Assumptions are an Alternative
In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. The main reason there haven’t been many assumptions in the past 25 years is that interest rates have been steadily going down and if a person has to qualify, they might as well do it on a new loan and get a lower interest rate.
Based on projections by Fannie Mae, Freddie Mac, the MBA and NAR, rates for the second half of 2017 and 2018 are expected to be higher. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages in the recent past, it becomes more advantageous to assume the existing mortgages.
FHA and VA loans originated with lower than current interest rates have great advantages for buyers and sellers.
- Interest rate won’t change for the qualified buyer
- Lower interest rate means lower payments
- Lower closing costs than originating a new mortgage
- Easier to qualify for an assumption than a new loan
- Lower interest rate loans amortize faster than higher ones
- Equity grows faster because loan is further along the amortization schedule
- Assumable mortgage could make the home more marketable
An Assumption Comparison can help determine the savings and financial benefits of an assumable mortgage with a lower rate.
Family & Friends Mortgage
Anytime a lender and borrower can agree on rates and terms, it can be a good match but IRS has specific rules that govern the transaction especially when the parties are family or friends.
The loan must be done in a business-like manner with a written note specifying the loan amount, interest rate, term and collateral. IRS requires that the mortgage be a recorded lien to allow the interest deduction.
Sometimes, a friends and family situation might have a less than normal interest rate on the mortgage. However, the rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS based on current Treasury securities. For July 2017, the rate is 2.57% for terms over nine years.
The seller must report the interest paid to them along with the name, address and Social Security number on schedule B when the buyer uses the property as their principal residence. A mortgage between family and friends can be good for both parties. It may allow the borrower a slightly lower rate without the expenses of a traditional lender while giving the note holder a higher rate than they can earn in available investments.
Your tax professional can guide the transaction whether you’re a buyer or a seller and your real estate professional can help arrange to have the documents drawn and filed.
Down Payment Problem – Are You Sure?
There is increasing difficulty for first-time home buyers to save for their down payment as indicated in the graph. Several factors that contribute to this trend include rising rents, rising home prices, student loan debt and flat wages.
Some would-be buyers feel they cannot buy a home today but a large part of those decisions may be based on inaccurate assumptions.
Nine out of ten non-owners believe they need ten percent or more for a down payment. The typical down payment for first-time buyers is six percent. VA has 100% loan programs as well as USDA for certain qualifying areas and buyers. FHA is known for 3.5% down payments. And FNMA and Freddie Mac have down payments as low as 3% and 5%.
There are gift provisions available for buyers who have an “angel” who would like to help them with their down payment.
There are ways to borrow against a person’s qualified retirement program for a down payment. It isn’t necessarily limited to the buyer but could include a relative. Interestingly, a son or daughter can borrow against their retirement to benefit their parents.
In some respects, having good credit and sufficient income is more important than the down payment. Don’t rely on “common knowledge.” Get expert advice and counsel to see if there is a way to advance your dream of owning a home.
Don’t Have a CLUE? You Need A CLUE Report Now
If you haven’t heard of a CLUE report, it has nothing to do with the table game searching for a murderer. It is a report showing the insurance claims on your home and car for the past five to seven years.
This database is used by insurance companies to evaluate risks and determine rates. C.L.U.E. stands for Comprehensive Loss Underwriting Exchange. Rates can be increased not only due to legitimate claims but data entry errors also. Sometimes, simply asking a question without filing a claim can be logged as a claim.
For that reason, similar to verifying the accuracy of your credit report, it is important to check out the CLUE report on your home and car. The reports are free and there is a process for correcting mistakes.
An interesting and sometimes costly surprise occurs during the home buying process. The claim experience of the prior seller could impact the price of the premium of the new buyer. For that reason, you can ask for a copy of the CLUE report on the home you’re interested in buying prior to writing a contract.
Emergency Kit for the Car
Mickey Mantle said “If I knew I was going to live this long, I’d have taken better care of myself.”Similarly, if people planning their summer travel knew they were going to have an emergency, they would have the right things available. Only 5% of drivers carry an emergency kit in their cars.
The Federal Emergency Management Agency (FEMA) recommends that all Americans have some basic supplies on hand in order to survive for at least three days if an emergency occurs. Some of these things would be more important if you lived or traveled in remote areas.
- Reflective hazard triangle or road flares
- Spare tire
- Jumper cables
- First-aid kit
- Flashlight and extra batteries
- Cell phone and charger
- Crucial medications
- Emergency radio with batteries
- Bottled water for each person and pet in your car
- Non-perishable, high-calorie food
- Distress signal flag
- Matches or lighter
During cold weather, additional items are recommended:
- Windshield scraper and brush
- Blankets and extra warm clothing
- Road salt or cat litter to help with tire traction
- Tarp for working outside in weather
It is recommended that emergency supplies should be checked at least twice a year to see that all of the items are in working order and in good condition. It is important that items are replaced if any of them are used during the year.
The American Red Cross is among many sources where emergency preparedness kits and supplies can be purchased.
Hands-only CPR can save lives. The American Heart Association states that “Almost 90% of people who suffer out-of-hospital cardiac arrests die. CPR, especially if performed in the first few minutes of cardiac arrest, can double or triple a person’s chance of survival.” Most people who survive a cardiac emergency are helped by a bystander.
