Refinance

Renovation loans can be a game-changer, when inventory is low or home prices for turnkey homes just aren’t affordable.

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Rate!  Rate!  Rate!   So, you want the lowest interest rate?  We get it.

Interest rates are determined by how mortgage backed securities are sold and traded on Wall Street.  When the market is volatile, so are interest rates.  While it’s my job as a mortgage banker to monitor the market and advise you on when to lock in your rate, when to refinance or suggest options that best fit your financial goals as a homeowner, it’s important to know that there are other ways to reduce the interest you pay on your loan other than simply lowering your interest rate.

Whether you’ve recently purchased a home or have considered refinancing, you should evaluate your mortgage and implement ways to save money.  Let’s look at three methods to reducing the overall interest you pay on your loan.

OPTION 1:   Shorten the Loan Term

Here’s some food for thought:

A person will pay more interest over the life of their loan on a 30 Year Fixed at 4.125% than they would if they chose a 15 Year Fixed at 8.000%!

It sounds like a no-brainer.  If you pay off your loan in a shorter amount of time, you are going to pay less interest.   However, it’s important to understand how an amortization schedule works.   Even though your monthly principal & interest payment on a fixed rate mortgage never changes from month-to-month, the principal and interest amounts do.   Every monthly you make a payment, your loan balance goes down, so, the interest you are paying on the loan balance also goes down.  The principal goes up, keeping your payment the same.  Here’s how the principal & interest break down at various points of the loan term for a $300,000 loan at 4.000%.

Notice how much quicker the interest drops by paying more principal monthly on the 15 Year Fixed.

The numbers become staggering.   For the above scenario the person with the 30 Year Fixed will pay $215,607 in interest over the life of the loan whereas a person on the 15 Year Fixed will pay $99,432 in interest.   That’s savings of $116,175!  If you are comfortable with a 15 Year Fixed payment, it’s a great way to reduce the interest you pay on your loan while expediting your principal reduction.

OPTION 2:   Biweekly Payments

If you pay your mortgage monthly, like most homeowners, you’re making 12 payments a year. However, most lenders provide an option to setup biweekly payments.  Once enrolled in a biweekly payment structure, you’re paying half your monthly amount once every two weeks in lieu of 1 full payment per month. Since there are 52 weeks in a year, you will make 26 biweekly payments — This equates to 13 monthly payments for the year.

Because you’re making the equivalent of 13 monthly payments each year, you will have made the equivalent of 1 extra mortgage payment, all of which gets applied towards principal.  So, you’ll pay less total interest while lowering your principal balance at a much quicker pace.

If we look at a 30-year fixed loan of $300,000 at a 4% interest rate, a person would save nearly $35,000 in interest over the life of their loan.

OPTION 3:   Paying Additional Towards Principal

Even though you may have a fixed mortgage rate and payment, you can always make an additional payment towards principal.  This is similar to biweekly payments where additional funds are applied towards your principal balance, however you choose how much extra you want to pay and how often you want to apply an extra payment towards your loan.   Whether you want to set up a recurring amount to be applied with each month’s mortgage payment, or if you want to just pay a little extra from time-to-time, you can choose how much to pay and how often, and the savings will add up.

Using the same $300,000 loan amount for a 30 Year Fixed at 4%, applying an additional $200/month will save you over $50,000 over the life of the loan.  In addition to the savings your 30 Year Fixed loan will be paid off in less than 24 years.

Calculate Your Savings!

I am happy to provide a consultation to help you find ways to save money on your mortgage payment.  Feel free to contact me for a time to discuss.

You can also use the chart below to estimate YOUR savings by incorporating one of these methods..

VIEW CHART HERE
 

Chris Ulrich – United Home Loans
NMLS #215735

What’s a cash out refinance? Quite simply, a cash out refinance is when you finance the equity you have in your home with a long term mortgage, not an equity line of credit. This is typically done by paying off your existing mortgage balance with a new loan that’s greater than the loan amount you are paying off and your proceeds are greater than $2,000.

With the Fed continuing to raise interest rates, short term loans like home equity lines of credit are directly affected and have become a less desirable option if you’re in need of some cash. The equity in your home is just sitting there, so a cash out refinance is a great way to put that equity to work. Whether you want to pay off some debt, help fund your child’s education, do some home renovations or consolidate your home equity line with your current mortgage, a cash out refinance might be a great option for you.

