Declining mortgage rates have sparked interest in homeownership and property purchases, especially by young adults who can’t stand increasing rental charges. Buying a home also comes with the benefit of having equity. However, most first-time homeowners are shocked by the entire purchase process. While the monthly mortgage costs are not surprising, unexpected costs that come with homeownership can dent your bank account.
Are Housing Prices Finally Dropping?
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Currently, inflation is running rampant, harming the budgets of most households. Plus, the Federal Reserve raised rates again, and by a higher margin than most expected. In both cases, that can make buying a home harder, which many would assume would drive down demand. While a housing market crash isn’t necessarily on the horizon, most people wouldn’t be surprised if the home prices were shifting downward. But is that actually what’s happening? If you’re wondering, “Are housing prices finally dropping?” here’s what you need to know.
Are Housing Prices Dropping?
In many parts of the country, housing prices are starting to decline. With mortgage rates rising due to increases in the Federal Reserve rates, sellers may have to take a different approach to find buyers. By reducing prices, it makes properties more enticing, which could lead to a quicker sale.
However, that doesn’t mean housing prices are universally dropping. During a four-week period that ended in late May, about one-in-five sellers dropped their asking price. While conditions have changed since, that shows that not all sellers are going to alter their listings even as the market changes.
In time, the decline in prices may become more common. However, that also depends on your location. For example, prices were still rising in the Seattle area as of early June 2022. However, the available inventory was also trending upwards, and sales were slowing, so a change is potentially on the horizon.
Generally, whether housing prices are falling near you depends on supply vs. demand. In some areas, the increasing interest rates dramatically altered demand, leading to far higher supply. In those regions, prices will typically fall faster than in hot housing markets that are only seeing slight changes in demand or have had a demand vs. supply imbalance so severe that it will take time to level out.
Is Demand for Homes Shifting?
In a broad sense, demand for homes is declining. Higher interest rates and high inflation are pulling aspiring buyers out of the market in some cases. Essentially, both of those factors made transitioning to a new house far more expensive. Plus, many potential homebuyers will hesitate to make a big financial commitment with inflation as it is currently.
Additionally, the number of active listings isn’t necessarily growing substantially in some areas. Many aspiring sellers are aware that conditions aren’t ideal for quick, high-profit home sales. As a result, those who viewed selling as optional aren’t rushing to list. Instead, listings are mainly comprised of those who feel a sense of urgency about selling their property.
Declining inventory can also shift demand. While inventory levels were low previously, it was partially because borrowing was so affordable. Buyers were quick to jump on houses with potential, largely because of concerns that they wouldn’t have options if they waited.
Now, if decline in inventory is related to hesitant would-be sellers deciding that waiting for conditions to improve is a better choice, this alters the market in a different way. It could reduce the availability of homes that buyers find enticing, which could also impact demand.
Are Housing Inventories Declining?
Whether you see a decline in housing inventory is mainly based on where you live. Among the 400 largest housing markets, inventories rose in about 332 of them as of early June. In fact, many of them are increasing by 40 to 55 percent. While that seems like good news for buyers, it isn’t entirely what it seems.
Even in areas with inventory growth in that range, many of them have levels far below what was there pre-pandemic. As a result, many regions technically have an incredibly limited supply, preventing conditions from full favoring buyers.
Additionally, not every city is seeing increases. In the top 400 markets, around 68 housing markets either have declining inventory or are approximately the same. Further, those numbers don’t account for smaller markets, which could be going either way.
Even if conditions remain the same for months, if not longer, that doesn’t guarantee that inventory levels will rise quickly. As mentioned above, some sellers have the luxury of time, so they aren’t hopping into the market. Instead, they’re waiting to see if conditions improve before listing.
However, some sellers can’t afford to wait, which will lead to new listings. In areas where sales continue to slow, that could pump up inventory levels significantly. However, it may take longer than you’d expect to reach pre-pandemic inventory, so keep that in mind.
Will Prices Drop If the Federal Reserve Raises Rates Again?
The likelihood that the Federal Reserve will raise rates again – potentially multiple times through 2022 and into 2023 – is high. Usually, rate increases are a means of limiting inflation, making borrowing less enticing and encouraging saving. As a result, it alters economic activity, which can keep prices in check.
If the Federal Reserve raises rates again, it will undoubtedly impact the housing market. When mortgages get more expensive, it reduces the number of potential buyers. In turn, it can create a buyer’s market, leading sellers to lower prices as a means of securing a sale.
