3 Reasons Why You Should Refinance This Summer

Whoever coined the phrase, “Make hay while the sun shines” was onto something­­­­—summer is the absolute best time to tackle those projects (or vacations) you’ve been putting off.

And while there are many valid reasons for delaying said projects, a lack of funds shouldn’t be one. Especially when we’ve come up with 3 sure-fire reasons to act now.

 

Eliminate PMI

 PMI, or Private Mortgage Insurance, is a form of insurance lenders implement to reduce the risk of loss on low down payment mortgages. By removing PMI, you can save hundreds, if not thousands of dollars each year.

However, you must have at least 20% equity in your home to do away with PMI. You can ask your lender to remove the PMI when you’ve paid down the mortgage balance to 80% of the homes original appraised value.

If you aren’t quite at 80%, it might be a good idea to refinance. Not only can you remove the PMI, but you might be able to lower your monthly mortgage payments and still pull out some equity for a project or a much-needed vacation. Score!

 

Fund Your Remodel

First things first: You must make sure the refinance plus the remodel doesn’t cause your mortgage payment to increase or extend your payments past your existing pay-off schedule. Then and only then should you take to your kitchen cabinets with a jackhammer in hand.

For example, you have $10,000 in mind for your remodel and currently have a 30-year, $200,000 mortgage at a 6% interest five years ago. As it stands, your monthly payment is ~$1,200, (excluding insurance and taxes) with a remaining balance of $186,109.

Here’s where the magic happens­­­­—you would take a mortgage out for $196,109 with an interest rate of 2.5% for 25 years, making your new monthly loan payment $982. And voila, you not only pay your home off as scheduled but also save money while doing so.

 

Say Goodbye to Debt

Debt is completely normal and something that many homeowners accumulate over time but becomes a serious problem if your monthly budget is affected. But fear not, having equity in your home can put you on the right track to becoming financially comfortable again.

Similar to the example above, you can pull out $10,000 to pay off debt while simultaneously lowering your mortgage payment and still pay it off on time. Have significantly more debt? No problem! You can withdraw more money and break even on your mortgage.

No matter the situation, your home equity can do the work for you. Your home is an investment and now is the time to cash in on the rewards of home ownership.

Contact us today to see if a refinance makes sense for you. We can work with you on countless scenarios and find the best solution that works for your situation.


Mello-Roos Tax Assessments: What You Need to Know

The Community Facilities Act—also known as Mello-Roos—was enacted by the California legislature in 1982 to enable local governments to create Community Facilities Districts (CFDs) in order to obtain additional public funding . Named for the tax Act’s co-authors Sen. Henry J. Mello (D-Watsonville) and Assemblyman Mike Roos (D-Los Angeles), counties, cities, special and school districts, and other authorities use CFDs to pay for certain public works and services.

The Mello-Roos Act simply provides local governments with another way to obtain funding after Proposition 13 restricted local governments’ abilities to increase property taxes in order to finance public facilities and services in 1978. Mello-Roos differs from Proposition 13 in that in that Mello-Roos taxes are equally applied to all properties whereas Proposition 13 tax limits are based on real property values.

Community Facilities Districts (Mello-Roos Districts)

Property owners in a CFD are subject to a special tax to enable the district to obtain public funding through bond sales for certain infrastructure improvements and/or services.

Tax Uses

Mello-Roos taxes are paying for services and facilities such as:

  • Police and fire protection
  • Emergency services
  • Recreation programs
  • Libraries
  • Parks and open space
  • Museums and cultural facilities
  • Flood and storm protection
  • Hazardous material removal

Facilities purchased with Mello-Roos funding must have an estimated useful life of at least five years in order to qualify.

Tax Assessments

Individuals who purchase homes in a CFD are subject to Mello-Roos assessments which are commonly collected with general property taxes. Whereas the tax amount may vary each year, it may not exceed the maximum amounts specified upon creation of the CFD, which are recorded along with the method of apportionment (density, construction square footage, acreage, etc.). Homeowners will continue to pay these taxes until the bonds’ principle and interest—and administrative fees—are paid, but not longer than 40 years.

Finally, as the Mello-Roos tax is assessed upon the land, changes in property values will not affect the amount if the property is subsequently sold; however, unpaid or delinquent payments require settlement before any sale because the tax is recorded as a property lien.

