A friend asked me the other day, “When should I refinance?” That is a question that I hear quite frequently and as a lender it really is not a simple answer. The best answer that I can give is know your lender and talk thoroughly about your situation.
There are several questions to ask yourself; the first one being “How long do I/we plan to be in this house?” If you intend to move, and sell your home, in 2-3 years then refinancing is not a good idea. If you intend to move, but want to keep this property as an investment and convert it to a rental property then you should still consider refinancing.
The second question is does it make sense financially? Many people tell me that it doesn’t make sense to refinance because they can’t lower their rate by 2%. You aren’t looking at how much you drop your rate, but how quickly you can recover the investment. About two years is the amount of time is should take to recover the cost of a refinance by what you save each month. If it takes longer than that, then ask yourself honestly, “How long will I be in my home?” If you intend to live there until you die, a refinance makes much more sense.
Are you currently paying mortgage insurance? Mortgage Insurance (PMI) occurs whenever you borrower more than 80% of the value of your home. If you bought a home for $200,000 and put $20,000 down, then you started with a 90% loan to value ratio. Once you pay down the principal balance to 78-80% of the original sales price (or appraised value whichever is lower) the Mortgage Insurance will automatically be removed from your payment. Let’s assume that your current balance is about $168,000 that would put you at an 84% loan to value. Even in today’s economy, it may be possible for you to get an appraisal on your home of $210,000. That would mean that if you refinanced and paid your closing costs, you could eliminate the PMI. Eliminating the PMI may make it worthwhile; even at the same rate. Appraisals are a huge part of the refinance transaction in today’s market. Most homes (at least in Knoxville) are worth more today than what someone paid for them 5 years ago. How much more depends on the neighborhood and the condition of the home.
What is the rate that makes sense for your situation? Available rates cover a wide range based on cost and credit score. For instance, Conventional 30 year rates are available today from 4.25% to 6%. Trust me, no one comes into my office and says, “I want the 6% rate.” The truth of the matter is that it costs money to borrow money and the lower your rate, the more you pay in fees. If it costs you .005% to drop your rate .125% it probably is not worth it unless you intend to stay in the property for over five years. On a $100,000 loan, dropping your rate from 4.75% to 4.625% saves you $7.50 per month. If it costs you half a point (.005%) to get the lower rate that is $500 in fees. If you divide $500 by $7.50 per month savings, it takes you over 5 years (66 months) to recover the cost of the lower rate. If you move in 5 years, you actually lost money.
When should I refinance is a personal question that deals with many options and decisions that you as an individual (or family) need to sit and discuss with your lender. Your lender should take the time to show you options and discuss whether or not it makes sense to you to refinance. My door is always open if I can help you work through your questions.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Friday, June 18, 2010
Saturday, May 22, 2010
What About Second Homes?
I want to buy a second home in a couple of years; what can I expect about financing? Several customers lately have talked to me about buying a second home. Now may be the best time to take the plunge.
The housing market for second homes is wide open and rates are fantastic. Markets at the beach and in the mountains (Gatlinburg, TN) have great opportunities for buyers to get into the market at a reduced price. Over the last several years, marginal buyers have been encouraged to enter the second home market in resort areas; being promised by real estate management firms that these properties would cash flow themselves. This may not have been unrealistic when buyers bought into the market, but during the summer of 2008 we saw gas prices at $4.50 per gallon.
This rise in travel costs had the affect of creating an oversupply of rental properties in resort areas. Marginal buyers, those who had to have the rental income to afford the payments, couldn’t survive a slight downturn in the market. As high gas prices turned into a “downturn” in the economy these marginal buyers could not afford to keep up with the payments. This accounts for high foreclosure rates in these resort areas. That high foreclosure rate creates opportunities for new buyers in the marketplace.
For the moment, second home financing is being treated like a primary residence for the most part. Rates are still very attractive and borrowers can get into the market with low down payments. So if you, or someone you know, have thought about getting a second home, now is the time to discuss it with your lender.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
The housing market for second homes is wide open and rates are fantastic. Markets at the beach and in the mountains (Gatlinburg, TN) have great opportunities for buyers to get into the market at a reduced price. Over the last several years, marginal buyers have been encouraged to enter the second home market in resort areas; being promised by real estate management firms that these properties would cash flow themselves. This may not have been unrealistic when buyers bought into the market, but during the summer of 2008 we saw gas prices at $4.50 per gallon.
This rise in travel costs had the affect of creating an oversupply of rental properties in resort areas. Marginal buyers, those who had to have the rental income to afford the payments, couldn’t survive a slight downturn in the market. As high gas prices turned into a “downturn” in the economy these marginal buyers could not afford to keep up with the payments. This accounts for high foreclosure rates in these resort areas. That high foreclosure rate creates opportunities for new buyers in the marketplace.
