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What is a home equity line of credit?

A home equity line of credit (HELOC) uses the equity you’ve built in your home as collateral to get an additional loan. Since you’re using your home as collateral, lending institutions generally are able to offer much more favorable interest rates than you would get from an unsecure borrowing source (like a credit card company).  

Home much money can you get from a HELOC?
Each lending institution has different guidelines that dictate how much they can lend you. Their guidelines are usually based on your loan-to-value ratio (LTV), which is the amount of principal on your mortgage compared to your home’s appraised value. Most often, you’ll need at least 20% equity in your home (which is a LTV of 80%) to qualify. As example, if your home’s current value is $300,000 and the remaining balance on your mortgage is $250,000, you would have an LTV of 83%. For many lending institutions, you would not qualify for a HELOC.  

However, if your home’s current value is $300,000 and the remaining balance on your mortgage is $175,000, your LTV would be 57.9% and you would normally qualify for a HELOC for up to 80% of the equity in your home. In this example, you may have access to $65,000. 

Be aware that many lenders won’t give you a HELOC for less than $25,000.  

How do you get the cash?
Much like a credit card, you’ll have a revolving line of credit available. You can access your funds through an online transfer, a check, or a credit card. As you borrow more from your line of credit, your payments will increase though the rate of interest will remain the same.  

When do you have to pay back your HELOC funds?
Even if you get a HELOC, you don’t have to use the funds. As long as your lender doesn’t require you to do minimum draws, it could be a good source of emergency cash or a temporary safety net. If you do need to use the cash, the interest rates are lower than the rates tied to credit cards. 

The benefits of a HELOC
Even if you get a HELOC, you don’t have to use the funds. As long as your lender doesn’t require you to do minimum draws, it could be a good source of emergency cash or a temporary safety net. If you do need to use the cash, the interest rates are lower than the rates tied to credit cards.

The cons of a HELOC
The rate on your HELOC might fluctuate, and if it goes too high, you may have a hard time paying off your interest. Furthermore, your lender may decide to reduce your line of credit if your home’s value takes a drastic dip. And, don’t forget your overall debt load will increase with a HELOC or any other second mortgage.

Alternatives to a HELCO
One potential alternative is a cash-out refinance, which you could also use to pay for a home renovation or to pay off credit card bills.

>> Learn more about a cash-out refinance.

Is a HELOC right for you?
If you have enough equity built into your home and need cash for a home improvement, to cover medical bills, to pay off credit cards, or to sustain your lifestyle after losing a job, a HELOC might be a great solution. To find your home’s current value and how much you could get from a HELOC, contact your local Mann Mortgage expert today.

Understanding VA loan appraisals

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?

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 morre 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

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 July 2020 vs July 2021
Inventory is down – 33.5% fewer homes on the market
Homes are selling faster – 22 days less on the market
Home prices are increasing – 10.3% 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 44.0% decline in active listings while prices increased 36.6% in the last year. Hartford, Connecticut shows a 59.8% decrease in active listings and a 13.7% median listing price increase – plus new listings are on the market 14 fewer days than they were in June 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?

The difference between a 30 and 15-year fixed mortgage

A mortgage term is how long it will take you to repay the loan in full. There are a few term options, but most common are 15 or 30-year terms.

Both mortgage options are fixed rate meaning the interest rate and monthly payment is set when the loan is taken. A fixed-rate makes it much easier for a borrower to budget since they know exactly how much the minimum payment is each month for years to come.  No matter what happens with interest-rates, the minimum payment won’t change.

30-year mortgages are by far the most popular mortgage product for American homebuyers – Freddie Mac says 90% of all loans are 30-year fixed. What makes them so appealing? Are there any benefits to a 15-year fixed?

30-year mortgage
Because the term of the loan is longer, there is a higher chance the borrower will default over time, so it’s a riskier option for lenders. But the payoff for borrowers is big – substantially lower monthly payments than a 15-year mortgage.

