Browsing Category

mortgage advice

Auto Added by WPeMatico

How to Get a Mortgage on a Vacation Home: It’s a Whole Different Game

December 16, 2019

ehrlif/iStock

You’ve spied a cozy bungalow for sale in your favorite beach town, and it hits you—wouldn’t it be great to purchase this oasis yourself? Yet before you get ready to make an offer, consider this: A mortgage on a vacation home works light years differently than a loan for a primary run-of-the-mill residence.

So before you head down this enticing path of purchasing a home away from home, check out this latest installment of our Guide to Buying a Vacation Home. Here, we highlight everything you need to know on the mortgage front so you can sail through the process and into your own personal retreat without a hitch.

Why vacation home mortgages may incur higher costs

Mortgages on vacation homes often require higher down payments and may have higher interest rates and property taxes, depending on the location. Why? Because financing a vacation home requires mortgage lenders to take on more risk than they would with a regular home in a variety of ways, says Steve Darnell, first vice president of sales at Flagstar Bank.

For one, vacation homes are often vacant, or rented out to tourists who may have less of an interest in maintaining the place in pristine condition.

“Occupied properties are considered less risky than rental properties, where no one is on-site with a vested interest in caring for the property,” Darnell explains.

If the buyer of a vacation home also has a mortgage on a primary residence, this poses another type of risk that the buyer’s finances might be stretched too thin over two mortgages.

“It might be fine in good times,” Darnell says, “but challenging for the homeowner to keep up with payments in a down economy.”

The location of a vacation home could pose yet another liability. Many popular vacation spots are susceptible to natural disasters, like hurricanes and flooding. Even with insurance, Darnell says, “lenders can face losses.”

All this risk means home buyers may have to pay a little more for their vacation homes in the form of a higher down payment, higher interest rates, and higher insurance premiums.

How much is a down payment on a vacation home?

While it varies by lender, according to Darnell, conventional mortgage programs that might typically need only 3% down on a primary residence will require a minimum of 10% down on a vacation home. If you plan to rent out the home rather than enjoy it yourself, that down payment could go up to 15%. In addition to having a higher down payment, mortgage interest rates on vacation homes could also be higher.

Also, not all mortgage products that are available for buying a primary residence are available for a vacation home purchase. For example, FHA and VA loans can’t be used to buy a vacation home, says Sherry Graziano, senior vice president and mortgage transformation officer at SunTrust Bank.

Why you must disclose how the vacation home will be used

“When a homeowner wants to purchase a vacation home, they must declare how they intend on using it at the time of application,” Graziano adds.

There are a few ways a vacation home can be classified:

  • Primary residence, where the homeowner lives most of the year
  • Secondary residence, which is rented out for no more than 180 days a year
  • Investment property, which is used strictly as a rental to generate income

If the occupancy type changes from the terms of the initial mortgage, homeowners should consider contacting their lender, since the home may need to be refinanced to change the mortgage terms to match its new purpose.

While refinancing a vacation home may seem like a pain, in many cases the change could be beneficial. For example, Graziano says, if a vacation home was initially purchased to be used as a rental property but the owner later decides to make it the primary residence, refinancing could bring a lower interest rate, and  may qualify for a different loan product (like an FHA or VA loan).

Your property tax and insurance bills could be higher

Vacation homes may also come with a higher property tax bill than a primary residence, Darnell says. He urges home buyers to make sure they understand the tax rates, which vary by state and locality, especially if they’re buying a home in a different state that they may not be as familiar with.

Along with different tax rates, there could be different rules and laws for real estate fees and expenses, Graziano says.

Closing costs, usually 2% to 7% of the home’s purchase price, also vary, and some states have higher transfer taxes, the fee for passing a property title from one person to another.

Homeowners insurance could also be as much as 20% higher on a vacation home, especially if it is rented out.

Mortgage pre-approval for a vacation home

Due to these higher costs, experts recommend that vacation-home buyers get pre-approved for a mortgage. That’s where loan advisers review a home buyer’s loan application, which includes the individual’s income, assets, credit, and liabilities to recommend the best-suited mortgage product.

