Category / Home Ownership

Home Ownership

Tapping into idle money: Using equity in your home

It’s been six months since we put our house on the market; six months of keeping our home spotless in case of last-minute showings, which have all resulted in not a single offer. As we kept dropping the price tag on our home – it’s now far below its appraised value – my husband and I kept asking ourselves, “This property is worth so much more; surely, there’s something better we could do with it?”

And there is.

Tapping Your Home’s Equity

The answer to our problems could come from tapping into our home’s equity. Currently, we have nearly $40,000 worth of equity in our property – not bad considering we bought it at the height of the real estate boom and (naively) put down just five percent. Instead of losing just about all of that by selling it for well under market value, we’re considering using the equity in a different way.

Using your home’s equity usually happens in one of two ways: by taking out a home equity loan or a home equity line of credit, sometimes called a HELOC for short. While they sound very similar, there are some stark differences. A home equity loan functions like a second mortgage, using your home’s equity as the collateral; the loan is a fixed-rate for a set number of years, which you pay back in month installments. A HELOC, on the other hand, operates more like a credit card; the interest rate fluctuates, and you can “charge” up to the line of credit’s limit, typically the amount of equity you’re borrowing against. Just like a credit card, you can either make payments in full, or just pay the minimum and incur the interest.

In both cases, determining the amount you can borrow is essentially the same. In a slow housing market like we’re currently seeing, multiply your home’s appraised value by 90 percent, then subtract the remaining principal balance on your home loan – that’s typically the maximum amount lenders will let you borrow on a home equity product; in my case, that would be about $24,000.

The Benefits

House rich but cash poor? Tapping your home’s equity can change that. If you have enough equity in your home – lenders typically like to see 20 percent or more – you can pull out that money with a home equity product to use at your discretion. For example, maybe you’re about to embark on a huge home improvement project, or need to pay off other high-interest debts; a home equity loan can give you the cash you need in a one-time lump sum. Or perhaps you need access to the equity in your property to pay your kids’ college tuition or cover expenses during a period of unemployment  – a HELOC is ideal for that.

There are also tax breaks, just as there are for first mortgages. In most cases, property owners can write off interest on loans under $100,000, even if you’re using the money to buy something frivolous like a sports car.

The Risks

The main risk that comes with using a home equity product is that you’re taking out a loan and using your equity in your property as collateral – leaving you with little or no equity at all. In other words, if you can’t make the payments on your loan or line of credit, the lender has something very tangible to take from you: your home.

At the same time, you’re also subject to the ebbs and flows of the market itself. Interest rates go up? So will your interest charges on your HELOC. Property values go down? You may find your property underwater (owing more on it than the home is worth).

How We Could Use Our Home’s Equity

We’ve been toying with a home loan calculator to see just how pulling out some of our current home’s equity could help us get into a new home. The mortgage calculator showed us that with today’s low interest rates and housing prices, a 20 percent down payment would cost us around $50,000. By tapping the equity on our current home, using it to put a down payment on another, and renting out the existing house, we could buy our dream home and become landlords without breaking the bank.

Written By Betsy Falwell

Home Ownership

Beware of Hidden Costs in Mortgage Deals

Whether you are buying your first home or have purchased and refinanced several homes over the years, you no doubt are making your best effort to budget and plan financially for your mortgage. The most obvious expense associated with a mortgage pertains to the regular monthly obligation of your mortgage payment. However, a mortgage also comes with various loan fees and closing costs. Some of these are required to be paid at the beginning of the loan process, and others will be paid at the closing table. While effort is made to fully disclose these fees and costs to a mortgage applicant, there are some hidden costs and fees that often take a mortgage applicant by surprise.

Taxes and Insurance

Many mortgage lenders require you to establish an escrow account when you open a new loan. This escrow account will be used to pay for property taxes and interest, and lenders generally prefer to keep approximately three to six months’ worth of property taxes and homeowner’s insurance payments in the escrow account. The actual amount collected from you, however, will vary based on the time of year it is and the lender’s requirements. A collection of several months’ worth of property taxes and homeowners insurance is a significant expense that is often overlooked.

