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6 mistakes to avoid when refinancing your home
Mortgage rates are at an all-time low, which is an ideal time to swap your current home loan for one with a better rate or term. Most homeowners choose refinancing to reduce their monthly payment, and why not? Your mortgage just went on sale!
Others want to use some of the equity they’ve accumulated to fund a remodel, a large purchase, or an investment.
Refinancing is a terrific option, but it’s not as simple as signing a few docs, and you’re out the door. In some instances, refinancing can actually increase your interest rate rather than lowering it. It can be costly, so be sure you do some legwork before you seal the deal.
Here are six of the most common mistakes that homeowners make when refinancing their mortgage:
1. Thinking refinancing all about the rate
When you refinance your mortgage, you’re in the market to save some money. For most borrowers, that means a lower interest rate. There are, however, a lot of other factors that affect mortgage pricing, like closing costs, origination fees, and points, for example.
All of these costs can vary from one lender to another. A super-attractive low rate can be used to disguise a loan with unusually high fees, or it can be based on paying discount points up front. Make sure you’re comparing apples to apples. Ask about the additional costs that are factored into the price and be wary of major changes made after the fact. You want a mortgage lender who invites you into the process and helps you choose the pricing options that best meet your needs, not theirs.
2. Not objecting to junk fees
Expect some fees when you refinance, but be on the lookout for junk fees. Closing costs like loan origination, title, and application fees are legitimate and unavoidable, but some lenders might add on additional costs. Document preparation or delivery, or an excessive charge for pulling your credit report are some common examples of bogus fees. As a general rule, if you can hire someone to do it for less or can do it yourself for free, question it.
Although not necessarily a junk fee, you should also object to a prepayment penalty fee. Might you pay off your loan early? Probably not in the way you think, but remember, paying off your loan early also includes refinancing it again in the future, which is always a possibility.
Prepayment penalties are common in a “no-cost” refinance where the lender recoups those costs by charging a slightly higher rate. They usually expire in a few years, but it ensures that the lender still gets paid if you sell or refinance before they can recover the refinancing costs. If you must agree to a prepayment penalty in order to get your loan approved, make sure it does not apply after more than 3-5 years.
3. Not getting enough bang for your buck
There are costs to refinancing your loan, so make sure you’re a winner in the end. If you refinance and only reduce your rate by a small fraction, maybe half a percentage point, you need to calculate your break-even point—the time it’ll take you to recoup the cost of refinancing your loan. If you save $100 a month, it’ll take you just over four years to recoup your $5000, but if you only save $50, it’ll take you twice as long. Do you plan to stay in your home for more than eight years? For some, that’s an absolute yes, for others, a definite no.
Generally, experts agree that you need to save at least three-quarters of a percent to make it a smart transaction, but each borrower’s plans and circumstances are different. Just make sure it’s not only advantageous for the here and now monthly payment, but also your long-term financial future.
4. Taking out too much equity
Many people refinance as an opportunity to borrow against the equity they’ve accumulated in their home. It’s an attractive way to borrow money because the rates are low compared to other types of loans, and the interest is usually tax-deductible.
Borrowers should be careful, however, that they don’t take out too much equity and leave themselves at risk if housing prices take a deep dive—again. No one ever wants to owe more than their house is worth. You also don’t want to boost your mortgage payment so high that there’s no wiggle room should a financial emergency arise. Leave enough cushion, so you’re not living on the edge.
5. Stretching the term of your loan
Most borrowers begin homeownership with a 30-year mortgage. They pay it down for a few years and then refinance. Now they’re into another 30-year mortgage. Sure, it reduces your monthly payment because you’re spreading your remaining principle over more time, but chances are, even with a lower interest rate, you’ll pay more over the lifetime of the loan.
Unless you’re financially stressed and need to reduce your monthly payment, you might consider refinancing into a new, shorter-term loan that’s closer to the time you have left on your current loan. Shorter-term mortgages traditionally have lower rates. You can save money and a few years on your mortgage without a significant increase, if any, in your current monthly payment.
