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Month: August 2021

Understanding VA loan appraisals

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When you purchase a home using a VA loan, the property will have to go through an appraisal by a VA-certified appraiser before the loan will go forward. If you are planning on getting a VA loan, here’s what you’ll need to know.

It’s not a complete inspection
An appraisal is a quick review of the property. It ensures the home is worth what you’re paying and it meets MPR (minimum property requirements) for the loan and lender guideline. The appraisal isn’t as stringent as a full inspection. It won’t go through mechanical system and equipment checks that a home inspector would do. Because of that, it’s a good idea to get a full inspection as well.

What the appraisal looks for
Generally, the appraiser makes sure the home is safe, structurally secure, and healthy to live in. You can read the full guidelines, but they cover areas such as:

  • Does the property have safe and adequate pedestrian or vehicular access from the road?
  • Does the property comply with all applicable zoning ordinances?
  • Does the property have an adequate sewage disposal system of sufficient size?
  • Is the property free of lead-based paint?
  • Is the residential structure located outside of high voltage electric transmission line easements?
  • Is the property free of wood destroying insects, fungus, and dry rot?

VA appraisal timeline
The VA sets loose requirements for how long the appraisal should take. It varies per area. But, in general, they’re done in 10 days.

The cost
Depending on where you’re buying and the number of units in the building, appraisals range from $450 to $1,200. The cost per area is noted on the VA loan fee schedule.

If the home needs repairs
This is where VA loans become a little tricky and it’s why there’s been hesitancy among some sellers in accepting offers financed through a VA loan. If the home needs repairs, as a buyer you can’t negotiate the price or get a seller’s credit at closing. The repairs must be completed by the seller for the transaction to go through. And, depending on the type of repair or the location of the home, it might take a long time to complete. So, as a seller, they know if any repairs are needed they will have to complete them and it gives the buyer a chance to walk away from the purchase.

If the home you’re interested in needs repairs, here are your options:

  1. Ask the seller to complete repairs
    If your seller agrees to do the repairs, once they’re done another appraisal will need to be completed. Just be aware that some repairs may take a long time to complete.
  2. Ask for another appraisal
    You could either challenge the report or petition the VA for another appraisal if you feel there was an error.
  3. Walk away from the purchase
    If your appraisal unearths repairs, you have the ability to walk away from the purchase. You’ll still have to pay the cost of the appraisal, but that’s all.

If the home appraises too low
Asking the seller to lower the price is the most common, but it’s not the only option you have.

  1. Ask for another appraisal
    If you think there’s an error on the appraisal you can challenge the report by ask for a ROV (reconsideration of value) or additional sales data from comparable homes in your area.
  2. Pay the difference in cash
    If you’re able to, you can get the VA loan for the appraised value and pay the additional cost in cash. Just be cautious because you may be overpaying for the home.
  3. Ask the seller to lower the home’s price
    The seller may be willing to lower the price to match what it appraised at.

Start with a VA loan expert
When you’re considering a VA loan (they are a great option for some veterans!), be sure to start by going over the pros and cons with a local home lender and VA loan expert. They will guide you through the loan process and make sure you’re getting the best loan for your financial goals.

What is a cash-out refinance?

Posted on by Mann Mortgage

A cash-out refinance is when a borrower has a mortgage they’ve been paying off and they replace it with a new mortgage for more than their remaining principal. The difference between the principal balance of the first mortgage and the new one is given to the borrower in cash.

How is it different than a standard refinance?
In a standard refinance, borrowers work with their lender to get a lower rate of interest or a new payment schedule. Once the standard refinance is secured, they have a new monthly payment amount based on the new agreement – but their balance on the loan remains the same. In a cash-out refinance, a borrower works with their lender to pay off their home’s mortgage balance with a new loan based on their home’s current value. The difference between the original mortgage the borrower is paying off and the new loan is kept by the borrower. In order to have some equity in their home, most cash-out refinances limit the amount a borrower can receive at 80-90% of their home’s equity in cash (VA refinances don’t have this requirement).

In other words, don’t expect to pull out all the equity you’ve built into your home. If your home is valued at $350,000 and your mortgage balance is $250,000, you have $100,000 of equity in your home. You could do a cash-out refinance of somewhere between $80,000 to $90,000.

The benefits of a cash out refinance
If interest rates are at a new low, you have equity built into your home, and if you would like cash on hand to pay off high-interest credit cards or fund a large purchase, a cash-out refinance is something you might want to consider.