A lower monthly payment makes homeownership a possibility for more Americans and it may allow some people to purchase more home than they’d be able to with a 15-year fixed. Even borrowers who could afford to make larger payments may choose a 30-year fixed and re-invested or put away the money they’re saving to further their financial stability.

The catch? You’ll save money each month, but you’ll be paying your mortgage for longer. And, in the end, you’ll end up paying much more in interest than you would with a 15-year loan for the same house.

15-year mortgage
Lower monthly payments sound great, so why would anyone get a shorter loan term? Borrowers often choose a 15-year loan because they pay off the loan much faster and with less interest overall. Take the example below.

$275,000 Mortgage
 APRMonthly paymentTotal interest paid
15-year fixed2.529%$1,837$55,737
30-year fixed2.948%$1,152$139,617

The monthly payments are nearly $700 more per month, but over the course of the loan, the borrower saved $83,880. If you can afford a bigger payment, looking into a 15-year fixed mortgage may be a good idea.

Because there’s less time for the loan to be exposed to risk, interest rates for 15-year mortgages are usually lower than that of 30-year fixed. The rate can be around a quarter to a whole percentage point less.

How about something in-between?
If you like the lower payments of the 30-year mortgage but the faster payoff of the 15-year mortgage, consider getting something in between like a 20-year mortgage. There are a lot of different options when it comes to home loans. It’s best to speak with a local loan expert to see what would work best for you and what your payments would be like with each option. Together, you can find the best path forward for your financial goals.

Are government mortgage relief ads scams?

There are a lot of online ads saying some version of, “If you’re a homeowner who owes less than $300,000 on your mortgage and haven’t missed a payment in 6 months, you’re eligible for a mortgage relief program approved by Congress!”

What are these ads?
Normally, if you interact with these ads you’ll be redirected to a site that will ask you your home type, credit score, loan, zip code, and more. Then they give you a list of mortgage companies to contact. Basically, these ads are great at catching your attention (they’ve been around for over a decade) then funneling you to one of the mortgage companies that has helped pay for the ad. The overall goal of these ads is for you to refinance your loan with one of the mortgage companies they are working with.

If you interact with these ads, you’ll be bombarded with more of them on YouTube, TikTok, Facebook, Google… you’ll see them everywhere. They’re harmless, but they can be annoying.

Are these programs real?
Homeowners who aren’t able to make their mortgage payments do have options for help, but the claims in the ad are misleading. The mortgage amount they list and number of months of unmissed payments varies by ad and is there just to catch your attention so you click the ad.

Will the government help you pay less for your mortgage?
There are government relief programs available such as the Home Affordable Unemployment Program for unemployed homeowners, Principal Reduction Alternative, the Home Affordable Foreclosure Alternatives Program, and more. Every program requires documentation and approval to use. The ad makes you feel like it’s easy to qualify, and that’s just not the case.

What can you do if you’re struggling to make your payments?
Contact your home lender. Your local home lender is an expert in national, state, and community programs for assistance. In addition to assistance programs, you’ll likely hear about the two most common ways to keep your home if you are in a situation that makes it difficult for you to pay your mortgage: refinancing and forbearance.

When interest rates are lower than you’re currently paying, it’s always a good idea to consider refinancing. A refinance means you apply to take out another mortgage to pay off and replace your original loan. If your refinance is approved, you’ll pay a fee for closing costs. In return, if your new mortgage has a lower interest rate, you may have a lower monthly payment. You could also refinance to a mortgage with a different loan term to lengthen or shorten the amount of time to pay back your loan. Or you could refinance to a different mortgage program completely. As example, homeowners with 20% equity in their home could refinance into a conventional loan to avoid paying mortgage insurance fees.

A refinance will not damage your credit and may lower your monthly payments. It can be a great option to consider.

>> Learn more about refinancing

If you are unable to make your home payments, you can work with your lender to temporarily reduce or suspend your mortgage payments. This is called forbearance. Usually, your home lender decides whether you qualify for it and what the terms will be.