For more information about Mello-Roos or any other California property questions, please contact us.


What is happening to the Home Loans Market?

A 2013 survey (Belden and Russonello, America-in-2013-Final Report.PDF) showed that the demand for home ownership is very high, in spite of various difficulties experienced by the housing market. Most believe that home ownership is a good investment for them. Seventy percent of renters hope to buy homes within five years. Many people who own homes are looking for larger homes.

Demand for homes:

Qualifying for a home loan is part of the life cycle of Americans. The youngest generation (age 28 to 34) show the strongest preference for mixed use urban communities in the city. They want walkable communities and public transit. When people move into the 35 to 47 age group (the married and child-rearing phase), they begin to prefer to buy single-family homes. The older baby-boomer generation have diversified into a wide range of housing sizes and communities. They generally feel settled, except that some want to move into smaller homes with shorter transportation demand, close to parks and far from neighbors.

The need for home loans is a constant through all the varieties of location and need. According to the survey,

Living in a single-family house is…related…to their stage of in life. It is a goal that Americans move closer to as the age, marry, and earn more.”

Young adults in the millennial generation are heavily burdened by student loan debt.  A Wells-Fargo survey found that a majority of millennials (54 percent) describe debt as their biggest financial concern. Forty-two percent of millennials say their debt is “overwhelming.” Of the millennial generation 64 percent financed their education with student loans. This contrasts with baby boomers, of whom only 29 percent financed their education with loans, during a period when tuition costs and fees were much lower.

Millennials in the marketplace:

When millennials are ready to finance a home, what is the home finance market like for them? In 2013, 30 year-olds were as likely to be stuck in their childhood bedrooms as they were to own their own home. The job market was especially hard on millennials with unemployment rates at 14 percent for that group between 2007 and 2010. For many, saving and handling student debt were very hard.

With  the gradual recovery of the job market, the “household formation rates” (how many new household units–home buying units–are being formed) has reached close to normal levels. Normally this would signal a normalizing housing market. However, the people forming new households are disproportionally not millennials.

Surprisingly, even with improving conditions, the share of adults in the millennial age range living with their parents has continued to rise. The rate at which millennials get married or live with a partner has been decreasing for many years now, independent of the recession. Millennials, employed or not, are more likely than ever to live with parents and not form independent households. The increases in household formation is coming from older adults. Many feel that fewer households entering the home buying market is due to later marriages and not-good-enough jobs, as well as student debt.

Preparing Better Mortgages to Tempt Millennials:

The worry felt by many borrowers has to do in part with hidden costs of the mortgage. Over the last few years, the household lending industry has been borrowing the practice of Total Cost of Ownership from industrial management practice. Total Cost of Ownership (TCO) was popularized for business in 1987. The Total cost analysis in mortgage lending enables lenders to explore what their resources can afford in a home mortgage. This analysis treats home ownership as a cost-benefit proposition.

Looking at all the factors that go into mortgage cost gives purchasers a sense of closure and allays fears of the unknown. As will any Total Cost of Ownership calculation, the total mortgage cost analysis begins looking at all the factors that go into the cost of the mortgage:

  • Mortgage attributes–for a fixed rate mortgage: loan amount, loan term, and interest rates. For a variable rate mortgage: periodic rate cap, lifetime rate cap, months between rate adjustment, etc..
  • Down payment–the larger the down payment, the smaller the total mortgage costs. Recent government regulations permit down payments of 1 percent. What would such a small down payment mean for total cost?
  • Discount points–upfront fees paid to the lender.
  • Other closing costs–a multitude of upfront expenses for inspections, legal and document fees, surveys, etc..
  • Private mortgage insurance–usually around $55 per month for every $100,000 borrowed, until the remaining principle falls below 80 percent of the home’s fair market value.
  • Income tax ramifications–some mortgage expenses may be tax-deductible.

Pacific Mortgage Group makes it easy and stress-free for you to find a mortgage option that truly fits your needs. Our mission is to match you with the best possible home loan package so you can achieve your financial goals. Please contact us to learn more.