“It is always best to have a mortgage pre-approval in hand before you sign a purchase agreement,” Darnell says. “That puts you in a better bargaining position in bidding on a home.”

He suggests checking with multiple lenders to ensure that you’re being offered a competitive rate and loan terms.

On top of the monthly mortgage payment, taxes, and insurance, Graziano says vacation-home owners need to budget for the big picture, and factor in operating costs, maintenance, repairs, utilities, and “any ancillary services for sustainable homeownership.” She says these costs are sometimes overlooked.

“Purchasing a vacation home can be exciting, but it’s important that homeowners are financially confident and have budgeted for all related expenses,” she says.

The post How to Get a Mortgage on a Vacation Home: It’s a Whole Different Game appeared first on Real Estate News & Insights | realtor.com®.

5 Indications That You Could, in Fact, Afford to Buy a House Now

September 24, 2019

Feverpitched/iStock

So you’re ready to ditch your landlord and the noisy neighbors who live above you. But instead of seeking out another place to rent, have you considered (like, seriously considered) buying?

For many people, purchasing a home is one of those bucket-list items—something you’ll accomplish down the road—so the idea of starting the process here and now may seem out of the question. But there’s a chance you’re actually in a better position than you think.

Of course, every local real estate market is different, and your dollar will stretch further in certain cities. Half a million dollars in Waco, TX, will get you a heck of a lot more than $500,000 in San Francisco. Therefore, it’s important to be realistic when choosing between renting or buying. In cities like San Francisco or Los Angeles, renting may make more financial sense than buying. Take a look, though, at the average home price in your neighborhood—maybe you can afford to buy after all!

Then, check out the following explanations, which will help you ponder your financial snapshot. You never know: You may be calling yourself a homeowner much earlier than you ever thought possible.

1. Your salary qualifies you for a mortgage

When determining if you can buy a house, your salary is one of the first figures you should take into account. But don’t trick yourself into thinking that you can’t afford a house simply because you don’t make a six-figure salary! Use this quick equation from Lauren Anastasio, a certified financial planner with SoFi in San Francisco, to determine a realistic mortgage amount:

Multiply your annual income by 2.5, and then add your down payment amount to that figure. Your total amount is the max mortgage you should shoot for.

For example, if you make $80,000 a year, you’re looking at a safe bet of a $200,000 mortgage, plus whatever you think you can save up for that down payment.

Anastasio says you should also take into account the regular housing expenses that come after the deal is done, including taxes, insurance, maintenance and repair, and homeowners association fees.

2. You can afford to put down at least 3%

Most first-time home buyers are intimidated by the idea of having to put down a large chunk of change. However, the traditional 20% down isn’t your only option.

“The ideal down payment amount is 20% of the price of the home, because that’s the minimum amount required to avoid paying private mortgage insurance (PMI). But that’s not realistic for most home buyers, and shouldn’t stop them from pursuing homeownership,” says Candice Williams, a real estate agent with Re/Max Space Center in League City, TX.

Other paths to mortgages include conventional loans, which require a minimum of 3% down, and Federal Housing Administration (FHA) loans, which can go as low as 3.5% down. And if you’re a veteran, you can qualify for a VA loan with no down payment. So take a look at your savings account and browse the home listings in your area. You might just find that your years of saving have actually put you in a position to qualify for a mortgage.

3. You have a little bit of debt

Another common misconception among first-time home buyers is that future homeowners must be debt-free in order to get approved for a mortgage loan. But don’t worry—you can still buy a home even if you’re still paying off your student loans.

“Lenders like to see a little debt. By paying down a car loan on time, you’re showing the bank that you are a responsible borrower,” says Andrew Helling, editor at REthority.com.

That being said, Williams points out that while it’s fine to have current debts, first-time home buyers shouldn’t be looking to add a mortgage if their current debts exceed 7% of their monthly income. That’s because most lenders won’t approve loans of more than 28% of a borrower’s monthly income, and they’re legally prohibited from handing out mortgages that are the equivalent of more than 35%.

“Either pay down those debts, or increase your income, in order to get loan approval,” says Williams.

