Monthly Archives :

September 2019

Home Equity: What It Is and Why It Matters
Home Equity: What It Is and Why It Matters 150 150 nathanburch
[vc_single_image image=”4196″ img_size=”full”]

It is often said that homeownership builds wealth. So, what is home equity, and how can it enhance your net worth?

What is home equity?

Home equity is the current market value of your home, minus what you owe. You’re looking for a positive number. Any gain comes from:

  • Paying down the principal balance on your loan.
  • An increase in market value over time.

How does home equity work?

Building home equity is a bit like investing in a long-term instrument, like bonds. There are some ways to tap it, but wealth is created over years as your share of “free and clear” ownership of the house increases.

As a rule, building home equity is a slow climb, at best. U.S. residential year-over-year home price appreciation averaged 1.89% from 1997 to 2017, adjusted for inflation, according to CoreLogic, the Bureau of Labor Statistics, and the Urban Institute.

However, behind that average are some major year-over-year price swings during the same period, ranging from a gain of 12.6% to a drop of 18.1%, according to the Urban Institute.

When it comes to short-term home appreciation, sometimes it’s more of a bungee jump than a climb.

Why is home equity important?

Home equity can be a long-term strategy for building wealth. Mortgage payments reduce what you owe while your home gains value, so paying on a house has been called “a forced savings account.”

Home equity can be a long-term strategy for building wealth.

This is unlike virtually every other asset purchased with a loan, such as vehicles, which lose value while you pay them off.

A growing number of U.S. homeowners are amassing “impressive stockpiles” of home equity wealth, according to Daren Blomquist, senior vice president at Attom Data Solutions. At the end of the second quarter of 2017, over 14 million U.S. properties were considered “equity rich” — meaning the debt on the property was 50% or less of the home’s current market value. That’s about 24% of all owner-occupied homes with a mortgage.

Building home equity is definitely a long-term proposition. Blomquist says wise words from one of his relatives may state it best. “My wife’s great-grandfather — who bought property in Southern California a long time ago — his advice was, ‘You take care of a piece of real estate for 20 years, it’ll take care of you forever.’”

Source: Nerd Wallet

What is mortgage insurance and how does it work?
What is mortgage insurance and how does it work? 1024 536 patrickgardner
[vc_single_image image=”4032″ img_size=”full”]

Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. 

Typically, borrowers making a down payment of less than 20 percent of the purchase price of the home will need to pay for mortgage insurance. Mortgage insurance is also typically required on FHA and USDA loans. If you are required to pay mortgage insurance, it will be included in your total monthly payment that you make to your lender, your costs at closing, or both.

There are several different kinds of loans available to borrowers with low down payments. Depending on what kind of loan you get, you’ll pay for mortgage insurance in different ways:

Conventional Loan

If you get a conventional loan, your lender may arrange for mortgage insurance with a private company. Private mortgage insurance (PMI) rates vary by down payment amount and credit score but are generally cheaper than FHA rates for borrowers with good credit. Most private mortgage insurance is paid monthly, with little or no initial payment required at closing. Under certain circumstances, you can cancel your PMI.

Federal Housing Administration (FHA) Loan

If you get a Federal Housing Administration (FHA) loan, your mortgage insurance premiums are paid to the Federal Housing Administration (FHA). FHA mortgage insurance is required for all FHA loans. It costs the same no matter your credit score, with only a slight increase in price for down payments less than five percent. FHA mortgage insurance includes both an upfront cost, paid as part of your closing costs, and a monthly cost, included in your monthly payment.

If you don’t have enough cash on hand to pay the upfront fee, you are allowed to roll the fee into your mortgage instead of paying it out of pocket.  If you do this, your loan amount and the overall cost of your loan will increase.

US Department of Agriculture (USDA) Loan

If you get a US Department of Agriculture (USDA) loan, the program is similar to the Federal Housing Administration, but typically cheaper. You’ll pay for the insurance both at closing and as part of your monthly payment. Like with FHA loans, you can roll the upfront portion of the insurance premium into your mortgage instead of paying it out of pocket, doing so increases both your loan amount and your overall costs.

Department of Veterans’ Affairs (VA) Loan

If you get a Department of Veterans’ Affairs (VA)-backed loan, the VA guarantee replaces mortgage insurance, and functions similarly. With VA-backed loans, which are loans intended to help service members, veterans, and their families, there is no monthly mortgage insurance premium. 

Second Mortgage

When using a second “piggyback” mortgage,the loans are structured differently.  For example, the same borrower might pay for the home with: a 10 percent down payment, 80 percent main mortgage, and a 10 percent “piggyback” second mortgage. In this scenario, the borrower is still borrowing 90 percent of the value of the home, but the main mortgage is only 80 percent.  The “piggyback” second mortgage typically carries a higher interest rate, which is also often adjustable. 

