraiser into the house, so plan ahead to be at home that day. Be sure that your lender knows how to contact you during the day in case the appraiser wants to make a same-day appointment.  

Underwriting is the final step before closing, and it can be the most time-consuming step. On average it takes from 5 to 8 days. In some cases, it can take much longer, especially if the underwriter calls for more information from you. In addition, underwriting on a refinance often takes longer than underwriting on a purchase. This is simply because purchase transactions have deadlines. When they’re busy, your transaction might go to the bottom of the pile. 

Don’t be shy. 

If you don’t hear from your lender within a reasonable amount of time, reach out. Let your lender know that you’re there and waiting and ready to close. Sometimes you really do need to be that squeaky wheel. 

Whatever you need, we’re here for you. 

Whether you’re buying a new home or refinancing your current home, we at Homewood Mortgage, the Mike Clover Group, are here to serve you with fast friendly service.  

Call us today at 800-223-7409. 

Bridge loans can be convenient tools, but they are not right for every borrower and/or every real estate market.

A bridge loan, also known as a gap loan, is granted to bridge the gap in financing for a homeowner who is selling one house and buying another.

It’s a useful tool for a homeowner who could not otherwise qualify for a new mortgage loan while still making payments an existing loan. It also allows the homeowner to shop with confidence in his or her ability to close on a new home.

Few home sellers are interested in accepting an offer contingent on the buyer selling their existing home, and the bridge loan eliminates that problem. It allows the homeowner to complete his or her purchase and move into a new home before the old home sells.

How a bridge loan works:

A bridge loan is a single loan that uses two homes as collateral. The bridge loan pays off the existing home loan and provides the funds to purchase the new home.

Typically, banks will grant loans up to 80% of the combined value of the two homes. For example, if the homeowner has a home valued at $250,000 and is buying a new home for $400,000 (combined $650,000), the loan could be as high as $520,000. That means that the borrower must have at least $130,000, either in equity, cash, or a combination of the two.

Compared to conventional loans, bridge loans also take less time to process.

A bridge loan sounds wonderful, but there are drawbacks…

Bridge loans cost more than long-term mortgage loans. Both interest and origination fees ae typically higher than on a standard home loan. Interest rates could go as high as 16% – giving homeowners plenty of incentive to get the old home on the market and sold. However, do be sure to read the fine print. Even though these are considered to be short-term loans, some lenders to charge a prepayment penalty.

Also, not all homeowners will qualify. Bridge loans typically require excellent credit scores and low debt-to-income ratios.

Your local market matters…

If you’re in a hot seller’s market, where homes are selling within a few days of coming on the market, a pre-approved bridge loan is probably a useful and safe tool. It will allow you to grab the house you want while some other buyers might be slowed down by getting loan approvals.

If you’re in a buyer’s market, where homes take a few months (or years) to sell, a bridge loan might be a poor idea. You’d probably be better off to sell your house first, then move into a rental while you shop for a new home.

Your real estate agent matters…

The real estate market across the nation is in flux due to rising mortgage interest rates and inflation. However, each market is affected differently.

So before you choose a bridge loan, discuss your local market conditions with a real estate agent who has been keeping a close watch on changes. Learn whether your current home could be expected to sell within a week – or if it might remain on the market for a year or more.

Your lender matters too…

Here at Homewood Mortgage, the Mike Clover Group, we offer bridge loans at one of the lowest rates in the nation. And, to make life easier for our clients, we’ll finance up to 95% of the combined value of both homes.

Whether you want a bridge loan, an FHA loan, or a conventional mortgage loan, we’re here for you – with the friendliest service in Texas.

Call us today at 800-223-7409

Underwriting plays a crucial role in the timing of your home mortgage loan.

Before you write an offer to purchase a home with a mortgage loan, discuss the time line with your loan officer. You won’t want to promise a closing date that you cannot meet.

While your loan officer will have gone over your credit report, income, assets, obligations, etc. before writing a pre-qualification letter, your transaction must still go through underwriting. Your lender will have a good idea of how long underwriting should take based on the type of loan, the lender in question, and the complexity of your finances.

But keep in mind that is not the only factor affecting the time line. In addition to those factors, your own cooperation will determine the time required for underwriting.

What is underwriting?

Underwriting is the (almost) last step between making a down payment and closing on your home purchase.  It is the process of carefully examining every part of your financial life for the purpose of determining whether or not you are a good credit risk. In order to do the job properly, the underwriter will access your credit report, then require documents such as:

• Your tax returns
• W-2 and 1099 forms
• Pay Stubs
• Bank accounts
• Investment accounts
• Documents verifying other income

When any of these documents raise other questions, you’ll be asked for more. For instance, if your bank account shows a lump sum deposit that is not consistent with your regular income, they’ll want to know where it came from.