4. Your credit score is over 580

Another number lenders look at to determine your creditworthiness is your credit score. A perfect credit score is 850, and any score over 740 is considered to be great, but you don’t need to fall in this range to be approved for a loan.

You can “absolutely” get a mortgage, Helling says, “as long as your credit is above 580—the cutoff for most loans—and you have enough money left over to make the mortgage payments and the debt payments.”

If your credit score falls below 700, lenders will start to question whether you’re a risky investment as a potential borrower, and getting a mortgage will be more challenging. But, if your score is above 580, there’s still hope in the form of an FHA loan or another type of conventional loan. The FHA requires a minimum 580 credit score (and other requirements) to qualify. Having a poor credit score means you’ll probably be required to pay PMI, but the benefits of owning a home will far outweigh the negatives.

5. A starter home (if not a forever home) is within reach

Some first-time home buyers make the false assumption that the first home they invest in needs to be their forever home. But don’t let that idea deter you from purchasing a modest starter home, even if you soon outgrow your new digs.

After a few years of homeownership, you will hopefully start to build equity, either through an increase in your property’s value or by reducing your debt. Then, when your family expands and you need to buy a bigger house, you will have a quantifiable asset that you can use on your next property purchase.

What you shouldn’t do is buy a house that you can’t yet fill, hoping that your lifestyle later catches up. That can be a recipe for disaster.

“Never buy outside your means,” Helling says. “Don’t buy a home you can’t afford, under the assumption that a promotion you expect in a few years will eventually pay the mortgage.”

The post 5 Indications That You Could, in Fact, Afford to Buy a House Now appeared first on Real Estate News & Insights | realtor.com®.

‘Can I Refinance While Buying a Second Home?’ Here Are the Mortgage Rules

April 3, 2019

Can I Refinance While Buying a Second Home?’ Here Are the Mortgage Rules

relif/iStock

As a buyer and a seller, you may be asking, “Can I refinance while buying a second home?” Maybe you’ve found a property that will be a killer investment at a bargain price. Or perhaps the beach cottage you’ve had your eye on for years just came on the market.

Whatever the reason, if you’re considering applying for another loan while refinancing your current home, the process can be a bit complicated. To give you the full picture, we consulted mortgage experts and broke down the rules.

‘Can I refinance an existing mortgage while buying a second home?’

There’s nothing wrong with refinancing one mortgage at the same time that you are buying an investment property or second home with a mortgage, according to Andrew Weinberg, principal and licensed mortgage broker at Silver Fin Capital Group, in Great Neck, NY.

The key factor to making both the refinance and new purchase work is to ensure you will qualify for the new home loan.

“This means taking into account your current home payment,” says Ralph DiBugnara, president of New York’s Home Qualified and vice president at Cardinal Financial. A mortgage bank can very easily tell you the total payments and loan amounts you’ll be able to carry based on your current income.

In some cases, you may even have to refinance to reduce your current mortgage payment to qualify for the new loan. Or you may need to cash out funds from the refinance to come up with the down payment on the new property.

The only ironclad rule is that you can’t refinance a primary residence while applying for a mortgage on a new primary residence.

Consider working with one lender for both mortgages

The benefit of doing both loans—refinancing and obtaining a new mortgage—is that you can deal with a single loan officer and provide most of your documents (e.g., tax returns, W-2s, pay stubs, bank statements, etc.) only once.

You can also optimize your loan balances and your monthly payment to a degree by doing both loans with the same lender, says DiBugnara.

If you need to work with two different lenders, both need to be aware of the other loan.

When refinancing and buying at the same time isn’t a good idea

You shouldn’t refinance a home you intend to sell in the next six months or so because it’s not cost-efficient.

“The closing costs don’t vary because you intend to pay off your loan in a short period of time,” says Weinberg.

Additionally, most refinances have a clause stating the borrower must stay in the home for at least one year. This means you cannot refinance a primary residence, close on a second home, and then immediately move into it permanently.

The differences between an investment and second home

When applying for your second mortgage, your lender will take into account how you plan on using the property. So it makes a difference if the second home is for investment purposes or is a vacation home for personal use.