However, every housing market is different. Additionally, price reductions depend on the action of sellers and available market inventory. Whether a seller can afford to wait to list until conditions improve may influence inventory levels, potentially keeping them below pre-pandemic levels for far longer than most would hope. Plus, the supply vs. demand equation may favor sellers in some markets regardless of raising rates, which could keep prices either steady or may leave them generally trending upward in specific areas.
Ultimately, prices will potentially decline on average, or growth will stagnate in many markets if the Federal Reserve raises rates again. Whether that works out well for a potential buyer mainly depends on their location, as that ultimately plays a big role in the prices they’ll see and whether they’ll benefit from a decline.
Are you hoping that housing prices will finally start dropping, or would inflation and higher interest rates prevent you from buying a house at this time? Do you think a housing crash is on the horizon and want to see if you can capitalize on that? Share your thoughts in the comments below.
Read More:
- Is It Time to Sell All of The Stocks in My Portfolio?
- When Are Manufactured Homes a Good Investment?
- Is Paying Points a Good Way to Reduce Your Mortgage Rate?
Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.
Is Paying Points A Good Way to Reduce Your Mortgage Rate?
For many people, buying a house is the most expensive purchase they’ll make during their lives. Since that’s the case, it isn’t uncommon to look for ways to reduce the monthly payments and overall cost. While negotiating is undoubtedly a great option, paying for points is another viable approach. If you’re wondering what mortgage points are, how they work, and whether they’re a good way to reduce your mortgage rate, here’s what you need to know.
What Are Mortgage Points?
Technically, mortgage points are a fee borrowers can pay as they set up a mortgage for a purchase or refinance. Homeowners can choose to pay the cost in exchange for securing a lower interest rate, though the fee is actually optional. There’s no requirement to buy points, so homeowners can choose to forgo the expense and keep the original interest rate offered.
How Mortgage Points Work
In some ways, mortgage points are a way to prepay interest. In exchange for a fee, the lender agrees to give you a better rate. Essentially, you’re compensating the lender for lost income, as the lower rate means they’ll earn less off of your loan over its life.
Mortgage points reduce an interest rate associated with a home loan by a set amount. In most cases, one point shrinks the interest rate by about 0.25 percent. For example, one point would turn a 5 percent interest rate into a 4.75 percent rate.
It’s important to note that each lender can set the value of their points. As a result, some may offer 0.25 percent per point, while others may reduce the rate by 0.125 percent, 0.2 percent, 0.3 percent, 0.35 percent, or any other amount they choose. However, the reduction must be disclosed to borrowers in advance, ensuring they know precisely what they’re getting in return for the fee.
If a borrower decides to buy points, they pay the cost at closing. The points are listed in the mortgage documentation, ensuring the new rate is officially part of the loan structure. Once the homebuyer closes, the rate after the deductions for any points purchased remains in place for the life of the loan.
The Cost of Mortgage Points
As with mortgage point values, each lender can determine its own cost for purchasing points. However, most lenders charge a fee of 1 percent of the loan total per point. For example, if you were financing $300,000, you’d pay $3,000 per point. If you wanted two points, that would cost $6,000.
While it may seem like 1 percent is the minimum amount you can pay, that isn’t always the case. Some lenders do allow borrowers to purchase fractional mortgage points. Using the example above, a homebuyer may be able to spend $1,500 to get a half-point on a $300,000 loan.
If they do, they secure an interest rate reduction that’s half the full point amount. For instance, if a whole point reduces the interest rate by 0.25 percent, a half-point would be worth 0.125 percent. For an initial interest rate of 5 percent, that half-point leads to a 4.875 percent interest rate instead.
Pros and Cons of Mortgage Points
Mortgage points do come with pros and cons. When it comes to the benefits, the biggest is that paying points can save you money over the life of your loan, particularly if you plan on staying in place long-term. If you want to confirm the savings, you’ll need to compare the total interest paid based on the two possible interest rates. That way, you can see the overall savings and compare that to the cost of the points.
If you don’t intend to stay in the home forever or may refinance in the future, you’ll want to find out if you’ll save enough to offset the price of any points. Usually, that involves calculating the breakeven point, which is the month that your interest savings covers the amount you spent on points. Precisely when that occurs varies depending on your loan terms, though you can use an online calculator to make determining when that happens easier.
Paying points may also help you qualify for a home loan if the monthly mortgage payment is higher than a lender finds comfortable. When you reduce the interest rate, the monthly payment goes down, potentially to the point where you become eligible for your preferred loan.
