Over Half of All Buyers Are Surprised by Closing Costs

According to a recent survey conducted by ClosingCorp, over half of all homebuyers are surprised by the closing costs required to obtain their mortgage.

After surveying 1,000 first-time and repeat homebuyers, the results revealed that 17% of homebuyers were surprised that closing costs were required at all, while another 35% were stunned by how much higher the fees were than expected.

“Homebuyers reported being most surprised by mortgage insurance, followed by bank fees and points, taxes, title insurance and appraisal fees.”

Bankrate.com recently gathered closing cost data from lenders in every state and Washington, D.C. to be able to share the average costs in each state. The map below was created using the closing costs on a $200,000 mortgage with a 20% down payment.

Keep in mind that if you are in the market for a home above this price range. your costs could be significantly more. According to Freddie Mac,

“Closing costs are typically between 2 and 5% of your purchase price.”

Bottom Line

Speak with your lender and agent early and often to determine how much you’ll be responsible for at closing. Finding out that you’ll need to come up with thousands of dollars right before closing is not a surprise anyone is ever looking forward to.

 

Posted by The KCM Crew

The No. 1 Tip To Pay Off Your Mortgage Early

Your home is a great source of pride. By implementing this tactic, you can call it all yours even sooner.

Your loan term might be fixed, but it doesn’t have to dictate when you’ll be mortgage-free. Find out how to speed up the process.

A lot can happen in 30 years. Kids become adults, jobs change, and life goals are accomplished and reset. Change during such a lengthy period is inevitable. But if you’re a homeowner, there’s one thing that won’t change: Your obligation to make a monthly mortgage payment.

The good news? A loan term doesn’t have to dictate when you free yourself from this financial commitment. There are a few tried-and-true ways to cut the ties early while lowering the total amount paid in the process. Follow these recommendations, including the No. 1 tip to pay off your mortgage early on your home, whether it’s in Seattle, WA, or Boston, MA.

5. Refinance into a 15-year mortgage

Cutting your loan term in half is a big financial step, but the benefits are substantial. Not only will you shorten the payoff time, but you’ll also be rewarded with a lower rate and pay significantly less in interest over the life of the loan.

The key here is determining whether you can shoulder the larger monthly cost that comes with a 15-year mortgage. Pamela Capalad, CFP and founder of Brunch and Budget, explains, “The downside is, you’ve locked in a much higher monthly payment. Make sure you have the cash flow to afford this new monthly payment on a regular basis.”

Not completely confident in your ability to commit to a higher monthly payment? Fake a 15-year mortgage by challenging yourself to make the payments you would be making if you had locked into a 15-year mortgage. Then, if financial circumstances change, you still have the flexibility to return to a lower monthly payment.

4. Refinance into a lower rate but keep payments the same

The benefits of refinancing your loan but sticking to the same payments are twofold: You will pay less in interest over the life of the loan and create a shorter path to mortgage freedom. Plus, it’s not as drastic as jumping from a 30-year mortgage to a 15-year mortgage.

However, it’s important to do a bit of research before you refinance. Closing costs for refinancing are generally lower than if you were to purchase a new home, but they’re still an added expense. Your new interest rate should be low enough to negate the cost of refinancing, or you should be planning on staying put long enough to reap the benefits of a smaller rate. (Use the Trulia refinance calculator to see if this is a good choice for you.)

3. Get rid of private mortgage insurance (PMI)

If you financed more than 80% of your conventional mortgage, chances are, you are paying private mortgage insurance to protect the lender in case of default. Redirecting this amount — usually 0.05%–1% of the loan amount annually — to the principal on your mortgage can have a big impact over time.

You can request to get rid of PMI once you reach an 80% loan-to-value ratio, but the lender is required to remove it after you’ve reached a 78% loan-to-value ratio. You can speed up the process by increasing your equity through home upgrades, or, if the home has already increased in value for other reasons, you can opt to refinance. Some lenders may even allow you to get an appraisal to show the new value and your increased equity — without paying for a refinance.