“If the home is an investment, you can use proposed rental income as an add-on to your second income when qualifying for the second mortgage,” says DiBugnara.

But if you’re purchasing a vacation home, the new debt will count 100% against your current income and could prevent you from qualifying for a refinance and a second mortgage.

The good news for those looking to buy a beach cottage or winter retreat? Vacation home mortgage rates are typically lower than investment home rates.

“You can also typically put less money down—sometimes just 10%,” says Kylie Pak, owner of RedBrick Properties, in Richmond, VA, who specializes in property investing.

The post ‘Can I Refinance While Buying a Second Home?’ Here Are the Mortgage Rules appeared first on Real Estate News & Insights | realtor.com®.

How Does Paying Off Your Mortgage Affect Your Credit Score?

February 27, 2019

doockie/iStock

A mortgage is probably the largest debt you’ll ever have, and paying it off is a significant achievement. But credit bureaus like Equifax, Experian, and TransUnion might not be as thrilled.

“Paying off any debt will certainly affect your credit score, and your mortgage is no exception,” says Michael Mesa, branch manager and certified mortgage planning specialist at Fairway Independent Mortgage Corp in Lacey, WA.

Depending on various factors, this act of financial responsibility could increase or decrease your credit score.

How does paying off your mortgage affect your credit score?

It’s hard to pin a credit score number on the effects of paying off your mortgage.

“The first thing to remember is that the formulas for computing credit score are proprietary, so we are making educated guesses at the effects of any one item on a person’s credit score,” says James Philpot, a certified financial planner and associate professor of finance and general business at Missouri State University.

“The second thing to remember is that when we try to answer questions like ‘What is the effect of X on my credit score,’ we are assuming that we are comparing two credit customers who are identical in all respects except the variable in question—and this is almost never the case,” he adds.

Your credit score could decrease

As crazy as it seems, paying off what is likely your largest installment debt might not, in fact, send your FICO score through the roof.

Philpot explains that if you don’t have a balanced mix of revolving to installment debt and a good length of time that credit has been established—and is still open—your score may dip slightly.

“While minor, there could be a negative impact if your mortgage was the only loan in the installment category, as the overall credit mix of your credit picture accounts for 10% of your score,” says David Bakke at MoneyCrashers.

And credit type isn’t the only category that could negatively affect your score.

“Your score may also see a modest drop when the loan is paid off, because it takes the mortgage off of the length of credit portion of your score, which accounts for 15% of your score,” Bakke says.

———

Watch: How to Get the Best Mortgage Interest Rate You Possibly Can

———

So, if your mortgage is your only installment loan, you might want to reconsider paying it off.

“It may be better for your credit score in the long run if you keep your installment loan open for its full term while continuing to make regular, timely payments,” says Theresa Williams-Barrett, vice president of consumer loans and loan administration at Affinity Federal Credit Union.

Your credit score could increase

On the other hand, paying off your mortgage might boost your credit score.

“If you do have other debt that you’re paying on every month and showing creditors that you are a responsible borrower, paying off your mortgage may show as a positive because your debt-to-income ratio may be higher,” says Michael Foguth, founder of Foguth Financial Group in Brighton, MI.

Also, there is a basic credit advantage to paying off such a large amount.

“As a general rule, borrowers who have less debt already outstanding are considered to be better credit risks,” says Philpot. “Also, no longer having to make a payment will improve your net monthly cash flow, increasing capacity to make new payments.”

For example, whenever you apply for a loan, creditors want to know how much debt you already have. Moving a mortgage off your plate significantly reduces your total debt amount, which can make you more attractive to creditors.

Before you pay off your mortgage

Before making any big financial moves, find out what’s involved in paying off your mortgage.

“Clarify with your lending institution if there are any prepayment penalties,” says Williams-Barrett.

Also, make sure you have a nice savings cushion before paying more on your mortgage.

“It’s important to save those would-be extra mortgage payments for emergencies, even if it means avoiding a year or two of interest payments,” Williams-Barrett says.

The post How Does Paying Off Your Mortgage Affect Your Credit Score? appeared first on Real Estate News & Insights | realtor.com®.