Tax Deductible
In some cases, the cost of your mortgage points is also tax-deductible. Since it’s considered prepaid interest, it can lead to deductions similar to traditional home loan interest payments. Precisely what that’s worth depends on your tax situation, so you’ll want to speak with a tax professional to see if this provides suitable value.
When it comes to drawbacks, the biggest is the higher upfront cost. While you might be able to convince the seller to cover the cost in exchange for a higher offer, paying out-of-pocket is far more common. That means paying potentially thousands of dollars in addition to your down payment, which may not be easy.
It’s also that paying points will cause you to pay more for your mortgage than you would without them. If you unexpectedly need to move or decide to do a cash-out refinance to consolidate debt or tackle some upgrades before the breakeven point, paying points costs you extra money instead of saving it.
If you’re looking at an adjustable-rate mortgage (ARM), reaching the breakeven may be impossible. Usually, the points only count during an initial fixed-rate period. If the breakeven point doesn’t occur during that window, then the points could also cost you more.
Is the Cost of Mortgage Points Negotiable?
Generally speaking, the cost for mortgage points isn’t negotiable. However, if you have exceptional credit and a solid down payment, you may be able to negotiate to lower the cost of certain other expenses, like origination fees or certain closing costs. By doing so, mortgage points may feel more affordable, even if the price of each point remains the same.
Is Paying Points a Good Idea?
Whether paying points is a good way to reduce the cost of buying a home depends on your unique situation. If you know with a reasonable amount of certainty that you’ll remain in the house and with your current lender until at least the breakeven point, it’s worth considering. Anything after the breakeven point is pure savings, giving you a clear financial benefit.
Similarly, if you can afford your dream home, but the lender is hesitant to fund a mortgage with a particular monthly payment because of your income level, paying points could be worthwhile. It could let you reduce the monthly amount to the point that leaves your preferred lender comfortable, allowing you to qualify when you otherwise wouldn’t.
Otherwise, it may be best to skip mortgage points. Those who plan to leave before the breakeven point won’t secure a savings. In fact, anyone who makes extra payments may struggle to recoup the cost if they ever move.
Similarly, refinancing before the breakeven point results in a loss, making points an awful idea. Finally, if paying points means not having enough for a down payment to avoid PMI, get the most favorable initial interest rate, or secure a lower homeowner’s insurance rate, then it may be better to go without paying for points.
Look at your overall financial picture and the plan for your home. That way, you can determine whether points are genuinely right for you.
Do you think that paying points to reduce your mortgage rate is a smart approach when you’re getting a mortgage? Do you believe that other techniques are more effective when it comes to securing a great rate or keeping costs down? Share your thoughts in the comments below.
Read More:
- First Time Applying for a Mortgage? 6 Expert Tips to Boost Your Chances
- 5 Things to Do Before Applying for a Mortgage
- Is This the Right Time to Do a Cash-Out Refi?
Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.
Is This The Right Time to Do A Cash-Out Refi?
With mortgage rates starting to rise, those who didn’t refinance their mortgage in the last few years may worry they’ve missed the boat. However, there are situations where doing a cash-out refi now may not be the worst choice. If you’re trying to decide whether moving forward is wise, here’s what you need to know.
Is This the Right Time to Do a Cash-Out Refi?
The Benefits of Doing a Cash-Out Refi Now
In many cases, the main goal of a cash-out refi is to secure funds for another purpose. For example, you might want to tackle some home improvements, consolidate debt, or handle a large purchase without needing to turn to personal loans.
By doing a cash-out refine now, you’re able to achieve your broader goals. That alone could make now a decent time to move forward.
Additionally, while interest rates are rising, many homeowners have rates above what they could secure today. If you’ve got a rate above 6 percent and your credit is far stronger than it was when you first secured a mortgage, you might be able to capture a lower rate when you refi.
In some cases, a cash-out refi now could lead to a lower monthly payment. If you secure a lower interest rate and reset your repayment term to 30 years, you may find yourself paying less each month than you otherwise would. If your budget is tight, that could be beneficial.
The Drawbacks of Doing a Cash-Out Refi Now
By moving forward with a cash-out refi now, you’re not necessarily getting the best rate. If your current mortgage is below 5 percent, securing a rate below that might be challenging, if not impossible, in the current market. Since that’s the case, you may be better off looking at alternatives if your rate is below what you could get today.
