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Pay Off Your Mortgage Early: Easy Tricks Anyone Can Use Friday, December 7th, 2018

There are two ways to own your home. Either you can pay cash upfront or you can pay little by little, year after year. For most us, monthly mortgage payments are really the only feasible option. Nonetheless, there are a few simple strategies you can put into place now and pay off your mortgage early.

Why Pay Off Your Home Mortgage Early?

When you pay off your home loan faster, you end up paying less for your home than if you were to pay the minimum required payment for the term of the loan. Paying off your house early will literally save you thousands, tens of thousands of dollars and possibly more, over time. Consider the following hypothetical example.

Let’s say you get a $300,000 home loan based on a 30-year term and at a fixed rate of 4.46% (current average APR as of 10/1/2019). If you were to pay the minimum, your monthly mortgage payment would be $1,512.93 every month for 30 years. However, by the time you pay your house off, you would not have paid $300,000 for your home but significantly more, in fact, almost double.

Home Loan APR Term Interest Paid Total Paid

$300,000

4.46% (fixed)

30 years

$244,656

$544,656*

* For simplicity of calculations, we did not include insurance, PMI, property taxes, or any closing costs associated with buying a house.

In this example, we can see that the amount paid in interest is nearly equal to the original home loan. But what can you do? Many of us do not have the $300,000 to buy a house outright. Luckily, here are some simple tricks you could use to knock years off your mortgage while saving you a ton of money in the process.

Set up Bi-weekly Mortgage Payments

This strategy could reduce a 30-year mortgage to 25 years and save you tens of thousands of dollars in the process. Essentially, you will take your monthly mortgage payment (including taxes and insurance), divide that in two, and then pay it every two weeks rather than once a month. In effect, this strategy will have you make the equivalent of 13 monthly payments per calendar year instead of 12. The result is significant as you can see below.

If we were to use our $300,000 mortgage example from above and apply a biweekly payment of $765.47 (which is half the mortgage payment) instead of the full monthly payment of $1,512.93, this would be the result:

Home Loan APR Term Interest Paid Total Paid

$300,000

4.46% (fixed)

25 years

$201,820.63

$501,820.63

Not only do you reduce your mortgage by 5 years but also you end up saving $42,835.37 in the process. However, you should check with your lender to see if they accept bi-weekly payments without charging a fee before implementing this strategy. If they do charge a fee, this may not be the best tactic to use to reduce your mortgage and you should possibly look to one of the other strategies below.

Refinance Your Mortgage

This strategy is highly relative to your situation. If you have a high-interest rate but you have been in your home for a few years and have built up some equity, you might want to consider refinancing your mortgage before interest rates go up. Even a 1% decrease in your APR can save you a considerable sum of money. Alternatively, if you feel financially capable to handle a larger mortgage payment, a 15-year mortgage over a 30-year would save you tens of thousands of dollars. Again, using our hypothetical example from above, we get these results:

Home Loan APR Term Interest Paid Total Paid

$300,000

4.46% (fixed)

15 years

$111,993

$411,993

Typically, with a 15-year home loan the APR is lower than a 30-year term; however, even with keeping the APR the same we can still see that the difference in interest is substantial. Not only would you be paying $132,663 less in interest but also you would have effectively eliminated 15 years of paying on a mortgage. However, your monthly mortgage would have also increased to $2,289.

A Little Extra Goes a Long Way

You may think that little amounts don’t count for much in the larger picture of a 30-year home loan; such as the money you spend on your morning cup of coffee. However, what if I tell you that you could shave off years from your home loan by skipping your coffee and putting that money toward your mortgage. Even a hundred extra bucks each month could save you thousands of dollars in interest payments.

Let’s say you didn’t buy your morning cup of coffee, and instead saved that $5 to put toward your mortgage (in this hypothetical situation, we are estimating that a morning cup of coffee is more than just drip coffee and with a tip should equal to about five dollars). At $5 a day, we are looking at an additional $100 month that could be going toward your mortgage. Again, referring back to our hypothetical situation of a $300,000 home loan but adding an additional $100 a month against your mortgage we would get this as our results:

Home Loan APR Term Interest Paid Total Paid

$300,000

4.46% (fixed)

26yrs 5 months

$211,016

$511,016

In this scenario, we have not only effectively knocked off a few years of your mortgage payments, but also reduced what you would be paying in interest by $33,640. Don’t worry, you can keep drinking your coffee, however, the main takeaway is that a little extra towards your home loan can go a long way.

