Important Steps to Home Ownership

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This post is written and sponsored by U.S. Bank.

So, you’re ready to make the big leap into home ownership? Good for you. Home ownership can be a great experience and holds a number of tangible and intangible benefits. But first, you need to actually buy that property, which, especially if this is your first home, can feel more than a little complicated.

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Understanding the mortgage process

Since a home is arguably the biggest purchase you’ll ever make, being prepared is key to having a successful experience. Doing some homework ahead of time – specifically on mortgage prequalification, the type of mortgage that’s best for you and determining how much home you can afford - will benefit you when it comes time to take the plunge.

U.S. Bank is a great resource to help you navigate the often complex home-buying process. And if you’re really new to this frequently perplexing world, look no further than Achieve Your Goals, a new financial resources site from U.S. Bank. It’s full of information on a wealth of topics, including a My Home section filled with great articles on everything related to mortgages, homes and the home-buying process.

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What is prequalification?

Prequalifying for a mortgage is an important step in the home-buying process. It lets everyone involved know you’re serious about buying a home, and is a great way to help keep the process running smoothly. To see how much you may be able to borrow, and under what conditions, complete a mortgage prequalification request with U.S. Bank to get the ball rolling. You may be surprised what you may possibly qualify for. To do this, know that you’ll need to be a legal U.S. resident and 18 or older. Also, you’ll need to know your pre-tax annual household income and monthly household debt.

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If you have been pre-qualified, the next step is determining what type of mortgage makes sense for your individual circumstances, as there are various types of mortgage loans. There are plenty of resources available where you can learn about the different types of mortgages that could be available to you.

How much home can you afford?

First, figure out your plans for occupancy. Are you intent on living in the house for only a few years? Or maybe for the rest of your life? Are you in the military? Or have your eye on your dream home? Your answers to these questions could determine the type of loan and home that will work best for your personal buying experience.

undefinedWhatever your circumstances are, give it some thought ahead of time. To get estimates of what your mortgage payments could look like, try this U.S. Bank mortgage calculators.

Once you’ve been prequalified, determined what type of mortgage makes the most sense for you and know how much home you can afford, you’ll be ready to start looking for that dream home.

Happy house-hunting!

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Posted on March 23, 2015.

Refinancing Your Home Through the VA

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If you are struggling with the interest rates and payments on your current loan, are looking to refinance, and are a veteran, active service member, you might want to consider looking into the loan options available through the Veteran’s Administration (VA). If you are a spouse, or surviving spouse, of a veteran or service member, you could also qualify for a loan guaranteed by the VA.

The biggest advantages of refinancing through the VA is that you can refinance up to 100-percent of your home’s value, even if you don’t have equity, and you don’t have to pay for mortgage insurance.

There are three options available to eligible homeowners: The Interest Rate Reduction Refinance Loan (IRRL), Cash-Out Refinancing, and converting a Conventional Loan to a VA Loan.

The Interest Rate Reduction Refinance Loan (IRRL)

This option is available to borrowers who already have an existing VA home loan. The IRRRL allows you to reduce your interest rate to reduce the monthly payments on your loan. You can also use the IRRRL to shorten the term of your loan, so that you can pay it off faster.

The advantage to the IRRRL is that the VA does not require a credit check or appraisal for you to qualify for the loan. It’s also possible to get the loan without having to pay out-of-pocket for closing costs and other fees. However, the fees for the IRRL are generally lower than they would be for a conventional loan.

The disadvantage to the IRRRL is that you can’t use an IRRRL for a cash-out refinance. Also, you might end up paying more in interest if you opt to shorten the term of your loan, or avoid closing costs. You also cannot use the IRRRL to pay off a second mortgage on your home, without first getting approval from the second lender.

If you have an existing VA loan and do not need a cash-out refinance, the IRRRL could be the option for you.

Cash-Out Refinance

This option is available to borrowers who already have an existing VA home loan and want to borrow against the equity in their homes. You can use the cash-out refinancing program to get money to put back into your home, and you can also use it if you have a double mortgage to consolidate them into a single payment, and possibly at a lower interest rate.

