There was a great article in USA Today exploring refinancing in today’s market.  In the past, homeowners could easily refinance and even get cash out because they had equity in their homes.  In today’s market, many homeowners are underwater – meaning they owe more than their home is worth.  For homeowners that are in this situation, refinancing is not impossible, but it generally requires that some money is brought to the table at closing.

Bob Walters, chief economist for Quicken Loans, explains in the article:

“Suppose, for example, that you bought a home several years ago, when fixed mortgage rates were 6%. You paid $200,000 and put $10,000 down. You currently owe $180,000, but your home’s value has declined to $160,000. To refinance to a lower rate and avoid private mortgage insurance, you’d probably need to put in $25,000 to $30,000.”

However, cash-in refinancing can still pay off in the end, even if you can’t afford to avoid private mortgage insurance.  If you don’t already have 20% toward the principal or have enough cash on hand to hit that number at closing, you can pay only the closing costs and still lower your interest rate.  You’d still have to pay PMI, but chances are if you don’t have 20% down, you are paying this already anyway.  Refinancing and lowering your interest to record low mortgage rates could save you money in the end.

The article stresses the importance of figuring out if refinancing makes sense for your situation.  When you talk to your Home Loan Expert, discuss how long you plan on being in your home.  You’ll need to calculate how long it will take for you to recoup the initial investment of refinancing.  If you plan on being in your home for at least 5 years, refinancing to a record low mortgage rate could potentially pay off.

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The following is an article originally posted on www.frugaldad.com and is reprinted here with the permission of Jason from Frugaldad. The views in this article are those of the author and may not reflect the opinions of Quicken Loans and its team members.

For some, the idea of walking away from a mortgage presents quite a moral dilemma. Others feel duty-bound to fulfill their contractual obligation to continue making payments to the lender, regardless of how much (or how little) their home is worth.

Personally, I believe if one has the ability to pay their debts, any debt, they should pay them. This idea doesn’t stop with mortgages. I don’t like voluntary car repossessions or walking away from credit card debt you legitimately owe and can afford to pay.

Think about it. When you signed your signature 27 times the day you took on a mortgage, you accepted some risk that the “investment” you were making would hold its value. The lender made the same calculated risk, and even required you to buy private mortgage insurance if your down payment was small to transfer some of that risk away from them.

Now, there is a difference in someone losing a job, struggling to make their mortgage payment and other obligations, and someone who simply wakes up one morning and decides they are no longer going to pay their bills. Those in the latter category rationalize their decision with sentiments like, “Well, why should I continue to pay for something that is of lesser value than when I bought it?”

Using that same logic, we’d walk away from new car loans, and even credit card debt, because the things we “financed” are not worth nearly the same value now as when purchased new. Besides the question of ethics, walking away from your mortgage, or any debt, can have serious financial consequences.

Damage to Your Credit

If you simply walk away from your mortgage, you credit will take a hit. If your credit is already shot, you may not care. If you are of the opinion, what’s a good credit score good for anyway, then you may not care.

If you recognize that maintaining a good credit score is a necessary evil in today’s society because insurers, employers and lenders check scores when making offers, you might consider damage to your credit score a negative consequence of walking away from a mortgage.

Apart from the hit to your FICO score, walking away from your mortgage could also present legal issues. Walking away from any debt means the lender is free to foreclose (or repossess) the item you financed and sell it at whatever value the market brings. For foreclosed properties, that usually means a big discount.

If the amount the property sells for isn’t enough to clear the debt owed against it, guess who the bank can legally come after? That’s right, you. So “walking away” doesn’t necessarily mean you are off the hook.

Alternatives to Walking Away from a Mortgage

Workout payments. If you are legitimately in trouble, for whatever reason, and are unable to make your mortgage payment, attempt to work with the lender. Most mortgage issuers are preparing for a higher rate of foreclosures in the near future, which could mean big losses for them. They’d much rather have customers continue to stay in the home and make payments.

Short sell. If you do decide to sell, discuss the option of a short sell with your lender. Basically a short sell means selling the property for less than is owed, at a mutually agreed to price amongst buyers, sellers and the current lender. Be sure to negotiate a sale without recourse – meaning the bank cannot come after you for the balance of the loan (as described above).