Monetary Windfalls

The main strategy for those wanting to pay off their mortgage early is to focus on reducing the overall principal of their home loan as fast as possible. Monetary windfalls are any form of extra money that comes your way and is unplanned for. This could include things like gifts, bonuses at work, overtime, inheritance, tax refunds, and lottery winnings, among others.

As we saw in the prior example that even paying an extra $100 a month, or $1,200 a year, you can reduce your mortgage payment by years. Just imagine how many years you could reduce your mortgage by if you were to start putting all your extra money against your home loan.

Speak to Your Lender

Make sure you speak with your mortgage lender about your intentions. You don’t want to begin a strategy to pay off your mortgage early only to find out that your lender has penalties for early payments. Also, some lenders may only allow extra payments to be made within a specific timeframe. You should also make it clear that when you are applying an additional payment that it needs to go against the principal of your home loan, and not towards any future mortgage payment.

Take Time to Build Your Strategy

Paying off your mortgage early is all about having the right strategy. Take your time to explore your options and pursue the strategy that best fits your situation.

This article was written by Jeff Anttila at San Diego Redfin, click HERE for more information.

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Own vs Rent: Buy a $650k Home With a $3400 Payment vs Rent for $3400 Monday, May 28th, 2018

Many people ask the question, “is it better to own or rent“? A good answer to that question is, “you are paying for housing whether you own or rent, so you should take advantage of the financial benefits of owning a home“. Instead of renting for $3,400 a month, a buyer can purchase a $650,000 home with 20% down for the same monthly payment. Check out the “Own vs Rent 10 year Home Purchase Plan” I shared with a client this week that shows all the financial benefits that come with owning a home, vs renting for $3,400 a month.

Financial Reasons to Buy a Home versus Rent

Here are some of the financial reasons to buy a home instead of rent.

Homeowners get to take advantage of tax benefits and paying down the principal on their loan, whereas renters help pay the landlords loan so he can take advantage of tax benefits and principal payments.

When you own a home it is also a hedge against inflation. You will get a low fixed rate mortgage and your principal and interest payment will never change. Whereas rent will continue to go up over time with inflation.

Homeowners get to take advantage of the magic of appreciation. Over time the value of a home will increase. If you bought a home anytime over the past 8 years, you have probably made some good appreciation on your home. Compare this to paying rent over the past 8 years.

Compare Owning vs Renting for $3,400 a month

Here is a “Own vs Rent 10 year Home Purchase Plan” I shared with a client this week, that shows the benefits of owning a home with a payment of $3,400 a month, versus renting for the same payment.

You can also review this Own vs Rent report online at https://mcedge.tv/1cb5pl

With a $3,400 payment, the buyers can purchase a $650,000 home with 20% down.

On the left column is the $3,400 in monthly rent.

On the right column, is the $650,000 home purchase with a down payment of 20% with conventional jumbo financing, with an interest rate of 4.625%. The total PITI payment is $3,398 a month, which includes principal and interest, property taxes and homeowners insurance.

As you can see above, the owner will get tax benefits of $923 a month, and pay down principal of $669 on the loan, versus no financial benefits from writing a check for $3,400 in rent every month.

Compare Principal Paid vs Rent Paid over 10 years

In this section of the report, it compares how much rent versus principal is paid over the next 10 years.

The owner will have paid down the principal on the loan by $101,881 over the next 10 years.

Compare this to paying $467,726 in rent over the next 10 years to the landlord.

Compare Net Worth in 10 years

In this section of the report, it compares the net worth after 10 years of owning a home versus renting.

The owner will accumulate a net worth of $455,427 over the next 10 years, by paying down the principal on the loan, tax benefits, and accumulated equity gains due to appreciation on the property. In this example I used a conservative 3% annual appreciation rate.