Loan Origination Fees

A loan origination fee is a fee that a broker charges you to work on your loan, and some lenders will also charge this fee. Some may call it an origination fee, and others will call it a generic loan fee or a lender fee. In some cases, this is a flat fee that is easy to budget for. However, it is common for this fee to be listed as a percentage of the loan amount. A seemingly small percentage, such as one or two percent, may be overlooked by a typically borrower as a small fee. However, in reality, a one or two percent fee can be rather significant.

Loan Points

Loan points or “buydown” points are often tacked onto a loan in order to reduce the interest rate. Some lenders and mortgage brokers will advertise a very low interest rate that has several loan points tacked onto it. You may believe that you are getting a great deal on your loan request because of the unbeatable interest rate you are receiving. However, the loan points that are being used to buy down the interest rate will generally need to be paid at closing, and these typically will range from a half a percent to two percent or more. The cost of loan points coupled with other closing costs and fees can be expensive.

It is common for total loan costs on a typical loan to be approximately three to five percent of the loan amount. However, there is a great deal of flexibility and variation in this area. Some fees are negotiable, such as loan origination fees, and some borrowers have been able to reduce their closing costs through negotiation. Other fees may be needed. For example, mortgage protection insurance or a borrower may need to buy down the interest rate with a loan point in order to qualify for the loan amount needed. Regardless of the total loan costs, these expenses and fees ultimately can catch you off guard if you have not planned for them. With this in mind, ask your lender or mortgage broker for an estimated closing statement very early on in the loan process. If any factors change during the loan process, request an updated estimated closing statement. This effort can help you to better plan for the closing costs and fees associated with your loan.

Home Ownership

Homes Sales to Chinese More than Double in Past 7 Years

Homes sales are up across the board, which means that the economy is steadily growing. However, one demographic stand out as having a huge growth in home buying since 2007, and that is the Chinese. A lot of these residents are in Southern California, but across the United States the sale of homes to Chinese to Chinese-Americans has grown. There are many reasons for this growth, but whatever the buyers reason is, it is good for the overall economy.

One reason that Chinese nationals could be buying in the United States is for investment property. Property in China and Hong Kong is notoriously pricy, as well as scarce. The housing market in the United States always has plenty to offer, as well as buyers who are more than happy to drop the price a little to get cash payment. Cash payments are more common with overseas buyers than with stateside buyers, and with little else attached, owners are usually happy to cut a bit of the price to get cold hard cash. Many come to the United States to find jobs or to attend college, and China and Hong Kong are hard pressed for jobs right now, unless someone is highly educated. While they may not make as much money working in the United States, the lower cost-of-living expenses helps even out the lower wages.

One obstacle of foreign homebuyers is how American homes are set up. If you have ever flipped through an international architecture magazine, or watched “House Hunters International” on HGTV, you know that homes overseas are sometimes vastly different from American homes. Our homes have much more space than homes in Asian countries, and are set up completely different. While a massive staircase in the foyer may be a status symbol to Americans, it is Feng Sui no-no to those who practice it. Feng Sui is a system where the placement and colors of objects help move energy through the location. Therefore, for the massive staircase in the foyer, it can press energy from upstairs downward and out the door, which you do not want. This can be combatted with a red rug, which keeps the energy upstairs, flowing freely. Homes in the United States are usually freestanding structures, even in large cities, and the opposite occurs in China and Hong Kong. Even though the United States has condominium and apartment options for habitation, they are usually much larger, and with more amenities, than homes overseas. The size, costs, and amenities drive many to look at the United States as a place to live, or at least a place to invest in.

Home sales overall have increased, but the one demographic that stands out are sales to those that are Chinese-American or Chinese nationals. There are many possible reasons for this jump in sales, from our economy to our cheaper home prices to our home amenities and sizes that are not available elsewhere. Regardless of the reason, the influx of international buyers is helping our economy gain steadily.

Blair ThomasAbout the Author:  Blair Thomas is the co-founder of eMerchantBroker.com the #1 high risk Credit Card processing company and he could tell you how to get a merchant account with bad credit at amazing rates! He has been in the electronic payments industry for over 10+ years.  When he is not running his business he spends his time writing and producing music, which has been featured in a variety of films.

 

Home Ownership

Solve Your Financial Worries with a Home Equity Release

Financial worries are something which plague many of us. This is particularly true at the moment, when the housing market is struggling, employment opportunities are still low, and borrowing is at an all time high. Many people are finding it hard to make ends meet, with some fearing that they may lose their homes.