2. Put those windfalls to work

Maybe your monthly budget doesn’t have wiggle room and paying the costs to refinance isn’t in the cards. There’s another option.

Tax returns, bonus checks, and inheritance payments present the opportunity to pay off a chunk of your mortgage without feeling the pain in your monthly budget. This could mean thousands of additional dollars chipping away at this massive financial responsibility each year. Sometimes your money could be better spent elsewhere — like paying off high-interest debt — but if wiping out your mortgage early is a priority, this is a great place to start.

1. Make extra or higher principal payments

Jennifer Harper, CFP and director of Bridge Financial Planning, says one small change can make a world of difference. “Even small [additional] principal payments add up over time! On a $150,000 loan for 30 years at 3.75%, with no additional payments, more than $100,000 will be paid in interest over the course of the loan. By adding just $100 per month in principal payments, the total interest paid is reduced by nearly $25,000 and the loan will be paid off more than six years sooner!”

Another way to do this is by making biweekly mortgage payments. Instead of making 12 monthly payments, this equals out to 26 half-payments — or 13 full payments — per year. But beware, explains Harper, not all loan servicers make it easy to apply these extra payments to the principal. Make sure to speak to yours and ensure they aren’t simply holding on to the extra money and applying it toward the interest.

The bottom line: Choose what works for you

Which method should you choose to pay down your mortgage faster? That depends, explains Pamela Capalad.

“Choose the option that resonates the most with you based on your current financial situation and any possible changes you foresee. If you have a steady job or career that you feel confident will last in the long term, it might make sense to refinance to a shorter term. If your income is a bit less consistent, you may want the flexibility of making additional payments when you can.”

Posted by Kayla Albert on Trulia

 

The Truth About Housing Affordability

20161110-share-kcm

From a purely economic perspective, this is one of the best times in American history to buy a home. Black Night Financial Services discusses this in their most recent Monthly Mortgage Monitor.

Here are two of the report’s revelations:

  1. The average U.S. home value increased by $13,500 from last year, but low interest rates have kept the monthly principal & interest payment needed to purchase a median-priced home almost equal to one year ago.
  2. Home affordability still remains favorable compared to long-term historic norms.

The report explains:

“Even though the value of the average home in the U.S. increased by about $13,500 over the last year, thanks to declining interest rates it actually costs almost exactly the same in principal and interest each month to purchase as it did this time last year.

Even taking into account the fact that affordability can vary – sometimes significantly – across the country based upon the different rates of home price appreciation we’re seeing, that’s a pretty incredible balancing act between interest rates and home prices at the national level…

Right now, it takes 20 percent of the median monthly income to cover monthly payments on the median-priced home, which is well below historical norms.”

However, the report warns that affordability will be dramatically impacted by an increase in mortgage rates.

“A half-point increase in interest rates would be equivalent to a $17,000 jump in the average home price, and bring that ratio to 21.5 percent. This increase is still below historical norms, but puts more pressure on homebuyers.”

Bottom Line

If you are ready and willing to purchase a home of your own, find out if you’re able to. Now is a great time to jump in.

Posted by The KCM Crew

Buying is Now 37.7% Cheaper Than Renting in the US

The results of the latest Rent vs. Buy Report from Trulia show that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.

The updated numbers actually show that the range is an average of 17.4% less expensive in Honolulu (HI), all the way up to 53.2% less expensive in Miami & West Palm Beach (FL), and 37.7% nationwide!

Other interesting findings in the report include:

  • Interest rates have remained low, and even though home prices have appreciated around the country, they haven’t greatly outpaced rental appreciation.
  • Home prices would have to appreciate by a range of over 23% in Honolulu (HI), up to over 45% in Ventura County (CA), to reach the tipping point of renting being less expensive than buying.
  • Nationally, rates would have to reach 9.1%, a 145% increase over today’s average of 3.7%, for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

Bottom Line

Buying a home makes sense socially and financially. If you are one of the many renters out there who would like to evaluate your ability to buy this year, meet with a local real estate professional who can help you find your dream home.