6. Skipping the Good Faith Estimate review
The Good Faith Estimate is a detailed breakdown of your mortgage loan, including the interest rate and all fees. Be sure to review it carefully and make sure it matches your expectations, without any exceptions. Also compare your final documents at closing to the Good Faith Estimate, especially when it comes to fees. Don’t hesitate to questions any discrepancies and don’t be afraid to walk away if there are significant differences. Chances are that the Good Faith Estimate and the documents will be in good order, but some unscrupulous lenders may try to tack on some fees at the last minute to generate extra income on the loan.
Refinancing your mortgage has advantages and disadvantages, too. So, do your homework, find a reputable lender, and work together to find a mortgage solution that meets your objectives. As a smart shopper, you already know what to look for and which questions to ask, so you’re already ahead of the game.
The Lowdown on Down Payment Assistance
If you’re looking to buy a home, don’t let the fear of a big down payment hold you back. In today’s market, there are so many programs to aid you in the home buying process. So, even though a 20% down payment is typical, it isn’t always necessary. Keep in mind that you’ll pay more interest with a lower down payment, but make the choice that best suits you and your situation. Every home buying experience is different.
Learn about Georgia’s Own Mortgages
What are your options?
For starters, your credit union may offer special programs to help you purchase a home. Georgia’s Own has programs for first-time homebuyers and offers up to 100% financing on mortgage loans. There are also federal, state, and local first-time home buyer programs you may be eligible for, including:
- Dekalb First-Time Homebuyers Assistance Program
- Gwinnett Homestretch Down Payment Assistance
- Fulton County HOP (Home Ownership Program)
- Georgia Dream Homeownership Program
- U.S. Department of Housing and Urban Development
For more ways to save, try cutting out vacation time and expenses that you can afford to do without for a while. Set a strict budget and consider meeting with a financial advisor. It’s important not to empty out your savings completely to pay for a down payment, so explore all of your options before making a decision.
Are you really ready?
Regardless of how much you’ve saved for a down payment, buying a home is a big commitment – consider these factors before making a down payment so you’ll know that you’re ready.
- You won’t be clearing out your savings or emergency funds
- You’ll be staying at this home for at least five years
- You have a good credit score (720 or higher is best)
- You’ve paid off other loan debt (student loans, credit card bills, auto loans, etc.)
- Know all of the fees that come with buying a house rather than just the monthly mortgage payment
If you’ve got all your financial ducks in a row and now’s the time to buy, know that you don’t have to go it alone. Whether you’re still feeling a little overwhelmed or just want more personal help, contact a mortgage specialist to help find the best – and most affordable – way to get into your first home.
Want to know what a potential monthly mortgage payment might look like? Try out our mortgage payment calculator on our mortgage page.
How to plan and budget for a kitchen renovation
Whether you’re updating your home for comfort, safety, or to simply increase its resale value, it can cost a pretty penny. While experts say you can expect to recoup, on average, 56% of a renovation’s cost, the amount varies widely among projects.
Since modern families spend most of their time in the kitchen, updating its functionality is a popular investment. Minor remodels are estimated to pay an 81% return, while higher-end remodels are closer to 59%. Whichever you choose, it’s important to think about a few things before you give your contractor the go ahead:
How long do you plan to stay in your home? If it’s less than five years, keep your renovation costs at a minimum. But, if it’s longer than five years, give more thought to what would make it more comfortable for you and your family. Spending a little more now and being able to enjoy it for a considerable amount of time in the future may justify a bigger budget. While you may recoup less of its cost, the value of your enjoyment is worth something, too.
You don’t want to have the most expensive house in the hood, so a top-of-the-line kitchen in a modest neighborhood might be a mistake. While you want a quality remodel that improves the value of your home, it’s critical not to over-improve so that it significantly sets you apart from the rest of the neighborhood.
Making a list of your wants and needs will help you decide where to spend your money. You should choose quality cabinets and appliances, but might think twice about a wine fridge. Is crown molding a must? Do you absolutely need a double oven and a warming drawer? Remember that buyers won’t pay extra for “niceties” so unless they’re important to the overall functionality of the kitchen, they may need to be closer to the bottom of your list. Your priorities list will also come in handy if you run into some unexpected expenses and need to revise some choices or remove some improvements from the project.
