Market trends on home equity: The top ROI home improvements that contribute to home equity.

Beautiful Kitchen in Luxury Home with Island and Stainless Steel

Home equity is the market value of your financial interest minus the debt balance against it. Typically, the largest debt against your home is your mortgage. As you make mortgage payments against the loan, the equity of your home increases. You may also gain equity as your property appreciates in fair market value.1 Understanding your home equity as well as larger home equity trends is key for making a sound investment in property and then increasing your equity in that investment.

Once you’ve invested in property, you must decide which home improvements to make to boost the equity of your home. Before you consider large home renovations, start with the basics. When a potential buyer looks at a home, he assumes that the basic systems are running smoothly.2 No one wants to buy a home and then immediately sink thousands of dollars into a new roof, plumbing infrastructure, or HVAC system. Taking care of the basics will minimize monthly maintenance expenses and put your home in prime condition for potential buyers.
After the home is in good working order, think about tackling a larger renovation. Two of the best rooms to invest in are the kitchen and bathroom. In a strong housing market, a top notch kitchen or bathroom remodel frequently returns over 100% of the cost. People spend a lot of time in their kitchens and bathrooms and will be able to tell whether or not money was well invested in these areas of a home.

Do you live in an older home with only one bathroom? If space permits, it makes more sense to add a second bathroom than to renovate the only bathroom. If your home has two, three, or even four bedrooms and just one bathroom, adding a second bathroom may increase the sales price as much as 8.7%, which is more than double the rate for adding another bedroom.4
If you’re not anticipating a move in the foreseeable future, be honest with yourself about whether you’d get more use out of a bathroom or kitchen renovation. Even if you don’t get quite as much money back doing the remodel that you really want, you’ll get a lot more enjoyment out of the home.

As you weigh varying home improvement projects, think about the value of your house, the average home value in your neighborhood, the general state of the housing market in your area, when you plan to sell your home, and the projects that interest you the most.5 For example, an $8,000 stove is fabulous, but it simply doesn’t make sense to install it in a home worth $220,000. You want to choose home improvements that offer the biggest bang for your buck.

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Reason’s for Refinancing

Refinancing your home is a tried and true method for homeowners to save money or enjoy financial flexibility. With near historic low interest rates and the possibility of rates starting to increase again soon,1 many financial experts believe that now is the time to refinance. However, it’s important to understand why you should consider refinancing, as it may not be the best option for your particular circumstances. The following details just a few key reasons to refinance your home.

Reduce your interest rate

Right now interest rates are near historic lows. While they’re not likely to skyrocket within the next few years, there’s no guarantee that they’ll stay this low either. If you bought your home during a period where interest rates are higher, now is the time to think about refinancing. Filling out the right paperwork and providing the necessary documentation could save you tens of thousands of dollars over the life of your mortgage.

Reduce your monthly payment

When you refinance a mortgage, you may be able to lower your monthly payment, which would save you interest. Then you have the flexibility to save or invest this money as you wish. Keep in mind that sometimes lowering the monthly payment increases the term of the loan. However, depending on your specific financial situation, this trade off may make sense.

Switch from an adjustable-rate mortgage to a fixed-rate mortgage

If you currently have an adjustable-rate mortgage or are nearing the end of the fixed-rate period of a mortgage, now is an ideal time to refinance into a fixed rate loan. As mentioned previously, interest rates are low currently, but they won’t be this low forever. If you still have a number of years left on your mortgage, locking into a low rate sooner rather than later will protect you from potential interest rate increases in the future. A fixed-rate mortgage also makes budgeting easier because you know exactly how much you’ll have to pay into your mortgage monthly for the life of the loan.

Cash out home equity

Refinancing a home may allow you to cash out your home equity. Depending on the amount of money that you’ve invested in the home and what you’re planning to do with the money, it can be a sound financial decision. You may want to cash out a portion of your home equity to start a small business or purchase an investment property3 or even invest in the home itself. For example, if the home needs a new roof, you can take funds out of the equity to pay for it. Be honest about whether or not you’re making a good investment and if you’ll be able to manage the extra debt successfully.

Before you pull the trigger and refinance your home, take closing costs and other expenses into consideration. Depending on the loan that you select for your refinancing terms, you may be responsible for hundreds or even thousands of dollars in fees. If it will take you several years to pay off your refinancing expenses or you’re planning to sell your home in the near future, most likely it doesn’t make sense to refinance.