Contact us if you have any questions or your like to know what you what your financial situation looks like!

Source: Consumer Financial Protection Bureau (CFPB)

5 Reasons to Buy a Home This Fall
5 Reasons to Buy a Home This Fall 1024 683 jaycurley

Reasons to Buy a Home This Fall

Real estate markets ebb and flow just like the seasons. The spring market starts hopping when the sun comes out, flowers bloom and winter is over. Conversely, fall signals the beginning of a slower market, which could be good for buyers.

If you’re in the market for a home, here are some reasons why fall can be a great time to buy.

Leftover spring inventory may result in deals

Home sellers tend to go on the market for the first time in the spring. They often list their homes too high out of the gate, which could mean that a series of price reductions follow during the spring and the summer months.

These sellers have fewer chances to capture buyers after Labor Day. By October, buyers are likely to find desperate sellers and prices that may, in fact, be below a home’s true market value.

Fewer buyers are competing

Families who want to be in a new home by the beginning of the school season are no longer shopping at this point. These families have exited the market, which means less competition. That translates into more opportunities for buyers.

Taking out an entire segment of the housing market provides millennial, single, and baby boomer buyers some breathing room. You’ll likely notice fewer buyers at open houses, which could signal a great opportunity to make an offer.

Motivated sellers want to close by the end of the year

While a home is where an owner lives and makes memories, it is also an investment — and one with tax consequences. A home seller may want to take advantage of a gain or loss during this tax year.

Buyers might find homeowners looking to make deals so they can close before December 31st and get that tax benefit. Ask why the seller is selling, and look for listings that offer incentives to close before the end of the year.

Homes for sale near the holidays signal a motivated seller

As the holidays approach, the last thing a homeowner wants is for their sale to be dragging on and interrupting their parties and events.

If a home has not sold by November, and it’s still sitting on the market, that homeowner is likely motivated to be done with the disruptions caused by their home being listed for sale.

Many homes don’t show as well once the landscaping fades

The best time to do a property inspection is in the rain and snow, because the home will be truly exposed for buyers. The same holds true for fall, when flowers die, trees start to shed their leaves, and beautiful landscapes are no longer so lovely.

Scratching the surface of the pretty spring home season and fall reveals home flaws, making it a great time to see each home’s true colors. It’s better to see the home’s flaws before making the offer, instead of being surprised months after you close.

Source: Zillow

The post 5 Reasons to Buy a Home This Fall appeared first on Vellum Mortgage.

How a 20-year home mortgage can save you money
How a 20-year home mortgage can save you money 1024 536 nathanburch
[vc_single_image image=”4181″ img_size=”full”]

The 30-year fixed-rate home mortgage dominates the housing market, particularly for first-time buyers who appreciate the ability to extend their home loan payments for the longest possible term.

The second most common fixed-rate loan term is 15 years, but many lenders also offer loan terms of 10 or 20 years. Sometimes lenders even offer a personalized term chosen by the borrower.

On average, a person will save a significant amount of interest when either purchasing or refinancing into a 20-year mortgage compared to a 30-year. Here are four reasons to consider a 20-year mortgage:

  • Save on interest:
    The most obvious reason is that the interest rate of a 20-year mortgage is typically one-fourth of one point to three-eighths of one point lower than a 30-year fixed mortgage. This means, on an average, a person will save a significant amount of interest when either purchasing or refinancing into a 20-year mortgage compared to a 30-year. Because of a shorter loan term and a lower interest rate, on a $280,000 loan amount, a borrower can save approximately $85,000 in interest over the life of the loan.
  • Pay off the loan faster:
    When a borrower is refinancing to get a lower interest rate, instead of taking their original 30-year mortgage and refinancing it into another 30-year mortgage, they’re able to take their original 30-year mortgage and refinance into a 20-year mortgage, which would potentially keep them on their payoff goal. Thus, they don’t have to start all over with a new 30-year mortgage.
  • Match the payoff to retirement goals:
    Let’s say a borrower is in their late 30s or 40s and their retirement plan is to retire in their 60s. Applying for a 30-year mortgage would push their potential payoff of their house into their 70s. Choosing a 20-year mortgage would keep them potentially on track for having their house paid off in their 60s.
  • Affordable payments:
    A 20-year mortgage is a good alternative to a 15-year mortgage, as many home buyers can’t stretch their budget to make the higher payments required to pay off a mortgage in 15 years, but yet they want to pay off the home faster. The borrower is still paying off the loan in 10 years less than a 30-year mortgage, and if the borrower ever wanted to, they have the ability to make extra payments.

Speaking with a Vellum mortgage professional will ensure that you obtain the mortgage that’s right for your story.

Source: Washington Post