Just like the IRRRL, you can refinance up to 100 percent of your home’s value, but you will need to pass a credit check and have an appraisal of the property. However, you won’t have to make a down payment or pay for private mortgage insurance, and there will be limits on the amount that you’ll have to pay in closing costs.

If you have an existing VA loan, a strong credit history, and need cash-back, a Cash-out Refinance could be the option for you.

Convert a non-VA loan into a VA Loan

The process of converting a non-VA loan into a VA loan is similar to a cash-out refinance. The difference is that you don’t already have a VA loan, so you also have to make sure you meet the VA’s eligibility requirements.

Once you meet the requirements, you’ll have the same advantages and disadvantages as someone doing a cash-out refinance on an existing VA Loan.

Getting a VA Loan

VA loans and IRRRL loans are both handled by private lenders like Lowvarates.com, who might also offer other refinance options the would allow you to use the equity in your home for a specific purpose, such as home improvement or debt consolidation.

If you have never applied for a VA loan before, you will also need to gather and submit the necessary documentation to get a Certificate of eligibility from the VA, which you will need to present to the lender.

Once you have proven your eligibility, the process of applying for the loan is similar to that of a conventional loan – the lender will do a credit check, appraise your home, and determine how much they can lend you. The only exception to this process in the IRRRL, for which there is no credit check or appraisal.

As you can see, there are a lot of advantages to refinancing through the VA, especially if you already have a VA loan. This is because the VA guarantees the loan, which gives both lenders and borrowers peace of mind. Because of that guarantee, you don’t need to make a down payment, you’ll have significantly lower fees and closing costs, and you can get some loans without a credit check.

If you are a veteran, active service member, or eligible spouse or widow(er), VA refinancing could be the best option for you.

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Posted on February 10, 2015.

Lifestyle Inflation Cure: Real Estate Investing

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A couple of weeks ago, when I wrote about Approaching a Net Worth Milestone, I got a great comment by Big-D:

"I find that as I hit milestones, and surpassed them, they meant not as much to me as I thought they would. The issue with Net Worth is that it is kind of like looking at a toy chest. There are some toys you can play with, there are some that are your favorites, and there are some that you don’t play with because of various reasons. Net worth is like that. You have assets which are cool for net worth but you cannot play with them (liquidity).

An example of this is real estate and life insurance (which are considered assets for net worth). So let me see, yes I have a house, which I can use for home equity lines of credit, but that puts me more in the red than in the black. Life insurance is like a toy you have, but cannot do anything with until you die.

In my example, I have a $400k life insurance policy, and have $300k in equity in homes (I have rental properties, plus my own home). So at the end of the day, Yes, I am a millionaire... but [I can't] live stupidly as much of my million dollars is “non-liquid” and not able to be turned into “cash” if needed. Granted I am not hurting, but still this makes the issue a “what does a millionaire mean now days?” conversation."

I think this is exceptional insight and it mirrors a lot of what we are doing. We now have 3 rental properties, plus our own home. Two of them were never intended to be rental properties, the first condos my wife and I bought to live in separately. As such, they aren't your typical investment property... and actually run at a loss. The loss is small enough, and possibly even a positive if you include the equity we are building that it is better than taking the big hit with selling.

Each month, we are forced to put our money towards these appreciating assets. The bank wants their mortgage payment. If it was a voluntary deposit into a brokerage account, we could decide to skip this month. Even with a retirement account we could probably do the same. Or worse, we could pull that money out of the brokerage and use it to buy a great McMansion. Many people do that and maybe it's the right choice for them, but I like my financial freedom and McMansions can be a recipe for being "house rich and cash poor."

The great thing about real estate investing is that the bank gives us no such flexibility... and I love it.

Big-D hit the nail on the head. The investment is so illiquid that it would be a bear to the get money out. (I plug my ears and close my eyes like a child whenever Mr. HELOC mentioned.)

Now you might say, "If you are mostly breaking even, you have rental income coming in and that's covering those mortgage payments." That's true to some degree, but we had to put 20% down, which is a significant check to write at the beginning. If we want to buy another, we are going to save up another 20%. Plus there's the emergency fund that has to be bigger than usual due to these obligations (what if there are tenants?) There's money that goes into maintaining it as well.

Overall, between saving up money to buy the places, maintaining them, the emergency fund necessary for them, and still maxing out retirement accounts, we mostly steer clear of lifestyle inflation.