When you move forward with a cash-out refinance, you typically have to pay a range of fees, too. Along with loan origination fees, you may encounter appraisal fees, closing costs, and more. In some cases, those fees over set or exceed any potential interest savings. Plus, for those you can’t roll into the loan, you may need to come up with a decent amount of cash to cover them, which may not be easy.
A cash-out refinance also comes with a few other drawbacks. Any hard pull on your credit report could lead to a short-term score dip. Additionally, a refi will reduce the average age of your accounts, as you’re replacing an existing loan with a fresh one. However, depending on your credit history, the impact may only be minor.
How to Decide Whether a Cash-Out Refi Is Right for You
Whether doing a cash-out refi now is the right choice depends on your situation. If your interest rate is above 6 percent and your credit score has improved, you may still get a reduced rate now, even with interest rates increasing. In fact, by not waiting, you could hop in before rates go up further, giving you the best chance to save.
A cash-out refi may allow you to avoid higher-cost financing, too, like personal loans or credit card debt. In that case, it’s certainly worth considering as long as your interest rate on your mortgage won’t rise.
However, if your interest rate is below 5 percent currently, you’re likely better off leaving your current mortgage in place. That way, you can maintain a low rate on what can be an expensive loan. Plus, alternatives like a home equity loan or line of credit could still allow you to tap equity and get a competitive rate, all without a full-blown refinance.
Do you think now is the right time to do a cash-out refi ? When it comes to refinance vs. home equity loan, which do you think is the best move today? Share your thoughts in the comments below.
Read More:
- Don’t Be Afraid to Refinance: 6 Options to Meet Your Financial Needs
- 5 Things to Do Before Applying for a Mortgage
- Save Money on Your Mortgage by Negotiating These Fees
Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.
Applying for a Mortgage
There’s always talk about home-buying and mortgages, but with interest rates being at all-time lows over the past few years, I feel like the talk about those things have picked up. Not only that, interest rates are likely going up this year so people are trying to get in before it’s too late. In this post, I want to talk about mortgages, how they work, and what happens when applying for a mortgage.
What’s a mortgage?
A mortgage is a loan you get from the bank or another lender to buy a house. When you submit an offer to buy a house, you’ll apply for a mortgage, and it’s a very involved process. More on that later.
In a mortgage, you’ll have options for what your term is. Your typical options are 15-year, 20-year, and 30-year.
You’ll also have to make a down payment. Current trends show that a lower down payment is pretty common. Depending on the type of loan, you can put down 3+%. And how much you put down matters. If you put down less than 20%, you’ll have to pay Primary Mortgage Insurance (PMI).
Here are the pieces of your typical mortgage payment – principal, interest, taxes and insurance, and PMI (if applicable). Taxes and insurance are commonly put in an escrow account and paid when they’re due by the lender.
Mortgage application process
From application to closing, it’s about 45-60 days. During that period, you’ll go through underwriting. In underwriting, they’ll have you submit documentation to confirm your credit report, annual income, current assets and liabilities, employment information, prior tax returns, among other things.
After you’ve cleared underwriting and they’ve confirmed everything, you’ll head to closing. At closing, you’ll sign a lot of papers. You’ll likely need to bring your checkbook with you as well.
There are closing costs associated with your mortgage. Some of these can be added to your total mortgage and some of them need to be paid. Closing costs are normally 3%-6% of the total mortgage and can include real estate commissions, taxes, insurance premiums, title fees, and record filing fees.
And if you’re buying, you’ll also need to write a check for the down payment.
Who gets a mortgage?
There is a slough of factors you need to meet when applying for a mortgage. Credit score matters. Usually, you’ll need at least a 620 credit score (all else being equal) to get a mortgage. Though the better the credit score, the better interest rate you’ll get.
The debt to income ratio needs to be under 50%. The lower the debt to income ratio (all else being equal) the more you can afford. If you have a 45% debt to income ratio and can afford a $250,000 mortgage, you’d probably be able to afford a $300,000 if your debt to income ratio is 25% (this is just an example, I didn’t do the math on this).
Condition of the home. With an FHA mortgage, they are a little pickier on the condition of your home. Usually, it’s just the outside of the home they’re picky with. Chipped paint is a typical thing they take issue with, so just be aware of that.
Applying for a mortgage is necessary for most people so it’s important you understand how they work.
