Fed Making Moves: December Rate Hike and New Chair Coming Soon

The interest rates paid on borrowed money (and earned on certain bank accounts) are often tied to decisions made at Fed meetings. And every time the Fed increases the federal funds rate, it’s not long before consumers pay higher rates on money that’s already borrowed — unless the account comes with a fixed rate.

So, if you’re among the 38 percent of U.S. households with credit card debt, you can generally count on any move by the Fed affecting the interest you pay on it.

When will the next rate hike happen?

It’s been strongly suggested that one is coming in mid-December of this year. And in related news, a new Fed chair is also in the works with that change coming February of 2018. Jerome Powell is expected to be the next in line, pending confirmation by the Senate. Along with a new chair will come a new strategy in influencing interest rates.

Is an interest rate hike coming soon? Should I wait to refinance?

How will you be affected?

That said, now is the time to be proactive in taking care of high-interest debt. According to creditcards.com data, the average interest rate is 16.15%. That’s not capturing retail credit card data, which is currently averaging around 24.99%. So if you have a $200 balance on your favorite department store’s credit card, you can expect to pay an extra $50 in interest alone. Why waste your money?

Refinancing is a great way to take care of high-interest debt. Current mortgage interest rates are in the high 3’s. So, you can refinance to lower your rate and save hundreds each month. You can use those savings toward faster credit card payoff. Or, depending on the amount of equity you have in your home, you can even do a cash-out refinance to pay off serious debt amounts. If you live in the West or South, chances are you are enjoying above-average housing gains — making a cash-out mortgage refinance even more attractive.

Regardless of where you live, a mortgage refinance can be an extremely beneficial financial savings tool. The best way to learn more is to discuss your personal goals with a salary-based mortgage expert. You can get answers to your questions and choose a custom home loan that’s a better fit for your current (and future) needs. Get started today!

New Homeowner Checklist: 9 Steps to Turn Your House into Your Home

By: Justin Brown

Finally, you’ve secured the house of your dreams. Congrats on becoming a homeowner! At last, you can breathe a sigh of relief and relax…right?

Not so fast.

Becoming a homeowner is no small feat, a series of important tasks still awaits you. Luckily, we’ve created a checklist to help you settle into your new residence in no time.

Things to do

  • Replace your locks. Security is first and foremost. Although you’re now the homeowner, there is no telling how many people possess the key to your house. Not only is it relatively inexpensive and fast to have a locksmith install new locks, but the payoff—your family’s safety—is invaluable.

Change the locks to your new home as soon as you move in.

  • Take care of the essentials. To be sure your house is livable upon your arrival, coordinate appliance and furniture delivery in advance. You don’t want to be caught without a stove or a refrigerator—not to mention without electricity and running water. This is why it’s also crucial to immediately set up all of your utility accounts, including water, gas, television, phone, internet, trash, and so on.
  • Get to know the ins and outs. Right away, make a point to locate the main circuit breaker and water valve. You’ll also want to locate and test the smoke and carbon monoxide detectors. Knowing where these crucial items are will save you time. Plus, you can enjoy peace of mind knowing that everything functions properly.
  • Clean it up. You’ll thank us later—this task is much easier to carry out when your home is empty. Yes, even before the boxes are unpacked. With those hard-to-reach places readily accessible, you’ll be able to more efficiently scour the floors, windows, and other surfaces to remove the inevitable dust and dirt that come with moving. The space will already feel more welcoming once it is fresh, clean, and tidy. From there, you’ll be free to personalize it by painting the walls to match your unique taste and décor. The work you put in now will help you create an environment that feels inviting, comfortable, and all your own. You may even take it one step further — one day — and update appliances or curb appeal.
  • Change your mailing address. Make sure that your mail is being routed to the correct place. You don’t want bills and other important documents arriving at your old address. Fortunately, the process is simple and flexible with two different options: you can either change your address in person at the local post office, or do it online via the USPS website.

 

People to talk to

  • Scope out the local schools. Whether you handle it before or after moving, finding a reputable school is key to ensuring your child receives the best possible education. To help narrow your search, ask for recommendations from friends and neighbors. Then, cross reference their suggestions with your own online research. You can even call the school personally to arrange an in-person meeting. This way you can feel confident in knowing what to expect and rest assured that the school you ultimately select is the right fit.
  • Assemble your health care “dream team.” Take initiative to find local health care providers before you need them. Don’t wait until you’re sick or overdue for a check-up. Getting set up with a local dentist, primary care physician, and other specialty medical practitioners will save you time down the road. Plus, you’ll have the best contact on hand when an appointment becomes necessary. During your search, bear in mind your specific medical needs. Choose someone experienced and with whom you are comfortable. Similar to finding the right school, you can find health care providers by asking around for recommendations, conducting an online search, and finally, arranging a face-to-face meeting.
  • Take advantage of the Homeowner’s Association (HOA). Reach out to the local HOA in your new community to learn their meeting schedule, along with any rules or regulations that you should be aware of. This will also help you to become more involved and connected in your community. Plus, most HOAs are a great resource for finding information on local restaurants, night life, social gatherings, gym memberships, and more.
  • Protect your children and pets. A lesser known, but potentially life-saving tip: visit your local fire station to obtain window stickers. Place them on your children’s bedroom windows and on windows where pets sleep. Don’t forget to keep at least one fire extinguisher on each floor of your home.