Discover Why Conventional Home Loans May Be the Best Option

Have you been trying to figure out which home loan is right for you? Well, if you have good credit, and have taken the time to save for buying a home, then a conventional home loan may be the best option. The main benefit is a conventional home loan will save you money.

The main advantages of FHA home loans and other government-backed mortgages include (1) the qualifying credit criteria is lower, (2) the amount of your required down payment is less, and (3) refinancing is easier. However, these benefits have a cost. You can end up spending much more, both with your monthly payment and over the life of the loan.

Down Payment

FHA home loans require as little as 3.5 percent as the down payment. Of course, the lower down payment means more of the sale price is financed. Your monthly mortgage payment is higher, affecting your payment-to-income ratio and loan approval. The higher financed amount also means paying thousands more in interest over the life of the loan.

Private Mortgage Insurance

When you place 20 percent or more down on a home, you are not required to pay for mortgage insurance. This insurance reimburses a financial institution if the home goes into foreclosure. The premium is added to your monthly mortgage payment, also affecting your payment-to-income ratio.

Mortgage Rates

Since FHA and other government-backed mortgages have lower credit standards, there is a greater financial risk for banks and mortgage companies.  This translates into higher interest rates. Since conventional home loans have higher credit standards, they offer better rates.

More Options

Conventional home loans provide more flexibility with payment terms. FHA home loans have either 15-year or 30-year terms (some lenders can be more flexible). Conventional loans have options that can help you pay your mortgage off earlier and save thousands in interest.

If you would like to talk more about why a conventional home loan may be the best option, or need more information, please contact us.


Tips on Owning a Home: It’s More Than Just the Mortgage!

One of the most common misconceptions about home ownership is that you simply buy a house, pay the mortgage every month, and call it a day. However, the reality of owning a home is that it costs a lot more than just the mortgage!

In this blog post, then, we’re going to go over the full list of expenses that come with owning a home so that you can decide if you’re in the market to buy a home, or to continue renting as you’re currently doing.

  • Insurance: many lenders, especially from the so-called “big banks,” will require you to have homeowner’s insurance before giving you a mortgage. This premium varies from state to state, and different environmental factors — such as your area’s propensity for hurricanes, earthquakes, and flooding — can drive the price up significantly.
  • Property Taxes: again, this is an inevitable cost. Now, there are some mortgages that allow this to be built in — and paid — from the monthly mortgage payment, but in the end, this will also drive your monthly payment up to more than you thought before. Like insurance premiums, property taxes vary from state to state, and are dependent on the value of your home.
  • Utilities: you thought you had the “utilities” thing down pat when you were living in your first studio apartment, but the reality is, the utilities go up tremendously when you’re trying to heat, water, and provide electricity to a home with a few thousand square feet. Make sure you budget accordingly!

For more information about us and our services, contact us today.


Discover How to Save Money for a House

Saving money for a house can feel like an insurmountable goal. A down payment and closing costs will be in the thousands. For a traditional mortgage, the target number is 20 percent of the sale price for the down payment and another estimated 5 percent toward closing costs. If your dream home is $200,000, expect to need $50,000 saved.

It seems a bit daunting, doesn’t it? The Consumer Financial Protection Bureau reports, “People often put off saving for [important] goals because they feel like they don’t have enough money to save or they are busy struggling to make ends meet today. They feel like they can’t think or worry about saving for goals, large purchases, or even life events in the future. This can create financial challenges in the future.”

So, how do you start saving the tens of thousands of dollars needed for a home purchase? Here are our tips for saving money for a house.

Set a Goal: Decide how much money you need for the house you want, and set a date to achieve this goal. Moreover, ensure your goal is reasonable, It may take you five years to save $50,000.

Create a Plan: Convert your goal into yearly, monthly, and weekly financial targets. A $178.58 weekly goal is easier to achieve than the lump sum of $50,000.

Cut Spending: Reduce spending on as many items or services as you can. Cut back your cable television from the premium package to basic. Reduce your phone from unlimited calling to a fixed number of minutes. Limit the number of times you eat out.

Boost Savings: Take the money you have saved and invest it into a savings account, certificates of deposit, mutual funds, and savings bonds. Banks and credit unions offer financial products that are safe and boost the value of money saved.