In any home renovation, it’s critical to set a budget and stick to it. Remodels have the potential to cost more than you anticipated, but without a spending limit, you’re almost guaranteed to be overextended. As a general rule, labor will account for 20% of your project cost, Allow 35% for cabinets, 20% for appliances, and 5% for fixtures. The remaining 20% should be earmarked for other items, including unexpected issues that need to be resolved.
To keep your budget as low as possible, you may be able to handle some of the prep work yourself. We’ve all seen Fixer Upper—there’s no reason you couldn’t remove the cabinets, pull up the floor, and remove the appliances instead of paying a contractor to do it.
You’ll also want to keep a spreadsheet of all your expenses and check-in with the contractor regularly. While they should keep you informed of any overages, you don’t want to be caught off guard.
Consider how you’ll pay for your kitchen remodel. You may have money in savings or might be thinking about a home equity loan. You might also consider refinancing your home or even applying for a personal loan. Whichever you decide, be sure to have the funds available at the start of the project. You’ll likely need to pay your contractor for materials and pay for labor as the project progresses.
If your kitchen will be under construction, don’t forget to factor in the cost of eating out and maybe even another place to stay until the renovation is completed.
A kitchen renovation can bring new excitement into your home, but it can also be stressful. Create a budget, follow the plan, and closely monitor the project’s progress. In the end, you’ll have a kitchen that works for you and your family and the funds to comfortably afford it.
Ready to “List It?” Here’s what you need to know before selling your home
Late spring or early summer is arguably the best time to list your home, according to Zillow. School’s out so families are ready to relocate, the warm sun is shining, your lush landscaping is in full bloom, and the longer days invite the opportunity for more showing time. The winner of peak home sales is June, so you’ll be perfectly positioned for the mad rush of eager buyers.
Timing, however, is not the only thing you need to factor into a successful sale. If you’re getting ready to put your home on the market, there are some other important things to consider:
Choose a listing agent
While many sellers would love to avoid paying a real estate commission and list their home on their own, it can be risky. Unless you have considerable experience and understand real estate law, listing your home “For Sale by Owner” could cost you significant time and money. Do your research and find a few licensed real estate agents who are experienced and well versed in your specific market. Interview each one and choose the agent who you feel has the most comprehensive marketing plan, can attract the most qualified buyers, is an effective negotiator, and who can be upfront an honest with you.
Gather important docs
Buyers like to see that a house is well maintained and that repairs and upgrades are done timely and by licensed contractors. A real estate agent should also be aware of any details that can be included in marketing your property. Gather warranties, instruction manuals, and receipts for repairs. Know the age of your home’s appliances, roof, furnace, air conditioning and hot water heater. Include the dates of any home improvement projects such as a bathroom or kitchen remodel, new carpeting or hardwood floor installation, room additions, and window replacements.
Order a pre-listing inspection report
When you’re selling your home, there’s nothing more disappointing than securing a contract and being surprised during the inspection process. Buyers have an easy out if anything of significance or too many items are found to be in need of repair. Hire a licensed inspector to perform a pre-listing inspection, and you’ll know about and have the opportunity to make repairs in advance. This will also alleviate much of the anxiety that accompanies the due diligence period.
Prepare your home for potential buyers
You want potential buyers to oooh and ahhh over your home, not comment on the mess and the clutter. Clear countertops, tables, windowsills, and all other visible areas. Also, don’t forget to straighten closets, cabinets, and drawers since buyers are always curious. You might even consider removing some furniture to make the space feel bigger. Rent a temporary storage unit, donate it, or sell it. You’ll have to decide what to do with it sooner or later, so why not now?
Depersonalize your living areas, too. Potential buyers want to envision themselves living in your home and not be distracted by family photos, keepsakes, or finger paintings. Try to create a blank canvas so they can project their own ideas and visions of a home.
Consider repainting for a fresh, crisp, and neutral look, touch up scuff marks, and make sure your home is clean–especially the kitchen and bathrooms. It’s also a good idea to ask your most honest, unbiased friend to perform the critical odor test. While not necessarily offensive, any distinctive smell in your home can be a deal breaker.