As you complete these new homeowner checklist items, we wish you luck every step of the way. Soon, you will experience the incomparable sense of accomplishment that comes with making a new house a home.

 

Justin Brown is a marketing manager for American Financing, a national company employing salary-based mortgage consultants dedicated to helping homeowners make smart mortgage decisions that align with their unique financial goals.

 

Down payment preferences and how they influence the cost of a home

Survey: 53% of Americans Prefer a 10% Down Payment

Here’s What They May Be Missing…

American Financing today released its inaugural Mortgages in America Survey, an in-depth study examining mortgage, renting, and home ownership trends and preferences across the generations. According to the survey, 53% of Americans—including the majority of Millennials, Generation Xers, and Baby Boomers—prefer a 10% down payment over 15%, 20% or 30%. Although seeking the lowest option may seem intuitive to consumers, this finding suggests that they are neglecting to consider—or perhaps are unaware of—other factors that can influence the cost of a new home.

While affordable housing programs allowing a 10% down payment are available and appear to be an attractive option to prospective home buyers, it’s important to consider factors like private mortgage insurance (PMI), which can play a significant role in the overall cost of a home. In essence, the lower your down payment, the higher you can expect your private mortgage insurance costs to run (with your credit score also playing a major role).

Private mortgage insurance can add a substantial sum to your monthly costs. This is typically a few hundred dollars. So, putting down 20% may be more ideal for avoiding additional expenses. In that case, the bank is only taking on 80% of the risk, and so they will likely not require you to purchase extra insurance.

 

Down payment chart illustrates the preferences of home buyers by generation.

 

In addition to down payment preferences, survey findings also revealed the following:

Mortgage length preferences

Data on mortgage length preferences revealed generational variation. That is, while 30-year mortgages are most preferred among Millennials and Generation Xers, Baby Boomers prefer 15-year terms. As expected, older generations prefer to—and can afford to—pay off debt more quickly than younger generations.

 

Renting vs. home ownership

According to the findings, less than a quarter of Millennials (24%) and just under half of Generation Xers (49%) own a home, while the majority of Baby Boomers are homeowners (77%).

On the flip side, 54% of Millennials are currently renting, compared with 39% of Generation Xers and just 20% of Baby Boomers. Notably, an increase of less than $100 per month would be enough to send nearly 40% of those renters packing—and a $101-$300 increase would cause another 37% to consider a move.

 

Marital status

In addition to comparing generational data, the survey also explored marital status. Results showed that married prospective home buyers are more likely to have a timeline of one to two years (37%). Meanwhile, single home buyers are more likely to cite five years as their ideal timeline to buy (41%).

 

Just how well informed are Americans on mortgages?

Based on the data, a majority of Americans (56%) who are looking to purchase a home in the next five years do pay attention to mortgage interest rates. Still, nearly a quarter of Americans do not understand how interest rates work (23%), with Millennials being the least likely to understand (26%).

For Millennial renters who are already concerned about college debt and the rising cost of living, lacking a fundamental understanding of mortgages can be a significant barrier to purchasing a first home. As such, it is crucial for younger generations to educate themselves and learn about their options.

With an eye on purchasing a home in the next five years, prospective buyers—and Millennials in particular—should make sure that they are saving enough money to meet their desired 10% down payment when the time comes. Setting a budget now will help immensely down the road when you’re ready to close. With that in mind, here are some strategies you can implement oto ensure that you are saving enough for a minimum 10% down payment:

 

How to save for a down payment

Create a plan based on your target timeline. Calculate how much you need to save each month in order to make a down payment in one year, three years, five years, or whatever your time frame may be. Then, put it into practice! Set aside that amount of money from your paycheck each month until you have met your goal. Of course, this isn’t as easy as it seems in theory. It may require delaying gratification or cutting expenses from other parts of your budget. Foregoing that weekly coffee or cocktail will be well worth it when you finally have the keys to your home.

Look into home buyers assistance programs. There are countless home buyers assistance programs available all over the country. Do your research and locate the ones that are available in the area you’re aiming to live. Also, consider combining them, allowing you to stack your savings and making home ownership more affordable and accessible.

Use gift money. One lesser-known way that you can obtain money toward a down payment is through financial gifts. Gifts can be used for conventional loans, as well as FHA, USDA, and VA loans. Gift donors can be a family member—related by blood, marriage or legal guardianship. Or, in the case of FHA loans, even an employer, charitable organization, friend or government agency may contribute.

And remember—before blindly aiming for that 10% down payment, bear in mind the additional expenses it entails. Be sure to factor in PMI or mortgage insurance premium (MIP) costs. Then, consider whether or not it truly makes sense to put 10% down. It may, in fact, be more expensive in the long run. If that’s the case, it is wise to adapt your savings plan to meet a 20% down payment instead.

Equipped with the proper knowledge and adequate savings, the home of your dreams is within reach. And, before you know it, you’ll be walking through the front door.

 

Methodology:

The Mortgages in America Survey was commissioned by American Financing and was conducted online using Survey Monkey. One thousand participants were polled, spanning across the United States. The demographic of those polled represented a broad range in household income, geographic location, age and gender.