For the moment, second home financing is being treated like a primary residence for the most part. Rates are still very attractive and borrowers can get into the market with low down payments. So if you, or someone you know, have thought about getting a second home, now is the time to discuss it with your lender.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Saturday, May 8, 2010
Separations Can Kill a Couple's Credit
A friend of mine just separated from her husband. I ran into her and she asked me what she could do if the house went into foreclosure. I wish this was not a common occurrence, but unfortunately it happens very often.
How does it start? When she moved out, the mortgage was paid up and on time every month. She moved out because he has not been trying to find work. Without any income and her second income, he will not be able to make the payments. The divorce will take several months if not contested and if late payments begin they will affect her credit also. They are both on the home loan; both could have their credit ruined for many years.
Somewhere in the separation process, couples need to realize that the credit will have to be separated also. She must get off the joint home loan and he cannot afford the payment by himself. The only way out of this is they must realize the house will have to be sold. Somewhere in the legal process of divorce, financial planning needs to be required. Two people separated cannot maintain the lifestyle that they had as a couple. Very often they cannot separate the debt, because neither qualifies for everything they have now by themselves.
If you are going through a divorce, call to find out more about your financial options and to begin planning for recovery. (865) 742-3384
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
How does it start? When she moved out, the mortgage was paid up and on time every month. She moved out because he has not been trying to find work. Without any income and her second income, he will not be able to make the payments. The divorce will take several months if not contested and if late payments begin they will affect her credit also. They are both on the home loan; both could have their credit ruined for many years.
Somewhere in the separation process, couples need to realize that the credit will have to be separated also. She must get off the joint home loan and he cannot afford the payment by himself. The only way out of this is they must realize the house will have to be sold. Somewhere in the legal process of divorce, financial planning needs to be required. Two people separated cannot maintain the lifestyle that they had as a couple. Very often they cannot separate the debt, because neither qualifies for everything they have now by themselves.
If you are going through a divorce, call to find out more about your financial options and to begin planning for recovery. (865) 742-3384
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Tuesday, April 27, 2010
Can Zoning Affect Your Property Value?
I got a letter from the County Assessor’s office stating that my zoning was changing to C-3; will this affect my loan? This actually occurs quite often as counties and municipalities develop growth plans and try to reduce “spot” zoning requests. This should not affect your current home loan; but could affect you in the future.
As an area becomes more commercial, a planning office will usually recommend a change of zoning in an area to reflect anticipated future development. Let’s assume that 20 years ago you bought a house outside the city limit, but on a major thoroughfare. As the city expands, more and more parcels around you sell and request a change of zoning from agricultural or residential to commercial. Rather than continue to deal with individual requests, the governmental body will usually change the zoning of many properties to reflect the trend.
Exceptions to this would be neighborhoods that back up to the major road, but do not have access to individual lots from the main road. Many neighborhoods now enforce restrictive covenants that would prevent properties within the neighborhood from being used for anything but residential use. The county would usually accept this and not change the zoning of lots located within the neighborhood.
The one thing that you want make sure of is that you can “build back” your home in the event of a total loss. Some zoning changes will not allow you to get a building permit that is not compatible with the zoning. Obviously, commercial construction has much more rigid standards than residential requirements.
The second thing to consider is what occurs if you try to sell the property. Although your loan was in place before the zoning changed, a new lender will be looking at how the property is zoned. The appraiser for the lender is going to look at legal requirements (building back the property) and also at the current use of other properties around the subject property. If residential usage is still common with most parcels, you may be okay. When your property becomes an island in the midst of development; you will find it much harder to sell as a residence.
Commercial property usually carries a higher value and may actually increase the value of your property. The question arises: can your home be used by a business, or will it need to be removed and a new structure built in place. If you have to rebuild then the economics of removing the old structure will determine the ultimate value.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
As an area becomes more commercial, a planning office will usually recommend a change of zoning in an area to reflect anticipated future development. Let’s assume that 20 years ago you bought a house outside the city limit, but on a major thoroughfare. As the city expands, more and more parcels around you sell and request a change of zoning from agricultural or residential to commercial. Rather than continue to deal with individual requests, the governmental body will usually change the zoning of many properties to reflect the trend.
Exceptions to this would be neighborhoods that back up to the major road, but do not have access to individual lots from the main road. Many neighborhoods now enforce restrictive covenants that would prevent properties within the neighborhood from being used for anything but residential use. The county would usually accept this and not change the zoning of lots located within the neighborhood.
The one thing that you want make sure of is that you can “build back” your home in the event of a total loss. Some zoning changes will not allow you to get a building permit that is not compatible with the zoning. Obviously, commercial construction has much more rigid standards than residential requirements.
The second thing to consider is what occurs if you try to sell the property. Although your loan was in place before the zoning changed, a new lender will be looking at how the property is zoned. The appraiser for the lender is going to look at legal requirements (building back the property) and also at the current use of other properties around the subject property. If residential usage is still common with most parcels, you may be okay. When your property becomes an island in the midst of development; you will find it much harder to sell as a residence.
