Archive for October, 2019

Changes to the VA Funding Fee

October 31, 2019

There are a few certainties in life… death, taxes, leaves changing colors in the fall, and loan guidelines changing. Well, we have some new changes with VA loans pertaining to the funding fee. 

Currently the VA funding fee is as follows:
– 2.15% of the loan amount for first time usage and 3.3% subsequent use when making less than a 5% down payment. 
– 1.5% of the loan amount for first time usage and subsequent use when making a 5% down payment. 
– 1.25% of the loan amount for first time usage and subsequent use when making a 10% (or larger) down payment. 

The funding fees are slightly higher if the buyer is part of Reserves/National Guard vs being part of the regular military. 

Beginning in November the fees change to:
– 2.3% for first time use and 3.6% for subsequent use when making less than a 5% down payment. 
– 1.65% fee when making a 5% down payment
– 1.4% fee when making a 10% down payment. 

Some notes on this:
1. The increase is roughly 0.15 across the board. 
2. There are still funding fee exemptions for disabled veterans. 
3. There is now no difference between being in the regular military, reserves or national guard. 

Now I know a thought that may be going through the reader’s mind… the funding fee is going up. What is a funding fee?… great question!

VA loans do not have a monthly mortgage insurance payment. They do have an up front premium for obtaining the loan (similar to FHA loans). VA loans still do not have monthly mortgage insurance payments, the the funding fee (required on all VA loans unless the borrower is considered disabled) is going up. 

Are you a veteran living in Georgia looking to buy a home? Never considered using your VA eligibility? Maybe it makes sense. Maybe it doesn’t.  To find out, contact me today. There’s only one way you’ll know which loan program makes the most sense for you – asking the question. 

Is It Time to Refinance An FHA Mortgage?

October 11, 2019

As discussed previously, using an FHA loan to buy a home makes sense for home buyers with relatively low credit scores and limited down payment funds. FHA loans offer very attractive pricing for these home buyers.

Interest rates have now fallen to their lowest level in three years, so it may be time for current FHA mortgage holders to consider a conventional mortgage refinance. The interest rate savings may not be huge, but changing from FHA mortgage insurance to private mortgage insurance could bring significant financial benefits.

I’m working with a couple now (we’ll call them Jack and Diane) who bought their home in 2017.  At that time, their qualifying credit score was in the mid-600’s and they had just enough cash for the FHA minimum down payment.  This was an ideal scenario for an FHA mortgage.

Fast forward to 2019 – their credit scores have increased and home appreciation in their neighborhood has given them more equity.  A conventional loan now makes sense for their updated situation.  They can refinance to a new interest rate that is just 0.25% less than their current rate.  Normally such a small monthly savings, by itself, does not justify the cost of refinancing.

In addition to the interest rate savings, they will also save money every month with lower mortgage insurance payments.  Switching from their FHA loan to a conventional loan will lower the mortgage insurance monthly premiums by about $120.  Their total monthly savings equal $160, and their refinance has a break-even point of just over two years.  Considering the interest rate savings plus the mortgage insurance savings makes their refinance worthwhile.

An added benefit is that their new private mortgage insurance will cancel in a few years (unlike the FHA insurance which is permanent), increasing their monthly savings to about $200. So, Jack and Diane will realize this bonus savings in just a few years.

Ultimately, home buyers who used an FHA loan two or three years ago may reap big rewards from a conventional refinance now, assuming their property value has increased.

Ron moved into your neighborhood in the last three years or so. At the neighborhood Halloween party, ask Ron if he has heard of an FHA mortgage. If he replies, “Yes, that’s the type of loan I have,” ask him if he would like to lower his monthly payment.  Then connect Ron with me.  We will quickly determine whether moving to a conventional mortgage can help Ron financially.

Home equity reaches all time high

October 8, 2019

The amount of equity in US homes now exceeds the levels seen before the housing crash. Available equity in the US is just over $6 trillion, which is 25% higher than the peaks seen during the housing boom.

Black Knight Inc uses data and analytics to provide forecasts for the mortgage and real estate industries. Their surveys indicate just over half of home owners have rates at 0.750% or higher than current rates. The average home owner has $140,000 in equity in their homes.

Meaning… homeowners have enough equity to avoid PMI (or get rid of PMI if currently on their loan) and lower their monthly payment by moving to a better interest rate.

With rates at yearly lows, and lots of equity in homes, it is the right environment for a refinance. So… should you refinance?

The main question I ask clients is “how much longer do you plan to remain in the home?”

  • If the homeowner is looking to move in the near future, then it rarely makes sense to refinance.
  • If the monthly savings begins to exceed $100 per month and a break-even point is around 2-3 years, then a refinances begins to make more sense.

Another question I get is “when should I consider refinancing?” It is a great question, and my answer is simple… if the current interest rate is 0.500% or higher than your rate, then at least have a conversation.

Own a home in Georgia and your interest rate is at or over 4.500%? Wondering if now is a good time to refinance? Contact me today. In just a few minutes, we’ll put together some numbers to see if a refinance could make sense. A credit pull isn’t required for this conversation.

Mortgage rates are as low as they’ve been in a couple of years. There is more equity than ever in US homes. If you are planning on remaining in your home for 2+ years, now may be a great time for a refinance.