2 Ways to Build Passive Income Streams in Different Markets
It's wise to build passive income streams in the young adult years and allow them to grow. Before long, you'll be earning significant money from your previous work.
Two Easy Ways to Build Significant Passive Income
Passive income is great because it's a way to earn income without putting in a lot of work on a consistent basis. Technically, passive income works because a person does an amount of work in the beginning, but the cash flow is reoccurring and provides financial health. This is especially beneficial for the older generations as they continue to age and desire to preserve their energy.
Invest in Real Estate: Condos, High Rises, Homes
For some people, the thought of owning multiple properties may sound daunting and almost impossible. However, there are many ways to earn money as a real estate investor. One of these ways involves rentals. You can purchase a home, condo, or high rise by researching various investment property financing options. Don't be deterred by the idea just because of the finances. When you prepare a house to put on the market as a rental, you'll be able to earn a lot of money on a monthly basis. A few years of rental income can easily pay off an entire mortgage without your help and the rest becomes profit.
Books, Music and Other Copyrighted Material
Books are great forms of passive income for building wealth. An author spends a significant amount of time writing a book. Once it's published and available for sale, the book will sell over and over. The same concept applies to music. The percentage that's paid to the creator is called a royalty. With the right marketing plan and a wide audience, anyone can experience royalty checks in the hundreds of thousands of dollars. There are also many celebrities who make a lot of money from their book tours and book signings. If you don't consider yourself a good writer, but you have a story to tell, hire a ghostwriter. They'll create the content and you'll be able to eloquently share the story with the world.
Finances and the Future
Passive income streams eliminate the process of exchanging time for money. When you free up your time and can still earn lots of money, this is a dream that most people long to experience. In the meantime, be intentional about creating passive income streams and you'll experience financial freedom in no time.
Preparing in Advance for Your Home Purchase
The home buying process is a fulfilling and gratifying one that requires financial acumen and discipline.
Preparing for Financial Planning and Home Ownership
Purchasing a home is a big deal. Whether you are looking to buy a high rise, condo, or house in Las Vegas, it takes a lot of dedication and patience to turn a dream of home buying into a reality. Once some people hit a certain age, they automatically assume it's time to purchase a house. While it's good to own a home, it's wise to be fully prepared to own that home. This mainly depends on what your financial situation is like and how well you can be disciplined with what you have.
Financial Status
Your finances play a major role in this process. While it would be ideal, most people don't have the money to purchase their home with cash. In this case, many people get loans to cover the mortgage. There are so many options to choose from such as first-time home buyer options and lending mortgage options. No matter what route you choose, it's best to have the money to make the down payment on the home. Some programs will allow you to only have 3-5% down to pay for a home. Many finance educators and experts encourage 20% down payment. You'll also want to consider the expenses outside of the home purchase such as furnishings, repairs, closing costs and relocation fees. If you prepare for a home purchase the right way, you won't need to deplete your savings to make it happen.
Discipline
It takes a high level of financial discipline to purchase a home. When the mortgage lenders take a look at your credit score, they want to know that your chances of paying back the loan are very high. This boils down to how you handle money and what your money mindset is like. If you're mindful and intentional about your savings and investment accounts, you'll be in great shape to experience the beauty of being a homeowner.
Consistency
It's one thing to gain all the information. It's another thing to make sure you remain consistent with the information you gain. If you make those baby steps with building discipline and apply those lessons you learn about handling your finances, you'll be in a dynamic position to purchase a home and handle all that comes along with it.
Derek Parent Team
Looking for a new condo or high rise to be your Las Vegas home? Contact us today! Derek is the only person in Las Vegas that offers down payment assistance and mortgage lending towards the purchase of high rise condos in Las Vegas.
Buying a Home When Your Partner Has Bad Credit
You pay all your bills on time and you work hard to earn more — so you can save more. Your credit score reflects your savvy money management skills, and you can proudly boast that you’re a member of the 730-and-up club.
Your partner? Not so much. Whether due to past actions or financial mistakes they’re currently working to correct, your love’s credit score is not something to write home about.
What’s a committed couple ready to settle down into a place of their own to do?
Before giving up on dreams of home ownership, take a look at the following options and determine what path makes the most sense for the two of you.