Commercial property usually carries a higher value and may actually increase the value of your property. The question arises: can your home be used by a business, or will it need to be removed and a new structure built in place. If you have to rebuild then the economics of removing the old structure will determine the ultimate value.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Tuesday, March 30, 2010
What Are the Four C's of Loan Approval
My lender kept talking about the Four C’s of Lending. What does this mean and how does it affect my loan? Lenders don’t want to foreclose on a property. As Lender’s begin to consider a file for approval, they are looking at four areas of risk. Those four areas are Character, Capacity, Collateral, and Capital. So what do these Four C’s mean?
Character- What is the person’s willingness or desire to repay the loan. In today’s world, we look at a credit report to determine how the borrower has paid their accounts in the past, to predict how they will pay their debts in the future. Late payments, collections, repossessions, or even a bankruptcy make a lender have serious doubts about the borrowers intent to repay a new loan.
Capacity- Can the borrower afford to make the payments on the loan they desire? Employment history, income, debt to income ratios are all part of a borrower’s capacity to repay the loan. If someone wants a loan with monthly payments of $2,400 but only makes $2,300 a month they cannot afford the payment. Obviously, lender’s are not looking at whether you make at least more than the monthly payment you are requesting, but consider ratios that are in line with standards of living. Typically, a persons debt should not exceed 40%-45% of their total income. This allows them extra money for food, clothing, etc.
Collateral- What is the lender securing the debt against? The collateral, in our case a home, is the lender’s protection of the money they lend. In today’s market the value of a home has become a more integral part of the picture, since we have recently seen that housing prices can fall. East Tennessee has been fairly lucky with regard to home values, but states such as California, Arizona, and Florida have seen significant drops in home values. Home values become even more important if borrowers lose their jobs, the economy slows down, and foreclosures rise.
Capital- Cash is King. Lenders have always looked at cash reserves and down payments as compensating factors in loan approval. The more excess cash that a borrower has, the better ability for them to ride out the storm of a job lose or drop in income.
Now you know what lenders are referring to when they talk about the Four C’s of loan approval. If you know someone that is considering purchasing a home, send this blog to them. The more informed the borrower, the better their financing options become.
richard.swan@migonline.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Character- What is the person’s willingness or desire to repay the loan. In today’s world, we look at a credit report to determine how the borrower has paid their accounts in the past, to predict how they will pay their debts in the future. Late payments, collections, repossessions, or even a bankruptcy make a lender have serious doubts about the borrowers intent to repay a new loan.
Capacity- Can the borrower afford to make the payments on the loan they desire? Employment history, income, debt to income ratios are all part of a borrower’s capacity to repay the loan. If someone wants a loan with monthly payments of $2,400 but only makes $2,300 a month they cannot afford the payment. Obviously, lender’s are not looking at whether you make at least more than the monthly payment you are requesting, but consider ratios that are in line with standards of living. Typically, a persons debt should not exceed 40%-45% of their total income. This allows them extra money for food, clothing, etc.
Collateral- What is the lender securing the debt against? The collateral, in our case a home, is the lender’s protection of the money they lend. In today’s market the value of a home has become a more integral part of the picture, since we have recently seen that housing prices can fall. East Tennessee has been fairly lucky with regard to home values, but states such as California, Arizona, and Florida have seen significant drops in home values. Home values become even more important if borrowers lose their jobs, the economy slows down, and foreclosures rise.
Capital- Cash is King. Lenders have always looked at cash reserves and down payments as compensating factors in loan approval. The more excess cash that a borrower has, the better ability for them to ride out the storm of a job lose or drop in income.
Now you know what lenders are referring to when they talk about the Four C’s of loan approval. If you know someone that is considering purchasing a home, send this blog to them. The more informed the borrower, the better their financing options become.
richard.swan@migonline.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Wednesday, March 24, 2010
Private Mortgage Insurance: When Does It End?
When will the Private Mortgage Insurance (PMI) drop off of my home loan? A good friend of mine called me today to ask about a loan he had on a property in Florida. He financed the house with a 95% loan, but his value keeps dropping; probably below what he still owes for the house today. His question was, “At what point will my mortgage insurance drop off?”
Luckily for him, the mortgage insurance (MI) question really has to do with what you buy the home for, not what it is worth on the market today. PMI is an insurance policy to protect the lender should you default on your loan. If you were to quit making your payments and the house was foreclosed on, the MI Company would cover a certain percentage of the loss for the lender if they encountered trouble selling the property.
For you as the homeowner, once you pay down to 78% of the original purchase price (or appraised value whichever was lower at the time) then the mortgage insurance is required by federal law to drop off of your loan. In his case, he is paying about $280 per month in mortgage insurance. The MI will drop off when he pays about $3,000 additional to the principal on his loan. Since he has the cash available, it is better to pay $3,000 now on his loan, and eliminate the MI now, because that will save him $3,360 over the next 12 months.