Even those who own their own homes are worrying, with many fearing that they will not be able to keep up with their mortgage repayments or utility bills. But for these people, help is on hand. If you own your own home, even if you still have an outstanding mortgage, you are what’s known as ‘asset rich’, no matter what your income.

Making the Most of Your Assets

If you are ‘asset rich’ – that is, if you are a homeowner, rather than a renter, then you may be able to convert your property into much needed cash. This is known, in the broadest sense of the term, as an equity release.

Strictly speaking, anyone who decides to release equity from their home will continue to live there afterwards. Equity can be released by taking a second mortgage, or by any other route whereby the value of your home is used to generate income.

However there is another way to release equity from your home, and that is to sell your property outright.

Selling Your Property in a Stagnant Market

Whilst selling your home may sound like a great idea, many people have already tried to do so and have come up against the problems inherent in a stagnant housing market. These include, falling prices, a lack of buyers and undesirable / unobtainable mortgages.

Luckily, there is a solution on hand. The House Buyer Bureau – www.housebuyerbureau.co.uk – can buy your house quickly, and for cash, no matter what state the market is in.  

What Is a House Buying Bureau?

A reputable property buying bureau, such as The House Buyer Bureau, is a professional organisation with experience in buying properties in many locations, and in varying conditions. The main benefit of using a bureau, rather than an estate agent, is that there are no fees to pay, and no waiting around. So if you need to sell your property quickly, in order to free up some much needed cash, contact The House Buyer Bureau today to find out how they can help.

Home Ownership

The Hidden Costs of Buying a Home

First-time home buyers are often unprepared for the hidden costs of buying a home. After they have negotiated with the seller and agreed upon a purchase price, and have received verification from their lender for a mortgage, they are hit with a variety of other expenses that will likely increase their costs by an average of 3 to 6 percent of the home’s value.

For the uninitiated, here’s a list of some of the extra expenses you can expect when buying a home:

Points or Loan Origination Fees – These are upfront payments of the interest that you owe your lender for providing your mortgage. They can range up to 3 percent of the loan amount.

Broker Fees – If you acquired your mortgage through a broker, you will have to pay a fee for the service.

Home Inspection – It’s very risky to buy a home that hasn’t been professionally inspected for any potential problems or defects, and most lenders require an inspection. That cost accrues to you.

Appraisal – Your lender will typically expect you to have the home appraised to ensure that the property value and selling price are correct.

Survey – Many lenders will require you to pay for a survey to determine if there are any inconsistencies in the property’s boundaries.

Credit Report – You will have to pay for a credit report so that your lender can determine your credit worthiness, and to set the loan’s interest rate. You may want to have your credit card debt resolved at this time.

Title Search and Insurance – You will have to pay a title company to examine the ownership records of the property in order to discover any outstanding liens. You will also have to pay for a policy to ensure against errors in the title search.

Private Mortgage Insurance – If your down payment is less than 20 percent, you will have to pay private mortgage insurance as an added cost to your monthly mortgage payment.

Home Insurance – Your lender will require that you purchase a homeowner’s insurance policy that is sufficient to protect its investment in your property.

Document and Recording Fees – In order to properly record the transfer of real property, you will have to pay a variety of fees to local, county and/or state municipalities.

Escrow Fees – These fees are charged to process the paperwork and keep your money in a safe place while you and your seller negotiate final details of the sale.

Real Estate Taxes – You will be liable for taxes on your new home to be paid either yearly or as part of your monthly mortgage payment. You will also have to pay prorated taxes upfront before you can claim title.

Junk Fees – Don’t be surprised at a variety of “junk fees” that can show up on your closing statement. Courier service, wire transfers, credit insurance, inflated recording fees, underwriting and processing fees can all add hundreds of dollars to the cost of buying a home.

Move-In Costs – Don’t forget that you will also need to hire a moving company to move your belongings. You may also need to purchase new carpeting, furniture, appliances, etc.

While some fees can be waived or negotiated, others cannot. So before signing on the dotted line, make sure you understand all the hidden costs of buying your home.

Also, be prepared that you may have to return to your lender at some point in the near future, either to refinance your home or to modify your mortgage. And be sure to look into the hidden costs of those options, as well, before committing to them.