There are no financial benefits to paying rent over the next 10 years.

The Impact of Rising Rates on Buyer Purchasing Power

As interest rates have continued to rise recently, a question that many renters and buyers are asking is, “If rates rise how will this affect my affordability?”

Here is a chart that shows the “impact of rising rates on a buyers purchasing power or affordability”.

As you can see below on the chart, if rates just increase by 1%, from current levels of 4.5% to 5.5%, a buyer will lose 10.75% in purchasing power.

This means, if a buyer can afford to purchase $600k today, but rates increase by 1%, they will only be able to afford $535,500 using the same monthly payment.

If a buyer can afford to purchase $800k today, but rates increase by 1%, they will only be able to afford $714,000 using the same monthly payment.

If a buyer can afford to purchase $1,000,000 today, but rates increase by 1%, they will only be able to afford $892,500 using the same monthly payment.

It is still a good time to buy a home

It’s still a good time to purchase a home, especially as the cost of borrowing money with today’s interest rates is still very low historically. The average 30-year fixed rate over the past decade was 6.7% and 8.9% over the past 30 years.

When you crunch the numbers and weigh up all the financial benefits that come with home ownership, and compare it to what you are paying in rent, buying a home is a better financial decision.

It is important that buyers are given all the information they need so they can make an informed decision about buying a home. Buyers love these “Own vs Rent Reports”above, because it shows them all the financial benefits and different figures they need to see when making the decision to purchase a home.

If you would like to review one of these “Rent vs Own Reports” like this example above, please contact me directly at 858-442-2686. I look forward to chatting soon.

P.S. If you would like to be updated faster on any important industry news or new loan programs that come out, please join my Facebook Page.

Tags: 400 a month instead of rent, better to own vs rent, own for $3, own vs rent
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2018 Mortgage Waiting Periods for Buyers With Prior Short Sale, Foreclosure or BK Saturday, April 21st, 2018

It is hard to believe that it has been a decade since the housing crash in 2008. It is another year that has passed for buyers to recover from a prior foreclosure, short sale or BK. We have been seeing lots of buyers who suffered a financial hardship in the past get back into the market recently to purchase a home again. Here are the current 2018 mortgage waiting periods and loopholes available for buyers who had a prior Foreclosure, Short Sale or Bankruptcy.

Buying a Home Again After a Financial Hardship

More than 9 out of 10 mortgages are either funded by Fannie Mae/Freddie Mac, the FHA or VA!

Therefore if a buyer is looking to purchase a home and needs financing, it is more than likely they will be using one of these 3 financing options.

If a buyer does not fit these guidelines, there are a lot of new financing products that are available in the market again to help fit a buyers needs. We have options where a buyer can finance a home with less than one month out of a BK, foreclosure or short sale.

Here are the current 2018 mortgage waiting periods when a buyer is looking to repurchase a home after either a short sale, foreclosure or bankruptcy.

1. When Can I Repurchase Again After a Foreclosure?

Here are the current waiting periods when a buyer can repurchase again after a Foreclosure and they are trying to obtain either Conventional, FHA or VA financing.

Conventional. It is 7 years before a buyer can repurchase again using conventional financing.

Loophole. There is a loophole that not many are aware of, see below. If you included the foreclosure in a bankruptcy, you can qualify after 4 years instead of 7 years. Contact me for more details on how to qualify under this new rule.

“For conventional financing, the bankruptcy guidelines have been updated to indicate that if a mortgage debt has been discharged through bankruptcy, even if a foreclosure action is subsequently completed to reclaim the property in satisfaction of the debt, the borrower is held to the bankruptcy waiting periods and not the foreclosure waiting period.

This means a buyer can now qualify for conventional financing after 4 years from the bankruptcy date, instead of the foreclosure date of 7 years”.

FHA. It is 3 years before a buyer can repurchase again using FHA financing. Or, see below for how a FHA buyer can qualify again after just 1 year if they experienced an economic event.

VA. It is only 2 years before a buyer can repurchase again using VA financing.

2. When Can I Repurchase Again After a Short sale?

Here are the current waiting periods when a buyer can repurchase again after a Short Sale and they are trying to obtain either Conventional, FHA or VA financing.