The cons of a cash out refinance
There are fees involved in a cash-out refinance, and you’ll have to make sure your potential savings are worth the cost. Like any refinance, you’ll pay closing costs of around 2% to 5% of the mortgage. And if your lender allows you to take out more than 80% of your home’s value, you’ll have to pay private mortgage insurance (PMI). Freddie Mac estimates most borrowers will pay $30 to $70 per month for every $100,000 they borrowed.

And, don’t forget your overall debt load will increase with a cash-out refinance.

Alternatives to a cash-out refinance
One potential alternative is a home-equity line of credit (HELOC), which you could also use to pay for a home renovation or to pay off credit card bills.

>> Learn more about a HELOC.

Should you get a cash-out refinance?
If you have enough equity built into your home and you get a great rate, they might be a great solution for a home improvement or renovation. To find out what the current rates are and to check your home’s current market value, contact your local Mann Mortgage expert today.

Renovation and construction loans shine in a sellers’ market

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All across the country, home buyers are struggling to purchase a new house. When we see what’s happening in the market, it’s easy to see why:

Average changes in October 2020 vs October 2021
Inventory is down – 21.9% fewer homes on the market
Homes are selling faster – 8 days less on the market
Home prices are increasing – 16.7% more expensive

It’s a sellers’ market almost everywhere. Some metro areas are even more competitive than others. Austin-Round Rock, Texas has seen a 8.1% decline in active listings while prices increased 32.5% in the last year. Las Vegas, Nevada shows a 6.1% decrease in active listings and a 27.2% median listing price increase – plus new listings are on the market 10 fewer days than they were in October 2020.

Consider this as well – Many homeowners took advantage of low interest rates to refinance their homes in 2020. If rates continue to increase, will inventory remain low? Will homeowners want to sell a home they negotiated such a low interest rate for?

Don’t give up hope on getting a new home
It’s hard, but not impossible to get an offer accepted on a home. Work with your local home lender to make sure you’re able to put in an offer that’s fair, competitive, and in your budget.

And if that doesn’t work? Then it’s time to look into a building or renovating a home!

Construction loans
They’re short-term (usually 12 to 18 months) loan used for the materials and labor needed to construct a home. Sometimes, the funds are also used to purchase the lot the house will be built upon. The interest rate for a construction loan is typically around 1% higher than mortgage rates, but they are variable. So, the rate may change throughout the loan term.

To make the loan even easier, you can select a one-time close. That means you’ll get approved to finance both construction and mortgage for your new home at the same time. After construction is complete, your loan automatically becomes a traditional mortgage. There is one loan and one closing.

Smaller lenders, like Mann Mortgage, can offer construction loans with much lower down payments than big banks.

>> Answers to the most common construction loan questions

Renovation loans
Renovation loans can be used two ways: to buy and fix a new home or to refinance and update your current one.

Savvy buyers will use a renovation loan to purchase an ugly house that’s lingering on the market, then use the additional funds to renovate it to make it what they want.

Shopping in a sellers’ market is stressful. Rather than burning yourself out searching for a home, use a renovation loan to update the home you’ve already got. Renovation loans can fund remodels, surface updates, and additions to your current home. It’s a great way to get an updated home without having the pressure of competing with other buyers.

>> Which renovation loan is right for you?

What makes a good starter home?

Posted on by Mann Mortgage

A starter home is a single-family, condo, or townhome that a first-time homeowner can afford and may outgrow. They’re normally small, modest, and lacking in upgraded amenities. They can be a good investment for some young people and a way to build equity towards a bigger and better house in the future. They’re becoming more expensive and harder to find. Some people are skipping starters altogether – choosing to rent for longer to save money towards a bigger first home purchase.

Stats on starter homes:

  • 31% of home buyers are first-timers.
  • The increased price of homes and the amount of student debt young adults have are impacting the median age of first time homebuyers. It’s the highest it’s been since they started tracking it  – 33 years old.
  • If you’re like most people, you’ll spend an average of 13 years in a home before you sell it
  • The longer you live in your home, the more equity you’ll build in it

Characteristics of a good starter home

It’s in a nice neighborhood
It’s important for you to get a home in as good an area as you can. What exactly is a “good” neighborhood? Generally, it’s one that’s quiet, walkable, in a good school district, close to amenities, and is well maintained. Homes in a good neighborhood will be safe to live in and be easier to sell when you’re ready. If you have any questions about neighborhoods, ask your hometown home lender. They’ll give you an unbiased opinion on the best areas in your community.