10 Mortgage Questions You Should be Asking Your Lender

By: Justin Brown

Whether buying a new home or refinancing an existing mortgage, establishing a relationship with your lender and asking them the right mortgage questions is key. To help you navigate this process and gain the valuable information you need, we’ve identified ten questions that you should be asking your lender.

Mortgage questions to ask when purchasing a home

First-time home buyers, and even seasoned buyers, should educate themselves on fees, interest rates, loan terms, and assistance programs before interviewing potential mortgage lenders. Doing so can be incredible helpful in your decision making process when it comes down to choosing a lender and a loan program.  Suggested home purchase mortgage questions include:

Do you charge anything out of pocket?

Not all lenders have the same fees. Some charge application fees, and many charge upfront appraisal fees. So, it’s important to shop around. American Financing does not charge anything out of pocket, keeping your focus on finding the right house and the right loan program. You shouldn’t have to worry about making payments to a lender before you’ve found a home.

 

Are there any programs offered that can help me with my down payment or closing costs?

There are many programs that assist home buyers with down payment and closing cost assistance, especially those who are buying a home for the first time. And, anyone who has been pre-approved for a mortgage can qualify for government aid.

Start by searching the U.S. Department of Housing and Urban Development (HUD)’s list of local home buying programs that are available in each state. Or, contact your state or county’s housing authority. Keep in mind, a dedicated mortgage lender will be on top of available options as you are going through the mortgage process.

 

What loan program is best?

The best loan program is one that’s going to meet your financial needs: taking into consideration what you can afford and what your future goals are. So, it’s extremely important to choose a lender that has salary-based employees. A lender that pays commission for getting borrowers into loan programs may not have your best interest in mind.

Some popular loan programs to consider:

  • FHA – expect a low down payment, relaxed credit requirements, and affordable monthly mortgage payments. It’s a popular, government insured program for first-time home buyers.
  • VA – veterans and active duty servicemembers have access to incredible benefits like: no down payment, no mortgage insurance, and some of the lowest interest rates in the industry.
  • Conventional – Choose between options with low monthly payments or shorter loan terms. And, depending on your down payment, you may be able to avoid private mortgage insurance (PMI).
  • CHFA – Specific to Coloradans, a CHFA loan can get a first-time home buyer into a new home for as little as $1,000 down. Plus, CHFA programs offer support with closings costs and even provide a first-time home buyer education class.

 

What is my interest rate going to be?

Your credit score, property location, and loan program are key factors in how your interest rate is determined.

  • Your credit score: This is a number lenders use to understand your ability to pay back loans. The higher your credit score, the better your interest rate. If you’re able to take the time to raise your credit score before making a home purchase, you may want to consider doing so. Though, if you’re looking at a score of 620 or more, and you’ve already found the home of your dreams, you can feel confident there is a loan program out there for which you qualify.
  • The property location: lenders may have different rates depending on the state you live in. Explore rates, by state, by visiting the Consumer Financial Protection Bureau (CFPB)’s interactive rate tool.
  • Your loan: When shopping loan programs, you’ll learn about different terms, categories (conventional, FHA, VA, etc.), and rate types (fixed or adjustable) that are available.  Your loan choice – and the down payment you make – will help determine your interest rate. Be sure to weigh the pros and cons of each program, and work with a lender who will help customize a loan to best fit your financial needs.

 

Is there a prepayment penalty on my loan?

A lender may charge a prepayment penalty if you choose to pay off your mortgage early. In today’s market, most mortgages do not have prepayment penalty fees. And, they typically do not apply if you pay more toward your principal balance, but it’s a mortgage question that’s worth asking.

 

Couple asks their lender mortgage questions before signing their purchase agreement.

 

Mortgage questions to ask during a refinance

 

Essentially allowing you to trade your existing mortgage for a new loan with more favorable terms, refinancing is beneficial under the right circumstances. Here are mortgage questions to ask when considering a refinance:

Is refinancing appropriate for me?

First thing’s first: refinancing isn’t for everyone. That’s why it’s important to be up front with your lender and ask them if you are a good candidate. A general rule of thumb is that refinancing becomes worthwhile when the current interest rate on your mortgage is at least two percentage points higher than the prevailing market rate. Additionally, opting to refinance makes sense if you:

  • Have high home equity. More equity means that you may receive more money from a cash-out refinance or have a lower monthly payment.
  • Have good credit. Just like a new home mortgage, your credit score can play a big role in getting approved for a refinance. The higher your credit score is, the lower your interest rate will likely be.
  • Plan to live in your home for years to come. A refinance is only worthwhile if you will be staying in your home long enough to recoup the cost of refinancing.

 

What are the advantages of refinancing my mortgage?

Once you’ve determined that refinancing is appropriate, it’s time to evaluate the benefits. Many homeowners refinance because it can allow them to:

  • Lower their interest rate and/or monthly payment.
  • Shorten their loan term so that they can pay off the mortgage faster.
  • Switch from an adjustable-rate mortgage to a fixed-rate loan.
  • Eliminate private mortgage insurance (PMI).
  • Use equity to get cash for paying off debt, remodeling, or anything else they’d like to use it for.

For specifics on what you can personally gain from a refinance, ask your lender to lay out the advantages in detail.

 

What fees will I be required to pay?

