The 5 Greatest Benefits of Homeownership

Recently, Freddie Mac reported on the benefits of homeownership. According to their report, here are the five benefits that “should be at the top of everyone’s list.”

  1. Homeownership can help you build equity over time.
  2. Your monthly payments will remain stable.
  3. You may have some tax benefits.
  4. You can take pride in ownership.
  5. Homeownership improves your community.

Let’s expand on each of Freddie Mac’s points:

Homeownership can help you build equity over time.

Every three years, the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups. The latest survey, which includes data from 2010-2013, reports that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400).

In a Forbes article, the National Association of Realtors’ (NAR) Chief Economist Lawrence Yun reported that now the net worth gap is 45 times greater.

Your monthly payments will remain stable.

When you purchase a home with a fixed rate mortgage, the majority of the payment (principle and interest) remain constant. On the other hand, rents continue to skyrocket. Your housing expense is much more stable if you own instead of rent.

You may have some tax benefits.

According to the Tax Policy Center’s Briefing Book -“A citizen’s guide to the fascinating (though often complex) elements of the federal Tax System” – there are several tax advantages to homeownership.

Here are four items from the Briefing Book:

  • Mortgage Interest Deduction
  • Property Tax Deduction
  • Imputed Rent
  • Profits from Home Sale

You can take pride in ownership.

Most surveys show that a major factor in purchasing a home is the freedom you have to design the home the way you want. From paint colors to yard accessories, you don’t need a landlord’s permission to make the house feel like a home.

Homeownership improves your community.

The National Association of Realtors recently released a study titled ‘Social Benefits of Homeownership and Stable Housing.’ The study explained:

“Homeownership does create social capital and provide residents with a platform from which to connect and interact with neighbors…Owning a home means owning part of a neighborhood, and a homeowner’s feelings of commitment to the home can arouse feelings of commitment to the neighborhood, which, in turn, can produce interactions with neighbors.”

Bottom Line

There are many benefits to homeownership. That is why it is still a critical piece of the American Dream.

2 Myths That May Be Holding Back Buyers

Fannie Mae’s article, “What Consumers (Don’t) Know About Mortgage Qualification Criteria, revealed that “only 5 to 16 percent of respondents know the correct ranges for key mortgage qualification criteria.

Myth #1: “I Need a 20% Down Payment”

Fannie Mae’s survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 76% of Americans either don’t know (40%) or are misinformed (36%) about the minimum down payment required.

Many believe that they need at least 20% down to buy their dream home, but many programs actually let buyers put down as little as 3%.

Below are the results of a Digital Risk survey of Millennials who recently purchased a home.

2 Myths That May Be Holding Back Buyers | Simplifying The Market

As you can see, 64.2% were able to purchase their home by putting down less than 20%, with 43.8% putting down less than 10%!

Myth #2: “I need a 780 FICO Score or Higher to Buy”

The survey revealed that 59% of Americans either don’t know (54%) or are misinformed (5%) about what FICO score is necessary to qualify.

Many Americans believe a ‘good’ credit score is 780 or higher.

To help debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans. As you can see below, 54.7% of approved mortgages had a credit score of 600-749.

2 Myths That May Be Holding Back Buyers | Simplifying The Market

Bottom Line

Whether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Your dream home may already be within your reach.

 

When Is It A Good Time To Rent? Definitely Not Now!

People often ask whether or not now is a good time to buy a home. No one ever asks when a good time to rent is. However, we want to make certain that everyone understands that today is NOT a good time to rent.

The Census Bureau recently released their first quarter median rent numbers. Here is a graph showing rent increases from 1988 until today:

When Is It A Good Time To Rent? Definitely NOT NOW! | Simplifying The Market

A recent Wall Street Journal article reports that rents rose “faster last year than at any time since 2007, a boon for landlords but one that has stoked concerns about housing affordability for renters.”

The article also cited results from a recent Reis Inc. report which revealed that average effective rents rose 4.6% in 2015, the biggest gain since before the recession. Over the past 15 years, rents have risen at a rate of 2.7% annually. 

Where are rents headed?

Jonathan Smoke, Chief Economist at realtor.com recently warned that:

“Low rental vacancies and a lack of new rental construction are pushing up rents, and we expect that they’ll outpace home price appreciation in the year ahead.”  

Bottom Line

NAR’s Chief Economist, Lawrence Yun had this to say in the latest Existing Home Sales Report:

 “With rents steadily rising and average fixed rates well below 4 percent, qualified first-time buyers should be more active participants than what they are right now.”

One way to protect yourself from rising rents is to lock in your housing expense by buying a home. If you are ready and willing to buy, let’s meet up to determine if you are able to today!

 

Sales Up In Nearly Every Price Range

The National Association of Realtors’ most recent Existing Home Sales Report revealed that home sales were up rather dramatically over last year in five of the six price ranges they measure.

Only those homes priced under $100,000 showed a decline (-4.6%). The decline in this price range points to the lower inventory of distressed properties available for sale and speaks to the strength of the market.