Banks want to be assured that you have not borrowed money for your down payment or closing costs. With that in mind, if you want to speed the underwriting process, plan ahead to demonstrate the source of those funds. Did you sell something? Did you receive a gift from a family member? Did you take on some kind of self-employment?

The faster you can answer the underwriter’s questions, the faster he or she will complete the job. So if you anticipate such questions, send the answering documentation along with your other information. (ie: a letter explaining a cash gift from your Grandmother or a copy of the bill of sale from selling your ATV.)

If there’s a question you didn’t anticipate, make haste to provide whatever the underwriter asks for.

Underwriters must verify the documentation…

In addition to reviewing the documents you provide, underwriters contact banks, employers, credit card issuers, etc. to verify that the information is current.

This is why real estate agents and lenders tell borrowers NOT to make any changes in their financial status once the loan is underway. This is not the time to change jobs, buy a car, withdraw funds, or run up credit card bills.

Underwriters are not ogres…

While there are many jokes about underwriters being fearsome creatures, they are not. They are simply people following the lender’s guidelines to confirm and assess your debt to income and your credit worthiness.

When they ask for more documentation, it is not because they don’t trust you, but because their own employment rests on following the guidelines. Unlike small-town bankers of 100 years ago, they are not allowed to make decisions based on instinct or their own judgement.

When the underwriter is finished and satisfied that you’re a good risk, you’ll get a conditional approval.

What does “conditional” mean? Just that. The approval is conditioned on nothing changing between the time of approval and the time of closing.

Some lenders will wait until the last day to re-verify such things as bank and credit card balances. So take heed of your agent’s and your lender’s advice: Do nothing to change your financial picture until after your home mortgage loan is closed and finalized.

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When you approach a lender to obtain a conventional mortgage loan, one of the first things he or she will do is order a credit report. This report will outline your financial history and provide what is known as a FICO score. A high FICO score means you have a long history of paying your debts on time and have not over-used the credit available to you.

The higher your FICO score, the better interest rate you’ll be offered on your home loan. This score, by the way, is also used by those offering credit cards and car loans. So no matter what kind of credit you want, high scores are to your benefit.

FICO scores can go as high as 850, which is a perfect score. An excellent score is anything from 750 to 850, while a good score ranges from 700 to 749. Fair is from 650 to 699 and lower than 650 is considered poor.

If your score is good or excellent, and provided that other lender requirements are met, you should have little trouble obtaining a home mortgage loan.

Lenders are most comfortable lending to borrowers who have a habit of repaying their debts, so the better your FICO score, the more they’ll want your business. Because banks do compete for business, they’ll try to attract you by offering a low mortgage interest rate.

Does a poor to fair score mean you cannot get a mortgage loan? No, although you might be better off with a FHA or VA backed loan. Low scores will mean you may only be offered a subprime loan, with a higher interest rate, and you may be required to purchase private mortgage insurance.

For that reason, if you’re thinking of purchasing a home, do check your own credit report. If your scores are low, take action to bring them up.

If you’re thinking of home ownership, please feel free to contact Homewood Mortgage, the Mike Clover Group ahead of time. We’ll be happy to take a look at your financial situation and let you know the interest rate we could offer today.  And, if your scores need improvement, we’ll provide some sound advice on raising them.

Unless you have an extremely high-paying job, putting together enough money for a down payment is no easy task. That’s especially true today, with inflation taking an ever-larger chunk out of our wallets.

If you’re determined, you can do it, but you do need a goal and a plan.

Trying to save for a down payment without a clear goal and a plan to get there is nothing more than dreaming of “someday.”

Begin by finding out what you can afford to buy based on your monthly income. After all, the down payment is just the beginning. You’ll need to make monthly payments, and you should make sure that they fit comfortably within your ability to pay.

Talking this over with a lender is a good idea. It will help you decide what kind of loan you’ll want (conventional, FHA, VA, etc.), what percentage of the selling price you’ll need for a down payment, and the maximum amount you can pay for a house, based on your income and current interest rates. Of course, this information could change depending upon the interest rates when you’re ready to buy.

Next, consider how soon you’ll want to become a homeowner. One year? Two years? Whatever your answer, take the number of months and divide it into the amount you’ll need for a down payment.

To make it simple, let’s say you need $18,000 for a down payment and you want to buy in 18 months. You’ll need to save $1,000 per month. If that is completely impossible due to your income level, you may need to adjust your target date.

However, first stop to consider all the ways you can save for that down payment.

First, cut some non-essentials.

• Do you really need all those pay-per-view channels? Cancel the ones you barely use.
• Did you get used to calling for home-delivered meals during Covid? Consider going back to cooking at home, at least most of the time.
• Can you make coffee at home? Do that instead of stopping off for a high-priced cup on your way to work or play.
• Do you really need new wardrobe items each season? No, no one except children who are outgrowing their clothes needs new things every few weeks.
• Are you actually using your gym membership? If the answer is no, cancel it.