While it can save you money in a myriad of ways, refinancing, like most things in life, does not come without a cost. Before moving forward, it’s important to weigh the pros and the cons of refinancing. The main disadvantage of refinancing is that transaction fees can add up quickly. Below are just some examples of the expenses associated with refinancing:

  • Mortgage application fee
  • Loan origination fee
  • Appraisal fee
  • Title search and title insurance

Above all, ask your lender exactly what you will be required to pay before arriving at any decision. Taking all of the fees into account, make sure that the amount you save by refinancing will outweigh the costs of doing so.

 

How long will the process take, and will I be working with you throughout the entire process?

In addition to considering whether you have the money to refinance, think about whether you have the time. While 4-6 weeks is standard, the duration depends on many factors. So, it’s crucial to seek an estimate from your lender. From there, it is always worthwhile to follow up by asking if there is anything you can do to consolidate the process. Inquire which documents are required, and get them in order as quickly as possible.

Given that refinancing can take a considerable amount of time, it is far easier to work with a single lender and handle everything in the same place. Being passed around from person to person often leads to confusion and frustration. So, find a lender you trust and who will work with you consistently. The refinancing process should flow smoothly, and if it doesn’t, you may want to consider a new lender.

 

What is the best deal you can offer me within my price range?

Be straightforward with your lender. They are there to help you make a well-informed decision and find a solution you can afford. It is their job to be completely transparent with you about the costs and benefits of refinancing. That said, we recommend checking online to see what interest rates are available before walking into your lender’s office. Don’t necessarily take everything you find on the Internet at face value. Use this research so that you can have an educated conversation allowing you to communicate exactly what you’re looking for.

 

Justin Brown is a marketing manager for American Financing, a national company employing salary-based mortgage consultants dedicated to helping homeowners make smart mortgage decisions that align with their unique financial goals.

3 Common Mistakes Borrowers Make During the Home Loan Process

By: Carrie Niess

The home loan process can be daunting — especially if you’re a first-time home buyer who doesn’t know what to expect. Fear no more. We took some time to discuss common mistakes that happen throughout the home loan and purchase process, to better prepare you for what not to do.

1. Starting the home loan process too late

An American Financing assistant manager says, “People tend to start the process backwards.  We always suggest to get financing approved before the home search. This allows us to assess your needs and get you quickly pre-approved. Every now and then, customers call in and say that they want to put an offer in on a home, but are not approved. While it’s perfectly acceptable to find a home first, there’s only so much we can do in a short time before another buyer — with pre-approval — comes in and gets their offer accepted. This is especially true in hot, seller’s markets like Denver. That’s why we always recommend getting approval going 30-60 days prior to shopping.”

Let’s consider the stumble across your dream home scenario. Say you’re passively searching for homes and surprisingly come across everything you’ve always wanted and more. Talk about a piqued interest level. The price point seems reasonable, so you begin actively researching mortgage lenders to see where you can find the best rate, hopefully in the shortest amount of time. Only now you find out, your spouse’s less than perfect credit, or your rather high debt-to-income (DTI) ratio are limiting the amount to which you qualify. It can be heartbreaking. Why not avoid it altogether and learn upfront what you can afford.

Not ready or committed to starting the home loan process? No worries. You can start slow by consulting a home affordability calculator.

 

2. Focusing too much on the rate

An American Financing sales manager says “a lot of home buyers — and even homeowners looking to refinance — spend too much time concentrating on the rate without regard to anything else. Don’t be rate driven. In a lot of cases, a lower principal balance with fewer fees has a lower payment than a lower rate with higher fees.”

Not to mention the fact that interest rates generally don’t move much. The right property comes along rarely enough that overemphasizing rates can cost you—especially now, where home prices continue to rise around the country.


To put things in perspective, rate increases raise monthly mortgage payments but not as much as home buyers expect. A quarter-point change isn’t likely to alter the monthly payment on your mortgage by more than $20-$30, at the most. For example: on a $200,000 home with a 30-year mortgage, the expected increase of a quarter of a point translates to paying roughly $30 more per month.

 

3. Buying more house than necessary

An American Financing mortgage consultant says that “buyers find most long-term success when figuring out what they can afford, how much they can put into a down payment, and then sticking to the plan. Creating a budget and determining a comfortable monthly payment is key. Just because you are approved for a higher loan amount does not mean you have to overextend yourself. Live within your means, and you’ll be better prepared to avoid financial losses.  If something were to happen and you needed to quickly sell or rent the property — remember, markets change. If you bought the largest home in the neighborhood, that might not help when it comes to selling.”

Finding an amazing home and ready to start the home loan process. Where to begin?

 

Buying a home is likely the biggest purchase you’ll make. And, a good rule of thumb is to spend 28 percent of gross income on housing. Regardless of the pre-approved loan amount, take the following into consideration:

  • Down payment. The more you can put down, the less likely your chances are of having to pay monthly mortgage insurance. And, the less you put down, the higher your monthly payment. Be sure to ask yourself if the monthly payment is worth accepting the higher loan amount. Should you find the home of your dreams, it just may be. But you’ll want to strongly consider your financial situation and talk it through with an advisor or mortgage consultant before making a rash, emotional decision.
  • Homeownership costs. Don’t become house poor by purchasing too much home. You’re going to experience utility bills, potential issues (like water heater or roof replacement), and even home furnishing costs. According to a recent report shared by Zillow and Thumbtack, small, overlooked home expenses can cost homeowners an average of $9,080 a year.
  • Investments (retirement). Can you put more money aside for your 401k or IRA? It may make more sense to invest in your future than to invest in a larger home or a home in a more expensive neighborhood. Still, do your research. A home itself makes for a great investment. If you choose the right property and location, the equity you’re building may bring a greater return than other financial investments.