Let’s look the max loan-to-value (LTV) for a cash out refinance on conforming-conventional and government loans:

How It Works

Here’s an example of how a cash out refinance works for an owner occupied single family home. Let’s say you have a $200,000 loan balance and your home appraises out for $300,000. Since we can take the new loan to 85% of the value, we can pay off your existing $200,000 with a new $255,000 mortgage, giving you $55,000 in proceeds.

Consolidating Current First Mortgage and Home Equity Line

Let’s say you currently have a first mortgage as well as a home equity line of credit. You’ve probably noticed that your rate & payment has been going up on the equity line. Does it make sense to consolidate both loans, especially if you have a great interest rate on your current first mortgage? It depends on what the blended rate between both loans are versus what the new rate will be on the new consolidation loan. Most home equity line rates are structured around the Prime Rate. As Prime continues to rise, so does your blended rate. So even if your current first mortgage rate is lower than the rate on a new cash out refinance, it might still be worth consolidating to a new loan with a rate lower than your current blended rate.

I am happy to run scenarios for you and determine what options might be best for your specific scenario. Don’t hesitate to call or message me for a free consultation. My goal is to help you maximize your balance sheet but also find the right loan structure that fits your current and future goals.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

Whether you are purchasing or refinancing a home, we need to review bank statements. It’s important to know what we are looking for to prepare yourself for a smooth process.

In addition to assessing whether or not you’re able to regularly make your monthly mortgage payments, another role of mine is to make sure you have enough money for a down payment and closing costs. Part of how we do this is by reviewing your bank statements. However, we look a little deeper than just your account balance when approving or denying you for a home loan.

It’s important to make sure all your documents and records are sorted and straightforward before applying for a home loan.

Maintaining a “clean” bank statement

How many months

When applying for a loan, we will request two months bank statements. We will ask for all pages, including the junk pages. If your statement says “page 1 of 4”, then we will require all 4 of the pages. Online statements are acceptable but screenshots are not.

Multiple account holders

Is your bank account held jointly? Is there somebody listed on the account that is not on the loan you are applying for? If so, we’ll need a joint access letter from the other account holder stating that you (the person applying for the loan) has 100% access to all funds in the account.

Transfers from other accounts

The best thing you can do is limit the transfers. Any account you are transferring money from will have to be verified, especially if the transfers are large*. If you introduce another account, we’ll need two months of that statement. If you have large transfers into this new account, we’ll need to verify where those funds came from as well. The best thing you can do is limit the transfers over a 60 day period. *More on large deposits below.

Bank statement warning signs

Overdraft charges

Having a long list of overdraft charges in your account isn’t the best indicator that you’ll be a good borrower. No matter the circumstances, having a history of overdrafts or insufficient funds noted on your statement shows the lender that you might struggle at managing your finances. This isn’t always a deal breaker, but an underwriter may request a written explanation.

Large deposits

Another red flag to lenders is when a bank statement has irregular or lump-sum deposits. We need to make sure your funds are coming from an acceptable source. A large deposit is the sum of all deposits, not including payroll, which exceeds 50% of your gross monthly income. So if you earn $5,000/month, then the sum of your deposits must be less than $2,500, otherwise we’ll need to verify each of the deposits. Cash aka “mattress money” is not acceptable. Gifts and third party loans need to be explained, verified and documented appropriately. Unless you can provide acceptable documentation to paper-trail the large deposit, it’s likely we’ll disregard those funds, lowering your bank account total of acceptable funds for your down payment.

How to reduce bank statement scrutiny

Take extra care of your transactions for at least a few months before applying for a mortgage. Money that has been seasoned greater than two months will not show up in the account details of the statements we are verifying.

It’s best to start the process of organizing your bank activity and statements prior to applying for a loan. Start now. If that perfect home hits the market, you want to make sure your accounts are in order.

If you keep your bank statements top of mind in the initial search phases, you may have an easier time applying for a loan and ultimately securing it. Keep in mind that it’s best to maintain healthy finances throughout the closing process too. We will likely have to verify your earnest money deposit, so we may request additional bank statements prior to closing.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

You should be mindful of your credit profile throughout the entire process of purchasing a home.

Buying a home can be overwhelming for first-time buyers. Lenders will ask you many questions and have you provide documentation to support your application before granting you a loan. And of course, they will require a credit check.