The ads you see likely play on the theme of forbearance. On occasion, Congress passes a bill to modify some terms for government-backed home loans – such as the terms for being able to go into forbearance. As an example, during the COVID pandemic, Congress put in place temporary mortgage relief under the COVID stimulus package. It’s called the CARES Act Mortgage Forbearance and applies to FHA, VA, USDA, Fannie Mae, and Freddie Mac government-backed loans (70% of homeowners have one of these loans). This bill is unique because it states your lender cannot deny your request for forbearance under the CARES Act or demand proof of financial hardship. So, it makes forbearance an option to everyone with a government-backed loan – no questions asked.

Whether you go into forbearance through government mortgage relief program or not, it will not reduce what you owe – you will have to pay back your missed payments in the future. Forbearance will appear on your credit history, but if you fulfill your part of the agreement, it won’t lower your credit score.

Can you refinance and go into forbearance at the same time?
If you get a forbearance through your lender, most of them require you wait three months after forbearance ends to refinance. If you do it through a government mortgage relief program (like the CARES Act) you may be allowed to refinance while being in forbearance. Talk to your lender to see what options are available to you.

If you or a loved one are having concerns about making mortgage payments, contact your trusted home lender.

If you have a loan through Mann Mortgage, your loan officer will want to hear about your concerns, understand your current financial situation, and offer solutions to help. Don’t struggle alone. We are experts in national, state, and community programs that can help you afford your home. We’re here to make it possible for you to buy, refinance, build, and keep a home.

Now is a great time for a renovation loan

If you’re looking to purchase a new home but are struggling to find one you can afford, you’re not alone. Across the country, inventory is low and bidding wars are the norm. In the hottest markets (Austin, Phoenix, Nashville), homes are listed for a week or less before they have more than a dozen offers all for more than asking price. Getting your offer accepted is like winning the housing lottery.

Rather than giving up on your dream to get a new house, try switching tactics instead. There’s a mortgage trick savvy home buyers have used for years to get a beautiful home: renovation loans. Think of it this way… We’re all seen dated and odd houses sit on the market while turn-key houses fly off the shelves. Why not purchasing that ugly house and remodel it into a home that works for you?

Home renovation loans work a little like a conventional mortgage, except the cost of renovating the home is tacked onto the loan. So rather than taking out a loan for the purchase price, you take out a loan for the purchase price plus the renovation budget.

Interested in a renovation loan?

Take the first step

How much might extra might a renovation cost? These top renovation projects give you a quick idea of what homeowners paid in 2020, according to HomeAdvisor:

  1. Home addition ($52,157)
  2. Inground pool ($49,245)
  3. Kitchen remodel ($35,317)
  4. New exterior siding ($13,974)
  5. Bathroom remodel ($13,401)
  6. New roof ($9,375)
  7. New windows ($9,131)
  8. New cabinets/countertops ($5,832)
  9. New flooring ($4,680)
  10. Decking and porches ($3,291)

Homeowners looking to finance a remodel have two options: FHA 203K loan or Fannie Mae’s HomeStyle Renovation loan. Each is a great option, so let’s break them down.

FHA’s 203K remodel loan
This is a great option for families in low-to moderate-income brackets It’s a loan provided by FHA (Federal Housing Administration). It provides a minimum of $5,000 for renovations and major structural repairs. The kicker is you have to hire a HUD consultant to oversee the project and the money can only be used for:

  • Structural alterations and reconstruction
  • modernization and improvements to the home’s function
  • Elimination of health and safety standards
  • Changes that improve appearance and eliminate obsolescence
  • Reconditioning or replacing plumbing
  • Installing a well and/or septic system
  • Adding or replacing roofing, gutters, and downspouts
  • Adding and replacing floors and/or floor treatments
  • Major landscape work and site improvements
  • Enhancing accessibility for a disabled person
  • Making energy conservation improvements

Even with those restrictions, it’s a great loan if you’re eligible. Qualifications for getting the 203k Renovation Loan is similar to getting a FHA loan.