Take your time to prepare before committing to a home investment. And, always remember you have options. Options in mortgage lenders, properties, realtors, and loan programs. When you’re ready to experience the journey toward home ownership, choose to work with a company that has your best interests in mind and is focused on your schedule.

 

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Carrie Niess is a copywriter for American Financing, a national company employing salary-based mortgage consultants dedicated to helping homeowners make smart mortgage decisions that align with their unique financial goals.

 

Surviving Natural Disasters: Tips for Financial Preparedness and Mortgage Relief

Ensuring immediate safety is paramount to anything else. Find success by having a plan ready and easy to access in time of need. While online formats seem to make the most sense, many disasters will affect internet service and electricity. It’s always a great idea to have hard copy backups in case you need immediate access to files. Even more importantly, ensure your entire family understands what to do, where to go, and who to call.

Read more

Your mortgage payment explained: principal, payoff, escrow, and more

By: Carrie Niess

A mortgage payment is a significant amount of budget spent each month. Contrary to what you may have thought, it’s more than just a house payment. There are taxes, fees, and other line items that may not be easily understood until undertaking a mortgage.

They are relatively easy to see, though. Take a look at your mortgage statement. Do you see a breakout of charges? These charges typically fall into the following categories:

Principal. The money owed to pay your loan balance. This is specifically based on the amount of money borrowed and does not include interest.

Interest. A percentage charged to the loan balance as repayment to the lender.

Escrow. Escrow is money set aside so a third party can pay property taxes and homeowners’ insurance premiums on your behalf. Why? Each month, homeowners are required to pay a portion of their estimated annual costs, including principal and interest. Current law permits a lender to collect 1/6th (two months) of the estimated annual real estate taxes and insurance payments at closing. After closing, you will remit 1/12 of the annual amount with each monthly mortgage payment. So, your statement will include a line item — “escrow” which states just how much you owe for that month.

Looking under escrow you will see:

Taxes. Here we are talking about property taxes, which are owed by you – the homeowner. Each monthly mortgage payment will include 1/12 of your annual property tax bill. Those monies are often kept in an escrow account, which is further defined below.

Insurance. If you see the general term “insurance” on your statement, it’s referring to hazard or homeowners’ insurance. You’ll make an initial year’s worth of payments before closing, as part of your closing costs. This insurance will cover you against losses related to your home structure, like fire or hail damage. Going forward, and similar to taxes, your lender will collect 1/12 payment to cover ongoing premiums.

Mortgage Insurance. As far as mortgage insurance goes — that’s dependent on loan program and the amount of down payment you made. If you put less than 20% down or are using an FHA loan, expect mortgage insurance fees to also live on your statement. It’s purpose: to protect the lender against losing its investment.

Keep in mind your lender should receive copies of your tax and insurance bills so they can pay them out of the escrow funds collected. You should not be making payments directly to a tax or insurance agent — specific to property taxes, homeowners’ insurance, and mortgage insurance.

Key takeaway: Escrow helps borrowers by evenly spreading insurance and tax expenses over 12 payments instead of one lump sum. Let’s assume your yearly property taxes are two payments of $1,000 each, and your annual insurance is $600. If you paid these directly, it would mean $2,600 a year. With escrow, though, you can expect to make smaller, monthly payments of $217.

 

Now that you’ve been reminded of what’s on your bill, let’s breakdown different stages within your mortgage repayment schedule.

Start of loan: understanding arrear payments

Unlike most loans, mortgage principal and interest are paid in arrears — or paid after interest is accrued. So, when buying a home, your first payment is due at the beginning of the first full month after closing. If you close on April 10, your first payment is not due until June.

However, when you close on your mortgage loan, the lender will collect interest on all remaining days of the month you close. If you close on the 15th of a 30-day month, there will be 16 days of interest collected – the number of days remaining in the month, including the 15th. This ensures all payments are the same amount. The closer you are to an end of month closing, the less interest you owe that month (since interest is prorated by day).

Key takeaway: As you likely expected, you eventually pay all of the interest due–neither more nor less. If you’re in need of lower closing costs, you can discuss seller concessions with your realtor or assistance programs with your mortgage lender.

 

Duration of loan: how your loan amortizes

Amortization is how your mortgage lender calculates your monthly payments. Since you are being charged interest over the duration of your loan, your monthly mortgage payment has to be divided among the principal balance and interest. To do this, the lender looks at the original loan balance after your last payment and calculates the amount of monthly interest owed vs. the amount applied toward principal.

Let’s consider an example of a $200,000, 30-year conventional mortgage at 4% interest (for illustrative purposes only). You’ll notice the sum of the principal and interest payments always equals $955, but disbursement of dollars varies based on how far along you are with repayment.

After a year of mortgage payments, 31% of your money starts to go toward principal. You see 45% going toward principal after 10 years and 67% going toward principal after year 20.

Over 30 years you’ll pay a total of $343,739, again based on an estimated monthly mortgage payment of $955.
Your mortgage payment explained, what's the difference based on principal and interest, and does it affect what you pay each month?