If you have a question, send me an email: richard.swan@migonline.com and I will try to answer your question. Remember the First Time Homebuyer’s Tax Credit and the Long Time Homeowner’s Tax Credit end on April 30th. Make sure you have a contract to purchase by that time.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Luckily for him, the mortgage insurance (MI) question really has to do with what you buy the home for, not what it is worth on the market today. PMI is an insurance policy to protect the lender should you default on your loan. If you were to quit making your payments and the house was foreclosed on, the MI Company would cover a certain percentage of the loss for the lender if they encountered trouble selling the property.
For you as the homeowner, once you pay down to 78% of the original purchase price (or appraised value whichever was lower at the time) then the mortgage insurance is required by federal law to drop off of your loan. In his case, he is paying about $280 per month in mortgage insurance. The MI will drop off when he pays about $3,000 additional to the principal on his loan. Since he has the cash available, it is better to pay $3,000 now on his loan, and eliminate the MI now, because that will save him $3,360 over the next 12 months.
If you have a question, send me an email: richard.swan@migonline.com and I will try to answer your question. Remember the First Time Homebuyer’s Tax Credit and the Long Time Homeowner’s Tax Credit end on April 30th. Make sure you have a contract to purchase by that time.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Friday, March 19, 2010
What is a Credit Score?
I keep seeing all of these ads for free credit reports. What is a credit score?
Credit information is collected by three credit reporting agencies: Equifax, Experian, and Trans Union. From the information collected by these three reporting agencies, a score is generated, the purpose of which is to determine the likelihood that you as a borrower will repay a debt.
What affects your Credit Score and How Much?
1. Payment History (35%)
What is your history of paying the credit accounts that you have? That is one of the first things that a lender will want to know. If others have trusted you with credit in the past, did you pay them back? Your credit history will reflect this for all types of accounts (revolving, installment, retail store accounts, car loans, mortgage loans, and finance company accounts).
Delinquencies occur when your account is not paid on time. Always make sure that you make at least the minimum monthly payment on your account. Late payments are recorded in 30 day increments. If your payment is due on the 20th of the month, it should not be recorded delinquent before 30 days have passed after the due date. A recent 30 day late on your account will affect your credit more than a 60-90 day late from 5 years ago.
Bankruptcies, tax liens, child support, judgments, and collections can stay on your credit for 7-10 years. Deal with these as they occur and work diligently to make sure that the information the credit agencies have is accurate.
Once these types of derogatory credit have occurred, it is even more important to work to re-establish your credit. Many people stop borrowing money after a bankruptcy for fear that they will not be able to get a loan. Work to re-establish your credit early. Open secured credit card accounts through your bank or credit union. Take out small loans and repay them quickly so that this information is reported on your credit.
2. Amounts Owed (30%)
The total amount owed on all of your accounts can be a factor in your score, but more specifically the amount owed on revolving accounts relative to the account limit. Balances on credit card accounts should be less than 50% of the credit limit for each account. Accounts that show more than a 50% balance can reduce your credit score; worse if the balance is above 75% of the credit limit.
3. Length of Credit History (15%)
How long have your accounts been open and how long since you used certain accounts? Installment loans should be opened and paid off. Paying them off early reduces your total debt, but does not necessarily improve your credit. Credit cards should be used every 3-4 months; this keeps them reporting accurate information and current credit information. Credit Scores look at the age of your oldest account and also the average age of all of your accounts. Closing long established accounts can lower your credit score. Leave your accounts open unless you are having an issue with a particular creditor.
4. New Credit (10%)
Are you taking on too much to handle? Credit Scores gauge the amount and types of new credit that you have and also look at credit inquiries. Accounts with less than a 12 month history can have a derogatory effect on your credit. Individuals, who roll balances from established credit cards to new accounts continually, can lower their credit scores by lowering the average age of their accounts and by not showing at least a 12 month history on existing accounts.
5. Types of Credit (10%)
You credit should have a mix of different types of credit. Installment loans (cars, boats, etc.), revolving accounts (Visa, MasterCard, Discover, etc.), mortgages, store accounts (Sears, Target, etc.) all factor in to your total score. If you have a mix of these types of accounts, with a clean payment history, that shows a good use of credit.
How to contact the credit bureaus to dispute information on your credit report:
Disputing an account can actually keep you from closing on a loan (at least with mortgages it can). People ask why, I don’t owe them anything? The lender doesn’t know what the outcome of the dispute will be. It could be that you owe more and they establish $200 to $300 per month as a payment. It could become a judgment that would be placed against your home. Disputes represent an unknown result. Be diligent when filing a dispute to resolve it quickly and make sure it gets report correctly to the three main bureaus.