Ask why your partner’s credit score is low
Before trying to beg and plead with a lender to just give you the loan, ask why your partner’s credit score is less than stellar. If in the end you can chalk a bad credit score up to a mountain of consumer debt, you both might need to take a step back.
Buying a home isn’t a requirement — it’s an important decision, but it’s a big one — and trying to force the situation while one of you faces dire financial straits is a recipe for monetary disaster.
Step one: develop a debt repayment plan. Step two: look into home ownership later, when you each carry smaller liabilities.
If your partner has “bad” credit due to long-past transgressions, you each may benefit by taking action to improve their score before applying for a home loan. Start with these tips to boost a credit score (and score a better interest rate on that mortgage):
- Check credit reports, look for mistakes, and correct errors if necessary
- Make all future payments on time and in full
- Keep your credit utilization ratio low (which means don’t run up a balance of $499 on a card with a $500 credit limit, even if you pay off that balance in full every month!)
- Leave old accounts open, but don’t use them
Make the mortgage your own
Ready to buy a house now? It may make more sense to apply for a loan on your own instead of going in jointly with your partner.
Keep in mind that lenders look at your entire financial picture to determine whether you qualify. That means your own income, assets, and credit-worthiness need to meet the lender’s requirements without any help from other sources.
Before running down this road, ensure the monthly payments and other costs associated with home ownership are ones you can shoulder with your income alone.
While no one wants to think about worst-case scenarios, it’s your name on the dotted line — and you’re the one responsible for paying the mortgage if the two of you ever split up.
Plead your case
Although mortgage lenders may seem like faceless entities incapable of deviating from their set processes, there is room for you to explain your situation and provide all the facts.
If you can show your partner’s bad credit is due to factors that will not impact your reasonable ability to repay the home loan, the lender may approve a joint application despite a low score on one end.
Ask if you can write a letter of explanation for a low credit score. If the lender says it will consider your explanation, provide as much documentation to back up your reasons as possible. Consider including explanations and documents to show how, together, you and your love can reasonably make your monthly payments on your potential loan.
Consider a co-signer
If none of the above solutions works for your situation, you can consider asking someone to co-sign the home loan with you. Another person with a good credit score, sufficient income, and low debt-to-income ratio can help you qualify for the mortgage you want.
But you shouldn’t consider this option lightly. That other person will be financially responsible for the loan if you default.
To put it simply, co-signing can come with a lot of baggage. If co-signing makes sense for you, it’s an option — though you might want to think about other options first.
Love is blind, but mortgage lenders may not be so forgiving (or, well, blind to the realities of your financial situation). That doesn’t mean buying a home is out of the question, but do your research first.
If you can find a workable solution, take action and make your home-owning dreams a reality.
And if you both need to take some time to repair that bad credit score? Do that, and rest easier knowing your financial ducks will be in a row before you take on a mortgage.
4 Misconceptions about Real Estate & Capital Gains Tax
Walking away with a profit on your home sale is an exciting proposition. But there’s one thing that can suck the excitement right out of such a positive financial move:the threat of taxes on your investment gain — otherwise known as the dreaded capital gains tax.
Luckily, the Taxpayer Relief Act of 1997 helps many homeowners hold on to the gains earned on their home sale. Pre-1997, homeowners could only use a once-in-a-lifetime tax exemption of up to $125,000 on a home sale, or they would need to roll their earnings into the purchase of another home. Today the rules aren’t quite so stringent. As with all tax-related things, there are plenty of exceptions and loopholes to be aware of. So let’s break down a few misconceptions about capital gains and home sales.
Tax treatment: House flippers vs. homeowners
One common misconception when it comes to capital gains tax on real estate is that all home sales are treated equally. Unfortunately for house flippers, that’s simply not the case. To receive the best tax treatment on your gains, you must have used the home as your primary residence for two out of the five years preceding the sale. If the home was not used as a primary residence for the required time, profit on the sale is taxed as capital gains. However, for those who flip houses on an ongoing basis, homes are considered inventory instead of capital assets, and the profit earned is taxed as income. Long-term capital gains tax is 15% for most people, 20% for those in the top tax brackets. However, if the gains are taxed as income, rates could range from 10% to 39.6% depending on the rest of your income. In addition, house flippers aren’t allowed to simply avoid the tax by rolling profits over into their next home purchase.