Key takeaway: the more you pay toward principal, the greater amount of equity you gain. Equity is an extremely important asset that is often taken advantage of via a home loan refinance. In this example, equity grows at a slower pace. But keep in mind — there are many loan programs that amortize differently. That’s why it’s extremely important to discuss your financial goals with your loan officer during the mortgage process.

 

End of loan: payoff vs. principal balance

As you approach the end of your loan term, inching closer to being mortgage free, it becomes time to settle your balance. Your outstanding principal — as shown on your mortgage statement — is not the total amount needed to pay off your loan. This is because interest will accumulate up until the day your loan closes. And, there may be other fees you’ve incurred but not yet paid, such as late fees, deferred interest, hazard/flood insurance, etc. Bottom line – expect a balance that’s higher than your principal balance. This is what’s called a payoff amount or payoff quote.

Key takeaway: The easiest way to determine your payoff balance — call your mortgage servicer. It’s far easier and more accurate than doing the math yourself. You can request a payoff quote that will illustrate exactly what needs paying before the loan is resolved. Just know that payoff quotes have expiration dates, and some servicing companies may even include a charge to have your payoff faxed or emailed to you. If you do not pay your account in full before the quote expiration date, your payoff amount will change.

 

Home ownership is exciting, especially as you get closer to owning a house that’s free from a mortgage. But the overall term is lengthy — no shorter than 15 years, and often closer to 30 immediately after a home purchase. A lot can happen during that timeframe. If questions arise during the loan repayment or payoff process, never hesitate to speak with your Mortgage Consultant. It’s important for you to understand mortgage payment structure, as well as refinance options that may lower monthly payments as interest rates become more competitive.

 

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Carrie Niess is a copywriter for American Financing, a national company employing salary-based mortgage consultants dedicated to helping homeowners make smart mortgage decisions that align with their unique financial goals.

Government Assistance Programs for First-time Home Buyers: How to Get Started

 

By: Justin Brown

Buying a home for the first time is an exciting endeavor. However, the thrill of embarking on this new adventure is often accompanied by a great deal of concern over finances. This can pose a major obstacle for many prospective home buyers.

Fortunately, home affordability is easier than you may expect. Government assistance programs offer a wide variety of options specially designed to assist first-time buyers in securing the home of their dreams.

What are the options?

Available through state, county, and city governments, down payment assistance programs are a valuable resource for first-time home buyers seeking financial help. Many of these programs offer a home buyer grant to alleviate the burden of added debt. And, depending on the program, they may not even require repayment.

Down payment assistance programs open up opportunities for those who either haven’t had the ability or haven’t thought about saving up thousands of dollars for down payment. At American Financing, we see many people successfully utilize these programs—around 50 per month, on average. These programs truly support what American Financing is all about: helping people afford their dream home.

 

Who are government assistance programs for?

Anyone who has already been pre-approved for a mortgage can qualify for aid. While there is a maximum income restriction, the cap is often quite lenient, with requirements varying from state to state.

 

Government down payment assistance loans are helping more people become first-time homeowners.

 

Where do I begin?

The Federal Housing Administration (FHA) and  National Homebuyers Fund offer their own programs for home buyers. Yet, there are many other government assistance programs available locally at the county, city, and even zip code level. As such, it’s always worth checking to see the specific offerings available in your desired area. Local government officials often look to build up certain areas. So, extra incentives may exist based on neighborhood—with funds just waiting to be tapped by new buyers.

Making this process even easier, the U.S. Department of Housing and Urban Development (HUD) provides a list of local home buying programs available in each state. While some government assistance programs only apply to first-time home buyers—defined as someone who has not owned a home within the last three years—others are not limited to this demographic. And best of all, you can combine these programs. As an example, a county-based program might cover closing costs on top of the state’s down payment grant, providing an added source of financial aid.

 

Is there a catch?

It takes effort to obtain government assistance. For instance, many states require qualifying candidates take an online home buyer’s education course. This may inlcude a small, out-of-pocket fee of around $99.

 

Where can I find more information? Our first recommendation for those interested in finding specific sources of government help would be to use the Internet. It’s rich with information and readily accessible at your fingertips! A quick web search makes it easy and painless to gain knowledge on the vast options available, like home buyer incentives and tax credits.

Take it a step further by contacting your state or county housing authority. Reach out to your local government office or city hall to track down the specific housing assistance department nearby. Engaging in face-to-face interaction will allow you to ask more detailed questions, receive more in-depth answers, overall equipping you with more comprehensive information.

 

Key takeaway: avoid these common pitfalls

  • One of the biggest misconceptions that can hurt new home buyers is the belief they don’t need to bring money to closing. There are times when people think they’ll simply apply for a loan and be handed the keys without any other steps involved. Unfortunately, this is not the case. More often than not, you’ll have to meet a requirement. So it is highly recommended that home buyers bring at least $1,000 to closing—and if possible, a bit extra to be safe. Access to saved money is essential when coming to the table. If the buyer is not aware of this fact, whoever assisted them failed to do their job.
  • It’s important to remember that expenses continue even after you receive the keys. Buyers may get themselves into trouble when they neglect to consider the additional expenses that home ownership entails. This may include landscaping, window coverings, and necessary repairs they didn’t previously notice.
  • There is nothing more embarrassing than putting in an offer, then arriving at the mortgage company and finding out you don’t qualify after all. As a result, mortgage pre-approval is crucial. Don’t forget to stay within your price range and consider added expenses.