Staging can be a valuable service when selling your home. Professional stagers are design and space experts who evaluate your current furniture and accessory placement and recommend adjustments. They can rearrange what you already own or suggest that you rent or purchase some new items. In the end, they’ll help you take your decorating style to a new level while consciously making choices that are appealing to potential buyers.
Don’t ignore your curb appeal
You only have one chance to make a first impression. Your home’s curb appeal is critical to getting potential buyers in the door. Make them want to see more by mowing the lawn, mulching the gardens, pruning trees, and planting flowers. Consider painting the exterior of your home if it’s been more than five years and pressure wash your sidewalk and driveway. Be sure your mailbox is in good repair and add a plant or two to your front porch. Buyers do judge a book by its cover.
While a professional real estate agent can offer more specific suggestions for your home, these tips will help you get started. The preparation process may not be quick and easy, but in the end, it’ll have more eager, interested, and serious buyers knocking on your door.
How to Buy a House in Georgia | 7 mistakes to avoid when purchasing your first home
You’ve been looking at online home listings for months, driving through neighborhoods on the weekends, and saving every spare dime for a down payment. You’re ready to make the home-buying plunge.
Buying a house is one of the most exciting—and stressful—times in your life. You’re eager to find your dream home and start the next chapter of your life, but let’s be serious. A home is a big investment, and you can’t afford to make a hasty, uninformed, or emotional decision.
Here are a few of the most common blunders homebuyers make and how you can avoid them, or at least learn from their mistakes.
1. Failing to check your credit report
Amazingly, the Federal Trade Commission’s last large-scale study of credit reports found that 26 percent of consumers had at least one inaccuracy in their credit report. Not all of those errors would have impacted their credit rating to the point that it resulted in a higher mortgage interest rate, but it certainly would have for some.
It’s critical to review your credit report at least three months before you plan to apply for a home loan. If you find an error, you’ll have time to dispute it and have it corrected before lenders check your credit report for preapproval. If your credit report is clean, it will improve your credit score and likely impact the interest rate on your mortgage. All consumers can access a free copy of their credit report annually from annualcreditreport.com.
2. Skipping the mortgage pre-approval
There’s pre-qualified and pre-approval. Both show the seller that you’re a serious buyer, but pre-approval requires a credit check and the submission of supporting documentation for income and assets. It will also help you save time by allowing you only to view homes that you already know you can afford instead of falling in love with one that’s outside of your price range. Put in an offer, and a buyer who already has pre-approval has a leg up on a buyer who doesn’t.
3. Missing the Hidden Costs
Once you find your dream home, most buyers simply calculate their mortgage payment and say, “Sure, I can afford that.” When reality sinks in, you soon figure out that you’ll need to pay taxes, insurance, utilities, HOA and maintenance fees. These are the hidden costs that may just push you over the top of your budget. If you’re a first-time homebuyer, it might be the closing costs, appraisal fees, escrow fees, and moving costs, among others. You can’t forget about the added costs that come with purchasing a home and the extra responsibility of being a homeowner.
Ask the sellers about their summer and winter utility costs, HOA fees, and property taxes. Talk with your insurance agent about the cost of a homeowner’s insurance policy and ask your broker for an estimation of your closing costs. Gather as many quotes and estimates as you can so that you can make a more informed decision about whether you can afford to purchase this home. It’s better to know the truth sooner than later.
4. Waiting for everything on your wish list
In the real world, when do we get everything we want? Even when you’re spending $100K, $300K or $500K, there will always be compromise. Here’s our advice: Keep an open mind. It’s unlikely that any one home will have everything on your wish list. You’ll need to separate those wishes into wants, like a fireplace or a fenced yard, and needs, like a garage or four bedrooms. You might even label some of them deal breakers, such as a specific town, school district, or its proximity to your office.
Flexibility is a critical component in the house-hunting processes. The goal is to find the home with the most wants and needs that still fits within your budget.
5. Assuming the neighborhood is just fine
You may have found love in a home, but if the neighborhood isn’t up to par, it could be a costly mistake. With a house comes the neighborhood, so take a good look around before you buy—and do your research. Not everything a homebuyer should consider is out in the open.