- Check for responsiveness – shake the person and shout “Are you OK?”
- Call 9-1-1 – either tell someone to call or make the call yourself
- Compress – Push hard and fast in the center of the chest at a rate of 100 per minute.
The victim should be flat on their back preferably on the floor. Place the heel of one hand on the center of the victim’s chest and place the heel on top of the other hand lacing your fingers together. Lock your elbows and compress the chest forcefully; make sure you lift enough to let the chest recoil.
Chest compressions should be continued until the person shows obvious life-like breathing, the scene becomes unsafe, an AED (automatic external defibrillator) becomes available, or a trained responder takes over the emergency treatment.
Alternating mouth-to-mouth breaths is not necessary using this method. Compressions are adequate except in drowning or drug overdose situations where 30 chest compressions are followed by two mouth-to-mouth breaths.
Must Be This Tall to Ride
Surely, you remember being a child at an amusement park when after having stood in line with your friends and family, waiting to get on a terrific ride, you discovered the sign that read, “you must be this tall to ride.”Not only was it disappointing, it was slightly embarrassing. You never want to go through that again.A remarkably similar situation occurs when people are buying a home. After finding the right home and negotiating the contract, they find out that they’re not measuring up financially. It’s not something that anyone wants to go through if they have a choice.
Regardless of what you think you know, if you’re buying a home with a loan, you need to physically visit with a trusted mortgage professional before you get serious.
- You’ll find out your credit score which will directly affect the mortgage rate you’ll pay.
- You might discover blemishes on your credit that possibly can be corrected.
- You’ll even get a pre-approval letter that you can submit with an offer which could dramatically affect your negotiations in the current competitive market.
Some rides don’t turn out to be as good as you thought they were going to be. A person certainly doesn’t want that disappointment with a lender. Contact me for a recommendation of trusted mortgage professional.http://www.thehaskellteam.com/
Would-be Buyers with Student Loan Debt
59% of non-owners are not comfortable taking on a mortgage with their student debt according to the Aspiring Home Buyers 2017 survey. It is estimated that the college graduates have an average of $37,172 in student debt.
Fannie Mae, who has loan programs with as little as three to five percent down payments, has announced changes to how student loan debt is treated that could make the difference in qualifying for a mortgage.
For the 5 million borrowers who participate in the reduced payment plans, actual payments are considered for calculating debt-to-income ratio rather than maximum payment amount.
Non-mortgage debts paid by another party for at least 12 months won’t be included in calculating debt-to-income ratio. For example, payments being made on a student loan by the parents would not be counted against the DTI ratio for the student.
These changes can make it possible for would-be buyers with student debt to get a home now instead of waiting for years. Being pre-approved by a trusted mortgage professional is the best way to confirm that these changes apply to your situation. Call today for a recommendation of a trusted mortgage professional.
Good Info – Good Decisions
While low inventory is certainly challenging buyers, not having a clear understanding of mortgage financing is also causing issues. By having good information, they are able to make better decisions as well as compete favorably.
Most buyers don’t realize how the mortgage rate is determined for a borrower. While annual income is important, a good credit score, low debt-to-income ratio, loan-to-value ratio and ability to repay the loan are vital concerns.
A variety of myths seem to permeate the market such as rates are set and released once a day; FHA loans are for first-time buyers only; pre-qualification commits the lender; lender fees are not negotiable and adjustable rate mortgages always go up.
Misunderstanding of actual mortgage practices may be a contributing factor to why more buyers are not taking advantage of what are still historically low mortgage rates.
While getting solid information about mortgages and being pre-approved from a lender are very important, it is only one step in the home buying process. Success in buying a home in today’s market should begin with a real estate professional who will coordinate all the different parts of the transaction including mortgage, title, insurance, inspections.
Reasons to Refinance
Regardless of the reason to refinance a home, the basic question to ask is: “Do you plan to live in the home long enough to recapture the cost of refinancing?” There are always expenses involved in refinancing which can be paid in cash or rolled into the new mortgage.
From a strictly financial standpoint, the break-even point is achieved when the cost of refinancing has been recaptured by the monthly savings. It would take approximately 23 months to recapture $4,000 of refinance costs with a lower payment of $175 a month.
- Lower the rate
- Shorten the term so that the loan will build equity faster and be paid off sooner.
- Lower your payment to reduce your monthly cost of housing.
- Convert an ARM to a FRM to stabilize your payment due to concern of rising interest rates.
- Cash out equity to be able to use the money for another purpose.
- Combine a first and second mortgage.
- Consolidate personal debt so the interest is tax deductible.
- Payoff higher cost debt such as credit cards, student debt, etc.
- Remove a person from a loan as in the case of a divorce.
Points paid to purchase a principal residence are tax deductible completely in the year paid. However, the points must be spread over the life of the mortgage on a refinance. For that reason, consider getting a “par” value loan with no points. It may have a slightly higher rate but the interest will be fully deductible and it will lower the cost of refinancing.
Determine the break-even point on your situation by using the Refinance Analysis . Call for a recommendation of a trusted mortgage professional.