Conventional. It is 4 years before a buyer can repurchase again using Conventional financing.

Loophole. If you included a short sale in a bankruptcy chapter 13, you can qualify after 2 years instead of 4 years. We have been helping buyers recently qualify under this rule. Contact me for more details on how to qualify under this new rule.“For conventional financing, the bankruptcy guidelines have been updated to indicate that if a mortgage debt has been discharged through bankruptcy, even if a short sale action is subsequently completed on the property, the borrower is held to the bankruptcy waiting periods and not the short sale waiting period. This means a buyer can now qualify for conventional financing after 2 years from the bankruptcy date, instead of the short sale date of 4 years”.

FHA. It is 3 years before a buyer can repurchase again using FHA financing. But here are 2 different ways to qualify less than 3 years.

*Tip #1: The FHA has a loophole that not many people know about, if the FHA buyer did not have any late payments before their short sale, they are allowed to automatically qualify again for FHA financing.

Tip #2. The FHA reduced the time line that buyers must wait after a bankruptcy, foreclosure or short sale before qualifying for an FHA-backed mortgage, if a buyer experienced an “economic event” whereby their household income fell by 20% or more for a period of at least six months.

The period had previously been two years following a bankruptcy, and three years following a foreclosure or short sale. The FHA reduced the waiting period to ONE YEAR.

For additional information on how to qualify under this rule, I wrote an article on this subject for the San Diego Union Tribune newspaper, see HERE

VA. It is only 2 years before a buyer can repurchase again using VA financing.

3. When Can I Repurchase Again After Bankruptcy?

Here are the current waiting periods when a buyer can repurchase again after a Bankruptcy and they are trying to obtain either Conventional, FHA or VA financing.

Conventional. For a chapter 7 Bankruptcy it is 4 years and 2 years for a chapter 13 bankruptcy, before a buyer can repurchase again using Conventional financing.

FHA. For a chapter 7 Bankruptcy it is 2 years and 1 year for a chapter 13, before a buyer can repurchase again using FHA financing. Or, see above for how a buyer can qualify again after just 1 year if they experienced an economic event.

VA. For a chapter 7 Bankruptcy it is 2 years, and 1 year for a chapter 13 bankruptcy, before a buyer can repurchase again using VA financing.

4. What if a buyer does not fit the waiting periods above? New Financing programs available

There are new mortgage options available for buyers who do not fit the more traditional mortgage options above.

Portfolio lenders are stepping in to provide mortgage options for buyers who cannot qualify for conventional, FHA and VA financing, and with terms much better than private financing.

We have lenders who will now provide financing for buyers less than 1 month out of a foreclosure, short sale or BK for example. A larger down payment will be required, and rates will be higher than traditional loans.

We also have several different stated programs for self employed and W2 buyers who cannot verify their income.

We also have bank statement programs available for borrowers, whereby we can use their monthly deposits to qualify. This is a great option for self employer borrowers who do not show all their income on their taxes.

Contact me with any scenarios you have, we typically can find a solution to most borrower situations.

Helping Buyers Rebuild Their Credit

It is also very important that buyers start to re-establish their credit again since their hardship.

For example, even though the required waiting period of say 2 or 3 years may have passed, it is also important that buyers have the required credit scores to qualify again for financing. For example, the FHA and VA only require a 580 credit score to repurchase a home again.

The first step is for a buyer to get a copy of their credit report to verify if their financial hardship or discharge is reporting correctly and to also see what their scores are.

Then the next step is for buyers to start rebuilding credit scores. I have a section on my website which is devoted to helping buyers and consumers rebuild and improve their scores, see HERE, so they are able to score the best rates and financing terms.

Tips for Buyers Looking to Purchase Again

There are many buyers who suffered a financial hardship in the recent past who are already back in the market again to purchase a home.

As the VA only requires 2 years from a short sale or a foreclosure, and the FHA only 1 year in some cases, there are a lot more buyers who are eligible to repurchase again but probably just don’t know they can.

A lot of buyers I talk to who suffered a financial hardship in the past, are genuinely surprised when they realize that the FHA or VA for example allows them to purchase again after just 2-3 years!

