Archive for the ‘General’ Category

Study Shows Financial Benefits of Home Ownership – Part 3

May 8, 2018

Here is another conclusion from the homeownership study by Laurie S. Goodman and Christopher Mayer (https://www.urban.org/research/publication/homeownership-and-american-dream) – although homeownership carries risks, over time, homeownership correlates with strong wealth accumulation.  The wealth accumulation benefits show the strongest links to owners who maintain their homeownership during market fluctuations (page 53).  In my opinion, this is one of the strongest arguments for home ownership.

With every mortgage payment, the homeowner increases equity and wealth because each payment has a principal component.  If you want to keep your house, you must make your payments, and you grow your equity with each payment.  You grow your wealth by paying a bill.  This means that even folks with less financial discipline – who may not set aside money for “savings” – still build wealth with every mortgage payment.  So homeowners grow wealth first by making their regular payments.

 

Secondly, price appreciation also provides long-term wealth benefits.  The study notes that “Homes have generally appreciated in price over time,” (page 52).  So over time, the homeowner increases his / her ownership percentage of a generally appreciating asset.  Since we humans have to pay for a place to live, why not build wealth as you pay for housing as opposed to rent payments that are simply an expense?

The study also states that homeowners can increase their home’s value by making some improvements themselves.  The home owner’s “sweat equity” serves as yet another way to grow wealth through home ownership.

To wrap up, I’ll quote this statement, “There is little evidence of an alternative savings vehicle (other than a government-mandated program like Social Security) that would successfully encourage low-to-moderate income households to obtain substantial savings outside of owning a home” (page 43).  Like the regular Social Security contributions we make, mortgage payments serve like a “forced savings plan.”  Unlike Social Security, which is subject to the whims of politicians and bureaucratic calculations, homeowners own a specific asset which can appreciate and in which they can invest more.  What’s not to love?

As noted in the first paragraph, home owners must be able to hang on during market fluctuations.  Buying a home with a short-term horizon can decrease wealth.  We all endured a home price roller coaster from 2006 to 2013.  Although this period is fresh in our minds, remember that the only other time when we had home price swings of that magnitude was during the Great Depression.

In the next post, we will explore some other “pitfalls” of ownership, from a financial perspective.  For now, do you have a friend who expresses frustration about ever-increasing rent payments?  Ask them if they would like to increase their own net worth every month (instead of their landlord’s net worth).  Then refer them to me.  We at Dunwoody Mortgage will help them plan effectively for long-term ownership and wealth accumulation.  And we will take great care of them through the process.

 

Advertisements

Tools to Access Your Home’s Equity

January 11, 2018

Home owners often seek to use their home equity as a source of cash.  They can use this cash for renovations, paying off other high interest debt, funding college educations, etc.

Owners typically access their equity by either (1) paying off their current mortgage and obtaining a new, higher-balance mortgage using a “cash out” refinance or (2) obtaining a home equity line of credit (HELOC).  Each option has some pros and cons.  The new federal tax law somewhat changes the pro / con dynamic.

Under the 2017 tax law, mortgage interest paid on loan balances up to $750,000 remains deductible on your federal taxes.  However, the tax law eliminated the mortgage interest deduction on new home equity loans and lines of credit.  But note that this only affects home owners who itemize their taxes.  And with the doubling of the standard deduction under the new tax law, the number of households that itemize deductions is expected to drop from 34 million to 14 million.

So, if you are considering accessing your home equity, first think through whether this tax change will affect you.  If you are a single filer and your itemized deductions including mortgage interest would be less than $12,000, the interest deductibility will not affect your decision.  If you file jointly and your itemized deductions would be less than $24,000, interest deductibility will again not affect your decision.

Here is my list of benefits for each option:

Cash Out Refi:

·        You can obtain a fixed rate loan.  The monthly principal and interest payment will never change.  HELOC rates are variable and your payments will increase when market interest rates increase.

·        You can deduct all interest (on loan balances up to $750,000) as part of your federal tax calculations as described above.

·        You reduce your outstanding loan principal with every payment.  The monthly payments reduce your outstanding principal every month.  HELOC payments are interest only.  For people who don’t have the financial discipline to pay down HELOC balances, the cash out refi forces you to reduce the loan balance monthly.

HELOC:

·        You can access more of your home’s equity.  HELOC’s typically allow up to 85% loan balance (first mortgage plus HELOC) to home value or loan to value “LTV.”  Cash out refis only allow a maximum 80% LTV.

·        You pay less for the loan itself.  Closing costs are typically lower for a HELOC than for a mortgage.

·        You can pay less each month.  Required HELOC payments are interest only.  By not paying down part of the principal each month, your monthly payments will likely be lower with a HELOC versus a traditional  mortgage.   