Exemption limits: Filing married vs. single
While the Taxpayer Relief Act did away with the once-in-a-lifetime tax exemption of $125,000, exemption limits haven’t completely fallen by the wayside. Now you can pocket up to $500,000 of each home sale profit tax-free if you’re married, or up to $250,000 if you’re single. But for some newly married couples, claiming this exemption can be a little tricky. If one person owned the house for the past two years, but their partner wasn’t added to the title until, say, the last two months, that’s OK. However, both parties must have lived in the residence for two years prior to the sale — even if only one was on the title before they were married. In addition, if one person sold a previous home within the last two years and cashed in on an exemption, the couple will have to wait until they are both out of that two-year window before pocketing any gains from their shared home.
Type of home: Primary residence vs. vacation home or rental property
If you aren’t flipping homes, but you do have a second home or a rental property you’d like to sell after living there for the required two years, it won’t be treated as a primary residence for tax purposes. Second homes and rental homes no longer receive the same tax shelter they did before a 2008 shift in the tax code — even if the home becomes your primary residence for a time. Instead, when tax time comes around, you will owe a prorated amount based on the number of years the property was rented out or used as a second home after 2008. If, for instance, you used your vacation home as your primary residence for five years starting in 2010, but you used it as a vacation home for 15 years before that, only 10% of the gains would be taxed: The two years post-2008 when it was used as a vacation home equals 10% of the total 20 years of homeownership. The rest of the profit wouldn’t be taxed as long as it fell within the exemption limits.
Profit: Large sale price vs. small sale price
Another common misconception is that the more a home sells for, the larger the tax bill will be. However, for tax purposes, what you owe doesn’t depend on the sale price — it’s based on how much profit you make from the sale. In fact, you could sell your home for $5 million and not owe a penny in taxes — as long as you didn’t make more than the allowed exemption amount on the sale.
Another important thing to note: Capital gains tax on real estate isn’t necessarily an all-or-nothing proposition. If you’re nearing the cap on exemptions, you could still qualify for a partial exemption — just be sure to consult a tax professional before you make any big moves.
The Truth About Bi-Weekly Mortgage Payment Plans
Traditionally, your mortgage payment is a monthly cost. You submit your payment once a month to the mortgage company, and your money is applied to principal, interest, and escrow. But many mortgage lenders also offer biweekly mortgage payment plans that allow you to pay in installments every two weeks instead of every month. Biweekly payment plans sound simple and straightforward: You pay biweekly instead of monthly and reduce the balance on your loan faster. In theory, by using one of these plans, you pay less interest over time, build equity faster, and get rid of your mortgage ahead of schedule.
But before you sign up for a biweekly mortgage payment plan, it’s important to understand the pitfalls — and consider whether putting this concept to work on your own makes more sense.
Should I sign up for a lender-sponsored biweekly mortgage payment plan?
Unfortunately, these mortgage payment plans don’t always work as well as they claim. What actually happens is that you send in your biweekly payment to the company servicing the loan, and then they hold your payment until the second one arrives. Only after the company has the full monthly payment amount do they apply the money to your mortgage — which means as far as the mortgage company is concerned, you’re still making one payment per month.
In effect, this saves you nothing in interest because your funds are still only being applied as if you were making monthly payments. Worse still, some biweekly mortgage payment plans can actually ending up costing you more money, because the companies that offer these plans often charge additional fees to handle and deliver the payments for you.
If they don’t help pay off a mortgage early, why do these payment plans exist?
Considering the potential costs for the borrower, it may seem silly for lenders to even offer this plan. What’s the point if using the payment plan is no different than if you paid on the regular monthly schedule? Consider this: Most lenders who originate loans don’t actually service those loans. A third party handles the payment and the processing. But that doesn’t mean you can’t make a plan to pay down your mortgage loan ahead of schedule. You just don’t need to set it up through a lender-originated plan.
How can I pay off my mortgage early on my own?
There’s nothing wrong with the idea of paying extra on your mortgage and accelerating the rate at which you pay off the loan. You can make extra payments at any time, and you can do so in a variety of ways. Consider adding a little more to each monthly payment you make to help pay off the mortgage early. If you know you have an extra $100 in your budget each month, tack that on to your payment. For example, on a $100,000 loan (assume a 30-year fixed mortgage and 4% interest), paying an extra $100 a month can cut approximately 8.5 years off the life of the loan — and save $22,463.76 in interest. That’s some serious cash.