Do nothing. If your mortgage is underwater, meaning you owe more on your home than it is worth, but you are able to continue making payments, then the most attractive option may be to do nothing. Stay put. Hope that the economy comes around in the next few years and your value comes back. In time, by continuing to make payments, you will eventually reach a point where your house is no longer underwater.

The Housing Bubble Lessons Learned

I lived in rentals growing up because my mom could never afford a down payment on a home. Until just recently, my family leased a house until we were debt free. During that time as a renter, all I ever heard from others was that we were making such a mistake by not buying a home. A home was a fantastic investment. Renting was like throwing money away.

Well, I wonder how many of those same people still believe that. A home can be a good investment, but mostly it’s just shelter to keep you and yours warm and dry. That’s all it is. And it doesn’t matter if you pay a mortgage company or a landlord to keep that shelter.

Of course, you may have more freedoms owning real estate, but you have more responsibilities, too. There are pros and cons to virtually every financial decision we make, so do what works best for your situation. Whatever you do, avoid buying real estate until you are on a solid financial foundation and avoid viewing it as a significant investment. After all, we’ve seen how quickly that “investment” in real estate can drop.

Jason from Frugaldad.com

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The federal government rewards veterans of the US military in several ways.  Many programs, from education reimbursement to disability compensation, employment services and life insurance are available to active and former members of the armed forces.  Another benefit of military service is home loan assistance in the form of the VA Loan.

Of the 23 million+ living veterans, less than 10% have used the VA Loan benefit provided to them.

If you are a veteran, member of the active military or even the surviving or current spouse of a veteran, you may be in need of more information about the two most popular government-backed loans available to you today.  These loans are the VA Loan & the FHA loan.  Buying a home or refinancing is a big decision, so it’s best to be fully informed.

VA Loans vs FHA Loans

• VA Loans are almost identical to most conventional loans, only they offer many extra benefits such as: no down payment requirements, lower qualifying credit scores and loan fees can be packaged into the mortgage.
• FHA Loans are a popular option among many non-veterans.  Easy refinancing, more lenient qualifying credit criteria and low down payment requirements attract many people who may not otherwise qualify for a conventional mortgage.
• VA Loans have eligibility requirements that must be met before a veteran or active military member can be approved for the loan.  A certificate of eligibility will be issued to qualified persons and will include an entitlement amount (the portion of the mortgage that the VA will guarantee for each service person).  The VA can issue the eligibility certificates or your mortgage lender can obtain a certificate for you.
• Almost anybody can get an FHA loan.  There are no income limits, however there are limits on how much you can borrow.  VA Loans have limits as well, but they are available up to $729,000 in most areas.
• VA loans don’t require you to pay private mortgage insurance (PMI).  FHA loans require you to pay the government equivalent of PMI, called MIP (mortgage insurance premium).  Getting a VA loan allows you to avoid this extra expense.

If you’re a qualifying member of the military, a VA loan is a great way to take advantage of today’s low mortgage rates.  Many people aren’t sure if they want to deal with the perceived hassle of a VA loan.  With the right Home Loan Experts, getting a VA Loan can be easy and painless.   If you are a veteran with no available VA entitlement, FHA loans can make a lot of sense.  Whichever option you choose, make sure you work with a trusted mortgage lender in order to lock in a competitive rate.

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Homeowners who currently have an FHA loan may find that refinancing into a conventional mortgage can reduce their monthly housing expenses.  Conventional loans often have lower mortgage rates than comparable FHA loans and lower mortgage insurance costs. So, although FHA loans are a great choice in today’s market, many consumers are finding a savings by refinancing out of an FHA loan into a conventional loan.

Refinancing Your Mortgage Is Easier Than You May Have Thought

However, if you’verecently purchased a home, or are simply busy with many of the other wonderful things that life has to offer, you may be feeling overwhelmed or wonder if you’re ready to refinance.

Great news!  Refinancing is easy!  All you need to do is contact a trusted mortgage lender and a Home Loan Expert will walk you through the entire process.

 To get you started, here are a couple things to think about when considering this type of refinance:

1)      Property Value – Estimate the property value and your equity in the home.  With a conventional refinance, if you have less than 20% equity in the property you may have to pay private mortgage insurance. When you’re ready to proceed with a conventional refinance, your mortgage lender will schedule an appraisal of your home. 