I am often asked if we pull credit more than once. The answer is yes. Keep in mind that within a 45-day window, multiple credit checks from mortgage lenders only affects your credit rating as if it were a single pull. This is regulated by the Consumer Financial Protection Bureau – Read more here. Credit is pulled at least once at the beginning of the approval process, and then again just prior to closing. Sometimes it’s pulled in the middle if necessary, so it’s important that you be conscious of your credit and the things that may impact your scores and approvability throughout the entire process.

Initial credit check for pre-approval
The first thing I encourage any potential buyer to do is to get pre-approved. Many realtors may not even begin to show you homes until you’ve taken this first step. You can apply for pre-approval online, face-to-face or over the phone. Lenders want to know details such as history of your residence, employment and income, account balances, debt payments, confirmation of any foreclosures or bankruptcies in the last seven years and sourcing of a down payment. They will need your full legal name, date of birth and Social Security number as well so they can pull credit.

Once you find a home within budget and make an offer, additional or updated documentation may be required. Underwriters then analyze the risk of offering you a loan based on the information in your application, credit history and the property’s value.

Credit check during the loan process – maybe
Depending on how long it takes from your pre-approval until finding a home, contracting and then closing, a lot of time could pass. As determined by Fannie Mae guidelines, credit reports are only good for 120 days, so if you get pre-approved then find a home a few months later, your report may expire during the process and need to be re-pulled. Other reasons to re-pull might be to if you cleaned up some debt, removed disputes or had erroneous items removed that could impact your interest rate.

Final credit check before closing
Depending on how recent your initial credit report was pulled and how long your contracted closing date is, a lot of time can pass from the start of the process thru the date of your closing. Since your credit report is simply a snapshot of your credit profile, it’s understandable that things can change and new credit incidents may occur on your history. Lenders pull credit just prior to closing to verify you haven’t acquired any new credit card debts, car loans, etc. Also, if there are any new credit inquiries, we’ll need verify what new debt, if any, resulted from the inquiry. This can affect your debt-to-income ratio, which can also affect your loan eligibility.

This is known as a soft pull. We don’t actually generate new credit scores, and it will not show up as a hard pull on your credit record. If the final credit check results match the first, or if your debts have decreased, closing should occur on schedule. If the new report has increased debt, the lender may ask you to provide more documentation and send your application back through underwriting to make sure you still qualify.

It’s important for buyers to be aware that lenders run this final credit check before closing. If you ever need to open a new credit card or make a major purchase before your loan closes, be sure to contact your lender first to make sure the new debt doesn’t affect your approvability or your closing date.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

So you want to have work done to your house. Maybe you want a simple update, rehab your kitchen & bath, or maybe you want to put a full addition on the house. Where do you start and what program is best for you?

It starts with having to know a few things.

• Get a rough estimate in costs needed for the work (labor, materials, repairs, permits and architect/engineer if applicable). It’s a good idea to get a quote from a general contractor & architect up front.
• Speak to an agent to get an idea of what your home may be valued at once the work is completed.
• Know your current home loan balance.

Knowing the answers to these questions will help us determine your program options.

Construction Loans or Construction-to-Perm loans
These typically are used for big jobs, additions and knock down/rebuilds. These loans require a bit of equity and/or additional funds out of pocket. Construction loans may require 20%-30% equity in your future home value. For example, if you have a $300,000 loan on your home and the future value after construction is $500,000, a construction lender that will finance up to 80% means your total loan can’t exceed $400,000 (80% of $500,000). The construction loan will pay off your existing $300,000, leaving you $100,000 for the work to be completed. However, if the work costs $125,000, you will have to put the additional $25,000 into the project.

Construction loans are typically short term. They have higher than market interest rates and are typically variable rate loans. As your home is being built or renovated, the lender will pay the contractor directly after each interval or phase of the build is completed. This can require multiple inspections and title updates/fees.

Once the work is completed and/or you obtain a certificate of occupancy, you’ll want a permanent or fixed loan. This is usually done by refinancing yourself out of the construction loan and into a fixed rate mortgage.

If you don’t have that much equity in the home or the future appraised value (based on comparable home sales in the area prior to the build), you can expect to have quite a bit of skin in the game.

Cash Out loans
This is the easiest way to get financing but will require the most equity because the future value of the home is NOT taken into consideration. We will look at your current appraised value and can lend up to 80% of it. For example, your home is worth $300,000 but valued at $400,000. We can only lend to $320,000. So your existing loan gets paid off with the refinance and you are left with an additional $20,000 cash. This might be perfectly fine if you just want to do a small job, update your kitchen cabinets or a bathroom.