Another option? Create your own biweekly payment plan. By skipping the third-party processing (and the fee they add on for doing so), you’ll end up making an extra payment each year that you wouldn’t make if you paid monthly. You can also continue to pay monthly but make one extra mortgage payment at some point during the year to get the same result. Anytime you have extra money on hand — from a tax return, bonus from work, or gift — you can apply these funds to your mortgage too.
Just be sure that any extra payments you make are applied to the principal of your loan, not just the interest. This ensures you’ll actually receive the full financial benefit of paying extra toward your mortgage and be on track to pay off the loan early. You’ll also want to ensure that the terms of your mortgage will not leave you with a prepayment penalty should you pay extra or early.
10 Questions to Ask Your Mortgage Lender
One of THE MOST important stages in the home-buying process is finding a reputable lender or mortgage broker to handle your transaction. A good lender will respect that you work hard for your money — and you want to spend it wisely.
After running a credit check, your lender will present you with options for what you may qualify to borrow. The mortgage amount can be different depending on two things: the product and interest rate. Since the interest rate determines what you’ll owe every month on that balance, understanding how different mortgage products work is key. Here are 10 questions to ask to make sure you’re getting the best rate (and the best deal).
- What is the interest rate?
Your lender will offer you an interest rate based on the loan and your credit. The interest rate, along with the mortgage balance and loan term, will determine your real monthly payment. A loan with a lower balance or a lower interest rate will make for a smaller monthly payment. If you’re not satisfied with the interest rates offered, work to clean up your credit so you can qualify for a lower interest rate.
- What is the monthly mortgage payment?
As you develop a budget for your new home, make sure you can afford this monthly mortgage payment — and be sure to include insurance and taxes in your monthly payment calculations. And don’t forget about short-term financial goals — say, saving up for a vacation or buying a new computer — and long-term retirement goals to consider. Your monthly mortgage payment shouldn’t be so high that your money can’t work toward your other financial goals.
- Is the mortgage fixed rate or an ARM?
Fixed-rate loans keep the same rate for the life of the loan, which can range between 10 and 30 years. Adjustable-rate mortgages, or ARMs, have interest rates that change after an initial period at regular intervals. If you don’t plan to stay in your home long-term, a hybrid ARM with an initial fixed-rate period may be a better choice, since this type of loan tends to have lower interest rates than fixed-rate mortgages.
If you do consider an ARM, make sure you ask (and understand!) when the rate will change and by how much. Ask how often the rate will change after the initial interest rate change, the index that it’s tied to, and the loan’s margin. There are usually caps to how much the interest rate can increase during one period and over the life of the loan, so recalculate the monthly payment to make sure you can afford that higher rate.
- What fees do I have to pay?
One-time fees, typically called “points,” are due at closing. For every point you pay, your lender will decrease your interest rate by 1%. You can also inquire about whether you might have the option of paying zero closing fees in exchange for a higher interest rate.
- Does the loan have any prepayment penalties?
If you’re saving up to make some extra mortgage payments to pay off your mortgage principal early, you may have to pay a fee. Don’t forget to ask this important question.
- When can I lock in the interest rate and points, and how much does this cost?
Your lender may be able to lock in your interest rate for a time, and for a fee. If rates go up, you’ll still be able to benefit from a lower rate on your mortgage.
- What are the qualifying guidelines for this loan?
The underwriting guidelines are different for every loan, as are income and reserve requirements. Along with requiring you to have sufficient funds for the down payment and closing costs, most mortgages require proof of income and reserves of up to six months of mortgage payments.
- What is the minimum down payment required for this loan?
Different loan products have different down payment requirements. Most mortgages require a 20% down payment, but if you qualify for an FHA loan, for example, your down payment could be as low as 3.5%. In general, loans with lower down payments cost more.
- Do I have to pay for mortgage insurance, and how much will this cost?
Putting down less than 20% on your purchase requires paying mortgage insurance until your loan-to-value, or LTV, ratio falls below 80%. Mortgage insurance premiums can be expensive, sometimes costing up to $100 per month for every $100,000 borrowed.
- Do you have other mortgage products with lower rates that I qualify for?
The best way to comparison-shop is to start with your current lender. They probably offer more than one type of loan, and these may have terms better suited to your financial situation.