Posted by The KCM Crew

What You Need to Buy a House: Do You Have It All?

Riverlim/iStock

You’ve been drooling over local listings and saving every penny for a down payment. You’re ready. But before you begin your new home hunt in earnest, it’s helpful to know exactly what you need for a purchase. Do you have it all, or are you missing something that could throw a wrench in your dream of owning a home?

After all, you can’t just slap down a credit card to buy a house, particularly if you need amortgage—your lender will want to check your financial background to size up whether you can afford the place you’re eyeing. That means you’ll have to round up some paperwork as proof.

So here’s a handy checklist of what you’ll need to sail through this process without a hitch.

Tax returns

To ensure you have the income history to buy a house, most lenders will ask for two years’ worth of tax returns, two years of W-2s, or both. This is definitely the case for freelancers and self-employed borrowers, but full-time employees may be asked for all of this paperwork as well. Your lender may even retrieve your tax returns themselves straight from the IRS  (with your written permission, of course), since this cuts down on potential fraud. Still, it’s a good idea to get those documents in order just in case.

Pay stubs

Tax returns won’t be where your proof of income ends. You will also need to rustle up copies of your past two months of pay stubs, according to Martha Witte, vice president of FM Home Loans. If you’re self-employed or freelancing, things get a bit more complicated.

“Most of the time, contract employees receive a 1099 and file a Schedule C on their personal returns. In this instance, we would take a two-year average of the Schedule C income,” Witte says.

Also be prepared to show a projected balance sheet, detailing what you’ve earned this year and what you plan to earn in the coming months.

“It doesn’t need to be fancy, but it should ideally support that you are on track to have consistent income in the current year, when compared to other years,” Witte says.

Financial statements

You will also need to show two months of asset statements—think your checking and savings accounts. This one is a biggie because your lender will use these statements to prove you have enough money available to buy a home and then some.

“You will need liquid funds available for the down payment and to cover closing costs. You will also need reserves after closing, which means you can’t be left with $0 once you buy the home,” Witte says. While the reserve amounts vary, two to four months of reserves is enough for most conventional loans, she says.

Getting a down payment gift?

Finally, if you’re planning on getting a portion of your down payment as a gift (you lucky dog, you), plan on getting some documentation from the gift-givers, like copies of their checking or savings account monthly statements. “We need to also verify the donor’sability to give the gift,” Witte says.

When in doubt, follow this simple rule of thumb from Witte: “Follow the rule of twos,” meaning you’ll need a two-year snapshot of your income and finances.

Posted by Angela Colley on realtor.com

Consider This Before Taking Out A Debt Consolidation Loan

woman-man-couch-debt-consolidation-092016-hero

Consolidating debt is about more than combining your current debts into one loan — you’ll have to step back and change your financial habits in order to be successful.

Debt consolidation can look like a great fix for your financial woes, but it may not be the solution you really need.

Debt consolidation is the process of refinancing multiple balances into a single loan. You can take out one loan for the total amount of your current debt, then repay your existing debts with the funds from the new loan. Finally, you’re left with just the new loan to repay.

A debt consolidation loan can help make life a bit easier, reducing the amount of loans and debts you need to track. Making a single payment each month may even save you money in the long run if you can get a lower interest rate than your existing loan rates, and it can help you avoid sweeping a few bills under the rug (raise your hand if you’re renting in Boston, MA, or another pricey market and have felt the burden of a hefty rent in addition to student and car loans).

However, these benefits aren’t guaranteed, and what you save on your interest rate may be canceled out by origination fees and other charges. Consider these factors and be prepared to change the way you spend money before you consider a debt consolidation loan.

 

Debt consolidation won’t necessarily make things easier

The idea behind debt consolidation is a good one. You get to roll all your debt into one loan to focus on and repay. It makes your financial life simpler and may help you pay less on what you owe if you can get a lower interest rate.