Unlike a construction loan, you are given the money directly. This is nice because if gives you the flexibility to do some work yourself and purchase items that normally wouldn’t be included in a construction quote i.e. furniture, home theater or the catering for your house warming party.

United Home Loans Mortgage Makeover & FHA 203k
These programs are perfect for those people that have very little equity in their home. It is very similar to a construction loan but caters to individuals that just don’t have the funds saved to do the work. You’ll still need a licensed contractor, a quote for labor, materials, repairs and permits, and the contractor gets paid in phases throughout the process. The lending is also based on the future value of the home, but unlike the construction loans these are FIXED RATE loans and they have loan limits. Typically these products are used for renovations but NOT major additions. Do you have 5%-10% equity in your house and need $20,000 – $50,000 for updates? This is likely the perfect product for you.

Home Equity Line Of Credit
Think of this as a credit card with a lien (mortgage) on your house. You only make a payment based on the loan balance. Payments are interest only and can adjust with the Prime Rate. Anytime you hear about the Fed raising or lowering rates, you’re rate will be affected. Lenders are becoming a bit more flexible with credit lines up to 90% or 95% of your home value, but variable high interest rates make this product less desirable. The upside of the line of credit is your ability to draw on it, pay it off, then draw again and again as long as you leave the equity line open.

Whether it’s a minor update or major facelift, there are programs designed for your situation. Call or message me to discuss which option best fits your needs.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

How important is it that you shop for the lowest interest rate? Sure, rate is important, but it means nothing if you work with a lender that can’t deliver on your loan, meet contracted closing dates or leave you feeling abandoned from lack of communication. Service is important, so you need to align yourself with the right lender that not only has competitive rates, but has good communication and a process that gives your loan the attention it deserves.

If you want to avoid homebuyer’s remorse, it will require a bit more than just choosing the right home in the right neighborhood. According to a recent survey by J.D. Power, 27% of new homeowners ultimately came to regret their choice of lender this past year. The major reasons for their dissatisfaction include: lack of proper communication, expectations not being met, and poor overall customer experience. Another reason many are unhappy with their lenders is due to pressure from those lenders to choose a particular product or loan. The best way to not feel pressured by a lender is to be prepared and to have certain criteria with several questions ready to ask them. You can eliminate some of the hassle of house-hunting by carefully filtering through potential lenders.

Here are 10 important questions to ask potential lenders before committing to one:

1. Are you a broker or a banker?
This is by far the least asked question I get. So what’s the difference? A mortgage broker is the middle man between you and the actual lender that services your loan. They give you advice and take the loan application but pass everything off to the lender for review. They don’t underwrite your loan in-house and they don’t fund your loan either. You can expect longer turn times as they have little control over the process. Will you meet your financing contingency date? Will you meet your contracted closing date? Will the loan funds make it to closing? Your guess is as good as mine.

A mortgage banker, similar to the broker, may not actually be the one that services your loan after you close. However, bankers have full control over the process. They can process, underwrite, prepare your closing documents and even fund your loan with their money. They tend to be more flexible as it pertains to exceptions and rush requests. You can expect a much smoother process, better service and shorter turn times than a broker.

2. What mortgage programs do you offer?
You don’t necessarily need to know about every single loan type possible but it’s important to know if they offer loans unique to your situation. A seasoned loan originator can help guide you towards the right product, but if you have a 580 FICO score, it’s good to ask if they have loan programs for people with lower credit scores. Are you looking to get a jumbo mortgage (loan greater than $453,100) and only have 5% down payment? These programs exist, but not all lenders offer these products. In most cases, choosing the best loan for your specific financial situation requires working with a lender who offers a wide array of loans. Remember, this is one of the largest investments you’ll make in a lifetime, so make sure you work with a lender that caters to your needs and doesn’t try to steer you into a program that simply doesn’t make sense for you.