6 Ways to Buy a Home Even if You Think You Can’t
There are many obstacles when buying your first home. It takes diligent work, and to say the least it is expensive. Especially when you consider the rise of real estate and interest rates. Here are six issues that I am sure you have heard will get in your way. However, I have good news for you, there are ways around them.
- The big 20% down payment
The standard in buying a home is 20 percent money down, which means a lump sum of 20% of the purchase price paid upfront. On a 300,000 house, the down payment would be at $60,000, which is definitely not pocket change. Putting down 20% will allow you to have a lower mortgage and monthly payments. However, according to the National Association of Realtors, 81 percent of Americans purchased their first home with less than 20 percent down to as little as 3 percent. Here are some alternative options to come up with a down payment that would get you near the 20% percent mark. One option is to go to your family and ask for a gift. You can get up to $14,000 tax-free money from your mom, dad, and even your grandparents. If all 4 of them decide to bless you with a gift, that is $56,000 tax free money that can go towards your down payment.
Another option that many people take advantage of is borrowing against their 401(k) or IRA. You are able to borrow up to $50,000, or 50% percent of your plan. First time homebuyers may qualify to take up to $10,000 from their IRA without having to pay early withdrawal penalties.
Now let’s say with all of that, you still don’t have enough money. If you have always dreamt of having a big lavish wedding as a child, you can always skip out on asking for that fancy blender and new 70-inch TV, and request money from your guests instead.
Another possibility is to completely skip on having the big wedding in general, and maybe opt to have something smaller and more intimate. This will surely save you a lot of money that you could be putting down on your first home.
- Bad Credit
This might be the biggest obstacle of all when buying a home. The lower a credit score, the higher the interest will be or you might not even qualify at all. The best thing to do is to clean up your credit as much as possible, pay your bills on time, and consult with a mortgage broker for suggestions on how to improve your score. A few things that a mortgage broker will tell you is to not incur more debt. Hold back on purchasing a new car and completely avoid opening up new lines of credit. Lastly, know your credit score inside and out. According to the National Foundation of Credit Counseling, 42% percent of Americans have not checked their credit score in at least 12 months. The two most important credit scores you need to know are 620 for the Federal Housing Administration for your insured loan, and 720 for a conventional loan.
- Knowing your price range.
A standard rule to determine your first homes price range is to figure out how much you can afford each month. Lenders say your PITI (principal, interest, taxes, and insurance) should not be more that 28% percent of your income before taxes. Some banks will go up to 33% percent which means if you earn $5,000 per month, the maximum PITI payment the lender will allow is $1,650 a month. Banks are looking for your back-end ratio; the sum of your PITI payment and all revolving debit (credit cards, car loans, all other loans you carry), which should be no higher than 41% to 50% percent of your gross monthly income.
- Fear of a bad loan
For many years a 30-year mortgage with a fixed interest rate was the only option. In recent years the industry has changed exponentially and developed new programs to help more people become homeowners. Some loans begin with a low interest rate and adjust upward by a certain percentage about every year. Many people choose to go with a low interest rates at the beginning of the loan and sell the house for income before the loan adjusts. Consult with your mortgage broker to find out what will be the best for you.
- Where to begin
Some first-time buyers think spending hours on Zillow and going to every open house is the best way to start; but its not. The best way to begin is to get educated. Fannie Mae and Freddie Mac both offer classes and a lot of information on their website that can support you through the process.
Some basics:
Real estate brokers work on a commission base, typically around 6% percent. There is no need to pay any fees upfront to an agent for them to help you walk into a house to check it out. If and when the property is sold they will get paid.
A house on the market for a long time does not necessarily mean it has any serious flaws. The seller may have an unrealistic expectation of the value of their home, or it could be something else. Don’t be afraid to offer lower and let your agent negotiate on your behalf.
You will see that every home will come with some type of issue large or small.
Unless you’re buying a brand new home, you should expect some fixing up to do. Now it’s up to you to decide the extra costs are worth buying the home.
- The offer is made and now I’m scared
You found the home of your dreams and you make your offer. This offer should come with at least two contingencies. 1. You’ve had the chance to have a private professional inspector come out and look at the property. If the inspector finds issues that are out of your budget to fix, you can always negotiate the purchase price or walk away. 2. Your offer is based on the ability to pay for the property. If for some reason you are not able to pay then you can simply walk away. After all negotiating is said and done, you and the seller will go into a process called escrow. That is where a third party will make sure all of the legalities are in excellence before completing the sale. Escrow will handle the money components, and seal the deal between you and the seller. Congratulations, you are now a first time homeowner!