I’m sure that if you look at where your money is going, you’ll see other places where you are not getting enough benefit to make it worth spending those dollars.

Start managing your money with intent.

Are you paying high interest on credit card balances? See if you can transfer those balances to a lower rate card, then pay them off as fast as you can. Credit card interest is a huge drain.

Win the interest/cash back game. Get a credit card that pays cash back, then use it for essentials like groceries and gas. Pay it in full before the due date each month, so you’re paying no interest, but getting the 2% or so back.

Eliminate the word “only” when speaking of dollars. It’s easy to spend too much when you say “It’s only $5” or “It’s only $20.” Think twice before you purchase something. Do you need it, or simply want it? The two ideas are not interchangeable.

Pay sooner to save. You can save impressive amounts of money by paying for things like insurance in one lump sum rather than monthly. Check your policies to see if your insurance company offers that option. And while you’re at it, it wouldn’t hurt to compare coverage and rates with different insurance providers. Sometimes the company that claims to be the least expensive really isn’t.

If you’d rather wait longer to own a house than to feel deprived, make deals with yourself. Rather than entirely giving up dining out, going to movies, attending concerts, etc. Give up each favorite activity for only one month at a time. The next month, give up a different activity.

Consider downscaling your present living arrangements. If you’re renting an apartment with all the bells and whistles, consider moving to somewhere less expensive when your lease runs out.

Turn some of your belongings into cash. You might own jewelry, an RV, a boat, or some other “toy” that you seldom use. Sell it and put the money directly into your house down payment account. You might also consider holding a yard sale to turn smaller items into cash.

Take a second job until you have your down payment money. Even an extra $100 a week will make that fund grow quickly.

Use technology to monitor your spending.

Apps such as Mint and YNAB (You Need a Budget) will help you track exactly where your money is going each month. You’ll soon see where you’re spending more than you planned, so you can take control.

Schedule a meet with the Mike Clover Group to see where you stand.

We at Homewood Mortgage, the Mike Clover Group, will be glad to meet with you to discuss your individual situation. We can let you know the type of loan you’ll qualify for, the percentage of the purchase price you’ll need for a down payment, the closing costs you can expect, and the home price you’ll qualify for based on your current income.

If you have credit issues, we’ll offer advice on how to raise your scores to qualify for the lowest possible interest rate.

In other words, we’ll be glad to help you prepare for home ownership. We have some of the best rates and lowest loan fees in Texas. And… we have the friendliest loan officers!

Call us today at 800-223-7409

First, what does that even mean? What is a recast mortgage?

Recasting a mortgage is the process of paying a lump sum of your principal in order to reduce your monthly payments. It is simply a process by which your loan is re-amortized based on a lower principal balance.

Unlike a refinance, it doesn’t change your interest rate nor does it re-set the number of months/years left on your mortgage loan.

Recasting is rarely done, but it is worth considering under certain circumstances.

When would you consider recasting?

When you suddenly have a windfall, such as an inheritance or a large bonus at work, and you’d prefer to reduce your monthly payments instead of spending it or investing it elsewhere.

You could simply apply the money to your mortgage. That would reduce the principal balance, causing less of each monthly payment to go toward interest and more toward the principal. It would also shorten the life of the loan, saving you even more on interest. However, your monthly payments would remain the same.

You could also refinance for a lower amount.

Note that only conventional loans are eligible for recasting. Government-backed loans such as FHA and VA cannot be recast. Additionally, not all banks offer this service. And finally, most lenders require a minimum of $5,000.

What’s the difference between recasting and refinancing.

Refinancing is taking out a new loan to pay off the old loan. As such, it generally requires the same steps as any other mortgage loan. That includes a credit check, appraisal, and payment of various fees. The cost of refinancing could be as much as $4,500.

Recasting is much simpler, and cheaper. You simply contact your bank, pay a fee of about $250 – $300, and hand over the money. There’s no credit check and no appraisal.

Interest rates are another difference.

When you refinance, you’ll do so at the going interest rate on the date of your refinance. Refinancing makes sense if you plan to stay in the house for the next several years, and if interest rates are significantly lower than they were when you took out the loan. If they’re higher, it does not.

When you recast, you keep the same interest rate you had when you took out the original loan. If rates are higher now, it makes more sense to recast than to refinance.

If you think recasting might be a good idea for you, contact your lender to learn how much you’ll save per month.

If you’d rather refinance, get in touch with us. We’re the Mike Clover Group at Homewood Mortgage, and we’d love to assist you!

Call us today at 800-223-7409

Think twice about changing employment if you’re buying a home

The new job you’re contemplating might pay more and make it even easier to make mortgage payments on that new home you want. But think twice before you take the leap.