Related reading:
Understanding 15-Year vs. 30-Year Mortgages in the USA
What to do when you’re one month behind on your mortgage
Why Financial Literacy is Important
Disclaimer:
**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com
My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com
How Can I Get Rid of Wells Fargo PMI on My Home Loan?
If you purchased a home with a down payment of less than 20 percent, there’s a good chance you have private mortgage insurance (PMI) wrapped into your Wells Fargo mortgage payment. While it’s easy to assume that you have to pay that extra amount until you pay off your loan, that isn’t the case. Instead, you can get rid of it if you meet certain criteria. So, if you want to know how to get rid of Wells Fargo PMI on your home loan, here’s how to go about it.
Getting Your PMI Canceled on Your Wells Fargo Home Loan
Removing the PMI from your Wells Fargo mortgage is incredibly straightforward. Once you achieve an 80 percent loan-to-value based on the original value of the property at the time of purchase, you can initiate the removal process.
First, you need to make sure that you haven’t had any 30-day late payments within the past 12 months, as well as no 60-day late payments within the past 24 months. Both of those are firm eligibility criteria, so you’ll want to make sure you qualify on both of those points. If so, you can request the removal of your PMI to initiate the cancelation process.
After requesting the cancelation of the PMI, you’ll coordinate with Wells Fargo to get your home appraised. This ensures that the value of your house hasn’t declined since the original loan was issued.
The cost of the appraisal is your responsibility, and it usually runs a few hundred dollars. As a result, you’ll want to make sure you have those funds available before you begin the process. If the appraisal comes through in your favor, the PMI removal will move forward.
It’s important to note that Wells Fargo will automatically cancel your PMI if you achieve a loan-to-value ratio of 78 percent as long as you remain current on your mortgage. If paying for an appraisal isn’t an option at an 80 percent loan-to-value ratio, this could allow you to get rid of PMI without that out-of-pocket expense.
Additionally, if your home value increases enough, you may be able to remove PMI before you reach an 80 percent loan-to-value figure with a new appraisal. However, that option isn’t universally available. As a result, you’ll need to contact Wells Fargo to see if you can go that route.
Alternatives to Canceling Your Wells Fargo PMI on Your Mortgage
While you can use the Wells Fargo PMI cancelation process above, that isn’t your only option for removing your PMI. If your mortgage balance is 80 percent or less than the current value of your home, refinancing could also work.
When you refinance, you’re initiating a new loan. As a result, the original value that’s used for the loan-to-value ratio would change, usually based on a fresh appraisal.
With this approach, you could potentially stay with Wells Fargo as a lender. However, you could also explore other companies if they may be able to offer you better terms.
If you go this route, the process is more involved. While removing PMI using the method above doesn’t require income verification or credit checks, a refinance does. As a result, your financial situation and credit score will impact your eligibility and interest rate.
Additionally, by applying, you may see a temporary decline in your credit score. Similarly, if you move forward with the refinance, your credit score may also change.
A Higher Credit Score May Help
However, if your credit score is higher than when you originally secured your mortgage, this approach may work in your favor. You might be able to get rid of PMI and get a lower interest rate, resulting in a lower payment than your current one. Additionally, if you choose a longer repayment term, that could shrink your monthly payment even more.
Just keep in mind that extending your repayment term could mean paying more interest over the life of your loan than you would have previously. As a result, you may want to use a mortgage calculator to compare your various options, allowing you to select a path that works best for you in both the short and long term.
Have you ever had PMI on a Wells Fargo home loan? Were you able to get it removed? If so, what approach did you use? Share your thoughts in the comments below.
Read More:
- What Does It Mean to Recast Your Mortgage?
- 5 Things to Be Careful of When Choosing Mortgage Broker Services
- Understanding 15-Year vs. 30-Year Mortgages in the USA
Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.
This Is NOT The Time to Purchase a New Home
When mortgage interest rates are low, many people assume that makes it a great time to buy a new house. While lower interest rates are certainly a positive, other factors lean in the other direction, often outweighing any benefit a person may get from snagging a favorable interest rate. If you are wondering why now is not the time to purchase a house, here’s what you need to know.
Skyrocketing Home Prices
One of the most significant factors regarding why now isn’t a great time to buy a house involves home prices. The average home value in the United States is $298,933 (as of August 2021), representing a year-over-year increase of 16.7 percent. Plus, the prices in some cities rose much faster, and many are continuing their skyward trajectory.
While the rising prices may make it seem like buying sooner rather than later is a wise way to stay as far ahead of the curve as possible, that may not be true. It isn’t clear whether these growth rates will continue. Ultimately, there is a chance that once the current buying spree calms, the market will correct, bring home prices back down a bit.