Tip for real estate agents: A good idea is to check the dates with any clients, friends or family you helped short sale in the past, or anyone you know who had a foreclosure, and verify how much time has elapsed since their hardship. Now you can let them know when they can repurchase again using these waiting periods above.

Also let them know too how important it is that they rebuild their credit, and that they should contact you if they need credit tips on how to rebuild their credit.

If you have any questions about any of these mortgage waiting periods, or you would like to get approved for financing, please call me at 858-442-2686, or you can also email me at mdeery@citywidefinancialcorp.com .

P.S. If you would like to be updated faster on important industry news or any new loan programs that come out, please join my Facebook page .

Tags: 2018 Mortgage Waiting Periods for Buyers With Prior Short Sale, buying after foreclosure, buying after short sale, buying again after a BK, Foreclosure or BK, what are waiting periods to buy again after short sale
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Tips to Help Your Purchase Offer Stand Out From the Crowd Thursday, March 26th, 2015

In today’s competitive housing market where multiple offers are the norm, it is very important that a buyer’s offer stands out from the crowd. Buyers and Real Estate Agents have to get creative with their offers and also provide full transparency upfront, so the seller will feel comfortable that a buyer will be able to obtain financing and close escrow. Here are 7 tips that will help your purchase offer stand out from the crowd and get accepted.

1. Include a personal cover letter with your purchase offer

A good idea in this competitive housing market is to include a personal cover letter with the offer that introduces your family and explains why you are the right candidate to purchase the home. Include a family picture too.

If you can tug at the heart strings of the seller, they may be more inclined to choose your offer over others. Many agents and buyers tell me this strategy works!

2. Your loan approval letter verifies your type of financing

Include a loan approval letter with your offer that clearly explains what type of financing you are getting and how much of a down payment you are using, make sure it is also signed by the lender and lists their contact info too, so the seller can call and verify all the information.

If you are qualified for conventional financing and putting down 20%, make sure to write this into the loan approval letter, as this will usually place ahead of an offer with a lower down payment. If you are submitting a FHA or VA offer and are using a limited or no down payment, follow the rest of these steps below to strengthen your offer.

3. Include a DU underwriting approval with your offer

Include a DU underwriting approval with your offer. A DU (desktop) underwriting approval is when a buyer’s loan application and credit report has been ran through the conventional, FHA’s or VA’s automated underwriting systems and was approved.

A DU underwriting approval displays the most important information on a buyer’s profile, which gives the seller a better idea of the strength of the buyer. For example, a DU approval displays a buyer’s credit scores, debt to income ratios, assets, reserves, down payment and the type of loan program they are approved for.

4. Provide proof of down payment funds

Always include proof of down payment funds along with your offer. Make sure the name on the bank statements, or any other account being used for the down payment, matches the buyers name on the contract and approval, and also verify there are enough funds in the statements to cover the down payment listed on the offer.

If you are getting a gift from a family member, provide a gift letter and proof of funds from the donor.

5. Increase your deposit

Want to show a seller how serious your offer is?Consider putting down a bigger deposit in earnest money. This may seem risky for some, but earnest money is there for a reason. If you are uncertain about putting a “noticeable” amount of earnest money on the table, it may be a sign to the seller that you are uncertain about the house itself.

Assuming you hold up your end of the bargain and you have the right contingencies in place, it won’t cost you any more in the long run since the deposit goes towards your down payment if financing is involved.

6. Be flexible and don’t ask the seller for credits to cover closing costs

It’s a good idea to ask the seller’s agent upfront what you can do to make the offer more enticing to the sellers.

For example, can you be flexible on the closing date for the seller? Also, a purchase offer asking for seller credits to pay for your closing costs will usually place behind an offer that does NOT ask for any seller credits. Some people assume just because a buyer does not have funds for closing costs, to just ask the seller to cover them.

SOLUTION: To make a buyers offer more competitive, the lender can pay for ALL the buyers closing costs with a lender credit.