Equifax: (800) 685-1111, www.equifax.com
Experian: (888) 397-3742, www.experian.com
TransUnion: (800) 888-4213, www.transunion.com
Remember that they report accurate information. Just because you say a debt is paid, doesn’t mean they will remove it from your credit file. It is important to report life events to the credit bureaus to make sure that information is reported accurately. Bankruptcies, divorces, child support, and tax liens often create situations where mistaken information is reported to the credit agencies. When you go through a bankruptcy, make sure that all of the accounts included were listed correctly on your credit. Tax liens almost always get reported delinquent, but rarely get changed to show them paid. This is your credit; make sure you monitor it yourself.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Credit information is collected by three credit reporting agencies: Equifax, Experian, and Trans Union. From the information collected by these three reporting agencies, a score is generated, the purpose of which is to determine the likelihood that you as a borrower will repay a debt.
What affects your Credit Score and How Much?
1. Payment History (35%)
What is your history of paying the credit accounts that you have? That is one of the first things that a lender will want to know. If others have trusted you with credit in the past, did you pay them back? Your credit history will reflect this for all types of accounts (revolving, installment, retail store accounts, car loans, mortgage loans, and finance company accounts).
Delinquencies occur when your account is not paid on time. Always make sure that you make at least the minimum monthly payment on your account. Late payments are recorded in 30 day increments. If your payment is due on the 20th of the month, it should not be recorded delinquent before 30 days have passed after the due date. A recent 30 day late on your account will affect your credit more than a 60-90 day late from 5 years ago.
Bankruptcies, tax liens, child support, judgments, and collections can stay on your credit for 7-10 years. Deal with these as they occur and work diligently to make sure that the information the credit agencies have is accurate.
Once these types of derogatory credit have occurred, it is even more important to work to re-establish your credit. Many people stop borrowing money after a bankruptcy for fear that they will not be able to get a loan. Work to re-establish your credit early. Open secured credit card accounts through your bank or credit union. Take out small loans and repay them quickly so that this information is reported on your credit.
2. Amounts Owed (30%)
The total amount owed on all of your accounts can be a factor in your score, but more specifically the amount owed on revolving accounts relative to the account limit. Balances on credit card accounts should be less than 50% of the credit limit for each account. Accounts that show more than a 50% balance can reduce your credit score; worse if the balance is above 75% of the credit limit.
3. Length of Credit History (15%)
How long have your accounts been open and how long since you used certain accounts? Installment loans should be opened and paid off. Paying them off early reduces your total debt, but does not necessarily improve your credit. Credit cards should be used every 3-4 months; this keeps them reporting accurate information and current credit information. Credit Scores look at the age of your oldest account and also the average age of all of your accounts. Closing long established accounts can lower your credit score. Leave your accounts open unless you are having an issue with a particular creditor.
4. New Credit (10%)
Are you taking on too much to handle? Credit Scores gauge the amount and types of new credit that you have and also look at credit inquiries. Accounts with less than a 12 month history can have a derogatory effect on your credit. Individuals, who roll balances from established credit cards to new accounts continually, can lower their credit scores by lowering the average age of their accounts and by not showing at least a 12 month history on existing accounts.
5. Types of Credit (10%)
You credit should have a mix of different types of credit. Installment loans (cars, boats, etc.), revolving accounts (Visa, MasterCard, Discover, etc.), mortgages, store accounts (Sears, Target, etc.) all factor in to your total score. If you have a mix of these types of accounts, with a clean payment history, that shows a good use of credit.
How to contact the credit bureaus to dispute information on your credit report:
Disputing an account can actually keep you from closing on a loan (at least with mortgages it can). People ask why, I don’t owe them anything? The lender doesn’t know what the outcome of the dispute will be. It could be that you owe more and they establish $200 to $300 per month as a payment. It could become a judgment that would be placed against your home. Disputes represent an unknown result. Be diligent when filing a dispute to resolve it quickly and make sure it gets report correctly to the three main bureaus.
Equifax: (800) 685-1111, www.equifax.com
Experian: (888) 397-3742, www.experian.com
TransUnion: (800) 888-4213, www.transunion.com
Remember that they report accurate information. Just because you say a debt is paid, doesn’t mean they will remove it from your credit file. It is important to report life events to the credit bureaus to make sure that information is reported accurately. Bankruptcies, divorces, child support, and tax liens often create situations where mistaken information is reported to the credit agencies. When you go through a bankruptcy, make sure that all of the accounts included were listed correctly on your credit. Tax liens almost always get reported delinquent, but rarely get changed to show them paid. This is your credit; make sure you monitor it yourself.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Monday, March 8, 2010
Thinking About a Second Home?
We would like to buy a cabin, but our neighbor said it was very hard to get financing; what are our options? Second homes are generally treated the same as your primary residence. You can finance them with a low down payment, and the rates and closing costs are reasonable. The biggest hurdle is proving that the property will actually be a second home.