The taxes are affordable
Your mortgage is just one portion of what you’ll pay each month for your home. One of the biggest ongoing expenses for your home will be your property tax. This is an annual tax levied by your state and local governments on your land and buildings. And it’s a sizeable fee – usually thousands of dollars. The tax is collected once a year, but many homeowners put money into an escrow account each month to pay the fee. Find out what the current owners paid for their taxes, but be aware the taxes will increase over time. Some states increase property taxes annually while others reassess them at set increments (as example, every 5 years).

Utility bills aren’t too high
Starter homes are no frill, which make them affordable to purchase. The price was kept down by NOT getting the most energy-efficient and latest upgrades. And if the starter home is older, be especially aware of the potential utility costs. You can request to see copies of the seller’s utility bills to see what it may cost you for your electric, water, and other utilities.

It’s affordable
Be strategic about your purchase. If you are planning on selling your home in a few years, think of your starter home as an investment. That means, buy something that will easily sell again. Find the best house in your price and in a good location – and don’t go over budget! If you make a wise purchase now, you’ll be better able to afford an upgraded home in a few years.

What are mortgage points and when should you buy them?

Posted on by Mann Mortgage

After negotiating the price of a new house and being approved for a home loan, some people opt to purchase mortgage points to lower the interest rate and save on the overall cost of their loan.

Mortgage points are a fee a borrower can pay their mortgage lender to lower the interest rate on their home loan. Each point lowers the interest rate around 0.25% and costs 1% of the mortgage amount. The points are paid for when the loan closes. A full point, multiple points, and even fractions of points can be purchased.

When Should You Buy Mortgage Points?
There’s a “break even” point on mortgage points. It’s when you’ve saved more in payments than you paid for the points. Typically, it takes a few years for that to happen. Do the math for your mortgage and make sure you’ll be in your home at least as long as it’ll take for you to break-even.

When Shouldn’t You Buy Points?
Generally speaking, if you have enough cash to purchase mortgage points, you may be better off putting that money towards your down payment instead. A larger down payment could get you a lower interest rate, reduce the amount you’d pay for mortgage insurance (or eliminate it all together), or reduce your monthly payment.

Mortgage points are a long-term strategy to save money, so if you don’t plan to be in your house long they may not be worth the cost. If you’re interested in mortgage points, talk to your local home lender. They can run all the scenarios to see how best to pay off your loan.

What happens to your mortgage in a divorce?

Posted on by Mann Mortgage

Couples going through a breakup face many difficult decisions including what to do with their mortgage. In 2020, the average mortgage debt in the U.S. was $208,185 with a payment of just over $1,500 per month. When your relationship changes, what do you do with your mortgage bill?

If the mortgage is in both your names, you’re both responsibilities for the monthly payments regardless of who is living in the house. Missed payments will negatively impact both your credit scores. So the first thing you’ll need to decide is how to continue to make payments during your separation. Then decide what you’ll do with your mortgage.

There are normally two ways separating couples handle their mortgage. Couples either sell their home or refinance to remove one person from the mortgage.

Sell your home and pay off your mortgage
Find a local real estate agent, agree on the asking price, and place your home on the market. When you accept an offer for the house, use the funds to pay off your mortgage. If you’re lucky enough to get any additional proceeds from the sale, those funds can be split between you and used towards financing your new homes. It’s a good way to make a clean split and each have a little extra money to go towards your new life.

Refinance your house in one person’s name
If one of you would like to stay in the house, you can work with your home lender to refinance in just one person’s name. To do this, the spouse remaining in the home will have to apply for the new loan, your home lender will verify they are able to make payments on their own, then the refinance will close. Refinancing typically takes 30 – 60 days and the spouse who stays in the home will have to pay closing costs.

A less common option is for you to continue to co-own the home together. You will both continue to have the mortgage listed as a debt on your credit report and you’ll both be negatively impacted by any missed payments. But it may be a good option if a custodial parent can’t afford the house on their own. By co-owning it together, your kids are able to stay in their house and have a sense of continuity.

A note about community property
Some states observe community property laws meaning both you and your spouse make equal ownership claims to assets, like houses, acquired during your marriage. In these states, you’re both responsible for the mortgage debt whether your name is on the loan or not. And you’re both going to split the home sale proceeds wither you’re on the mortgage or not. The law is more detailed than that, so be sure to contact your attorney if you have any questions.

As of 2021, there are nine states where community property laws are in place for married couples:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

The law is also observed in the U.S. Territories of Guam and Puerto Rico.

If you have any questions about your mortgage or how you can refinance to remove someone from it, be sure to contact your loan officer. Mann Mortgage loan officers are here to work through any changes you need to make to your mortgage due to life changes.

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