Increase Income: Consider taking a part-time job. The added income will help you to save faster, and will help with other unexpected expenses like automobile repairs.

Revise Goals: If the amount you are saving for a home doesn’t make sense, or your life’s circumstances have changed, adjust your goals. Your goals are not etched in stone. Adjust them so they make sense for you and your family.

If you already saved money and plan on purchasing your first home, or just need more information, please contact us.


Four Benefits of a FHA Loan

FHA loans are government-issued loans by the Federal Housing Authority. Actually, you will still get loans through private lenders but, you will be protected by the government, if you should default on your loan.

Here are some of the benefits of getting a FHA loan.

  • Lower down payments required to get a mortgage. Most loans require at least five to ten percent of the cost of the house as a down payment. Some require even more. With a FHA loan, you only need 3.5% down! Closing costs can be even more expensive and that can be added to your mortgage.
  • Lower mortgage insurance. Mortgage insurance is expensive and is included in your monthly costs. With a FHA loan, you might be able to pay less, essentially paying less money each month with your mortgage payment.
  • Competitive interest rates. When you get a FHA loan, you will get a competitive interest rate, no matter what your credit score is. This allows people who have less than desirable credit to own homes.
  • Higher debt ratio. When figuring out your debt ratio, you are allowed to have more debt with a FHA loan than you can with a conventional loan. If you have a car payment or two, along with credit card debt, you might be better off looking at a FHA loan!

FHA loans are helpful when you are just starting out and you don’t have a lot of money for a down payment. They are also helpful if you don’t have the best credit. They are also helpful when you have a little bit of debt. However, make sure that you can afford your house or you will end up losing your home!

Contact us to see if you qualify for a FHA loan!


How Much to Put Down on a Home Loan

Whether or not to buy a home is, for many, the single most important financial decision in their life. The second is how much to put down on a home loan. Your down payment plays an important part in the home loan approval process.

The down payment influences:

  • Loan-to-value ratio,
  • Private mortgage insurance,
  • Debt-to-income ratio,
  • Housing expense ratio, and
  • Interest Rate.

Loan-to-Value Ratio: This is the percentage a financial institution lends compared to the value of the property. If a home’s market value is $100,000, and one borrows $80,000 to purchase it, the loan-to-value ratio is 80 percent. While special loan programs exist, in today’s marketplace, one should expect to need a down payment of 20 percent for loan approval.

Private mortgage insurance: This is an insurance policy paid by the borrower. In case the homeowner defaults on their mortgage payments, and the financial institution is unable to recover costs through the foreclosure process, private mortgage insurance offsets the lender’s losses. You can avoid paying this cost with a 20 percent down payment.

Debt-to-income ratio: One’s debt-to-income is the percentage of your monthly income that goes toward paying their debt. This includes credit cards, car payments, child support, legal judgements, and more. One’s potential housing expenses are also included.

Each financial institution, and depending on the type of loan, has their own requirements. However, exceeding this ratio will negatively impact loan approval. The down payment affects the payment and, therefore, one’s debt-to-income.

Housing expense ratio: This is sometimes referred to as the payment-to-income ratio. It is the percentage of your monthly income going towards housing: mortgage payment (principal and interest), private mortgage insurance, homeowner insurance, property taxes, et al. The housing expense ratio becomes difficult to understand for some home buyers.

An example is a bank requiring no more than 33 percent of one’s monthly income going toward housing expenses. However, these expenses are added into one’s debt-to-income calculation. The percentage limit decreases with the more debt one owes. As with the overall debt-to-income, your down payment lowers your loan payment and affects the housing expense ratio.

Interest rate: The interest rate represents your cost to borrow the funds for the home purchase. Your down payment is your initial investment. It creates instant equity in the property and lessens the lender’s risk. For this reason, many financial institutions will give a better interest rate with a higher down payment.

If you would like more information or to talk more about how much to put down on a home, please contact us.


How FHA Streamline Loan Refinancing Works

If you have purchased your current residence via an FHA loan and have thought about refinancing to a lower rate to free up money for other purposes, FHA Streamline Loan Refinancing could be just the thing you need.