Second homes are considered vacation homes and you must prove it will not be a rental property. Typically, it must be at least 50 miles from your primary residence, and located in a resort type area. A mountain cabin or lake home would be a good example of a second home. In some cases, you may be able to claim a second home less than 50 miles away, if you meet this “resort” designation.
The second requirement deals with any lease or other agreement that you have regarding the property. If you have a lease that prevents you from access to your home, then it may require that you treat the home as an investment (rental) property instead of a second home. Typically, investment property requires a 20-25% down payment and would have higher closing costs, or a higher rate.
You can rent the property, but cannot have an agreement with a rental company that gives them exclusive rights to the property and prohibits you access.
Take the time to understand the loan guidelines and make sure that you are upfront with your intent. In most cases, mortgage fraud is a felony; not just for the lender, but for you as an individual.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Second homes are considered vacation homes and you must prove it will not be a rental property. Typically, it must be at least 50 miles from your primary residence, and located in a resort type area. A mountain cabin or lake home would be a good example of a second home. In some cases, you may be able to claim a second home less than 50 miles away, if you meet this “resort” designation.
The second requirement deals with any lease or other agreement that you have regarding the property. If you have a lease that prevents you from access to your home, then it may require that you treat the home as an investment (rental) property instead of a second home. Typically, investment property requires a 20-25% down payment and would have higher closing costs, or a higher rate.
You can rent the property, but cannot have an agreement with a rental company that gives them exclusive rights to the property and prohibits you access.
Take the time to understand the loan guidelines and make sure that you are upfront with your intent. In most cases, mortgage fraud is a felony; not just for the lender, but for you as an individual.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Saturday, February 27, 2010
How Much Down Payment on a Home do You Need?
My friend did an 80/20 loan when she bought her house and didn’t have to put any money down, how can I get one of those? Two years ago in the mortgage lending world, there were many programs that allowed borrowers to max out the value of the property with low down payments. What lender’s found is that Real Estate, like any other investment, can be subject to fluctuations in value. If you loan someone 100% of the value of their property and that value drops, you could be left holding the bag.
Now, most lenders’ require some type of down payment, except for limited programs for Veteran’s and first time buyers. In most cases, you will need to have at least a modest (3.5%-5% down payment) in order to qualify to purchase a home. Credit scores have also become a more important part of the qualification process. If your credit score is below 680, you may need to put up to 20% down, unless the property will qualify for an FHA or First Time homebuyer’s program.
To find out all of your options, make sure that you are dealing with a mortgage banker. They will have access to more programs and be able to talk with you in detail about all of your options.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Now, most lenders’ require some type of down payment, except for limited programs for Veteran’s and first time buyers. In most cases, you will need to have at least a modest (3.5%-5% down payment) in order to qualify to purchase a home. Credit scores have also become a more important part of the qualification process. If your credit score is below 680, you may need to put up to 20% down, unless the property will qualify for an FHA or First Time homebuyer’s program.
To find out all of your options, make sure that you are dealing with a mortgage banker. They will have access to more programs and be able to talk with you in detail about all of your options.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Tuesday, February 23, 2010
Homebuyer's Tax Credit
http://knoxvilleneighbors.blogspot.com
What is all the information I keep hearing about a Homebuyer Tax Credit? Currently two tax credits exist for home buyers. They are filed through the IRS with your 2009 Taxes, or as an amended return.
The first is a tax credit for First Time Homebuyers. This credit allows you to receive up to 10% of the purchase price (up to $8,000) when you purchase a home. This blog is not designed to qualify you for the credit, but to give you basic information. You must not have owned a home that was your primary residence within the last 3 years. You cannot use the credit to buy a home from a close relative (parent, grandparent, spouse, or child), or when you inherit a home. You cannot use the tax credit if you are married, and your spouse has owned a home in the last three years. Your individual income cannot exceed $125,000 and joint returns cannot exceed $225,000. This really is a great deal for first time buyers.
The second credit is probably less understood and applies to Long Term Homeowners. It is available to homeowner’s who have lived in a house that is their principle residence for at least 5 of the last eight years. You do not have to own a home currently, but you cannot have been in the home for less than 5 years, or vacated the home more than 3 years ago. If it has been more than three years since you owned a home, you should qualify for the First Time Homebuyer’s Tax Credit above, subject to income limitations. The credit is up to $6,500 and like the first time buyers credit is refunded to you through the IRS.
To qualify for either credit, you must go ahead and purchase a home. The deadline to have a contract is April 30th 2010, and you must close within 60 days of the contract. After you have closed, you will use the HUD-1 Settlement Statement from your closing to file for the Tax Credit through the IRS. If you owe money to the IRS, that is going to be paid from any tax credit that is due to you.
Now is a great time to be looking as a buyer. Rates are low and inventory is available. If I can assist you with financing for your new home, don’t hesitate to contact me.
