Tuesday, April 28, 2020

One More Reason to Refinance



Taking cash out of the equity of your home could be a legitimate way to fund a temporary cash crisis now or to have it on-hand if the need arises.  Most homeowners can pull out the difference in 80% of the fair market value of their home and what they currently owe.

The most frequently cited reasons for refinancing are to lower the payment, eliminate the private mortgage insurance, combine mortgages, consolidate debt, convert an ARM to a fixed rate mortgage, remove a person from the loan or to take cash out for another reason.

The option of using your equity to deal with unexpected living expenses or potential lost wages in the future could be a good reason for doing a cash-out refinance.  It is important to consider that it could increase your monthly payment instead of lowering it which would result in higher expenses during uncertain economic times.

Some lenders have recently raised the minimum credit score requirement but borrowers with good credit and the ability to repay should be able to refinance.  Lenders are reporting that during the Covid-19 crisis their processing time is taking longer but they have implemented procedures to safely facilitate the application as well as the appraisals.

While homeowners with an FHA loan are available for a streamline process because FHA is already insuring the mortgage to be refinanced, the cash-out is limited to $500.  Even though the owner may not be able to pull funds out of their FHA equity, refinancing may lower their payment and therefore, lower their expenses.

Unlike conventional loans that require income through a job or other sources, refinancing an existing FHA loan does not require income verification or an appraisal.  The borrower cannot be delinquent on their current FHA loan and it must be at least six months old.  The refinance must reduce the current interest rate or term or both. 

Another alternative for homeowners is a HELOC, home equity line of credit, where you do not incur interest expense unless you actually draw on the line of credit.  It will be a variable rate home equity loan similar to a credit card letting you borrow up to a specific limit when you want and repay it slowly over time.

Refinancing a home incurs closing costs which can be paid in cash or added to the financed amount.  The breakeven point to recapture the cost of refinancing is determined by dividing the monthly savings into the cost of refinancing.  If you stay in the home less than that time, refinancing could be an unnecessary expense.

Wednesday, April 22, 2020

It's Different This Time



Of course, it is!  We haven't experienced a global pandemic in our lifetime.  We haven't had an economic shutdown like this before.  Uncertainty is understandable and people tend to fear what they don't understand. With all that said, it doesn't mean there are not opportunities for people who can act in this unprecedented environment.
During the recent Great Recession, housing prices experienced dramatic reductions in value due to the subprime mortgage crisis.  Homeownership in the U.S. peaked in 2004 at 69.2% when lenders with questionable practices would approve almost anyone who applied for a mortgage. 
Since the Great Recession, Congress and the mortgage industry enacted significant rules that require a person to actually qualify based on the ability to pay back the loan, cash and savings necessary to close, the house securing the loan and sufficient credit history.
Both first-time buyers and investors were able to capitalize on opportunities during that recession by acquiring properties at below market prices.  These buyers had good credit, the necessary down payment, income and the willingness to act at the moment.  Interestingly, those prices did not stay depressed for long.
Today, there is a big part of America that has good credit, the necessary down payment and sufficient income to qualify but are in a wait and see posture.  It is understandable that both sellers and buyers across the country are uncertain whether now is a good time for them individually to make a move. 
Consumers should understand the difference in the ability to qualify for a home and the ability to afford and maintain it.  If a buyer is secure with their income and job status, a real estate market with less competition can definitely be an opportunity.
Currently, the homeownership rate is estimated at 65.1% based on the U.S. Census Bureau.  This is only slightly lower than its all-time high.
"The housing sector enters this current recession underbuilt rather than overbuilt" states Robert Dietz, chief economist with the National Association of Home Builders, "that means as the economy rebounds ... which it will at some stage ... housing is set to help lead the way out."  Ali Wolf, chief economist with Meyers Research, believes housing will be the hero this time "Last time housing led the recession.  This time it's poised to bring us out."
The majority of housing economists don't expect prices to fall because we're still experiencing a housing shortage.  Both existing homes on the market and new construction cannot meet the high demand from buyers, some who have been trying to buy and have lost bidding wars.
There is probably an equal number of sellers and buyers who are waiting to see what happens to the economy which will reduce the overall sales.  However, for the sellers who are in the market, their prices may stay solid based on the lack of inventory for the buyers who are staying in the market.
All real estate is local and each market, in its various price ranges, have their own current characteristics.  If you would like to investigate how it might affect your decision to buy or sell, now or in the near future, we can arrange a video meeting.  We can provide you with current inventory levels in your area and price range, recent sales and current demand levels.

Tuesday, April 14, 2020

Check This Off Your LIst



Everyone knows someone it has happened to or has heard a tragic story.  It could have been a fire, a flood, a burglary or some other disaster but to file a claim on their insurance, they need the receipts or a list for what is being claimed.

Since you're at home anyway and may even have kids at home who need something to do, now is a great time to get a current home inventory done.  One of the easiest ways to accomplish this seemingly, daunting task is to put together a collection of pictures of every room in your home.    

The more valuable, the more important it is to take a close-up picture.  It will be necessary to open the drawers and closets and, in some cases, to pull things out in order to show everything in the picture.  That's why having someone to help you makes it faster and easier.

Not to get distracted from the job at hand, you may discover things that you had forgotten you had which is why you should do an inventory rather than trying to reconstruct it after the loss.  In some cases, it may be years after you've filed a claim when you remember you forgot some things.

Having photos or videos of the different rooms in your house combined with a list of the items can serve as the proof you need for your claim.

There are other benefits to doing a home inventory also.  You'll know the "right" amount of insurance to have on your personal belongings by assigning replacement costs to them.  It will simplify filing a claim if you ever need to. 

To organize your photos and even provide a detailed list of higher value items, you can download a Home Inventory in an interactive PDF that you can complete.  You can put it together on your computer and store it online to make it available if the computer is stolen or damaged.

Tuesday, April 7, 2020

Mortgage Closing Scams



The American bank robber, Willie Sutton, was asked why he robbed banks and his answer was "because that is where the money is."  During his 40-year career, he stole about $2 million but Internet scammers are stealing many times that amount in phishing schemes preying on unsuspecting home buyers.

These crooks know where the money is because buyers have the down payment and closing costs and are expecting to transfer it to the close the sale of their home.  The FBI, in their 2018 Internet Crime Report, stated victims lost over $149 million and the CFPB estimates the losses at over $1 billion as a result of fraud in real estate transactions.    The scammers want to take advantage of the situation while it is still in the buyer's account.

Commonly, during the closing process, scammers will send spoofed emails to homebuyers from someone they expect to hear from regarding the transaction like the real estate agent or the settlement agent.  They will include false instructions for the closing funds.

Following these suggestions can help to protect you and possibly, avoid scams:

  • Call before you click to verify the wiring instructions to transfer funds.  DO NOT use the phone number or email in the email request.  Use a trusted source, preferably, in person, of contact information.
  • Confirm everything independently with your real estate agent and closing officer.   Confirm the actual instructions with the bank before transferring money.
  • Verify immediately, within four to eight hours, with the title company and real estate agent that the money was received.  If it has not been received, notify the bank immediately to determine if it can be cancelled.

If you believe you have been the victim of a phishing scheme, call your bank immediately and ask them to issue a recall notice on the money transfer.  File a complaint with the FBI at www.IC3.gov and report it to your local FBI office.

The Consumer Financial Protection Bureau has released two documents in an effort to inform consumers about wire fraud scams that commonly occur during closings: Mortgage Closing Checklist and Mortgage Closing Scams.

This is for information purposes only and should not be considered legal advice.