 

 

 

Blog content information referenced from the following sources:
1http://money.usnews.com/money/personal-finance/articles/2015/02/05/3-reasons-to-refinance-now
2http://www.getrichslowly.org/blog/2013/03/21/5-reasons-to-refinance-your-mortgage/
3http://www.getrichslowly.org/blog/2013/03/21/5-reasons-to-refinance-your-mortgage/

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Short Sales vs. Foreclosures: What’s the Credit Score Impact?

There are many reasons you may be having a hard time paying your mortgage and it’s certainly stressful to be in a position where you may lose your home. You do have options available to ease your financial burden, including a short sale of your property. But if you don’t take action, the lender may foreclose upon your home. Both short sales and foreclosures will impact your credit score, so it’s important to understand the implications.

The Impact of a Short Sale on Credit Ratings: A short sale is a transaction where the borrower requests that the mortgage lender accept a loan repayment for less than the full amount. In most cases, you’ll have to provide proof of a financial hardship that impacts your ability to pay or that you’re being forced to relocate for your job. (more…)

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Top 10 Mortgage Mistakes to Avoid

Even the most seasoned borrowers will admit that they’re guilty of errors in their approach to obtaining a loan for a new home. Here are the Top 10 mortgage mistakes to avoid, whether you’re a first time buyer or simply need a refresher course.

  1. Credit Problems: You don’t know what credit issues may be lurking in your history unless you run your report before applying for a mortgage. Do it early so you have time to address repairs and contest errors.
  1. Applying for New Credit: One of the major mistakes with mortgages is that homebuyers apply for a loan or credit card before or during the mortgage application process. Put off opening new credit accounts until after you buy your home.

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What will Fannie Mae HomeReady do for Borrowers?

Blue Key and Great House

In August 2015, Fannie Mae announced a new option for would-be homeowners who have been turned down for conventional mortgages due to lower or moderate income levels: HomeReady. The goal of the program is to recognize that today’s households encompass several generations, all of whom contribute to the well-being of all residents. If you’re a borrower who has experienced difficulties in applying for a home mortgage, here’s what you need to know about this innovative program. 

Fannie Mae HomeReady Facts for Borrowers: There are a few key features of the HomeReady mortgage program that will appeal to borrowers.

  • Low Down Payment: Borrowers can obtain financing for up to 97% and there are flexible options for qualifying applicants.
  • Flexible Down Payment Source Options: An array of resources can be used for down payment and closing costs, with no minimum contribution requirement from the borrower’s own assets.
  • Educational Programs: Borrowers can learn from educational opportunities to help them understand the implications of home buying and ownership. These programs are required under the HomeReady program.

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Do you need Lender Paid Mortgage Insurance?

If you’re currently shopping for a new home or considering it in the near future, it’s important to understand the various provisions of your mortgage. One term you may see in your documents is the arrangement for mortgage insurance, which is paid for by either the borrower or the lender. Lender-paid mortgage insurance does have certain benefits, so it’s worth considering for your home financing. Here are the answers to some common questions. 

What is Lender-Paid Mortgage Insurance (LPMI)? In general, mortgage insurance is intended to protect the lender if a borrower defaults on a home loan. Most lenders require mortgage insurance if a borrower pays less than 20% down payment for the loan. You can opt to get private mortgage insurance (PMI) or agree to lender-paid mortgage insurance. With LPMI, your lender pays the mortgage insurance premium on your behalf and passes the cost on to you, usually in the form of a higher interest rate.  (more…)

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What is Home Equity?

A thorough understanding of all the terminology related to your mortgage is critical, but many borrowers have only a general idea of what home equity means in the arrangement. In addition, there are many other factors that affect – and are affected by – the value of your home’s equity. Some basic information should help you grasp the concept of home equity and how this amount factors into your financial situation. 

Definitions: Understanding home equity starts with learning the terminology to hear how some of the different concepts work.  (more…)

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How does Foreclosure affect your credit?

Many homeowners have been hit hard by a variety of circumstances that make it difficult to pay their mortgage. Sickness, job loss, a tough economy and other factors may prevent you from keeping up with payments, leading your lender to foreclose upon your home. In some cases, being free of a mortgage can be a wise move; however, foreclosure has a significant impact upon your credit rating. Here are some answers to some common questions about foreclosure and credit scores.

How does the foreclosure process work? If you miss a mortgage payment, you can expect to start receiving phone calls and notices from your lender with demands for payment. After a certain amount of time, the bank will initiate pre-foreclosure proceedings with a “notice to accelerate,” “notice of lis pendens” or other documents; the exact process varies by state. (more…)

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