Low Inventory Numbers
In many parts of the country, the inventory of homes is near record lows. Partially, this is because of the wide-scale buying activity spurred by the pandemic and reduced interest rates. However, some of it is also related to the time of year. Often, summer is a major buying season, putting additional stress on an already tight market.
When all of those factors come together, buyers simply don’t have as many options available. As a result, you may feel like you have little choice but to settle for a property that doesn’t meet all of your needs because that’s what is on the market.
With a purchase as significant as a home, settling isn’t necessarily smart. You may discover quickly that what the home lacks is actually problematic, leaving you dissatisfied with the house.
No Leverage to Purchase a New Home
When inventory is low, and prices are moving up, buyers lose a lot of leverage. Sellers don’t necessarily need to negotiate, as they know that they have a good chance of finding a different buyer who is willing to pay more or ask them for less.
For example, even if a home inspection reveals an issue, getting the seller to reduce their price or pay for the repair may be challenging. If the seller believes another buyer would go forward with the purchase at their preferred price anyway, they might refuse, leaving you in a tough position.
Today, it’s far more common for a home purchase to go through with a price above the initial asking. Additionally, fewer contingencies is a tactic some buyers use to make them more attractive to sellers. If you’re looking to purchase a home in a “hot” area, you need to decide if you’re willing to go to similar lengths. If not, waiting may be your best bet.
Rushing the Decision
Rising home prices and low inventories mean buyers have to act quickly. Otherwise, another prospective buyer might snatch up the property before you have a chance to make an offer. This creates a sense of urgency, one that may cloud a buyer’s judgment.
The issue with this scenario is that rushing could lead to poor decisions. You may extend an offer because you’re afraid you’ll miss out on a house, not because you feel strongly about having it.
Plus, the current state of the market adds an extra level of pressure to the situation. Often, buying a home is stressful when conditions favor buyers, let alone when it’s a seller’s market. The additional pressure could also lead to rushed decisions, increasing the odds you’ll overlook a problem or make another kind of misstep.
Are There Any Reasons to Purchase a Home Now?
A home purchase is a big decision, one that’s highly personal. For some people, buying now is going to be a necessity. If that’s the case, then make sure you understand the local market and what it means to go forward with a purchase in the current climate.
However, if you have the ability to wait, doing so could be smart. Market conditions are favoring sellers now, but that may not be the case long-term. You want to make sure that you factor that into your decision-making process. That way, you can make the choice that’s best for you.
Are there any other reasons that lead you to believe that now is not the time to purchase a house? Do you disagree with the points above and think that buying now is a good idea? Share your thoughts in the comments below.
Read More:
- What Does It Mean to Recast Your Mortgage?
- Funding Home Renovations: What You Need to Know
- How to Get a Good Home Equity Line of Credit
Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.
What Does it Mean to Recast Your Mortgage?
When homeowners are looking for ways to reduce their monthly mortgage payments, most focus on refinancing. However, there is an alternative that can yield similar results without many of the hassles: mortgage recasting. When you recast your mortgage, you can secure a lower monthly payment, as well as save on interest and avoid fees associated with refinancing. If you’re wondering if mortgage recasting is right for you, here’s what you need to know.
What Is Mortgage Recasting?
Mortgage recasting is a process where the borrower pays a large lump sum to their mortgage lender, dramatically reducing the principal. In exchange for the substantial payment, the lender then reamortizes the loan based on the new, lower balance, creating a reduced monthly payment.
When you recast your mortgage, no other details of the loan change. You maintain the same interest rate, and the term length stays intact. Only the principal balance and monthly payments change.
Why Would You Recast Your Mortgage Instead of Refinancing?
Borrowers can potentially experience a few benefits if they opt to recast their mortgage instead of refinancing. First, it gives you the ability to keep your interest rate.
When you recast your mortgage, the interest rate is unchanged. With a refinance, the rate is based on your current credit score and market conditions. If you wouldn’t qualify for a rate lower than what you have on your loan now, then recasting lets you keep your existing rate.
Second, a mortgage recast doesn’t require a credit check. You’re staying with the original lender and maintaining the same general loan terms, so checking your credit isn’t necessary. If you refinance, a credit check is required, even if you use the lender that has your current mortgage.