For more information on credit issues go to:
http://www.irs.gov/newsroom/article/0,,id=204671,00.html
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
What is all the information I keep hearing about a Homebuyer Tax Credit? Currently two tax credits exist for home buyers. They are filed through the IRS with your 2009 Taxes, or as an amended return.
The first is a tax credit for First Time Homebuyers. This credit allows you to receive up to 10% of the purchase price (up to $8,000) when you purchase a home. This blog is not designed to qualify you for the credit, but to give you basic information. You must not have owned a home that was your primary residence within the last 3 years. You cannot use the credit to buy a home from a close relative (parent, grandparent, spouse, or child), or when you inherit a home. You cannot use the tax credit if you are married, and your spouse has owned a home in the last three years. Your individual income cannot exceed $125,000 and joint returns cannot exceed $225,000. This really is a great deal for first time buyers.
The second credit is probably less understood and applies to Long Term Homeowners. It is available to homeowner’s who have lived in a house that is their principle residence for at least 5 of the last eight years. You do not have to own a home currently, but you cannot have been in the home for less than 5 years, or vacated the home more than 3 years ago. If it has been more than three years since you owned a home, you should qualify for the First Time Homebuyer’s Tax Credit above, subject to income limitations. The credit is up to $6,500 and like the first time buyers credit is refunded to you through the IRS.
To qualify for either credit, you must go ahead and purchase a home. The deadline to have a contract is April 30th 2010, and you must close within 60 days of the contract. After you have closed, you will use the HUD-1 Settlement Statement from your closing to file for the Tax Credit through the IRS. If you owe money to the IRS, that is going to be paid from any tax credit that is due to you.
Now is a great time to be looking as a buyer. Rates are low and inventory is available. If I can assist you with financing for your new home, don’t hesitate to contact me.
For more information on credit issues go to:
http://www.irs.gov/newsroom/article/0,,id=204671,00.html
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Monday, February 8, 2010
Helping Your Children Establish Credit
It is important that your kids establish and learn to manage their credit early. Credit scores affect the ability to get a loan, the cost of insurance, and can even be important in obtaining employment.
So, how do you help your child establish credit? One of the first things is to make them an authorized user on one or two of your credit cards. As an authorized user, that credit will begin to report in their name also. It is not necessary to give them a card, but giving them a card with a low limit can help them learn financial responsibility be giving them responsibility for coming up with the money to pay the bill.
Always make sure that the bill is paid on time, and don’t allow the card to be paid late to “teach” them a lesson. Allowing them to miss payments, will lower their credit and start them out on the wrong foot.
Be careful when co-signing for your children. In most cases, you will not receive the monthly statements and your attempt to help teach them financial responsibility, could actually hurt your credit. When you find out that they are in trouble, it may be too late. If your credit is affected also; it could take months or years to repair.
For more information on credit issues go to:
www.experian.com
www.transunion.com
www.equifax.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
So, how do you help your child establish credit? One of the first things is to make them an authorized user on one or two of your credit cards. As an authorized user, that credit will begin to report in their name also. It is not necessary to give them a card, but giving them a card with a low limit can help them learn financial responsibility be giving them responsibility for coming up with the money to pay the bill.
Always make sure that the bill is paid on time, and don’t allow the card to be paid late to “teach” them a lesson. Allowing them to miss payments, will lower their credit and start them out on the wrong foot.
Be careful when co-signing for your children. In most cases, you will not receive the monthly statements and your attempt to help teach them financial responsibility, could actually hurt your credit. When you find out that they are in trouble, it may be too late. If your credit is affected also; it could take months or years to repair.
For more information on credit issues go to:
www.experian.com
www.transunion.com
www.equifax.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Monday, February 1, 2010
Maintaining Your Credit Through a Divorce
http://knoxvilleneighbors.blogspot.com/
While going through a divorce, the last thing on your mind is how it will affect your credit. Your attorney takes the responsibility for making sure that you are legally separated from your spouse. That involves a separation of debt and assets. Typically a judge will issue the final decree and the final divorce document lists the items that you are responsible for, and those that are delegated to your spouse.
While future lenders will use the final divorce decree to eliminate those debts assigned to your ex-spouse from your debt to income ratio, the divorce decree does not protect your credit.
At the time that you applied for joint loans (while you were married) creditors relied on both of you to approve the credit card, car loan, or home mortgage that you received. The divorce decree cannot set aside the creditors right to come after you to recover un-paid debt obtained before you were divorced. Should your ex-spouse fail to make payments on time, or default totally on the loan, this information will be reported on your credit and could affect your credit score for years to come.
So what should I do? Always seek to pay off and close any joint account. Tell your attorney that failure on the part of your ex-spouse to pay their obligations after the divorce could affect your credit. Make your spouse sell, or refinance any items that cannot be paid off; while this may force them to adjust their lifestyle to their current income, it will prevent you from being reported for poor payment history.
