One More Reason to Refinance

Taking cash out of the equity of your home could be a legitimate way to fund a temporary cash crisis now or to have it on-hand if the need arises.  Most homeowners can pull out the difference in 80% of the fair market value of their home and what they currently owe.

The most frequently cited reasons for refinancing are to lower the payment, eliminate the private mortgage insurance, combine mortgages, consolidate debt, convert an ARM to a fixed rate mortgage, remove a person from the loan or to take cash out for another reason.

The option of using your equity to deal with unexpected living expenses or potential lost wages in the future could be a good reason for doing a cash-out refinance.  It is important to consider that it could increase your monthly payment instead of lowering it which would result in higher expenses during uncertain economic times.

Some lenders have recently raised the minimum credit score requirement but borrowers with good credit and the ability to repay should be able to refinance.  Lenders are reporting that during the Covid-19 crisis their processing time is taking longer but they have implemented procedures to safely facilitate the application as well as the appraisals.

While homeowners with an FHA loan are available for a streamline process because FHA is already insuring the mortgage to be refinanced, the cash-out is limited to $500.  Even though the owner may not be able to pull funds out of their FHA equity, refinancing may lower their payment and therefore, lower their expenses.

Unlike conventional loans that require income through a job or other sources, refinancing an existing FHA loan does not require income verification or an appraisal.  The borrower cannot be delinquent on their current FHA loan and it must be at least six months old.  The refinance must reduce the current interest rate or term or both. 

Another alternative for homeowners is a HELOC, home equity line of credit, where you do not incur interest expense unless you actually draw on the line of credit.  It will be a variable rate home equity loan similar to a credit card letting you borrow up to a specific limit when you want and repay it slowly over time.

Refinancing a home incurs closing costs which can be paid in cash or added to the financed amount.  The breakeven point to recapture the cost of refinancing is determined by dividing the monthly savings into the cost of refinancing.  If you stay in the home less than that time, refinancing could be an unnecessary expense.

Check This Off Your LIst

Everyone knows someone it has happened to or has heard a tragic story.  It could have been a fire, a flood, a burglary or some other disaster but to file a claim on their insurance, they need the receipts or a list for what is being claimed.

Since you're at home anyway and may even have kids at home who need something to do, now is a great time to get a current home inventory done.  One of the easiest ways to accomplish this seemingly, daunting task is to put together a collection of pictures of every room in your home.    

The more valuable, the more important it is to take a close-up picture.  It will be necessary to open the drawers and closets and, in some cases, to pull things out in order to show everything in the picture.  That's why having someone to help you makes it faster and easier.

Not to get distracted from the job at hand, you may discover things that you had forgotten you had which is why you should do an inventory rather than trying to reconstruct it after the loss.  In some cases, it may be years after you've filed a claim when you remember you forgot some things.

Having photos or videos of the different rooms in your house combined with a list of the items can serve as the proof you need for your claim.

There are other benefits to doing a home inventory also.  You'll know the "right" amount of insurance to have on your personal belongings by assigning replacement costs to them.  It will simplify filing a claim if you ever need to. 

To organize your photos and even provide a detailed list of higher value items, you can download a Home Inventory in an interactive PDF that you can complete.  You can put it together on your computer and store it online to make it available if the computer is stolen or damaged.

Mortgage Closing Scams

The American bank robber, Willie Sutton, was asked why he robbed banks and his answer was "because that is where the money is."  During his 40-year career, he stole about $2 million but Internet scammers are stealing many times that amount in phishing schemes preying on unsuspecting home buyers.

These crooks know where the money is because buyers have the down payment and closing costs and are expecting to transfer it to the close the sale of their home.  The FBI, in their 2018 Internet Crime Report, stated victims lost over $149 million and the CFPB estimates the losses at over $1 billion as a result of fraud in real estate transactions.    The scammers want to take advantage of the situation while it is still in the buyer's account.

Commonly, during the closing process, scammers will send spoofed emails to homebuyers from someone they expect to hear from regarding the transaction like the real estate agent or the settlement agent.  They will include false instructions for the closing funds.

Following these suggestions can help to protect you and possibly, avoid scams:

• Call before you click to verify the wiring instructions to transfer funds.  DO NOT use the phone number or email in the email request.  Use a trusted source, preferably, in person, of contact information.
• Confirm everything independently with your real estate agent and closing officer.   Confirm the actual instructions with the bank before transferring money.
• Verify immediately, within four to eight hours, with the title company and real estate agent that the money was received.  If it has not been received, notify the bank immediately to determine if it can be cancelled.