 

Above all, do your research. If the money is out there, the government wants you to find it. Taking the initiative to seek out the many opportunities available to you can make the difference between imagining your new residence and actually owning it. Saving for down payment can be a challenge, but you are most certainly not alone. Help is all around. If you take advantage of these resources, you’ll be calling the house of your dreams “home” in no time.

 

Justin Brown is a marketing manager for American Financing, a national company employing salary-based mortgage consultants dedicated to helping homeowners make smart mortgage decisions that align with their unique financial goals.

How to Make an Offer on a Home More Appealing: 6 Tips to Follow

By: Carrie Niess

Your finances are in order, your ideal neighborhoods identified — next up is finding that perfect property, so you can make an offer.  As more and more people look to become homeowners, it’s important to prepare yourself for the mortgage process, home search, bidding wars, and what you’ll do next if you do not get the home of your dreams.

With so much to consider, let’s take a look at six steps to ensure sellers know you are serious when it’s time to make an offer.

Get mortgage pre-approval

Pre-approval is an official approval from a lender for the amount you can borrow for a mortgage.

Expect your credit to be more thoroughly reviewed and your debt-to-income ratio to be analyzed. Your debt-to-income ratio considers all of your monthly expenses divided by your pre-tax income. It’s a helpful way for lenders to be sure you can manage monthly mortgage payments. After completing review of your documents and income, an underwriting approval decision can be made. The reviewed documents then go back to your dedicated processor, and this becomes the point when your lender prepares your pre-approval letter. If you’re looking to make an offer on a home, this is what’s going to make you really stand out.

At American Financing, we suggest you get an approval going 30-60 days prior to shopping. That way any potential issues are addressed prior to going under contract, creating a smooth process.

 

Limit contingencies

Contingencies, or opportunities to address unforeseen issues, can add time to the home negotiation process. They’re beneficial to buyers, but can be a nuisance to sellers who are ready to move on fast. It’s important to avoid any unnecessary contingencies. According to the National Association of Realtors (NAR), the home offer with the fewest contingencies is often the most attractive. NAR states that “removing restrictions related to the sale of a current home and being flexible with things like the move-in date can make an offer stand out to a seller.”

Bottom line: don’t expect a seller getting multiple offers above asking price to accept a contingency. Yet, don’t be afraid to ask for one if the house you’re looking at has been on the market for a few months.

 

Make an offer that’s competitive

Always consult with your realtor before putting in an offer. A good rule of thumb, specifically in a seller’s market, is to start strong. To do this, assess the property’s market value. Your realtor can help you with this through a competitive market analysis (CMA). The CMA will help you understand what homes are selling for in that neighborhood.

Negotiating offers happens quickly, so be ready with a counteroffer in the event your initial offer is not accepted. If you’re looking to buy in a seller’s market like San Jose, Seattle, or Denver, it’s imperative you are prepared and available at all times.

 

Buyers reviewing numbers as they prepare to make an offer on a home.

Increase your earnest money

Let the sellers know you’re serious about their home. Earnest money is usually 1-3% of the purchase price. Yet in some markets it’s a flat amount around $500-$1,000.  It’s purpose: to protect sellers from a buyer who makes too many offers on homes. From the buyer’s standpoint, it lets the seller know you are serious about their home. So, be sure you do not back out of the contract for no good reason. If you do, you’ll lose your earnest money.

Overall, there’s little risk if you’re a serious buyer. You’ll receive your earnest money back if your offer is turned down (be sure this is clearly stated in the purchase agreement). And if your offer is accepted, that money goes toward the purchase price of the home.

 

Prepare an escalation clause

Knowing the asking price and market value, you’ll be prepared to make a standout offer — but will it be enough? If you live in a seller’s market, it may not be. But don’t fret. Your real estate agent can guide you through negotiations and may suggest starting with an escalation clause, assuming you’ve found the house you just need to call home.

An escalation clause is a way to automatically escalate your bid by a certain dollar amount, up to a certain dollar amount. Your agent can work with you on what’s appropriate. Keep in mind, you’re risking the seller seeing the true amount you’ll pay and may be paying significantly over the home’s appraised value. Is this home truly worth it? Bates offered the following consideration, “It is not financially beneficial to be under water on a home on day one.  All too often a buyer falls in love with a house and agrees to pay 5, 10 or 20 thousand over the appraised value.  A home is an asset.  You should never intentionally owe more than it is worth.”

 

Make a connection

Tell the seller why you love their home. Is it the neighborhood park or access to top-rated schools? Maybe the kitchen size and design is everything you’ve dreamed of? Speak up! Establishing rapport with the sellers can tug at their emotions. So, help them to remember your name when they review potential offers.

The home buying process can be exhausting with all of the searching, touring, negotiating, and being on call for updates on bids. But remember to enjoy the journey. Having a respectable mortgage lender and knowledgeable realtor on your side is sure to help you find success with your home offer and with home ownership.

 

Carrie Niess is a copywriter for American Financing, a national company employing salary-based mortgage consultants dedicated to helping homeowners make smart mortgage decisions that align with their unique financial goals.