How does this work? It’s easy, instead of taking say a 3.875% 30 year fixed rate, just take a slightly higher rate of 4.25% instead, and now there is a lender credit of roughly 2.5% available that can be used to pay ALL a buyers closing costs.

Not only is this a good negotiating tactic so the buyer and seller can strike a deal, but of course it saves a buyer money too. We present this option to all our buyers.

Another Tip, is to offer to pay for the sellers Owners title policy and transfer tax, these fees amount to roughly $2,500 on a $400k home, so this is another way to sweeten the deal for the seller to accept your offer. If the buyer does not have the funds, we can also pay for these fees with a lender credit.

7. Close the Transaction Faster

Being able to close a transaction faster is another way to entice the seller to accept your offer in this competitive market. For example, if a seller is reviewing 3 offers, and there is a 21 day offer, a 30 day and 45 day offer, many times the seller will take the faster closing.

My company Citywide Financial Corp can close a Conventional, FHA or VA Purchase Transaction in 21 days, and even 17 days if a major rush is needed. We have an outstanding team set up and dedicated to help close transactions fast.

I hope you found these tips useful. I review offers every week with Realtor partners, which is a great opportunity to look at the different types of offers that buyers are submitting in this current market. The majority of offers I review usually only have 2-3 of these items above provided.

Full transparency upfront is the key to getting an offer accepted these days, because usually the “Path of Least Resistance” is what we look for when reviewing offers! As many times the offer that is presented the clearest, is flexible and addresses any issues upfront, is the offer that will be picked!

If you have any questions about any of these tips above or getting approved for financing, please do not hesitate to contact me directly at 858-442-2686. I look forward to chatting soon.

Tags: 7 tips to help your purchase offer get accepted, how to get your purchase offer get approved, Tips to Help Your Purchase Offer Stand Out From the Crowd
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9 Ways Buyers Can Accidentally Disqualify Their Loan Before Closing Thursday, October 18th, 2012

Underwriters have been warning us about buyers who have been accidentally disqualifying their loan before closing! Underwriters advise that buyers are going out and buying furniture on credit, or a new car before closing, or they change jobs, which unfortunately may now disqualify their loan before closing. These mistakes will happen and will continue to happen if buyers are not being coached properly before or during the loan process until they close escrow. Here are the 9 most common mistakes that buyers make which may accidentally disqualify their loan before closing.

The 9 Most Common Mistakes Buyers Make

1. Don’t buy a new car or trade-up to a bigger lease.
2. Don’t quit your job to change industries or start a new company.
3. Don’t switch from a salaried job to a heavily-commissioned job.
4. Don’t transfer large sums of money between bank accounts.
5. Don’t forget to pay your bills — even the ones in dispute
6. Don’t open new credit cards — even if you’re getting 20% off
7. Don’t accept a cash gift without filing the proper “gift” paperwork

8. Don’t cosign on any debt with anyone(*You will be 100% responsible for it)
9. Don’t make random, undocumented deposits into your bank account.

WARNING: The Lender Will Pull Your Credit Again Before Closing

It is also important that buyers are aware of a Rule that requires lenders to re-pull a buyers credit report just prior to closing and to look for any changes. If the “final” credit report doesn’t match the original credit report, the mortgage may be subject to a complete re-underwrite and, in a worst case scenario, a loan application denial.

Lenders advise this ensures loans are priced properly and are funded on the borrower’s credit risk at closing as opposed to at application; because a lot can change with a buyers profile while a loan is in-process during a 30 or 60 day escrow.

Some of the things underwriters are looking for include:

* Did you apply for new credit cards while your loan was in-process?
* Did you run up existing cards while your loan was in-process?
* Did you finance an automobile while your loan was in-process?
* Did you make some other major purchase while your loan was in-process?
* Did you add non-disclosed debts while your loan was in-process?

* Did you cosign on any debt with anyone?

Each of the above is a red flag to underwriting, so it is important that buyers are aware of this rule and are being coached properly during escrow in regards to their credit. A golden rule for buyers to follow is, they should NOT purchase anything on credit until AFTER closing!

A List of Buyer Do’s and Don’ts to Follow During Escrow!