Next post, we will cover some “rules of thumb” when choosing between a refi and a HELOC.  Own a home in Georgia and want to access some equity?  Give me a call at Dunwoody Mortgage and let’s review your options.  We can consider the advantages of each as we guide you to the best solution for your situation.

Happy Holidays

December 17, 2017
Happy Holidays!

Happy Holidays!

Home Ready Example Case

June 6, 2017

So let’s take a look at a scenario where the Home Ready program can really help a home buyer, let’s call him “John Doe.”  John’s mortgage credit score is 680.  John wants to buy a house priced at $200,000 and he only has about $10,000 in cash.  In addition to his down payment, he will need to use some cash for closing costs and prepaid escrow, so he can really only afford a 3% down payment.

With a standard conventional loan, John would pay a “premium” for a loan with only 3% down.  His monthly principal and interest payment would be around $985.  And his private mortgage insurance (“PMI”) would be expensive at an estimated $226 per month.  So with the standard conventional loan, John would be looking at a mortgage payment of around $1,200, before we add in the escrow payments for homeowner’s insurance and property taxes.

Now let’s assume that John qualifies for Fannie Mae’s Home Ready program.  John can therefore win approval for a 3% down conventional mortgage without having to pay the “premium price” for the low down payment.  He simply must take the $75 online class and pass the quiz at the end.  In this case, John’s monthly principal and interest payment would be around $940.  And John’s PMI would be an estimated $186 per month.  By taking the class and paying $75, John has used the Home Ready program to reduce his mortgage payment (before escrow) to about $1,126.  If John qualifies for the program, Home Ready will save him about $74 per month in this scenario.

Ultimately John will recoup his $75 online class investment in about one month.  That’s a pretty good return, in my opinion.

Now this is just one example using the assumptions provided, but it provides a realistic picture of how the Home Ready program works.  Do you want to buy a house in Georgia soon?  Do you have average to below average credit and not much money for a down payment?  If so, the Home Ready program might be a great way for you to buy that home you want.  Call me at Dunwoody Mortgage and we can review the Home Ready program and other options that could work for you.

Happy Holidays

December 17, 2016
Welcome to the Winter Wonderland. Happy Holidays!

Welcome to the Winter Wonderland. Happy Holidays!

Declining Asset Loan Option

May 16, 2016

Blog Header

In the last post, I commented on a situation where a retiree with over half a million dollars in a brokerage account could not count his $4,000 monthly withdrawals from that account as “income” for a mortgage qualification.

So here’s what he can do with his current assets….I represent an investor who will do a “declining asset” loan for this retiree.  (Not all lenders will do this type of loan.)  We start with his account balance and multiply by 70%.  This is to adjust the balance for potential stock and bond market fluctuations.  That gets him to $350,000.

Then to fit this amount into a 10 year monthly income forecast – I divide by 120 months.  That yields about $2,915 per month in available income.  And that is all the “income” I can use based on his assets.

Retirement Income

This retiree told me that he had been “prequalified” by another lender for the full $4,000 “income” that he withdraws every month.  I asked, “Did that lender ask you any questions about HOW you earn your income?”  His response was, “No.”

We at Dunwoody Mortgage are trained to ask important questions up front.  By digging in just a little bit, we might discover potential underwriting road blocks early in the process.  Then we can either determine a way to work through the road blocks or stop the process early, before the buyer and the Realtor waste a lot of time and the buyer’s money (for home inspections, appraisals, etc.) on starting the home purchase process when they cannot win underwriting approval.  His Realtor was very appreciative that I helped him avoid wasting a lot of time searching for houses that this retiree could not afford.

If you know a retiree who is thinking about buying a home in Georgia, tell them to carefully consider how their assets are allocated and how they receive their income.  Not all assets and income are treated equally.  Have them call or email me at Dunwoody Mortgage Service.  We will discuss their options and we can even help them coordinate with their financial planner if necessary.  I can help them structure the deal right the first time – without wasting their time on homes that they cannot buy using their current asset accounts.

blog_footer_RShaffer1

When You Can’t Use Assets as “Income”

May 9, 2016

Blog Header

I’ve been talking this week with Don (not his real name), a retiree from the Northeast who wants to move to Atlanta to be closer to family.  Don has over $500,000 in an investment account and takes out $4,000 every month for living expenses.

And I cannot count these previous monthly distributions as “income” for mortgage purposes.  Don holds his money in a standard brokerage account.  Lending guidelines will not allow use of historical withdrawals from that type of account as a basis for “income.”

Piggy Bank #2

If Don held these funds in a retirement account – an IRA or 401K account – then we might be able to use his historical distributions as a basis for income.  (More about that in a future post.)

Don has found a house that he really likes, but his allowable income will not support the mortgage payments.  I may have to recommend that he buy the house with cash.