However, like many things in life there is a balance. It's okay to enjoy life. You don't want to be living like you are on your last penny because you've forced yourself with too many obligations.

Finally, if you are thinking about investing in real estate, here's a little tool you can use to find the latest mortgage rates in your area:

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Posted on August 11, 2014.

Buy vs. Rent on a Short-Term Relocation

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The other day I got an email from my friend Melissa at Mom's Plans. Her family is going to be relocating from Chicago to Arizona for two to four years. She recognized that it was very similar to when our family moved to California for what was supposed to be two years and turned out to be 6 years.

In her email, she mentioned that the Chicago real estate market makes it difficult for them to buy a house. However, in the Arizona real estate market home ownership is very realistic for them. They want to buy a house, and I can see why with three kids.

In some ways, I had the opposite issue in my move. I was going from a hot Boston real-estate market to an insanely, white hot Silicon Valley real estate market. We could afford a condo in the Boston suburbs, but in Silicon Valley
the house we lived would literally cost a million dollars. We didn't have that kind of cash for a down payment, and the monthly mortgage would still be huge. However, we could rent the house for $2900 a month.

That may seem like a lot for rent, but for a million dollar home it isn't bad. In this case it was the only option for us.

If it wasn't so obvious, or in the scenario that Melissa presented, I would put on my real estate investor hat and try to think like that. Specifically, I would have looked at the Price-rent ratio
mentioned here (see #5).

The price-rent ratio is the cost to buy vs. a year of rent. The house in CA we lived in would have a ratio of around 29. From the article, "As a general rule of thumb, consumers should consider buying when the ratio is under 15 and rent when it is above 20." At a 29 ratio, it is way above the 20 rule of thumb. It's a lot of "price" for the "rent".

In contrast, last year we expanded the our real estate empire, with a purchase of a place that had a price-rent ratio of 6.5. We've been getting a lot of "rent" for a low "price."

My advice was simply, rent if it is the price-rent ratio is closer to 29 and buy if the price-rent is closer to 6.5.

However, all this was with the one huge important caveat. This kind of decision puts the "personal" in "personal finance." There's risk that they might not be able to sell the house when/if they want to move back to Chicago. There's risk that they might not be able to rent it in such a scenario as well. There's potential reward of owning their own home (which Melissa stated was a big personal draw). There's potential reward of price appreciation in four years leading to them making money while it is their shelter.

In short, at least 73 different things can happen, and they run the gamut from good to bad. Personally, I think most of them are good, but someone may view them as mostly bad. At the end of the day, I go with what Bill Belichick has said last month, "My crystal ball isn't any clearer than yours is, so I don't know what's going to happen this year." My crystal ball doesn't get any clearer looking 2-4 years in the future in the real estate market in Arizona.

I like to think that price-rent ratio helps quantify some of the risk and I hope it was helpful. I know Melissa is smart enough to have gone through all the possible scenarios and confident their family will come up with a best decision for them.

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Posted on June 9, 2014.

HARP: How it Can Work for Florida Homeowners

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The following is guest post by Annie Davis. It's no secret that I'm a huge fan of the HARP program. I don't live in Florida... it can work anywhere.

With mortgage interest rates hovering around all-time lows, many homeowners are considering refinancing. Refinancing offers a number of benefits to homeowners, provided they're in a good place to do so. One alternative to traditional refinancing for Florida homeowners is HARP (Home Affordable Refinance Program), which helps homeowners who are underwater in an existing mortgage refinance successfully without the burden of paying down principal and mortgage insurance.

HARP Helps Troubled Homeowners

HARP started back in 2009 after the housing crisis placed thousands of Florida homeowners in distress. With rising interest rates, homeowners with variable mortgage rates suddenly found that they couldn't afford their skyrocketing monthly payments. Thousands of homeowners went into default and many into foreclosure.

The U.S. Government created HARP as an alternative for helping distressed homeowners regain their financial stability, while saving their homes in the process. With a few benefits beyond those of a typical mortgage refinance, HARP is a life-saving option for many Florida homeowners. Lenders such as Foundation Mortgage help homeowners navigate the various refinancing options available and choose the program most suitable for their needs.