Features

Streamline loan refinancing through the FHA has several features that make it attractive to homeowners. These include:

  • Appraisal waiver, allowing you to use the original purchase price of your home, regardless of its value today
  • No income or credit score verification
  • No employment verification

The appraisal waiver is a particularly popular feature as it allows unlimited loan-to-value (LTV), an important feature for homeowners whose houses lost value during the economic downtown.  When applying for a Streamline Loan Refinance, homeowners can be jobless or have fair to poor credit and still receive approval, factors that prevent refinancing under other programs. If homeowners want to roll their closing costs into the loan, however, they must obtain an appraisal, otherwise, those fees must be paid out of pocket.

Eligibility

The only homeowners who are eligible for the Streamline loan are those who currently have FHA mortgages. Homeowners who want to refinance to an FHA mortgage from another type of loan must go through the normal FHA refinance process.

To obtain an FHA Streamline Loan Refinance, other factors are required. You must not have more than two, 30-day late payments on your mortgage in the last 12 months  and payment history must be perfect for the last three months. You must not have completed an FHA Streamline Refinance in the last six months. Finally, the refinance must show a net tangible benefit, meaning the new loan must reduce the total monthly mortgage payment by 5% or more. Refinancing to free money to pay bills is not acceptable.

For more information on how we can help you obtain an FHA streamline,  contact us or come visit us at Pacific Mortgage Group.


How Do VA Loans Work?

How Do VA Loans Work

Purchasing a home is probably the biggest financial decision you’ll ever have to make. If you’re a veteran, you can  apply for a VA loan to buy an existing home, construct your own house or purchase a condominium or townhouse.

What’s more, VA loans can also be used for making home improvements such as installing storm windows, insulation and other features that promote energy efficiency. Here’s how VA loans work, along with some of their benefits.

Who Qualifies for a VA Loan?

Besides veterans, VA loans are also for people who are currently serving in the United States military, along with their spouses. However, there are some qualifications need to be fulfilled.

For example, anyone interested in buying a home must have served for at least 181 days during peacetime or must have completed 90 days of active service during times of war. Another requirement is having a record of six years of service in the National Guard or the Reserves.

Advantages of VA Loans

VA loans offer several benefits. One of the main perks is that you don’t need to put down any money as you would have to do when getting a conventional loan. This makes buying a home easier for people who’ve served their country.

Also, you don’t have to pay a monthly fee for PMI or private mortgage insurance, which saves you a considerable amount of money. Consider that with a conventional loan, you could have monthly payments that are as high as $65 for the first three to five years.

Another advantage is that you have less closing costs. VA loans have interest rates that are very competitive. In fact, the rates for VA loans are almost always lower than those of conventional loans. Also, if you pay off your loan early, you don’t have to pay a penalty.

What’s Involved in the Loan Process

  • First, obtain a copy of your credit report through Experian, TransUnion or Equifax, which are the three main credit bureaus.
  • Next, find a lender, comparing the various closing costs. Apply at approved financial institutions and banks that offer home financing through VA loans.
  • The next step is to pre-qualify for your loan as this helps in determining how much you can borrow, as well as gives a lender details, regarding your assets and income. Although pre-qualifying for a loan isn’t required, it’s a good idea because you’ll need to know what you can afford when searching a home.
  • Search for your home. This can be done by using a realtor or other means such as real estate ads in newspapers or online sources.
  • Draw up a purchasing contract, which outlines the specific conditions and terms regarding a real estate transfer. A purchasing contract will also include important data on easements, restricts, property liens, and other items.
  • Ask the Veterans Administration for an appraisal; the amount of your loan should not be more than what the VA estimate of a property’s value. This is needed for a loan to be finalized.
  • Finally, go to the loan closing where you’ll need to sign the loan note, mortgage, and other papers.

Considerations and Warnings

  • You’ll need to pay a fee for VA funding if this is your first VA loan. However, it’s not that much as it’s just 1.5 percent of the amount of your loan. This can be paid at the time of your closing, provided you pay a somewhat higher rate.
  • Your loan may not cover lender closing expenses. These costs, which are paid by either the seller or the buyer, usually include those such as recording fees, title insurance, a credit report, discount points and a loan origination fee.

Let the mortgage professionals at Pacific Mortgage Group answer any questions you may have. For more information about obtaining a VA loan, please contact us.