How Long Does It Take to Refinance a Mortgage?

October 2, 2018

How long does it take to refinance a mortgage? Refinancing should take anywhere from 30 to 45 days on average, although that can stretch to 60 days if you hit any snags along the way. In other words: Don’t expect a refinance to happen overnight!

Although the refinancing process can take awhile, it’s definitely worth considering if you want to take advantage of lower interest rates or withdraw some cash from your home equity (check a refinance calculator to see if refinancing makes sense for you).

Here’s why the process takes so long … plus some things you can do to speed things up.

How long does it take to refinance a mortgage, and why?

The reason refinancing takes anywhere from 30 to 45 days is that it involves a series of procedures. Although it will be a little faster than getting your initial mortgage, it still has many of the same time-consuming steps.

Step 1: Research your options

The timing of this step is completely up to you. Contact multiple lenders and be straightforward about why you’re getting in touch.

“If you are shopping for rates, let the lenders know that upfront and ask for a loan estimate,” advises Laura Nickolay of White Oaks Wealth Advisors, Inc. in Minneapolis. Since interest rates fluctuate a bit daily, you should ask all lenders what their rates are on the same day, just so you can compare apples to apples.

You might want to start with your current lender, since it already has a lot of your information on file. (This could shave off up to a day or two off the processing time.) Your current lender may also be willing to waive the application fee, to preserve your business. You should contact other lenders as well, though, to ensure you’re getting the best rate.

You should also ask potential lenders how long the refinancing process typically takes. Lenders often don’t prioritize refinances because there’s less at stake; if you sense your refinance won’t be a priority with a lender, you may want to look for one that will push things through.

Step 2: Complete the loan application

Once you’ve chosen a lender, you’ll need to complete the application. This can generally be completed in a few hours, especially if you have all the documentation you need on hand. A good loan officer can make a difference at this point, as an experienced pro will know what documents you need to submit with your application to ensure the process goes as quickly as possible.

Step 3: Receive your loan estimate and disclosures

Lenders are required to provide your loan estimate and disclosures within three days of your application. Your estimate will contain your monthly payment information and how much you will need to pay in closing costs.

Step 4: Loan processing

Your lender will inspect all the documents you provided and request any additional documentation required.

Step 5: Appraisal

Not every refinance requires an appraisal, especially if you’ve purchased your home relatively recently. If you do need one, the lender will set it up while processing your loan.

Step 6: Underwriting

This can potentially be the longest step in the refinancing process. According to the Home Buying Institute, underwriting—where all paperwork is fully vetted for accuracy—takes an average of five to eight business days. In some cases, it can stretch on for weeks. Underwriting a refinance also takes longer than an initial mortgage, because it’s a lower priority for lenders.

“Underwriting departments will always review purchase transactions before refinances, simply because the purchase is affecting multiple parties and there is a deadline that needs to be met,” says Troy Owen of Homeowners Financial Group in Bakersfield, CA.

Step 7: Closing

Once underwriting is finished and your loan is approved, you can close on the loan. This typically takes a few hours.

How to speed up a refinance

While lenders are often the holdup with a refi, homeowners can also inadvertently slow things down on their end. Here’s how to keep things moving.

  • Check that your application is complete: If any information is missing from your application, the lender will need to send back the paperwork for you to redo. At a minimum, you will need to provide proof of income, copies of your bank account and investment account statements, and the last two years of tax returns. “Try to get statements that are within the last month or so,” says Jonathan McAlister of Legacy Wealth Management in Memphis, TN. You will also need to provide a copy of your homeowner insurance policy, and you may need to provide a deed of trust and a property survey. Your lender can advise you on exactly which documents are needed.
  • Make yourself available for the appraisal: Since an appraiser may need access to your home in order to make the appraisal, not being available on your end can significantly stall the process, according to Kristen Baker of White Oaks Wealth Advisors, Inc. in Minneapolis, MN. Make sure your lenders have a good contact number for you and know your contact preferences. If you can’t take calls during the day, let them know to text or email you.
  • Respond to questions quickly: If you’re refinancing, chances are good that your lender will come back to you for something, whether it’s a question or an additional signature. The sooner you make yourself available, the faster the process.
  • Know all the costs upfront: There’s more to a refinance than you might expect, and if you’re not aware of all the costs involved, you may end up scrambling for funds. For example, if you weren’t anticipating the closing costs, you may be unpleasantly surprised—they’re similar to the closing costs you dealt with when you originally purchased your home (about 3% to 4% of the total amount being refinanced, depending on location and lender).
  • Check in often: If you’re getting radio silence from your lender, don’t be afraid to follow up. “Lenders will typically put refinances at the bottom of the pile,” says Owen. You know that saying about being the squeaky wheel; sometimes you need to make a little noise to move things along.