Underwater? No Problem

Traditional refinancing is ideal for homeowners who have a lot of equity in their properties, enabling them to cut their monthly payments, lower interest rates, and even take cash out for home improvements. But these refinancing programs don't make sense for homeowners who are underwater, which means the current mortgage balance exceeds the current value of the home.

After first rolling out the HARP program, the U.S. Government discovered that the value limitations (which required the loan-to-value ratio to fall between 80 and 125 percent) meant that many homeowners couldn't take advantage of the program. Changes that rolled out in 2011 meant that more borrowers can refinance their mortgages, regardless of how much their home decreased in value. However, this is true only if you opt for a fixed-rate mortgage. If you refinance to an adjustable-rate mortgage, you're limited to 105 percent of your home's value.

No Mortgage Insurance

Most mortgage lenders require mortgage insurance if the borrowed price is more than a certain percentage of the home's value, typically 80 percent. That means homeowners who finance the full purchase price of the home usually pay mortgage insurance, which adds up to a few hundred dollars to the monthly mortgage payment.

Homeowners refinancing through HARP aren't required to carry mortgage insurance as long as they didn't have it with the previous loan. This applies regardless of whether the loan-to-value ratio exceeds 80 percent.

Fannie Mae and Freddie Mac-Backed Loans

HARP is specifically designed for mortgages currently backed by either Freddie Mac or Fannie Mae. Homeowners with FHA loans or VA loans have other refinancing alternatives which also help distressed homeowners get back on track with their home loans. There's a difference between a loan servicer and a loan backer.

To find out who holds your mortgage, check with Fannie Mae's Know Your Options and Freddie Mac's websites.  Many mortgage loans not backed by FHA or VA are held by one of the two. If your loan doesn't show up in a search on either site, you're not eligible for HARP.

Consider Closing Costs

The HARP program eliminates some of the fees typically applied to high-risk loans, if borrowers refinance for a shorter-term mortgage. But borrowers using HARP still incur closing costs, making this cost-to-savings ratio a major factor in whether refinancing is really worth it. Borrowers save somewhere between $150 and $300 per month with HARP, provided that the upfront closing costs don't wipe out any potential savings.

Closing costs range between $600 and several thousand dollars, depending on the loan value and interest rate. HARP usually works best for homeowners who originally obtained loans with interest rates between six and eight percent.

No Appraisals in Some Cases

If your current lender offers HARP, refinancing through the same lender sometimes means no appraisal is required, under certain circumstances. If your current lender doesn't offer HARP or you choose a different lender for refinancing, a new appraisal is usually necessary. A new lender also re-underwrites your loan, where an existing lender often does not.

Using your existing lender streamlines the refinancing process and often makes it quicker. If you're in dire financial straits and you need an immediate solution, sticking with your current lender is a good idea, if possible. Eliminating appraisals and other documents cuts down on closing costs, too.

If you're considering a HARP refinance loan, consult with a reputable Florida mortgage and refinance specialist, evaluate your personal financial circumstances, the value of your home, and the current interest rates. A Florida mortgage specialist helps homeowners create a cost-benefit analysis, including the number of months or years it takes to recoup your closing costs through savings in reduced monthly payments.

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Posted on September 4, 2013.

Millions of American Homeowners Could Refinance and Save with HARP

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This post brought to you by Quicken Loans. All opinions are 100% mine.

by Clayton Closson

You read that title correctly.

An estimated 2.7 million American households could refinance to today’s mortgage rates (which are near historic lows, in case you haven’t been paying attention) through the gov’s HARP program. And they can do it even if they owe more money than their home is worth. Up to 200%. But they aren’t. And we don’t know why.

Why don’t they want to lower their mortgage payment?

Why don’t they want to shorten the term of their loan?

Why don’t they want to save thousands in mortgage interest?

We wish we knew, because then we could reach out to them and explain why they absolutely should take advantage of HARP while it’s still around. Which brings up some good news for American homeowners. HARP has been extended through 2015. That’s a good thing. The bad thing is that mortgage rates most likely won’t stay as low as they are for very long. At some point, once rates rise, the ability to save money with HARP may be diminished.

Jordan Fylonenko recently met with Quicken Loans Chief Economist Bob Walters to discuss HARP and what’s going on with the millions of folks who haven’t taken advantage of it.