Third, the cost of a mortgage recast is usually far lower. While you may see a small fee for the recast – usually in the $250 to $500 range – it’s far below what you’ll pay to close on your refinance loan. On average, the closing costs associated with a refinance are near $5,000, and that may not be the only fee you encounter.
Which Mortgage Loans Are Eligible for Recasting?
Only certain kinds of mortgages are eligible for recasting. First, you need to have a loan with a lender that has a reamortization program. Not all lenders do, so it isn’t an option available to everyone.
Second, you need the right mortgage type. Often, you’ll need a conventional loan to qualify. If you have an FHA, VA, or USDA loan, the lender may not have the ability to complete a recast.
Finally, your loan has to be in good standing. Typically, a lender won’t reamortize a mortgage if you’re behind on payments. Additionally, it may not be an option if your loan is currently in forbearance.
How to Recast Your Mortgage
If you want to recast your mortgage, you’ll need to complete several steps. Here is an overview of the typical process.
- Contact Your Lender
Before you do anything else, contact your lender to ask about their mortgage recast process and requirements. Every loan provider may have different qualifications – such as a minimum lump sum payment – as well as unique steps you’ll need to take.
By speaking with your lender first, you can ensure you can qualify for the reamortization. Plus, you’ll be able to get information about the process, including any required forms, how to make a principal payment, processing times, fees, and similar details.
- Send the Lump Sum Payment
Once you have spoken with your lender, you can arrange to send the lump sum to pay down the principal. Often, it takes a couple of business days to process, so keep an eye on your balance to see when it posts.
- Move Forward with the Recast
After making the principal-reducing payment, you’ll need to finalize the recast. In some cases, this means contacting your lender again to request the reamortization of the loan. You may also need to handle the fee for the service at this time.
However, even your lender initiated the review based on your previous discussion, it’s still wise to reach out again. That way, you can confirm everything is moving forward.
- Continue with Your Old Monthly Payment
Recasting your mortgage doesn’t happen instantaneously. Instead, it isn’t uncommon for it to take 45 to 60 days before a new payment is assigned. Until that time, continue with your old monthly payment. That way, your loan remains in good standing.
- Review Your New Monthly Payment
After the processing time passes, you should see a new monthly payment on your mortgage. Make sure to review the amount. That way, you can update your budget accordingly.
Alternatives to Sending a Lump Sum Payment
While sending a lump sum principal payment is often the fastest way to qualify for a mortgage recast, it isn’t always your only option. Some lenders will allow you to reamortize if you send enough principal-reducing extra payments over time.
For example, if your assigned monthly payment is $1,500, but you’ve been sending $1,750 instead, that extra $250 is a principal-reducing payment. Similarly, if you use biweekly payments, you technically make 13 payments per year instead of 12. As a result, if your monthly payment was $1,500, you’d make $1,500 in principal-reducing extra payments each year.
Many people send their tax refunds, work bonuses, or similar lump sums to their mortgage as extra principal-reducing payments. If you fall in that group, those funds also count.
Essentially, any money you send to your mortgage specifically to reduce the principal can help you qualify for a recast. Once you’ve sent in enough – based on your lender’s requirements – the lender may be willing to reamortize without an additional lump sum principal-reducing payment.
This approach can be ideal for anyone who wants the option to recast but doesn’t have access to a large lump sum today. However, it does mean staying with your current monthly payment until you’ve reached a point of qualifying, so it won’t help if you need to reduce your monthly payment quickly.
Have you recast your mortgage? Do you think it was the right decision? Share your thoughts in the comments below.
Read More:
- How to Buy a House in America: Mortgages Explained
- 5 Things You Should Know Before Buying a Condo
- Do This If You’re Priced Out of the Housing Market
Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.
Summer Housing Expenses You Shouldn’t Ignore
While summer is usually a time for fun, neglecting your home maintenance needs isn’t a good idea. Many summer housing expenses are crucial for keeping your property in good repair and making sure all critical systems are running efficiently. If you want to make sure you tackle everything this year, here are some summer housing expenses you shouldn’t ignore.
Air Conditioner Service
During the summer, your air conditioner gets a workout. If you didn’t have your air conditioner serviced within the last year, you need to handle it now.
Without proper maintenance, your air conditioner may have a shorter life. Plus, it could be more prone to a breakdown, something that could make living comfortably difficult if it happens during a hot spell.
If the technician spots an issue, they can take care of the repair proactively. In many cases, this can actually save you money. When a part fails, there is always a chance the incident will damage other components. By fixing the part before that happens, you may be able to avoid other damage that would otherwise require a repair, too.