Better yet, talk it over with your favorite mortgage lender. Be clear about the change you want to make and why you’re considering it. Lay out all the facts and let your lender advise you.

Depending upon what you want to do, you may want to wait until after your loan is closed before going forward.  Or – you may want to make the change, then wait a few months before making a loan application.

Whatever you do, don’t change jobs while your home mortgage loan is being processed unless your lender tells you that it is safe to do so. Otherwise, the change could result in a last-minute rejection.

Your employment history is one of the financial matters your lender will look into when you apply for a mortgage loan. Naturally, banks want to know that you have a steady income and can comfortably handle your monthly mortgage payments.

In their eyes, the longer you’ve been in your current position, the better. Changes in employment make them wary.

Moving up or taking a promotion within your current company is probably the safest employment change in your lender’s eyes. This signifies that you’re a valued employee, not likely to be laid off in the near future.

Taking a similar position with a new employer is next in the “least risky” lineup. However, the status of your new employer counts as well. If you’re leaving an established company to take a job with a start-up, the bank’s underwriters might see that as extremely risky.

Next on the risk scale is leaving a salaried or steady hourly wage job for a sales job based on commissions. We all know that commission work can be “boom or bust,” and lenders know that too.

The highest risk is becoming self-employed. Generally, banks want to see 2 full years of tax returns before approving a self-employed borrower.

Whatever you do, don’t try to hide your change in employment from your lender. Banks often re-verify information at the last minute before funding your loan, and finding your deception is a sure way to have your loan cancelled.

If a home purchase and a change of employment are in your plans, do call us.

We at Homewood Mortgage, the Mike Clover Group, will be glad to furnish advice and information to help you make a beneficial decision.

And of course, if you’re buying a home, call us whether or not you plan to change jobs. We have some of the best rates and lowest loan fees in Texas. And… we have the friendliest loan officers!

Home buyers who can make an all-cash offer have a bit of an advantage over buyers who need a mortgage loan. Sellers love them because there’s no uncertainty or worry over appraisals or a loan that might fail at the last minute.

However, just because you can make an all-cash offer doesn’t mean you should.

Some extremely wealthy people use mortgages rather than cash. If you’ve ever wondered why, consider these pros and cons.

The benefits of paying cash for a new home:

• As already stated, sellers like you and will be more likely to accept your offer.
• You may be able to negotiate a slightly lower price, simply because your offer doesn’t carry the uncertainty of a mortgage loan.
• Buying for cash is much faster. Given the right circumstances, you could make an offer and close on the purchase within a week.
• You’ll save money by not paying for an appraisal, mortgage fees, a lender’s title policy, and of course, loan interest.
• Even if your circumstances change, you still can’t be foreclosed upon. You’ll still have to pay for maintenance, property tax, and insurance, but those are small compared to mortgage payments.

The drawbacks of paying all-cash for a home:

• You’ll miss out on tax deductions associated with mortgage interest.
• A large chunk of your money will be tied up in your house. Depending upon your circumstances, you might be “putting all your eggs in one basket.”
• Again depending upon your circumstances, you’ll be giving up liquidity. You could miss out on money-making investment opportunities because you don’t have immediate cash.
• Many of the world’s wealthiest individuals say they did it all on “OPM” – other people’s money. When you have your own money in the bank, you’re considered a good risk, so it’s always easier to borrow funds you want for investments.

Never completely drain your assets to pay cash for a home.

This is the same advice we give buyers who are making a down payment on a mortgage. Always keep some funds in reserve to cover the unexpected. Most experts recommend having an emergency fund that covers 6 months of living expenses.

If you’re considering purchasing a home with all cash, make it easy on yourself.

You may be pulling funds from several sources to pay for your new home. If so, consolidate those sources into one account before you begin your home search.

Why? Because the seller will want to see proof that yes, you do have the cash. You’ll need to show your bank statement.

Find out how long it will take to transfer money from that account to the closer, just to make sure you request the funds early enough to close on time.

Set aside funds to pay property taxes, homeowner’s insurance and homeowners or condo association fees. If you’ll ask for a home inspection (which most agents recommend) remember to budget approximately $500 to cover the expense.

Do weigh the benefits and drawbacks before deciding whether or not to pay all cash for a home.

But remember, your decision isn’t set in stone. If you start with a loan and have the cash, you can pay off a mortgage at any time. And, if you pay cash for the purchase and decide it would be better to have more money in the bank for other opportunities, you can take your money out with new financing.

We at Homewood Mortgage, the Mike Clover Group, are always ready and willing to help.

We’re known for our low interest rates, minimal closing costs, fast closings, and some of the friendliest loan officers in Texas.

Call us today at 800-223-7409