Before we show you the video, here’s some info on HARP from our Press Room:

The FHFA’s announcement to extend the HARP deadline to 2015 is much needed for the estimated 2.7 million underwater homeowners who are eligible and still able to benefit by refinancing. Unfortunately, a too-good-to-be-true perception coupled with long lines to refinance and repeated “no’s” from lenders who are not utilizing HARP to its fullest extent have left many disgruntled to enter another arduous loan process. But for those homeowners needing a personal stimulus, picking up the phone again is well worth it.

The average savings from a HARP refinance is around $200 a month with an average rate reduction of 1.75%, resulting in $2,400 savings per closed loan per year and $74,000 per lifetime (assuming a 30-year mortgage). The potential stimulus for the economy is even more significant, reaching up to $6.5 billion ($2,400 in savings a year per consumer x 2.7 million consumers).

These savings are more than just numbers on a spreadsheet. A Quicken Loans client and active duty Air Force recruiter from Sacramento, CA, was able to cut $763 off his monthly payment for his investment property and lowered his rate down by more than a point through HARP. This was after his original lender told him they couldn’t help.

Another Quicken Loans HARP client from North Brunswick, NJ, was able to save $387 on his monthly payment and lower his rate by more than a point to 3.85%.

In a monthly video series, Markets and Musings, Quicken Loans Chief Economist sat down to discuss some of the recent changes that have opened up HARP to more underwater homeowners.HARP

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Last updated on July 3, 2013.

One More Refinance

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I have a friend who I think refinances his home every two weeks. I exaggerate, but just a little. I didn't know how he does it without paying a ton of bank fees and appraisals and stuff like that. I know he avoids a lot of the fees by using a mutual lawyer friend for the closing.

I've been watching mortgage interest rates like a hawk lately. They were starting to tick upwards last month and rumors of interest rates going modestly higher were in high gear. I had started to think that I missed out on getting the best possible rate. However, I noticed that rates went back down an 1/8th of a point a couple of days ago. My forecasting tool at Bankrate didn't seem to indicate things were going to continue any lower, so I locked in a refinance with the bank.

I'm slowly starting to catch up to my friend in the refinance game. Having completed a double HARP refinance less than six months ago, this refinance of our third property will complete our dealings with the mortgage underwriters for some time - I hope.

What did I gain by this refinance? We bought this property only a couple of years, when the rates were still quite cheap. In fact, that was one of the motivating factors behind the purchase. So unlike the HARP refinances where I was bringing a 6% interest rate to 3.5%, this is smaller deal. We'll go from a 15-year fixed at 3.75% to a 15-year at 2.75%. (Somewhere my mother is reading that 2.75% interest rate and thinking back to the 80's when rates could be 12%.)

What does that mean in terms of dollars and cents? We'll go from a monthly principal and interest payment of $2327.12 to $1995.15. Simple math says that we'll paying around $332/mo. less than before. That's not bad for a few hours of work, right? Well, it's not quite as good as it appears at first glance. Right now, we are a couple of years into the 15-year fixed mortgage that we have now... we have around 13 years of payments left. With the refinance we'll take that balance and spread it back over the 15 years again. That's a good chunk of the $332/mo. savings. However, the lower rate itself is responsible for a $130/mo. savings.

So in the end, we'll get a little more financial flexibility in paying less each month, and we'll save what amounts to a typical cable, phone, and internet bill these days.

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Posted on April 4, 2013.

What’s Better than a Double Rainbow? A Double HARP!

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Remember this guy who sounded like he made sweet love with a vision of a double rainbow?

If it sounded like that guy was heaven, you should have heard me when I got the news that I'd be getting a double harp. It was angelic.

It wasn't the angel's kind of harp, but the Home Affordable Refinance Program kind of HARP.

That kind of HARP was created by the Feds to help those who are underwater or close to it, refinance with today's rates. For people like my wife who bought in 2003 or me who bought in 2005, this program represents a great opportunity. Due to the drop in housing prices, many of us have no equity and 6% interest rates. This is a double whammy. With no equity, lenders wouldn't consider refinancing under today's low rates. The person buying now can get a similar condo to the one I bought in 2005 for about 30%, at a 30-year fixed interest rate of 3.5%.