If you believe you have been the victim of a phishing scheme, call your bank immediately and ask them to issue a recall notice on the money transfer.  File a complaint with the FBI at www.IC3.gov and report it to your local FBI office.

The Consumer Financial Protection Bureau has released two documents in an effort to inform consumers about wire fraud scams that commonly occur during closings: Mortgage Closing Checklist and Mortgage Closing Scams.

This is for information purposes only and should not be considered legal advice.

What Buyers Can Do While Staying at Home

While you're isolating at home, there are things you can do to help buy a home now or in the near future.  Instead of spending time surfing the Internet looking at homes, do the groundwork necessary to be able to purchase the home that you find.

• There is a lot of documentation necessary to qualify for a mortgage and to be approved.  This part of the homebuying process can be done in advance, long before you even start looking at homes much less finding the one that you want.
  • Assemble all documents to make a pre-approval
  • Photo ID
  • Two months current pay stubs
  • Last two years' W2s
  • Complete copies of checking and savings statements for last three months
  • Copies of statements for IRAs, 401k, savings, CDs, money market funds, etc.
  • Employment history for last two years with addresses and contacts
  • Proof of commissioned or bonus income
  • Residency history for last two years with addresses and contacts
  • Assets for down payment, closing costs, and reserves; must provide paper trail
  • If self-employed, last two years tax returns, current profit and loss statement and balance sheet; copy of partnership/corporate tax returns for last two years if owning more than 25% of company
  • FHA requires driver's license and social security card
  • VA requires original certificate of eligibility and DD214
  • Other things may be required such as previous bankruptcy, divorce decree
• Get pre-approved giving you the confidence
  • Determining the amount you can borrow - decreases as interest rates rise
  • Looking at "Right" homes - price, size, amenities, location
  • Finding the best loan - rate, term, type
  • Uncovering issues early - time to cure possible problems
  • Creating bargaining power - price, terms, & timing
  • Being able to close quicker - verifications have been made
• If using a gift as a down payment, construct your gift letter
  • The donor's relationship to borrower
  • State the dollar amount is a gift and not a loan
  • State that no repayment is required
  • Signed and dated by the donor and borrower
  • Include all contact information
    
• Build your homebuying team
  • REALTOR® - this person will coordinate the efforts of the other team members to make the transaction move smoothly, without unnecessary delays to close on time.
  • Lender* ... consider a trusted professional you can meet with face-to-face
  • Title company* ... guaranteeing the title and closing on time is important
  • Inspector* ... more than a flashlight and a clipboard

*Your agent can recommend these professionals based on their experience and having worked with them in the purchase and sales of other homes.  This can keep you from getting hooked-up with someone that may not be familiar with the type of home, area, or loans that you might be considering.

Additional information about the buying process and things that you can be doing while you're waiting to look at homes can be found in the Buyers Guide.

Showing Procedures During Covid-19

During these unsettling times, sellers and buyers are concerned about staying healthy and virus-free as we all are.  To keep all parties safe, new procedures should be considered regarding the procedure for showing houses.

Agents are reporting that they are selling homes where the buyers have not physically been in the home and base their decision on the virtual tour found online.  Some states have suspended showings because they are not considered essential services and other states have not addressed the subject.

In the spirit of stepping up to do what is necessary, the following suggestions should be considered:

• Buyers should view the pictures online first to see if the home meets their needs.  Most listing agents upload enough pictures to get a good idea of what a home looks like.
• Buyers should ask their agent questions that the photos don't address.  Then, their agent can go through the listing agent to ask the seller direct.
• It may be possible for the agent or owner to do a Facetime walk-through which would allow the buyers to ask questions and direct the agent or owner where to point the camera.
• When possible, buyers can make an appointment to see the home through their agent.  They should meet the agent at the home in their own car.  No children should attend showings.
• Recommended safe distances will be maintained between the owners and listing agent, if present, the buyers and their agent.
• Transfer is almost inevitable, and all precautions should be taken.  Buyers should carry their own sanitizing wipes and or gloves and avoid unnecessarily touching surfaces.  Allow their agent to open doors and cabinets.
• They should be disposed of in a trash bag in their car after they exit the home.

The social distancing and isolation could present some buying opportunities due to a lack of competition.  At the same time, the lack of inventory in many markets could keep prices high.  Overall, home prices nationwide are stable and, in many cases, continuing to rise which makes it a far less volatile alternative to investing in the stock market.   

With mortgage rates being at historic lows, there will probably never be a cheaper time to finance a home. 