Here is a Do’s and Don’ts list below that I hand out to all my buyers when they start the initial loan application, I tell them to stick this on the fridge until they close escrow, as this list will serve as a reminder and ensure no mistakes will be made and everyone will have a smooth closing.

It’s Important to Coach Buyers Right Through Until Closing

I believe it is important that buyers are being coached properly until the close of escrow, and they have checklist of rules to follow between the date of application and date of closing, otherwise mistakes will happen.

I continue to hear horror stories from my underwriters and friends in the industry, of buyers going out and buying furniture or something else on credit, or a new car before closing, and suddenly this new debt will cause their credit scores to drop, or their debt to income ratios are now too high, which means they do not qualify for the loan anymore. Therefore, a golden rule for buyers to follow is, they should NOT purchase anything on credit until AFTER closing!

If you have any questions, or you would like a copy of this Do’s and Don’ts list above, please feel free to contact me directly at 858-200-9602 or by email at mdeery@citywidefinacialcorp.com and I would be happy to share it.
.

Tags: 8 Mistakes Buyers Make that Accidentally Disqualify Their Loan Before Closing, 9 Ways Buyers Can Accidentally Disqualify Their Loan Before Closing, buyer mistakes before closing, buyer mistakes during escrow, ways buyers disqualify their loan before closing
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Why 40% of Homeowners Are Doing “Cash in” Refinances Wednesday, June 27th, 2012

“Cash-in” refinances have become very popular recently and actually accounted for over 40% of all refinancing activity in the first half of the year according to Fannie Mae, the highest amount on record. If someone wants to refinance at today’s low rates lenders require you to have some equity, if you don’t, you must add “cash in” to make up the difference. “Cash-in” refinances are now being used as a great investment tool by homeowners and can save lots of money, here is how.

As there are very few investments out there these days that are paying a decent rate of return, “cash in” refinancing can represent a great opportunity to allow your money to work better for you and save additional money each month on interest and mortgage payments. Here are 4 examples when a “cash in” refinance pays off, these can also work the exact same way on a purchase loan too if buyers are looking to save extra money on their loan.

When to put cash into your refinance?

1. You can lower your mortgage rate significantly: You know that you can qualify for the rock-bottom interest rates — as long as your loan balance is below a certain loan to value. Are you close to that cutoff and have plenty of cash to spare? Then bring enough funds to the table to push your mortgage balance below that threshold.

2. Do you have a jumbo loan over $417k? but are extremely close to the cutoff for a conforming loan (less than $417k)?. Pay down the loan to under $417k so you can get a much lower rate, as the average fixed rate on a 30-year jumbo is almost .5% higher than rates on a conforming loan.

3. You can avoid mortgage insurance “PMI”. If your loan-to-value ratio is at a certain level that demands mortgage insurance. But you could avoid having to pay mortgage insurance by putting enough cash into the loan.

4. You want to pay off your mortgage faster: Some homeowners are putting cash in so that they can afford the payments when they refinance a 30-year loan into a 20, 15, or even a 10-year mortgage, Even with the extra cash, your monthly payments will be higher on a shorter loan. But over the life of the mortgage, the total interest savings can be huge.

How a “Cash in” refinance works

Let’s take a look at an example in the chart below. These are the figures from a loan we funded for a family last week. They had a $300k loan and they qualified for a 3.75% on a 30 year fixed, or 3.49% on a 20 year fixed, but the payments on the 20 year loan were too high as they did not want their monthly payment to be over $1,600.

So they paid down their loan balance by $25k from $300k to $275k, so they could afford the payments on the 20 year loan, as the new payment was $1,593 a month. *Over the life of the loan the 20 year loan will save them $92,730 in interest over the 30 year loan, all for putting in an investment of $25k. Most people would agree that $92,730 is a great return on an initial investment of $25k.

There are several different ways to determine if a “cash in” refinance makes sense. If you or anyone else you know needs help going over any of the examples above to determine if a “cash in” refinance would benefit your financial situation, please feel free to contact me directly at 858-442-2686 and I would be happy to help. I look forward to chatting soon.

Posted in Michaels Housing and Market Updates, Why 40% of Homeowners Are Doing "Cash in" Refinances | No Comments »

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