We put down 20% and could make the payments, but being responsible worked against us when we tried to take advantage of refinancing under the recent low interest rates. Mortgage lenders only wanted to reduce rates on people who were behind on payments. It lead me to write "Lower the Interest Rate on Your Mortgage Without Refinancing?" more than three years ago.

This past December I thought I had it all figured out, I was going to use a HARP to Save Money with a HARP-Refinance on an Investment Property. It would bring down from a 5.875% rate to a 5.04% rate. At the time, it looked like it was going to save me $250 a month, which is huge. Then I realized there was there was something that they left out. It should have been obvious, but I would be taking a 30-year mortgage that I'm already 7 years into and reset it to 30-years again. While the rate is cheaper and there would be still some savings, most of the savings came from spreading the mortgage over a longer period. I tried to pursue a 15-year mortgage, but at the time HARP mortgages would only allow you to refinance to a lower monthly payment (the point was to save people money). With the refinance costs on top of that, I decided that wasn't right for me and pushed the mound of paperwork into the trash.

A few weeks ago, I noticed that interest rates had continued to drop even further. This time I called up USAA, which is my bank of choice, and ask them about my options for refinancing. It never hurts to ask, right? It turns out that their underwriters don't do condominiums that are investment properties, but they have a partnership with Wells Fargo to cover that exact scenario. I met all the requirements for the newest version of HARP (they seem to be pushing out updated legislation every 6-9 months lately), and that allowed me to get into a 15-year mortgage at 3.5%... amazing for an investment property at nearly 100% Loan to Value (LTV). The monthly payments would be almost exactly what I am paying now. This may not seem like a bit deal, but I'll cut 8 years off of paying a mortgage.

Next up, I asked about my wife's mortgage. She was told previous that because her loan wasn't serviced by Fannie Mae or Freddie Mac, she wouldn't qualify for a HARP. However, I figured that once again, it wouldn't hurt to ask. Also, since she didn't buy at the exact top of the market she was close to 80% LTV allowing for a traditional refinance. It turns out that whatever information she was given before wasn't correct or no longer applicable. Her property qualifies as well. She only has 21 years of mortgage payments, but she'll save a little money each month in addition to eliminating 6 years of mortgage payments.

It seems like a lot of people could benefit if they knew about the HARP program. Maybe it is just me, but I've found that very few organizations are actively publicizing it.

Take a minute and imagine what your life might be like if you had your next 96 payments of your mortgage covered... now double that. Certainly beats the pants off of a double rainbow! The only downside is that it is A LOT of paperwork. They are also saying that I might need to get additional flood insurance reminiscent of the time I almost got tricked into buying flood insurance I didn't need.

Three years ago when I wanted to refinance the rates were at 4.875%. In December I almost refinanced at 5.04%. It seems like good things come to those who wait.

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Posted on August 30, 2012.

Save Money with a HARP-Refinance on an Investment Property with PMI

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I don't know if that title does the job to explain how I'm saving some money, but it was the best I could to explain it. Let me start at the beginning. I bought a condo in 2004, largely on the peer pressure of others who were fearful that if I didn't get in the market, the sustained 6% inflation in the housing market would make it more and more difficult. After all 6% of $300,000 is $18,000, so if a property gets $18,000 more expensive every year, that's a lot of catching up to do if you don't already own. Of course that was 2004 logic, which as I now know was pretty silly. (Lesson for all, pay attention to what they say about historical prices not being indicative of the future.)

So I have this condo that I bought for nearly $300,000 at almost the market peak. I enjoyed what was unprecedented low interest rates with a 30-year fixed at 5.875%. I remember feeling like a total bad-ass with that rate... at least as bad-ass as one can be about a mortgage rate. Today, you can buy a near equivalent condo for around $180,000 and get a 4% interest rate (maybe even better). Welcome to Chumpsville... population: me.

I ended up marry my wife, who is in the military and job prospects drew us to San Francisco. This left me with two choices, sell the condo at a massive loss, or become a landlord. The second seemed to be the lessor of two evils. My thought was that maybe I can ride out the downturn or, worst case scenario, in 30 years I'll own the property free and clear and have an income producing asset.