Thank you again for looking at our listings and let us know if we can help you in anyway.

Please stay safe; wash your hands; practice social distancing and follow all the guidelines necessary to promote good health. We're all in this together!

Why have a mortgage during retirement?

You don't have to watch TV for long before Tom Selleck, Henry Winkler or Robert Wagner will tell you why seniors should consider a reverse mortgage.  However, there are a seniors who are resisting the conventional wisdom of having their home paid for and opting for a mortgage with payments on their home.

In some cases, seniors will downsize into a smaller home and have a large amount of equity to pay cash for the new home.  In other situations, they may have their home paid for and decide to do a cash-out refinance which will require making payments.

The logic behind either of these examples could be motivated by the fact that since mortgage rates are so low currently, the owners can reinvest the money at a higher yield and make money on their equity.  This will give them more money for their retirement income.

A common question that is asked by owners considering such a strategy is whether they'll be able to qualify for the new mortgage since they may no longer be employed.  The Equal Credit Opportunity Act prohibits discrimination against borrowers based on age.

All borrowers, whether they are working or not, need to show that they have good credit, reasonable debt and enough stable income to repay the mortgage.  Lenders cannot base their decision on loan term based on an applicant's life expectancy, so a 30-year loan is possible regardless of the borrower's age.

Fannie Mae, one of the largest purchaser of mortgages on the secondary market, is concerned on income that is stable, predictable and likely to continue.  Retirees' income can come from Social Security, pensions, or distributions from retirement accounts like IRAs, 401(k)s, Keogh or other plans.  Lenders will analyze these sources to estimate how long it will last. 

Other investments can be considered like stocks, bonds, mutual funds and annuities.  Based on the type and the volatility of the investment, lenders may be restricted from considering 100% of the income.

Getting the facts as it pertains to you as an individual is important to be able to know if you are eligible and how much you can borrow.  A trusted mortgage professional who understands this type of borrower is very important to help you determine the right mortgage vehicle and provide information to decide if this option is right for you.  Call me at (616) 974-6330if you would like a recommendation.

Shopping for a Mortgage

A lower rate will not only result in a lower payment, it will amortize the loan quicker.  A $250,000 mortgage at 4.5% for 30 years will have a $1,266.71 principal and interest payment.  At 4%, the same loan will have $1,193.54 payment saving $73.18 a month and the unpaid balance would be $1,776 lower at the end of five years.

Mortgage lenders tend to price their mortgages based on the credit score of the borrower.  The higher the credit score, the lower the mortgage rate.  There is an inverse relationship that the lower the credit score, the higher risk and therefore, a higher rate is needed to balance the risk.

In order to get a valid rate that will be available to you with your credit score, you need to be pre-approved. The process of making a loan application before you find a home, allows the lender to verify your credit, income, and ability to repay the loan.  Lenders usually only charge the cost of the credit report for this type of service.  Be aware that pre-approval is not the same thing as pre-qualification which is simply a loan officer's opinion.

When you shop for a mortgage with multiple lenders, the credit bureaus count them as a single credit inquiry if they are done within a two-week period. On the other hand, restrain yourself from applying for other credit such as cars, furniture or credit cards until after you have closed on the purchase of your home because those inquiries can negatively affect your credit score.

The Consumer Financial Protection Bureau recommends that you let lenders know that you are shopping the mortgage for the best rate and fees.

Instead of going to the Internet and Googling mortgage lenders, start with recommendations for a lender from your real estate professional.  They see the good, the bad and the ugly and can save you a lot of time.  Another reliable source would be from a friend who has recently purchased a home.

There are lenders who bait unsuspecting borrowers with lower rates and fees into making an application and after critical time has lapsed, try to switch them to a different program.  By that point, many buyers feel they don't have any choice but to accept what is offered.

Another confusing factor is the way that loans are priced to the public.  They are usually quoted at a rate with a certain amount of points.  A point is one percent of the amount borrowed.  An example would be a quote for a loan at 4.5% with 1 point or at 4% with 2.5 points.

The points combined with the rate affect the yield the lender will earn, and you will pay.  A simple way to make this an apple to apple comparison is to have the lender quote the loan as a "par-value" loan with no points involved.  Then, the lowest rate will produce the lowest cost to you.

Another way to compare loans will be to uses a financial app called Will Points Make a Difference.  You can plug in the rate and points to calculate the lowest yield over a projected holding period or the full term.

The lenders do not want to make it easy for you to compare.  Mortgage money is a commodity and shopping will be worth the effort.