Now that you know what it really takes to achieve the American Dream of homeownership, give us a call and we'll walk you through the process in no time! 702-331-8185
5 Ways to Use a Mortgage Calculator
Whether you’re hoping to buy or planning to sell, a mortgage calculator can give you some valuable insights. Here are five questions a monthly mortgage calculator can help answer to make you more savvy about home buying.
Should you rent or buy?
There’s more to being a homeowner than just swapping a rent payment for a mortgage payment. You’ll have to consider additional costs like property taxes, and depending on your loan, you also may have to factor in fees like private mortgage insurance (PMI) — all of which can be estimated by a mortgage calculator. It’s a good way to compare the total cost of renting with the realistic costs of buying.
Is an adjustable-rate mortgage (ARM) right for you?
One way to keep a mortgage payment down and still get the house with all the bells and whistles is to choose an adjustable-rate mortgage with an interest rate lower than a fixed-rate loan’s. There are some risks involved, however: With an ARM, your payment could spike if the interest rate adjusts. With a mortgage calculator, you can see how interest rate assumptions can impact your monthly payment, and the total interest paid over the life of a loan with an ARM versus choosing a fixed-rate loan.
Can you cancel your PMI payments?
Private mortgage insurance is an additional cost for most buyers who don’t put down at least a 20% down payment. To stop paying this fee every month, you must owe less than 80% of the value of your home. You could qualify by either paying down your loan or seeing enough appreciation in your home to meet the threshold. A monthly mortgage calculator can help compare your home value with the loan amount and determine when you meet the requirements to request cancellation of your PMI payments.
Can you afford to pay off your mortgage early?
To find out, use a loan calculator to play around with the numbers. Plug in your original loan amount, interest rate, and date the loan was issued. Then include the amount you think you can add to your current monthly payment to determine how quickly you might be able to own your home outright.
Should you refinance?
A lower interest rate is usually a good thing, but depending on the amount you owe and the time remaining in the life of the loan, refinancing may end up costing you more than staying the course.
If you would like answers to these questions and more without using a mortgage calculator, contact my office at 702.331.8185.
The Top 5 Most Common Refinancing Misconceptions
When it comes to refinancing your home, there are a few misconceptions that many people have. Before you rule out the possibility of refinancing your home, you might want to learn why it may be easier than you think.
Some of the most common refinance misconceptions are not having enough equity, not being able to afford the refinance, or that it simply doesn’t make sense because of high interest rates.
Regardless of why you think you wont qualify to refinance your home, don’t let what someone told you stop you from taking advantage of some of the great benefits it can provide such as lowering your monthly payment, cashing out to consolidate debt, or getting a lower interest rate.
Here are the most common myths when it comes to mortgage refinance:
- I don't have enough equity in my home
Most refinancing programs require you to have at least 20 percent equity in your home to qualify. However, new federally chartered programs make it possible for homeowners with little or no equity to refinance their home and take advantage of the benefits that comes along with refinancing. The federal program is called Home Affordable Refinance Program, or HARP, and it has helped many homeowners with low equity reap the benefits of refinancing. Just like any mortgage program, you must meet certain requirements before you can qualify, but if this sounds like your situation, a federally chartered program, such as HARP, may be able to help.
- I can't afford it
Just like any mortgage or refinance program, there are lending fees involved for processing the loan. The fees vary based on the lender, but the average cost is about 1.5 % of your total loan value. For example, if you have an estimated loan balance of $300,000, you will be required to pay $4,500 in fees. That may seem expensive, but don’t worry, most lenders will let you add those fees to the total loan balance and let you pay over time through your monthly mortgage payment.
- I was turned down before, so there's no reason to try again
Were you recently rejected for a mortgage application? Don’t give up just yet. Just because you were rejected in the past, doesn’t mean that you won’t ever qualify. If your financial situation has changed since you last applied, then there’s a chance you could qualify. Most applicants get rejected because of low credit, low income, or too much debt. However, if your financial situation changed, then you may be able to qualify. For example, maybe you got a raise at your job, raised your credit score, or paid off a good amount of debt. A change in any of these factors could get you one step closer to qualifying for a refinance program.