Additionally, a well-maintained air conditioner is more efficient. By getting your service handled, you may be able to save on your electric bills during the hottest time of year. This may even offset the cost of your service, depending on how much more efficiently your air conditioner might operate after it is fixed up.
Replace (or Clean) Your HVAC Filters
Another important step for making sure your air conditioner is going to work properly is to replace or clean the HVAC filter. Not only will it improve your air conditioner’s efficiency, but it can also help you keep the air in your house clean, healthy, and allergen-free.
Whether you need to replace or clean your filter may depend on the type you have and its condition. Some filters are designed so that they can be washed instead of replaced. However, others are essentially disposable, making replacement the only option.
Clean Your Ceiling Fan (and Check Its Direction)
Ceiling fans can be excellent for keeping your home cooler. However, as they operate, they can end up coated in dust.
Take a few minutes to clean your ceiling fan blades. Then, before you turn it back on, make sure the blades are spinning in the proper direction. Ceiling fans usually have a switch that lets you control the direction of the spin. One of the directions is better for cooling while one helps you stay warmer in the winter.
If your fan isn’t going in the correct direction, look for a simple switch on the unit. Usually, all you need to do is flick it into the other position, and it will start rotating in the cooling direction when you turn it back on again.
Exterior Paint Repair
Over time, your exterior paint can crack and chip. Since your paint is effectively a seal that protects the underlying materials, the damage needs to be addressed. Otherwise, water can work its way through the cracks or under chipped areas, increasing your chances of having rot or other issues.
Summer is the perfect time to address your exterior paint. Warmer temperatures lead to faster drying times, which works in your favor. Just make sure that there isn’t any rain in the forecast for at least 24 hours. That way, the paint can cure properly, restoring your barrier.
Concrete Repair
Just like cracked paint, cracks in your concrete paths or driveways let water seep into areas, potentially leading to damage. During the colder months, water in the gaps can freeze, making cracks worse.
Often, summer is a great time for concrete repair. Like paint, the warmer temperatures help the concrete dry quicker.
Once the repair is made, you still don’t want to walk or drive on the fresh concrete for at least 48 hours. However, it can take up to 30 days to reach full strength, though warmer, dry weather may speed that up a bit.
Reseal Fencing and Decking
If you have wood fencing or decking, summer is a great time to reseal them. Wood can be damaged by water and sun exposure, causing the material to degrade. Not only will resealing restore the protective barrier, but it will also dry more quickly due to the warmer temperatures.
Like paint, you do want to choose a day when you aren’t expecting rain within the next few days. That way, it can fully set before it’s exposed to water.
Gutter and Downspout Cleaning
In some parts of the country, summer storms can be incredibly dramatic. If you want to make sure your gutters and downspouts can swiftly move water away from your home, then cleaning them regularly is a must-do.
Typically, you would want to clean the gutters and downspouts in the spring and fall. However, if you haven’t tackled it yet this year, doing it now is a smart move.
Pest Control Treatments
As the temperature rises, insects and other pests are often more active. If you want to keep them from harming your home, then having a summer pest control treatment is often a must.
Work with a pest control professional who can not only apply treatments but also inspect your house for issues that may allow pests to make their home on your property. They can help you identify potential repairs to keep pests out and away, and some may even be able to handle those fixes for you.
Re-Caulk Windows and Doors
The caulk around your windows and doors breaks down over time. When that happens, the seal isn’t as effective, allowing the hot outside area to make its way inside.
If you want to keep your electricity bills in check and avoid overtaxing your air conditioner, take the time to inspect the caulk around your windows and doors. If you see any spots where it isn’t in good shape, re-caulk them. Usually, that only takes a few minutes, but it can make a big difference when you’re trying to stay cool.
Can you think of any other summer housing expenses people shouldn’t ignore? Share your thoughts in the comments below.
Read More:
- Save Money on Your Household Expenses with These Top Tips
- Do This If You’re Priced Out of the Housing Market
- 5 Things You Should Know Before Buying a Condo
Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.
Do This If You’re Priced Out of The Housing Market
Many people would love to buy a house, only to be stymied by the prices in their LA local housing market. In many parts of the country, home values are moving up quickly, making it harder for prospective buyers to find a suitable property that they can afford. Luckily, even if you’re priced out of the housing market, that doesn’t mean you can’t achieve your dream of home ownership. If you aren’t sure where to begin, here are some things you can do.
Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.
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