2)      Insurance – When refinancing, mortgage insurance may be required based on your loan to value ratio. However, on conventional loans mortgage insurance can be eliminated after two years, once you’ve reached the required minimum home equity levels. On FHA loans, mortgage insurance must be paid for at least five years, regardless of your loan to value.  Additional requirements must be met prior to eliminating mortgage insurance, but this is an important factor to consider that could save you a lot of money!

FHA Refinance with the FHA Streamline

If you’d rather stay with an FHA loan, and potentially take advantage of a refinance without an appraisal,  consider an FHA Streamline refinance. Again, your mortgage lender will discuss this with you, but don’t be afraid to ask.

Make Sure it Makes Sense to Refinance

When considering your options, always weigh the cost of the refinance versus the benefit.  Your Home Loan Expert can help you calculate how long it will take for the savings of the lower interest rate to make up for the cost of the refinance.  Contact us to find out more about how refinancing into a conventional mortgage could help save you money!

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We all know we need to save money.  It’s quite a focus for many people, however most of us have trouble following through with it.  From a young age we’re told we need to save for something, which makes the idea of creating an emergency fund (that’s not to be spent unless under dire circumstances) even more difficult.  So does saving money really make that big of a difference?  After all, we live in a time where loans (whether it be for home, car, or education) have become the norm.

Well, contrary to the convenient practice of living without a savings, and borrowing when emergencies arise, here are three reasons for why we not only need to save money, but also save for specific costs.

1. Your house.  Renting is almost never cheaper than buying, especially with how low home prices are currently.  While most people cannot afford to save enough to pay off a house in cash, you do need a savings for the down payment and closing costs.  The larger your down payment is – the less you have to borrow and pay for things like Private Mortgage Insurance (for down payments under 20%).

2. An emergency fund.  This is really important because we can never predict the future.  If you own a home – your emergency fund could go towards things like a leaky roof or broken furnace.  If you get in a car accident, that emergency fund could be paying for half of a car.  And lastly, if you lose a source of income, that fund can hold you over until you get another job.

3. Your retirement.  It really pays to start saving early because the interest will compound.  The first thing to contribute towards is your 401(k) if your employer does a partial match.  Next, a Roth IRA will give you more control over which stocks and funds you want to invest in, so contribute to this when your 401(k) is maxed out on employer matching.  Lastly, don’t let  your emergency savings sit in a checking account – invest it in short term CDs so that the only penalty for early withdrawal is losing some of the interest payments.  This way you earn money on the money you’re not using.

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With so many loan options out there, it’s easy for a first time buyer to be overwhelmed.  Traditionally, the often-repeated phrase is to save 20% before buying your first home.  But with loans such as the FHA loan offering as low as 3.5% down, is 20% still necessary?  Even conventional loans like the 30-year fixed only ask for a minimum of 5%.  So what’s the benefit of saving the entire 20%?

Saving for a Down Payment – the Benefits of 20% Down

Putting down a hefty 20% on your home will save you from private mortgage insurance (PMI), which is a relatively large savings.  If you’re getting an FHA loan, you won’t have PMI.  Instead the mortgage insurance premium (MIP) is built into the monthly payments, as well as an upfront one-time MIP payment during closing.  The monthly MIP goes away after 5 years and the loan-to-value of your mortgage reaches 78% of the initial sales price or the appraised price of your home (see Bankrate’s explanation).

If you have 20% saved already and you need a 30-year loan, you should look into conventional loans because 30-year fixed FHA loans still require MIP.  On the other hand, if you only need a 15-year loan, 15-year FHA loans do not require MIP with 20% down.

Should You Save a 20% Down Payment?

I didn’t.  With all these financial benefits to having that 20% down, you might ask why not?  The truth is, there’s a cost to waiting.  I bought my house about 2 months ago, and I rushed.  By waiting, I would’ve gotten a much higher mortgage rate (I believe), and I could’ve missed the first time home buyer tax credit.  Missing the credit alone would’ve cost me $8,000, not to mention the higher interest rate.

For me to save the 20%, I would’ve needed at least 5 years.  And in that time, I would have been throwing money away on rent rather than building equity.  While this varies by your income and spending habits, it was difficult for me to save a ton of money, and pay rent and all the existing bills at the same time.  So, I went for it.  I bought a home that was worth $120,000 just 3 years ago for $68,000. 