The Importance of Home Inspections and What to Look For

By: Carrie Niess

Home inspections are a visual evaluation of a home from roof to basement. It’s an important step of the home purchase process that alerts buyers of what may need attention before finalizing a contract. Though not required by your mortgage lender or realtor, it is often a highly recommended step to ensure you’re investing in the right property.

How it works? A licensed inspector checks the performance of the home’s roof, driveway, foundation, framing, electrical, HVAC, and plumbing. They even go as far as inspecting the general condition of windows, doors, floors, ceilings, and walls. Expect the inspection to last anywhere from two to three hours.

What they cost? The cost of standard home inspections vary depending on market. Plus, more specific and more intensive inspections can be done for a higher cost. These may be worth the investment depending on the age and location of the property. You’ll definitely want to shop around to find the best value for your needs. Find further discussion on that below.

Who’s it for? Now something you may not have known: home inspections are not just for buyers, they’re also beneficial for sellers.

 

Here’s what you need to know, regardless of which side of the negotiation table you’re on.

Sellers: what to look for before you list

Why should you consider a home inspection if you’re the seller? You can anticipate what an inspector may find and have time to correct it before the buyer’s inspector walks through, assuming they have one. It will also help you complete the seller’s disclosure more accurately.

Buyers: what to look for before you sign

Any concerns from the inspection report can reopen negotiations with the seller. So, it’s a good idea to be a part of the process — join the inspector on the home tour. Follow along where you can and take notes. It’s an opportunity that will let you clearly see what needs attention. You can question how and why — and get suggestions on overall home improvement. Best of all, the inspector will provide you with a complete report of their findings, so you can request repairs from the seller or seller concessions.

Both parties: questions to ask a home inspector

You have many options if you choose to hire a home inspector. Be sure to ask for recommendations from your realtor or mortgage lender, maybe even ask a few of your friends or family members. And always, always, be sure to interview the inspector before hiring them. You’ll want to feel confident in their experience.

Consider these questions when shopping around for inspectors:

  • Are you focused on residential or commercial properties?
  • What does the inspection include?
  • How many home inspections have you done?
  • How do you keep your expertise up to date?
  • Can I attend the inspection?
  • Can I see a sample report?

Home inspections before home purchase result in great properties and happy families.

 

Keep in mind: home inspections are not all-inclusive. Some areas of the home require a specialist. You may want to consider the following options, depending on where you live:

 

  • EIFS EIFS is an acronym for Exterior Insulation and Finish Systems. It’s also known as synthetic stucco. Synthetic stucco is a popular exterior choice for many, but it must be installed properly to avoid issues. If the EIFS is adhered directly to the substrate by fasteners or mastic, with no drainage plane for water to drain down, expect water to get in. Add in high moisture and you can expect the substrate to rot.
  • Lead based paint – If you live in — or are looking to buy — a home built before 1978, take advantage of a lead based paint home inspection or risk assessment. If lead is detected, a risk assessor can help you determine if abatement or good maintenance is necessary.
  • MoldMold inspection is an assessment of mold growth in a building. It often includes a questionnaire, visual inspection, and mold testing (as necessary). Depending on the size of your property and the number of mold samples, pricing can vary anywhere from $300 to $3,000.
  • RadonRadon is a cancer causing, radioactive gas that seeps through foundation cracks or near electrical outlets and pipes. An estimated 50 percent of homes in Colorado have radon levels higher than the EPA recommendation. Even if you’re not buying in Colorado, the EPA strongly suggests radon testing. Testing is the only way to know if you and your family are at risk from radon. Be ready to mitigate radon if the level is 4 picocuries per liter (pCi/L) or higher.
  • Roof certification – Hire a roofing company to understand whether or not the home requires repairs. If it doesn’t, you’ll at least receive an estimated length of time (in years) before the roof needs replacement. Reports are issued on possible movement, condition of materials, soundness of drains and gutters, etc. Upon completion, you’ll receive your roof certification, which is good for two to five years.
  • Sewer – If you’re buying a home that is 20 years or older, it’s a good idea to invest in a sewer inspection. Local plumbing companies often have contractors who can use a camera to inspect the sewer — looking at the overall condition and if there are any clogs. Fees vary from $85-$300, but it’s a great investment in the event you need to replace the sewer line.
  • TermitesIn many areas of the country, termite and wood infestation reports must be completed before a purchase contract is signed. This is especially true when using government loans like FHA and VA loans, though it can be required with a conventional loan. States where termites are most common include: Louisiana, Texas, Hawaii, California, Alabama, Georgia, Florida, the Carolinas, and Tennessee.

 

Your real estate agent can provide you with a list of common home inspections in your area. Or, you can ask your inspector about recommended specialists who may be able to diagnose some of the above — or other — issues your new home may have.

Let’s not forget, the home buying journey should be enjoyable. Don’t let the fear of a home inspection get the best of you. Though it costs money, anything can be fixed. It’s far more important to learn as much as you can about a home before finalizing a home loan and signing a purchase contract. Keep a rational mind and know that if the to-do list is too long for your standards, it’s okay to keep shopping around for a better fit. Only you can decide what’s worth your time and money before calling a property your dream home.

 

Carrie Niess is a copywriter for American Financing, a national company employing salary-based mortgage consultants dedicated to helping homeowners make smart mortgage decisions that align with their unique financial goals.