3. What are the qualifications for the loan I’m seeking?
Here’s an example of a deal that I was recently asked to jump in and try to salvage. A military veteran was purchasing their first home using VA financing. This is probably one of the best products available, but depending on the property type, there could be roadblocks along the way. The original loan originator didn’t ask the right questions and drew up a pre-approval letter for a VA loan. The buyer contracted on a condo only to find out the condo project wasn’t already VA approved – A mandatory process for condos on government sponsored loans. Several weeks went by without progress, so I was asked to help. The seller was going to cancel the contract unless the buyer switched from a VA loan to conventional. We got the deal done, but all the stress, pressure and frustration amongst all parties could have been eliminated if the loan officer managed expectations day one. This first-time homebuyer isn’t expected to know these guidelines, but if the buyer understood the condo project had to already have been VA approved, then she would have either chose alternative financing or contracted a closing date much further out to give the lender time to get the condo project approved.

The point is, have a discussion with the loan officer about qualifying. Not just the credit profile of the buyer, but property type, location and any potential issues that could arise. Lending is tricky with over 1,400 pages of guidelines. All parties need to be on the same page, and you need to work with a lender that understands the qualifications for your particular loan.

4. What programs do you offer to first-time homebuyers?
Many first time homebuyers think there are specific programs out there JUST for them. They are right, but often times first-time homebuyers don’t actually need these programs. Some programs cater to those with little down payment, lower income and in some cases buyers can receive down payment assistance. With every Pro, there’s a Con. If you’re receiving a loan with low down payment, you can expect the PMI cost to be much higher. If you are getting a grant for down payment assistance, you can expect the interest rates to be much higher. First-time homebuyer or not, these programs may or may not be the right fit for you. However, it’s good to have a conversation about the products you are eligible for.

5. Can you give me an estimate of the rates and fees I can expect to pay?
While an initial estimate doesn’t guarantee your final, out-of-pocket expense, it can be a solid starting point for evaluating lenders. Rates fluctuate, so try comparing lenders on the same day to get the most accurate mortgage rate comparisons. Again, these rates won’t always be the same or 100% accurate, but they will give you an idea right off the bat of lenders to potentially pursue and lenders to avoid.

6. Can you quickly provide an in-depth pre-approval letter to my real estate agent?
If you are house-hunting in a hot real estate market, time is of the essence. Make sure the lender can quickly provide an in-depth preapproval letter to your real estate agent. You want a preapproval letter that makes the seller confident you qualify for the home and ideally, you want it to be delivered before competing offers arrive, giving you a better chance at the deal you want.

Most realtors actually want this letter before taking you out to show properties. You should make your loan originator your first point of contact in the home buying process.

7. What is your rate lock policy – Do you monitor mortgage backed securities?
Since a small change in rates can cost thousands in the long run, check to see the lenders mortgage rate lock options. Be sure to ask about the associated fees, including how much it costs to extend the lock should it expire before closing. You are going to need to lock your loan at some point, but typically the shorter the rate lock period, i.e. a 30 day lock versus a 60 day lock, has a better rate. If your closing date is in 35 days, is it best to do a 45 day lock or is it better to wait 5 days and do a 30 day lock? A mortgage professional who monitors mortgage backed securities can look at trends and understand if any upcoming financial news could impact the direction of interest rates. While nobody has a crystal ball, it’s best to work with a lender that has some understanding of mortgage bonds and recent trends to help provide you with an educated decision on the best time to lock.

8. Do you handle mortgage loan underwriting in-house?
This is an important question to ask. If the loan underwriting is completed in-house, loans can be processed quicker and questions answered more efficiently, and that means fewer potential complications or delays that could push back a closing date. Underwriting that takes place externally (brokered) can get very unorganized and become a terribly slow and painful process. These kinds of situations can sometimes cause a sale to fall apart due to lack of patience.

9. What is the estimated time for processing my home loan?
When you are coordinating the end of a current lease or timing a home sale with a new home purchase, knowing the estimated time it will take to process your loan is key. Of course, it’s always a good idea to build in a small buffer if you can, and not just because loan preparation can take longer than expected. Surprises sometimes pop up during the final walk-through before the home sells so it is a good idea to have a rough idea of how long it will take to process the loan before finalizing.

10. Can I expect communication in a straightforward and timely manner?
If your communication thus far hasn’t been efficient and helpful, that could be a bad sign of things to come. Find out if you’ll have a single contact who you can count on or just a general customer service line. Establishing a good working relationship with one person is usually the better move versus trying to deal with and explain things more than once to a handful of different people.

In Summary
Make sure to do your research and be prepared before entering these conversations. This is your money, your investment, and your life that is being affected, so do not be timid to speak up and help yourself. You will be thankful in the future for spending the extra time and effort to get yourself the better long-term deal.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735