- It's easier to refinance with your existing lender
Many people think that refinancing with the lender that did your original loan is the best option. However, this is not always true. Lenders have different fees, interest rates, and programs that could be better for your situation. Even though you gave your financial documentation to your original lender when you did your first loan, you will still be required to resubmit new documentation that represents your current financial situation such as job status, income verification, bank statements, and credit score. So, the process to refinance your home won’t necessarily be easier with your original lender because you worked with them in the past. You are free to work with any lender you choose and there are many lenders in any given community, so it is smart to shop around and find the one that works best for you
- Interest rates are too high to make refinancing worthwhile
With talks about the rise in interest rates, you might think it is not a good time to refinance. However, in the mortgage industry, things are constantly changing. Regulations, loan limits, and interest rates can be different on any given day so it is smart to talk to a lender and find out what the current state of the industry is. When you secured your first loan you were locked into the interest rate that was available at that time. It might not seem like a significant change, but if you are able to lower your interest rate a full percentage point, it could save you a significant amount of money on your monthly payment when you refinance. There are also benefits of refinancing your mortgage to a shorter term so you can save more money long term on interest and pay your loan off faster. For example, if you refinance from a 30 year fixed rate mortgage to a 15 year fixed rate loan, you could reduce the amount of interest on the loan by $100,000 or more. Your monthly payment will be higher, but your interest rate and total interest owed over the life of your loan will go down.
If you are a homeowner and you're interested in refinancing your home, give us a call and we will guide you through the process!702-331-8185
What is a Cash-out Refinance?
What is a Cash-out Refinance?
A traditional mortgage refinance is when an existing loan is replaced with a new loan and a new set of terms, in many cases with a lower interest rate. A cash-out refi replaces your existing mortgage just like a traditional refi, but the homeowner gets cash distributed. It also differs from a home equity line of credit which allows you to borrow cash using the equity of your house but it functions as a second mortgage.
Common reasons to go with a cash-out refi are:
- Paying off Credit Cards
- Financing a Business
- Covering College Tuition
- Managing Unexpected Expenses
- Making Improvements to your home
- Taking advantage of potential tax-deduction benefit from interest paid on loan
Using the equity of your home is a great way to access cash when you might need it for something else that comes up. However, having goals for what you are going to be spending that money on is the most important thing you can do to set yourself up for success. For example, going and using that money to purchase a brand new luxury vehicle might not be the smartest decision, but using that money to pay off other debts could be extremely beneficial.
Most popular cash-out refinance options:
Conventional Cash-out: This is available to qualified homeowners who have more than 20% equity in their homes.
FHA Cash-out: Is available to homeowners who have more than 15% equity in their homes.
VA Cash-out: Is available to homeowners who are US Veterans or currently an active service member. Often a VA Cash-out allows you to use even more of the equity from your loan.
Is Cash-out Refinancing Right for me? Here are some questions that are good to ask yourself.
Do you have enough equity in your home?
Maximum loan to value (LTV) ratio for a conventional and FHA range from 70% to 85%, as for VA the maximum is 100%. This means you will need more equity in your home to have a larger amount when cashing out from the refi.
Does it affect my monthly payment?
Cash-out refi does increase the total loan amount so your monthly payments will often increase as well.
Can an FHA loan be eligible for cash-out refinancing?
Yes, if you have an FHA insured mortgage you may qualify, but refinancing into a conventional loan may be better because it does not require mortgage insurance.
What are my options as a US veteran?
As a US veteran your cash out options may be eligible as a cash-out refinance with great rates and the flexibility to borrow up to 100% of the total value of your home.
Are there any additional costs when cashing out?
Yes, when you refinance there are closing fees that you will be responsible for. These costs can also include escrow fees, an appraisal, and upfront private mortgage insurance fees.
Am I required to have mortgage insurance?
Conventional loans - No
FHA loan - Yes, you will pay an up-front and annual insurance.
VA loan - Yes, you will pay a funding fee.
What are the requirements for a cash out refi?
- Pay Stubs
- Tax returns/ W-2s /or 1099’s
- A Credit Report
- Bank Statements
Now that you know all of the benefits of Cash Out Refinancing, give us a call and we'll walk you through the process to get started. 702-331-8185