If you know a retiree who is thinking about buying a home in Georgia, tell them to carefully consider how their assets are allocated and how they receive their income.  Not all assets and income are treated equally.  Have them call or email me at Dunwoody Mortgage Service.  We will discuss their options and we can even help them coordinate with their financial planner.  I can help them structure the deal right the first time – without wasting their time on homes that they cannot buy with using current asset accounts.

blog_footer_RShaffer1

VA Jumbo Loans

April 25, 2016

Blog Header

The VA program for jumbo loans is excellent.  A quick definition here – a jumbo loan in Georgia is defined as a loan with a principal amount of more than $417,000.

The first benefit is that you can get a VA jumbo loan with a lower down payment than a conventional jumbo loan.  The minimum down payment for a conventional jumbo is 10% of the total loan amount.  The minimum down payment for a VA jumbo is 5% of only the amount above the jumbo threshold of $417,000.

So if your veteran friend David wants to buy a house priced at $517,000, his minimum down payment options are (1) $51,700 for a conventional loan or (2) only $5,000 for a VA loan.

(Anybody else remember this catchy recruiting jingle from the early 1980’s?)

And veterans like David can get a VA jumbo loan with a credit score as low as 680.  Our minimum credit score for a conventional jumbo is 720.

Lastly, David can get a much lower interest rate on a VA jumbo – perhaps even ¾% lower than with a conventional loan.  Interest rates on VA jumbo loans are comparable to conventional non-jumbo mortgage rates.  So David will save a lot of money every month by obtaining a VA jumbo loan.

Note that VA jumbo loans still require paying the VA funding fee.  But even with the fee, VA jumbo mortgages are a great product – they make buying a house more affordable than most other jumbo loan alternatives.  If you are a veteran or if you know a veteran friend or family-member who wants to buy a high-priced home in Georgia, call or email me at Dunwoody Mortgage Services.  We can discuss loan options and help you obtain all the great VA loan benefits you have earned with your service.  We love serving military veterans.  Delivering great loans with excellent service is a small way that we can say “thank you” to those who have served.

blog_footer_RShaffer1

VA Loans Offer Low Interest Rates

April 18, 2016

Blog Header

If you have friends or family who are military veterans, it’s a great time to buy a house – from a mortgage perspective.  We have already reviewed how veterans can obtain loans with a low, or even no, down payment.

To make things better, interest rates are near their historic lows and VA rates are some of the best around.  Let’s do a quick comparison of a VA loan vs. a conventional loan.

A hypothetical situation here – Phil Soldier is an Army veteran.  He has an average credit score of 690 and plans to make a 10% down payment.  He can apply for a VA loan and obtain an interest rate of about ½% to ¾% lower than his rate for a similar conventional loan.  In addition to his lower interest rate, Phil does not have to pay a monthly mortgage insurance premium.  On a loan of around $250,000, Phil could easily save $150 more on his monthly payments.

Military Salute

Making a low down payment and having lower monthly payments sounds great to me!  What do you think?

We will take a look at VA jumbo loans in the next blog post.

VA mortgages are a great product – they make buying a house more affordable than any other program out there.  If you are a veteran or if you know a veteran friend or family member who wants to buy a home in Georgia, call or email me at Dunwoody Mortgage Service.  We will discuss loan options and help you obtain all the great VA loan benefits you have earned with your service.  We love serving military veterans.  Delivering great loans with excellent service is a small way that we can say “thank you” to those who have served.

blog_footer_RShaffer1

VA Loans – Low or No Down Payment

April 11, 2016

Blog Header

Military veterans who want to buy a home don’t have to spend years scraping together a down payment. That helps make home ownership possible for scores of veterans and military families who might otherwise not buy a home.

Veterans can actually get loans with no down payment.  All the veteran must do is pay a Funding Fee – and that fee can be rolled into the loan balance.  So a veteran with very little cash can still get a mortgage.

The Funding Fee is based on the type of service and whether the veteran has obtained a VA loan before.  For first time use, a regular military veteran will pay 2.15% for a zero down loan.  For the same loan, a reserves or national guard veteran would pay a 2.4% funding fee.

Color Guard

For veterans who have previously had a VA loan, the funding fee is 3.3% for both service levels.  Veterans can opt to pay a larger down payment to lower their funding fee amounts.

That is a great deal for veterans with a good job but not a lot of cash.  They don’t have to wait months or even years to scrape together a down payment.

In future blog posts, we will review other great aspects of the VA loan program.  For now, if you are a veteran or if you know a veteran friend or family member who wants to buy a home in Georgia, call or email me at Dunwoody Mortgage Service.  We will discuss loan options and help you obtain all the great VA loan benefits you have earned with your service.  We love serving military veterans.  Delivering great loans with excellent service is a small way that we can say “thank you” to those who have served.

blog_footer_RShaffer1