Using the tax credit, we got all new appliances and remodeled the kitchen with new cabinets and granite countertops.  So what about the MIP I’m paying?  Well, I admit wholeheartedly that not having that would save quite a bit of money.  But I calculated my opportunity cost, and in the end it made more sense for me to act now.

Buying a Home in a Buyer’s Market

While the 20% rule is still a great way to plan for buying a home, it’s also important to consider the market you’re in.  To miss a buyer’s market such as now, so that you’ll have the full amount during a seller’s market may cost you more in the long run.  Of couse every situation is different, so be sure to figure out the costs specific to your needs.  For me, the tax credit combined with low property values and low mortgage rates all made now the best time to buy a home in my situation.

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It’s that time of the year again.  Homeowners: as you’re getting ready to prepare your tax returns, be sure to read up on these tax deductions.  After all, did you know that over a million Americans overpay their taxes by an estimated $945 million every year?  See, bet you’re glad to have found this article now.  Here are the top ten tax deductions you should know about.

1. 1. Mortgage Interest.  This is usually fully tax-deductible, and applies to multiple mortgages as long as it doesn’t exceed $1 million.
2. 2. Home Offices.  Do you work from home?  Qualified home offices have tax deductions for the maintainence of that portion of the home. That includes painting, upkeep, and even indirect expenses like garbage pickup and utilities.  Of course every situation is different, so be sure to check with a professional tax advisor before deducting these expenses.
3. Private Mortgage Insurance (PMI). If you bought your home after January 1st, 2007, and have an adjusted gross income under $110,000, you can claim the PMI you’ve paid throughout the year.
4. Points.  Did you pay points to lower your mortgage rate on your refinance or purchase last year?
5. Moving Expenses.  Homeowners who had to move over 50 miles for a new job can write off the cost of the move, household goods, vehicles, and other directly related expenses.
6. Vacation Homes.  Now is the cheapest time to buy a home, so if you already have your dream home, it may be a good idea to get a vacation home.  You can deduct real estate taxes, personal property taxes, mortgage interest, and points from your vacation home.
7. Property Taxes, State Taxes and Local Income Taxes.  Some cities/towns/or municipalities have local income taxes that are deductible, and property and state taxes are usually deductible as well.  If you don’t think you pay property taxes, it might be rolled into your mortgage payments, so be sure to check old records, and deduct that too.
8. Home Buyer Tax Credit.  This is probably the best deal out of the list.  Ending on April 30th (which is when you need your purchase agreement signed by), this tax credit is for any first time buyer or existing buyer if you’ve been in your old house for over 5 years.
9. Health-Related Improvements.  If you have a chronically ill or disabled person in your home, home improvements made for medical purposes (that do not add value to the overall home) can be tax deductible.
10. Capital Gains with No Income Taxes.  Did you sell a home last year?  If so, the government will let you realize a tax exempt profit of up to $250,000 once every two years, so be sure to check your records.

As always, you should check with your tax advisor to determine which of these deductions apply to you. Don’t say we didn’t tell you!

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With the flexible credit requirements and low down payment, an FHA loan is quickly becoming one of the most popular loans for new buyers.  The loan comes in a 30 or 15 year fixed, just like conventional loans, but the Federal Housing Administration insures the loan amount to make buyers more attractive to lenders.

But if you’re shopping for a house right now, and plan on getting an FHA loan – don’t wait too long or your upfront Mortgage Insurance Premium will go up.

FHA loans come with Mortgage Insurance Premiums that are built in over the course of the loan.  When you close, there’s also a one-time upfront Mortgage Insurance Premium due at closing.  FHA is now increasing this upfront cost by 0.50% from 1.75% to 2.25%.

How much does this equate to?

Well, on a $200,000 loan, this is an increase of $1000!  So if you’re looking for a home, and planned on getting an FHA loan, don’t procrastinate, as you could end up losing money if you don’t have a case number assigned before April 4th.  FHA is making this increase effective on case numbers assigned on April 5th, 2010 and forward.

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Most people rent because it’s cheaper than buying. After all, you don’t have the costs of repair, homeowner’s insurance, loan payments, interest, and private mortgage insurance. Buying a home can also be a lot of work, keeping in mind the costs of mowing your own lawn and doing other maintenance to the home. But after all these costs, is buying a house still cheaper than paying rent every month?

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