Every other category showed a minimum increase of at least 4.6%, with sales in the $250,000- $500,000 range up 15.2%!

Here is the breakdown:

Percent Change in Sales by Price Range | Simplifying The Market

What does that mean to you if you are selling?

Houses are definitely selling. If your house has been on the market for any length of time and has not yet sold, let’s meet up to see if it is priced appropriately to compete in today’s market.

Mortgage Rates Remain at Historic Lows

The latest report from Freddie Mac shows that the 30-year fixed-rate mortgage averaged 3.61% last week, slightly down from the week before (3.66%), and nearly 20 points lower than a year ago (3.80%).

This is great news for homebuyers who are dealing with rising prices due to a low inventory of homes for sale in many areas of the country. Freddie Mac expressed their optimism for the rates to remain low throughout the spring in a recent blog post:

“We expect mortgage interest rates to stay well under 4% as we head into the heart of the spring homebuying season. We’re predicting it to be the best one in 10 years, which should provide even greater opportunities for first-time homebuyers.”

Below is a chart of the weekly average rates in 2016, according to Freddie Mac.

Mortgage Rates Remain at Historic Lows | Simplifying The Market

Rates have again fallen to historic lows yet many experts still expect them to increase in 2016. One thing we know for sure is that, according to Freddie Mac, current rates are the best they have been since last April.

Sean Becketti, Chief Economist for Freddie Mac recently explained:

“Since the start of February, mortgage rates have varied within a narrow range providing an extended period for house hunters to take advantage of historically low rates.”

Bottom Line

If you are thinking of buying your first home or moving up to your ultimate dream home, now is a great time to get a sensational rate on your mortgage.

Protecting Your Credit During Divorce

We have all heard the statistics: nearly 50% of all U.S. marriages end in divorce.

During this time of upheaval, one thing that shouldn’t have to change is the credit status you’ve worked so hard to achieve. Unfortunately, for many, the experience is the exact opposite. Unfulfilled promises to pay bills and a breakdown in communication can lead to unwanted credit issues. These issues may affect your ability to refinance your current loan or purchase a new home.

The good news is it doesn’t have to be this way. By taking a proactive approach and creating a specific plan to maintain and protect your credit during divorce, you can ensure that “starting over” doesn’t have to also mean rebuilding credit. The first step is to obtain a valid copy of your credit report.

Once you’ve gathered the facts, it’s time to make a plan:

  1. Can you purchase a new home now or will you have to wait until everything is finalized?
  2. Can you refinance the house to pay off your spouse and consolidate debt?

These are some of the questions that we can assist you with. Divorce is difficult for everyone involved. By having professional advice, both legal and financial, you can ensure that your credit remains intact.

Why People Hate Their Mortgage and Why You Shouldn’t

Many people hate their mortgage because they know over the life of a 30 year loan they will spend more in interest than the house cost them in the first place. To save money it becomes very tempting to make a bigger down payment, or make extra principal payments. Unfortunately, saving money is not the same as making money. Or, put another way, paying off debt is not the same as accumulating assets. By tackling the mortgage payoff first, and the savings goal second, many fail to consider the important role a mortgage plays in our savings effort. Every dollar we give the bank is a dollar we did not invest. While paying off the mortgage saves us interest, it denies us the opportunity to earn interest with that money. Consider this investment: Every dollar you invest is inaccessible. Every dollar you invest has the potential to increase your federal and state tax bills. Every dollar you invest is guaranteed to earn a very low rate of return for the next 30 years. Every dollar you invest makes the investment less safe. Not too many of us would jump at the chance to make this investment, yet millions do every year by pre-paying their tax-deductible 30 year mortgage loan. Remember, the only way to get your equity out is to borrow it back on the bank’s terms, at some unknown rate in the future or, worse yet, sell the house. By pre-paying your tax deductible mortgage you increase your tax bill each year as you have less interest to deduct. The after-tax rate on a 30 year fixed mortgage is often much lower than many conservative investments. The more equity you build up in your home the more risk you take. If you had a disability or job loss, and had to stop making payments on a 100k loan on a 400k home, the bank could still foreclose and you would be out 300k. If you stopped making payments on a 350k loan you would be out only 50k. The same holds true if the home is underinsured or their is a natural disaster, like a flood, that the house is not insured for at all. Most of us think that the more equity we have in our house the safer we are. The truth is that the more savings we have, not equity, the safer we are. Before paying down your tax-deductible mortgage, make sure you have the following financial milestones accomplished:

  1. Cash Cushion – Build and maintain a cash cushion with 3 to 6 months of liquid living expenses.
  2. Protection – Establish appropriate levels of disability and life insurance.
  3. ‘Non Preferred’ Debt Free – Pay off all non-tax-deductible debt (credit cards, installment loans, etc).
  4. Retirement and College – Plans fully funded.

It is important to realize our financial goals in the correct order. Paying off your mortgage is a great goal. However, it should not be your first, or only, financial goal.

The Cost of Waiting

Affordability declines quickly when rates and prices rise together. Consider the potential change in payments with a 10% price increase and a 2% increase in interest rates.

