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Showing posts from October, 2017

Up-front Points to Lower the Rate

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When loans are quoted by lenders, most buyers pay attention to the interest rate but not so much to the points that may be charged along with the rate.A point is one-percent of the mortgage amount and considered pre-paid interest that affects the yield on the loan. Buyers or sellers can pay points but there can be limits based on underwriting guidelines for different types of loans.A lower note-rate would obviously make the payments less. However, with a little analysis, you can determine how much points paid up-front can save a borrower or whether you'll recapture the additional costs in the anticipated time in the home.In the example below, two choices are compared; a 4.25% loan with no points vs. a 4.00% loan with one point. If the buyer stays in the home at least 69 months, he will recover the $2,700 cost for the point on the lower interest rate.If the purchaser stays ten years, he’ll save two thousand dollars over the cost of the point. A less obvious advantage will be re…

Debt Relief May Trigger Tax

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The Mortgage Debt Forgiveness Act, originally passed in 2007, was extended three times to protect homeowners from paying income tax on debt that was relieved due to foreclosure, short sales or deed in lieu of foreclosure.  The law expired on December 31, 2016 and unless it is extended again, homeowners with debt relief in 2017 may be subject to tax.A homeowner might feel a sense of relief without the obligation of a delinquent mortgage but just because the payments are no longer due doesn’t mean that there isn’t another obligation that replaces it. If a lender cancels or forgives debt, a taxpayer must include the cancelled amount in their income for tax purposes depending on the circumstances. The tax significance could be serious.This previously allowed relief only applied to a taxpayers’ acquisition indebtedness of their principal residence which did not include second homes and investment property. The maximum amount was limited to $2 million of mortgage debt forgiveness or $1 m…

Indecision is Not a Decision

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There could be some legitimate reasons for not buying a home but indecision is not one of them. Indecision is rooted in not having enough information to move forward to own a home or continue renting.If you keep renting, at the end of the year, you have had a place to live and a pile of receipts that helped the landlord pay for his house. Deciding to buy a home will give you a place to live that is yours and all the things that come with that.When you consider principal reduction, appreciation and tax savings, your monthly cost of housing could be much less than the rent you’re paying. The principal reduction included in each payment is like a forced savings account that increases as your mortgage balance decreases. Your equity in the property will also grow due to appreciation as the home goes up in value. The equity is part of your net worth and an investment in your family’s future.The income tax savings can be an additional financial consideration if the combined interest and…

Risk Rate Relationship

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Regardless of what a lender quotes on mortgage rates, the actual rate a borrower pays is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.Loan amounts – conventional mortgages above conforming limits as set by Fannie Mae and Freddie Mac are considered jumbo loans and generally have a higher interest rate.FICO score – the lowest interest rate is reserved for the highest score; the lower the score, the higher the rate the borrower will pay.Occupancy – borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.Loan purpose – purchase transactions generally have the lowest interest rate with refinancing for better rates and terms being p…

Pre-approval is Good for Everyone

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Buyer’s mortgage pre-approval is good for everyone in the transaction. It saves time, money and removes the uncertainty of knowing whether the buyer will be qualified after negotiating a contract. The direct benefits include:Looking at “Right” homes - price, size, amenities, locationFind the best loan - rate, term, typeUncover credit issues early - time to cure possible problems Negotiating power - price, terms, & timingClose quicker - verifications have been madeThere is a significant difference in having a trusted mortgage professional take a loan application and run all the necessary verifications compared to going through calculators on a lender’s website. Beside the peace of mind, the cost of being pre-approved is a bargain and generally, limited to the cost of the credit report. Even if a person has been pre-approved, a second opinion from a different lender may be a good option. It can verify there is a good deal or you’ll discover that you can improve it. Either way, …