But it doesn’t always work out this way. “I’ve worked with plenty of people pre- and postbankruptcy over the years,” says Jason Reiman, a certified financial planner. He’s the founder of Get Financially Fit!, a company based in Tucson, AZ, that helps people with their finances. “A leading indicator of bankruptcy, in my experience, is debt consolidation.”

Reiman says that consolidating loans (with the exception of student loans) usually provides you with a short reprieve. It’s often followed by taking on new debts outside of the ones you’ve already consolidated. Why do people do this? “Debt consolidation typically doesn’t produce the expected results simply because of mindset,” Reiman says. “As humans, we resist change and discomfort.”

And changing your financial habits to not rack up more debt after consolidation can be really uncomfortable. You must change how you behave with your finances, and that could mean going without the luxuries and the standard of living that caused you to get into debt in the first place.

Be prepared to learn and understand how you spend money

“Debt consolidation can look OK mathematically, but it has a tendency to ignore the emotional and psychological aspects,” Reiman says. And those factors do matter as much as — or more than — the numbers.

Your mindset and behavior are at the heart of any financial issue. While a debt consolidation loan can help some people, it won’t do anything for you if you’re not committed to changing your internal thought processes and switching up your spending patterns.

Reiman says that for any solution to be effective, you need to start with the real cause of the problem. Ask yourself a few important questions. “For example,” he suggests, “how did I get into this heavy debt situation in the first place?”

So if debt consolidation isn’t the answer for you because it doesn’t address the root of your financial troubles, what is the solution? Reiman offers one exercise to try. “Get out a piece of paper and a pen,” he says. “Divide the paper into four quadrants: physical, spiritual, mental, and financial. Jot down your thoughts and actions over the past three to five years which may have prompted you to add more debt to your life.” Reiman says we will remember times when things seemed to happen outside of our control. But by taking a look at how we thought and felt at that time, we can see patterns in how we acted and reacted.

“The purpose of this exercise is to help uncover the counterproductive actions,” he explains. “Only when you know how you arrived at your current situation are you able to make solid choices about changing it for the better.”

Clean up your finances before consolidating

If you feel that a debt consolidation loan is an important step in your journey to financial success, make sure you do everything you can to eliminate opportunities to create new debts in the future. Cut up your highest-interest credit cards and use a budgeting system you can stick to. Start building an emergency fund or a savings account with a cash reserve you can draw on if something comes up that your monthly budget can’t handle.

Then sit down and make a plan for how you’ll repay your consolidated loan. Will you cut back on your spending to help make those payments and avoid further debts? Will you work to earn more so you have more cash flow to put toward debt repayment?

Consider other options

Remember, a debt consolidation loan is only one strategy for repaying what you owe. “The process of eliminating small debts one by one, and achieving these small wins, is invaluable,” Reiman says. And he stresses the importance of simply having a plan and tracking your progress.

“If you have multiple debt accounts, consider using a free program like powerpay.org to crunch the numbers,” he says. The site will help you craft a plan of action that most likely doesn’t include consolidation. You can also use various debt payoff strategies, like the debt avalanche or debt snowball, to help you make progress.

“Get accountability and coaching and be open to change,” Reiman says. “It’s difficult but possible.” Your current level of debt might seem insurmountable, but don’t get overwhelmed. Take a deep breath, consider your options, and make a plan. Then dive in!

 

Posted by Kali Hawlk on Trulia

Why Getting Pre-Approved Should Be Your First Step

In many markets across the country, the amount of buyers searching for their dream homes greatly outnumbers the amount of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.

Even if you are in a market that is not as competitive, knowing your budget will give you the confidence of knowing if your dream home is within your reach.

Freddie Mac lays out the advantages of pre-approval in the My Home section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”

Freddie Mac describes the 4 Cs that help determine the amount you will be qualified to borrow:

  1. Capacity: Your current and future ability to make your payments
  2. Capital or cash reserves: The money, savings and investments you have that can be sold quickly for cash
  3. Collateral: The home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so as well.

Posted by The KCM Crew