Fannie Mae’s HomeStyle Renovation loan
These renovation loans are available through Fannie Mae and don’t have restrictions like the 203k FHA loan. You can use the funds for virtually anything you want. Add a tennis court, an inground pool, an over-the-top fountain – and you can do it to both your primary residence as well as a secondary vacation or investor home. The improvement has just two requirements in order to be eligible:

  • It must be permanently affixed to the property
  • It must add value to the property

This loan has a lot of possibilities for new purchasers, investors, and secondary home buyers. It’s an opportunity to purchase and renovate a home to gain quick equity.

Refinance and renovate the home you’re in
If you can’t purchase the home you want, consider refinancing with a renovation loan and make your current home the one you want. Renovation loans are available for the initial purchase of the property or when refinancing. Doing it now while rates are low may be a smart move for some homeowners.

If you’re open to getting a fixer-upper home and renovate it, reach out to your local Mann Mortgage lender. Together, you can talk about the market in your area, what you’d qualify for, and they can even recommend a builder to work with.

Getting a mortgage for a tiny home?

What is a tiny house?
What defines a tiny house is, of course, its size. A tiny house is considered a home under 400 square feet (the average traditional home was 2,301 square feet in 2019). Some are built on permanent foundations with a septic tank and solar panels, but most often they’re built on trailers so they can be hauled from one location to another. This has led to some municipalities labeling tiny houses as “recreation vehicles” unsuitable for a primary dwelling.

Why get a tiny house?
They’re affordable, they consume less energy, and (if they’re on wheels) you can pick up and move where the wind blows you. They cost about the same per square foot as a standard home, but because there’s less square footage, they can be a great option for people who don’t want or can’t afford a large mortgage. In the last few years, they’ve been very popular with 25-40 year-olds that use them as a step towards buying a traditional home. But they’re equally popular with people over the age of 55 who use them as a way of downsizing, a mobile home for visiting family, or as a second home on their property for visitors.

Can you build my tiny home wherever you want?
Despite the growing enthusiasm with tiny houses, it’s still hard to find a place to build one for full-time use. Zoning laws and building codes have minimum size restrictions that most tiny homes won’t meet. Some cities have begun to create tiny house-friendly zones, but they’re rare. Your best bet? Keep your tiny home on wheels or don’t use it as your full-time residence. If that’s not an option, be sure to talk to your local mortgage originator or other housing expert that understands your local building codes and zoning restrictions to see if you can live in a tiny home or not.

Can you get a home loan to purchase a tiny house?
Maybe. If your tiny house is on wheels (and most are) it’s almost always classified as a recreational vehicle (RV). You can’t get a home loan for an RV even if you plan to live it in full-time – you’ll need an RV loan. But, if you build your tiny home on a permanent foundation, you may be able to get a home loan for it. Home loan originators (your bank, mortgage company, or credit union) will likely have a minimum amount they can loan for a home, usually around $50,000. So long as you meet their minimum requirements, you may be able to get a mortgage for the tiny home of your dreams. Your best bet is to reach out to your loan originator directly to see whether you would qualify for a tiny house home loan.

Other options for purchasing a tiny house
If you already own a home and want to add a tiny house to the property it’s on, consider getting a home equity line of credit to finance it.

The future of tiny houses
Job losses due to Covid, stagnant wages, and increased property prices all make it more difficult for first time homeowners to break into the market. There will certainly be a market for tiny affordable houses, but the real hurdle is the lack of legal places to live in one. The American Tiny House Association and the Tiny Home Industry Association are both working hard to promote best practices in home construction and recognize them as a safe and permanent housing option. If you have any question about tiny homes in your community or whether you’d be eligible for a home loan for your tiny home, contact your local mortgage expert at Mann Mortgage today.

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