Having lived in Chumpsville long enough, I decided to call up my lender and see what they could do for me. I came to them as almost a perfect example of who shouldn't get their interest lowered. I had three things going against me:

  1. It's an "investment property" - Having not lived in the condo for five years, it is technically classified as an investment property. (Some investment!) I couldn't pull any heart-strings by claiming that military obligations moved us. Investment properties tend to carry higher interest rates.
  2. I don't have 20% equity - When I bought the home, I had 20% equity, but now that property values have dropped, I'm closer to around 15% equity and that's with a very generous estimate on the value of the property.
  3. No hardship - I've been responsible and I've made my payments. I can't honestly claim that I'm in any kind of trouble of making payments.

Despite all this, I saw that 30-year fixed rates are under 4%, perhaps there's an option for a responsible bloke like me to save some money. That's when Chris, the lender on the other end of the line, said, "I think you'd qualify for one of our HARP-refinance programs. Let me look into it." Turns out that I did qualify, and they were able to keep almost everything about my mortgage the same, but with a lower rate of 5.04%. It's the sub-4% that I would have gotten if I lived there and had 20%, but doing the math it will save me $250 a month. There are closing costs that will run me a little more than $2000, so the move won't actually pay off for 9 months. However, after that, it's $250 extra dollars a month staying in my bank account. Not bad for a 20 minute phone call, right?

I figure that if I can refinance with all the strikes against me, it must be possible for nearly anyone to. You've really got nothing to lose by calling and asking.

I've set an appointment on my calendar for 12 months from now, to look at the equity again on the condo. If I get the 20% in and if interest rates stay low, there's a chance, I could refinance again at under 4.50%... or at least that's my hope. I might even think about going to a 15-year fixed mortgage at that time in an attempt to lower rates further. It will also force me to save more getting me that income producing property sooner rather than later. That's getting a little ahead of myself for now.

What about you? Do you have mortgage with what would be considered a high interest rate in today's terms? Have you made the call to try to get it reduced?

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Posted on December 20, 2011.

Vacation Homes vs. Investment Properties: Where Mortgage Lenders Get it Wrong

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I learned a lot when my wife and I recently decided to buy a vacation/retirement home. I learned that in a really old house bedrooms don't necessary have to closets to be considered bedrooms - since the clothes hanger wasn't in common use until after 1900. I learned that you need to really aim for a good basement in Newport County, in RI - they are few and far between and flooding is common. I also learned that KJ's Pub near first beach in Newport has a terrific wing special ($0.30 cents a wing and it's a good size wing).

Finally, I learned that mortgage lenders really, really confuse me. Well, to be accurate, they've always confused me. You don't have to go too much further than the sub-prime crisis to have that point drilled home. However, one interaction with a mortgage lender in particular left me more confused than that mess.

The lender asked what our intentions were with the house. Unfortunately, that's been a very murky question for us. Understandably mortgage lenders don't like to deal with uncertain situations. It's simply not worth the risk. We told them that we'd love to move into the home immediately at closing, but due to my wife's military status (and various accompanying AWOL laws) it might not be possible to get a timely transfer. So then the lender asked if it would be a vacation home or if we intended to rent it out. That's a fair question. I tend to think a fair answer would have "yes" as it isn't necessarily an either/or case - especially in a well-known vacation area. However, I needed to give a more firm answer.

The lender then offered an explanation. If it is a 2nd home or a vacation home, he can provide me with a lower interest rate. If we intend to rent it out, it would be classified as an investment property and the interest rate would be higher. Huh?

Maybe it's just me, but I think that best interest rates should go those situations with the least chance of defaulting. That would seem to make sense, right? So if someone were to carry a second mortgage burden, that gets a favorable rate. However, if the same person were to rent out the property and brings in income to offset the cost of the mortgage, that raises a red flag and triggers a higher rate. If it were me lending my money, I'd be much more worried about the person without income from the property defaulting on the loan.

Perhaps a reader can help me understand this logic in the comments, because I can't make sense of it.

In the meantime, I'm going to bask in the fact that I can get free credit scores from Credit Sesame. It's one less thing to worry about.

This post deals with:

,

... and focuses on:

Mortgage, Real Estate

Last updated on March 28, 2014.

 
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