Think about the reasons you’re purchasing this home. Do you have children? The quality of schools in the area might be an important factor to consider. Visit the schools personally and take a tour. Review information, rankings, test scores and other analytics online. Drive through the neighborhood at different times of the day and chat with parents as they wait for their kids to come home on the school bus.
Does the neighborhood feel safe at night? Check the local crime reports and registered sex offender list. How’s the local shopping? Where’s the nearest grocery store or park? These are all questions you should investigate before purchasing a home.
6. Not considering the resale value of your home
You’re buying a home, not selling one, so why worry about resale value? It’s simple. Sooner or later you’re going to want to sell this home, and you’ll need someone to buy it. Don’t buy the home with the railroad tracks running through the backyard just because it has a gourmet kitchen that you’ve fallen in love with. There’s a reason it’s priced below market value and a bonus if you can close in 30 days.
The best approach is to look for a home that offers the general preferences of a typical homebuyer. You can paint, decorate and furnish to add your personal style, but when you’re ready to sell, whether in a year due to a job transfer, or in 40 years when you retire to the beach, your home will appeal to the highest number of prospective buyers.
7. Letting your emotions rule your decision
The decision to purchase a home should be made primarily with your head, not your heart. Yes, you should love your new home. After all, you’re investing a ton of money to own it, and you’ll be living in it every single day. But, you shouldn’t be so enamored that you’re blinded to what it can do to your budget. When you’re already spending such a large amount of money, another $10K or $15K doesn’t seem like very much, but it can put you in a tighter financial situation than you’re prepared to handle. One layoff, job change, illness, or any other situation that causes a reduction in salary can easily cause your dream home to become a burden.
One recommended guideline is to spend no more than one-third of your monthly income on housing costs, which includes your total mortgage payment, taxes, and insurance–no matter how tempting it is.
What is a Jumbo loan?
If you’ve ever purchased a home, you know that there are a variety of mortgage loans available to buyers. There are FHA, VA, construction, and subprime loans, fixed–rate, adjustable-rate, and interest only loans. There’s also one called a jumbo loan, which clearly implies it’s going to be huge. Wouldn’t you agree?
If you’re thinking about a jumbo loan, there are a few things you should know. After all, you’re investing in your dream home, and it’s important to be well educated on the type of debt you’re taking on to help fund it.
Conforming vs. non-conforming loans
A conforming loan is one whose loan amount falls within the servicing limits for Fannie Mae and Freddie Mac. In other words, it’s the maximum loan amount that can be purchased from lenders by Fannie Mae and Freddie Mac, two government-sponsored agencies, and sold to investors for the purpose of providing liquidity in the mortgage markets. This frees up the cash necessary for lenders to continue writing real estate loans for other borrowers.
Currently, the conforming loan amount is $453,100 for a single-family home in all States, except for Hawaii and Alaska and a few federally designated high-cost markets.
Regardless of its high credit quality, if the mortgage amount exceeds the conforming loan limit, it is considered a jumbo loan or a non-conforming loan. Jumbo loans are not eligible for purchase by Fannie Mae or Freddie Mac and the lender bears all the risk.
Jumbo loan requirements
Because jumbo loans have higher purchase limits, they’re typically used to purchase luxury homes, vacation homes, or even investment properties. While traditional mortgage loans have strict lending standards, jumbo loans have even more demanding requirements.
Jumbo loans pose an additional amount of risk for lenders, mainly due to the size of the loan. That’s one reason that the down payment requirement is typically 20%. Generally, if a jumbo mortgage loan defaults, a home of that caliber is unlikely to sell quickly and for full price. The lender mitigates some of the risk by requiring a certain amount of equity in the home. Interest rates for jumbo loans are typically a little higher than conforming loan rates as well. Most often, a 1/4 to 1/2 percent increase would be a fair expectation.
Borrowers will also be required to demonstrate financial strength, too. Their debt-to-income ratio should be roughly 45 percent, and they’ll need to plan on a required reserve amount that could potentially be as high as 20 percent of the value of the loan.
If you are able to meet the requirements, a jumbo loan might be the right fit for your financial situation. Of course, there are other options. Be sure to speak with your lender to help you decide which product meets your mortgage needs best.