These hypothetical examples are illustrations for educational purposes only and are not an offer to lend nor a Good Faith Estimate. Examples are for a $250,000 home that rose to $275,000 with a rate increase from 4.50%/4.762% APR to 6.50%/6.95% APR on a zero point 30-year, fixed-rate loan with a 20% down payment, $4,000 in taxes and annual insurance of $580 for the “today” example and $638 for the “tomorrow” example. APRs are calculated using closing costs equal to 3% of the loan amount. Actual costs can be less, and actual rates are subject to change at any time. Qualification for any loan is dependent on individual circumstance and subject but not limited to employment/income, credit history and acceptable liquid assets to close.

First time home buyers currently have a historical advantage with both low rates and prices. What happens when the trend begins to shift?

You might not qualify to purchase the same house.

Unless your income keeps pace with price and/or rate increases, you may not be able to qualify for the same home you could purchase today. In the example above, the income to qualify increases from $4,038 per month to $5,127 (assuming a debt-to-income ratio of 35%). The 27% increase is much higher than the typical salary increase of about 2% or 3% per year.

In a rising market, you usually can’t out-save appreciation.

When prices are rising, it can be difficult for your savings to outpace the market. For example, if a $300,000 home appreciates by 5% in one year, that’s $15,000 or $1,250 per month. Can you add that amount to what you’re already saving each month?

If interest rates are rising, too, required payments and income increase even more.

Given the recent environment, some may discount the possibility of the 2% increase in the example above, but the 50-year average for a 30-year, fixed-rate conventional loan is approximately 8.375%. That’s almost 4% higher than rates at the time of this writing and would equate to a payment increase of more than $663 per month in the example.

Qualified borrowers have the ability to lock in today’s prices and rates. Buyers who have not yet accumulated a large down payment may find that using a small down payment and paying mortgage insurance is wiser than missing out on low prices and historically low rates.

We’re here to help when you’re ready to learn more!

Mortgages and Divorce

We have all heard the statistics: nearly 50% of all U.S. marriages end in divorce.

During this time of upheaval, one thing that shouldn’t have to change is the credit status you’ve worked so hard to achieve. Unfortunately, for many, the experience is the exact opposite. Unfulfilled promises to pay bills and a breakdown in communication can lead to unwanted credit issues. These issues may affect your ability to refinance your current loan or purchase a new home.

The good news is it doesn’t have to be this way. By taking a proactive approach and creating a specific plan to maintain and protect your credit during divorce, you can ensure that “starting over” doesn’t have to also mean rebuilding credit. The first step is to obtain a valid copy of your credit report.

Once you’ve gathered the facts, it’s time to make a plan:

  1. Can you purchase a new home now or will you have to wait until everything is finalized?
  2. Can you refinance the house to pay off your spouse and consolidate debt?
  3. Can you use child support or alimony to qualify for a new mortgage? How long do you have to wait?

These are some of the questions that we can assist you with. Divorce is difficult for everyone involved. By having professional advice, both legal and financial, you can ensure that your credit remains intact

How Does Refinancing Work?

A refinanced mortgage represents a brand new debt and must be underwritten accordingly. As with a home purchase, there are three basic areas where a borrower is evaluated:

  1. Credit Score
  2. Income and Employment History
  3. Appraisal (loan to value)

Types of Mortgage Refinance

Mortgage refinances come in three varieties — rate-and-term, cash-out, and cash-in. The refinance type that’s best for you will depend on your individual circumstance.

Rate-And-Term Refinance

In a rate-and-term refinance, the only terms of the new loan which differ from the original one are the mortgage rate, loan term, or both. For example, in a rate-and-term refinance, a homeowner may refinance from a 30-year fixed rate mortgage into a 15-year fixed rate mortgage; or, may refinance from a 30-year fixed rate mortgage at 5 percent mortgage rate to a new, 30-year fixed rate mortgage at 4 percent. With a rate-and-term refinance, a refinancing homeowner may not walk away from closing with more than $2,000 in cash.

Cash-Out Refinance

In a cash-out refinance, the new mortgage may also have a lower mortgage rate or shorter term as compared to the original home loan. However, the defining characteristic of a cash-out mortgage is that the loan amount of the new mortgage is increased to account for cash back at closing of more than $2,000 (or a second lien is paid off and consolidated into the new first mortgage). The money can be used for debt consolidation, home improvement, college education etc.

Cash-out mortgages represent more risk than a rate-and-term refinance and, therefore, carry more strict underwriting guidelines. Cash-out refinances will have limitations on loan to value and often require higher credit scores.

Cash-In Refinance

With a cash-in refinance, a refinancing homeowner brings cash to closing in order to pay down the loan balance. The refinanced mortgage may also have a lower mortgage rate, or a shorter loan term, or both. There are several reasons why homeowners opt to do a cash-in mortgage, but the most common reason is to get access to lower mortgage rates which are only available at lower loan-to-values. Cash may also be used to buy the loan down to the conventional loan limit (from a more expensive Jumbo loan), or to remove private mortgage insurance (PMI).