 

Curious whether you should refinance your mortgage? Check a refinance calculator to see if this move makes sense for you.

The post How Long Does It Take to Refinance a Mortgage? appeared first on Real Estate News & Insights | realtor.com®.

What Is the Right of Rescission? It’s Like a Safety Net for Home Loan Seekers

August 3, 2018

Rescission on Home Loan

iStock

The right of rescission is a little-known—but very valuable—part of the home loan process. This federally protected right can come into play when you are refinancing or taking out a home equity loan or line of credit. Essentially, the right of rescission allows you to change your mind about a loan and walk away without a financial burden sitting on your shoulders.

Of course, there are limitations to when homeowners can and can’t exercise their right of rescission. So what are your rights when it comes to opting out of a loan? Below, our experts share how you can get out of a sticky financial situation.

What is the right of rescission?

The right of rescission falls under federal consumer protection laws that dictate what lenders can and can’t do. Called the Truth in Lending Act, these laws allow for borrowers to have a cooling-off period in which they can change their mind after signing loan paperwork. If you do change your mind, that’s when you get to exercise your right of rescission.

So how long do you have to change your mind and cancel the transaction? Three days from the date of closing, says Clint Bonkowski, director of mortgage lending at the online bank, Laurel Road.

“When a buyer exercises the right to rescind, the lender will withdraw the loan, and no funds will be disbursed,” he says.

Limits on the right of rescission

If you’re a homeowner, you may be wondering whether the right of rescission applies to you. It may, but there are limitations on the law.

  • Time limit: If you let more than three days lapse between signing the paperwork and speaking up, it’s too late. You’re now locked in to that loan contract.
  • Types of loans: Borrowers can only use this step to cancel refinance transactions, home equity loans, or home equity lines of credit (HELOC), says Richard Pisnoy, principal at the Silver Fin Capital Group in Great Neck, NY. That means you can’t use the right of rescission to walk away from a traditional home mortgage.
  • Types of properties: “The right of rescission is for primary residences only,” Pisnoy says. “A loan on a second home or investment property will fund the same day as the closing.”

 

How to exercise your right of rescission

Does your loan meet the standards of the right of rescission? If the answer is yes—and you’re having a major case of borrower’s remorse—it’s time to act.

You should have been provided with copies of the right to rescind document at closing, Bonkowski says, so check your paperwork.

“One of the copies will be signed, stating the buyer has received the form,” he says (this is actually required by federal law too!). “On the notice itself, the lender will provide instructions on how to exercise the right to cancel.”

To exercise your right of rescission, most lenders require the buyer to sign the right to rescind document and mail it to a specific address. But the process may vary depending on your lender. If you’re not sure what your bank requires, pick up the phone and call to find out. An emailed or faxed copy of the right of rescission document may also be acceptable.

How to avoid having to cancel your loan

Let’s hope you never get into a situation where you regret signing a loan contract, but there are a few things you can do to make it less likely that you’ll need to exercise your right of rescission.

Mat Ishbia, President and CEO of United Wholesale Mortgage in Pontiac, MI, suggests working with an independent mortgage broker who can explain the process to you face to face.

He also reminds us of the importance of never signing a contract without reading it first: “Make sure that you review your documents up front with the broker, so that it’s not a surprise at closing.”

The post What Is the Right of Rescission? It’s Like a Safety Net for Home Loan Seekers appeared first on Real Estate News & Insights | realtor.com®.