I have heard that closing accounts could lower my credit score, is that true? Yes, closing accounts could lower your score, but not nearly as much as finding out a year later that your ex-spouse didn’t make any payments and you owe thousands of dollars in outstanding balances.
If the divorce was particularly bitter, continue to check your credit regularly over the next several years. Your ex-spouse knows more about you than most people. It would not be difficult for them to fraudulently open new accounts in your name. Most credit agencies will allow you to put an alert on your account that requires a phone call to you before new credit is issued.
For more information on credit issues go to:
www.experian.com
www.transunion.com
www.equifax.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
While going through a divorce, the last thing on your mind is how it will affect your credit. Your attorney takes the responsibility for making sure that you are legally separated from your spouse. That involves a separation of debt and assets. Typically a judge will issue the final decree and the final divorce document lists the items that you are responsible for, and those that are delegated to your spouse.
While future lenders will use the final divorce decree to eliminate those debts assigned to your ex-spouse from your debt to income ratio, the divorce decree does not protect your credit.
At the time that you applied for joint loans (while you were married) creditors relied on both of you to approve the credit card, car loan, or home mortgage that you received. The divorce decree cannot set aside the creditors right to come after you to recover un-paid debt obtained before you were divorced. Should your ex-spouse fail to make payments on time, or default totally on the loan, this information will be reported on your credit and could affect your credit score for years to come.
So what should I do? Always seek to pay off and close any joint account. Tell your attorney that failure on the part of your ex-spouse to pay their obligations after the divorce could affect your credit. Make your spouse sell, or refinance any items that cannot be paid off; while this may force them to adjust their lifestyle to their current income, it will prevent you from being reported for poor payment history.
I have heard that closing accounts could lower my credit score, is that true? Yes, closing accounts could lower your score, but not nearly as much as finding out a year later that your ex-spouse didn’t make any payments and you owe thousands of dollars in outstanding balances.
If the divorce was particularly bitter, continue to check your credit regularly over the next several years. Your ex-spouse knows more about you than most people. It would not be difficult for them to fraudulently open new accounts in your name. Most credit agencies will allow you to put an alert on your account that requires a phone call to you before new credit is issued.
For more information on credit issues go to:
www.experian.com
www.transunion.com
www.equifax.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Friday, January 29, 2010
Bankruptcy and Your Credit
After a bankruptcy, it is extremely important that you work to re-establish your credit. The faster that you work to repair your credit the quicker you will regain your life and the ability to live again.
How do I start? That's one of the first questions that customers ask. The first step is to make sure that your credit is reporting correctly. Many creditors do not update their reporting of your credit after you have filed bankruptcy. If the debt was included in your bankruptcy, then you need to make sure that information is reported accurately on your report. Many creditors continue to report late payments and collections as unpaid, years after the bankruptcy occurred.
How do I re-establish my credit if no one will lend me money? Start with a secured loan (installment) from your bank or credit union. Most institutions will make a loan to you, if it is secured by an account that they are holding. Put $500 or $1,000 into a savings account and ask for a loan against that money. Once you have the loan, make sure that your payments are on time and that the loan is paid back in full. Many accounts need time to report. Don't just repay the loan immediately; consider keeping it open for six months to a year.
You also need to re-establish revolving credit accounts to improve your credit. Use the same method of a secured account to receive a credit card. Use and repay the card over the next six months to one year.
Managing your credit is an ongoing process that takes diligence and perseverance. Most lenders require at least a two year period after a bankruptcy is finalized before you can be eligible to purchase a home.
For more information on credit issues go to:
www.experian.com
www.transunion.com
www.equifax.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
How do I start? That's one of the first questions that customers ask. The first step is to make sure that your credit is reporting correctly. Many creditors do not update their reporting of your credit after you have filed bankruptcy. If the debt was included in your bankruptcy, then you need to make sure that information is reported accurately on your report. Many creditors continue to report late payments and collections as unpaid, years after the bankruptcy occurred.
How do I re-establish my credit if no one will lend me money? Start with a secured loan (installment) from your bank or credit union. Most institutions will make a loan to you, if it is secured by an account that they are holding. Put $500 or $1,000 into a savings account and ask for a loan against that money. Once you have the loan, make sure that your payments are on time and that the loan is paid back in full. Many accounts need time to report. Don't just repay the loan immediately; consider keeping it open for six months to a year.
You also need to re-establish revolving credit accounts to improve your credit. Use the same method of a secured account to receive a credit card. Use and repay the card over the next six months to one year.
Managing your credit is an ongoing process that takes diligence and perseverance. Most lenders require at least a two year period after a bankruptcy is finalized before you can be eligible to purchase a home.
For more information on credit issues go to:
www.experian.com
www.transunion.com
www.equifax.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
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