Using Your Equity to Increase Your Home’s Value

Using Your Equity to Increase Your Home's Value Owning a home has many advantages. One of the biggest ones is being able to accumulate equity with every payment that you make.

Your home equity is simply the amount of money that you have personally invested in your home, beyond what you owe to the lender. At first glance, this money may seem inaccessible while you still own your house. However, you can access it using home equity loans, which help pay for projects that add value to your property.

How Do I Determine My Home’s Equity?

The first thing that you need to know is your property’s full value. In some cases, a professional home appraisal must be done before a lender will approve you.

By subtracting the amount of money that you still owe on the mortgage loan from your home’s total value, you will arrive at the amount of equity you have.

For example, let’s say your home is appraised at $200,000 and your mortgage amount is $150,000.

$200,000 less $150,000 = $50,000 equity in your home

Lenders tend to take this one step further by figuring out your loan to value ratio. This is done by dividing the amount you owe on the home by the current value. This percentage amount is then compared to their standards for issuing loans.

$150,000 divided by $200,000 = 75% loan to value ratio

In most cases, a second mortgage combined with the first home loan should not total more than 75-80% of the overall value of your home. This minimizes the risk to the lender and helps to ensure that you can afford to pay back the loan if you were to default.

Let’s say your lender allows 80% loan to value ratio.

$200,000 x .80 = $160,000 maximum amount allowed

$160,000 less $150,000 current loan amount = $10,000

In this case, you can borrow $10,000 against your equity.

What Is a Second Mortgage?

You may hear of a home equity loan being referred to as a second mortgage. This is because it is simply a new type of home loan that you can apply for after you have earned equity in your home.

A second mortgage uses your home equity as security that you will pay it back. The terms of these loans tend to be shorter than initial mortgages. Most are required to be paid back within 10 to 15 years.

What Is a Home Equity Line of Credit?

Refinancing a Home LoanA home equity line of credit differs slightly from a second mortgage by not being issued in one lump sum. Instead, you can draw from this line of credit, as needed, over a period of time, such as 5-10 years.

In the first stage of the loan, you will typically only make payments on the interest until it is fully funded. After the initial period is over, it then works like a traditional second mortgage, where you pay on both the interest and the principal.

The advantage of this type of loan is that you have more control over how much money is issued at once.

Using Equity to Increase a Home’s Value

Since your home equity serves as collateral for this loan, it is best to focus on projects that increase its value.

A kitchen or bathroom remodel are common options that bring you a better quality of life, while also making your home more valuable.

Exterior repairs, universal design conversions, and upgrades to home heating and cooling systems are other common reasons why people use their equity to obtain a second home loan.

When done correctly, using home equity loans to increase your home’s value can increase your equity over time. Remember that these loans should always be handled using smart choices, such as making long-term investments in your property.

Our loan specialists can also help you identify strategies to get the best rates on your loan, so that your payment is affordable and you’ll feel good about your decision.

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Why Do Home Prices Fluctuate?

Why Do Home Prices Fluctuate? Home prices are constantly changing. You may have even heard about the housing market being in the buyer’s or seller’s favor over the years.

Naturally, understanding what causes a home’s price to go up helps you pick the best time to buy or sell a house.

While the size and location of a house plays a part in the price, it also helps to be aware of the other factors that influence price fluctuations.

 

How Does Supply and Demand Affects Prices?

The biggest reason behind home prices going up and down is based upon this basic economic principle. When the supply of houses goes up, you can expect the prices to go down due to a lack of competition. Locations with a low supply of houses naturally have higher prices.

In Arizona, certain neighborhoods are experiencing a high volume of interest. These areas may require you to be competitive with your bids since there may be fewer houses available to help lower the prices. This is common in urban areas with older houses that are located near popular business districts.

Some of Phoenix’s newer neighborhoods are helping to lower the cost of housing. With so many new homes being built, buyers are often able to benefit from prices starting to stabilize.

Will Home Prices Affect Mortgage Interest Rates?

Home prices do not typically affect mortgage interest rates since these are based more upon factors such as wage increases. However, lower interest rates tend to drive up prices on homes since it means that more buyers may be flooding the market.

What Other Factors Affect Price Averages?

Why Do Home Prices Fluctuate?Price fluctuations are also caused by factors such as the location and nearby amenities. People sometimes want to move to the latest new neighborhood, and this can temporarily drive the prices up. You can sometimes see this when a large corporation opens new headquarters in an area, causing a flood of employees to move in.

The cost of construction supplies and manpower can also affect home prices. Your home may cost slightly more or less depending upon the current cost for building materials. Although this tends to be a modest contributor to home price fluctuations, it can affect a substantial area during times of heavy home building activity.

Is It Smart to Buy When Prices are Climbing?

It’s always a good idea to try to buy a house when the prices are lower. However, there are times when it is still smart to jump on a home purchase even though the prices are rising. When you factor in the current rising cost of rent, a mortgage gives you stable payments that may make the slighter higher home price worth it.

Houses also tend to increase in value over time. Buying during a rising price trend can still mean that your house becomes worth more in the end than you need to spend now. Making sure to buy a house that is in good condition helps to ensure that it increases in value. You also want to get the best rates on your mortgage loan to further increase the payback that you receive on a home investment.

Waiting for home prices to hit the ultimate low may seem like a good theory, but the recent trend does not show home prices bottoming out any time soon. Instead, it is best to focus on making smart financial choices that can help offset the cost of rising home prices in the Phoenix area.

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How to Come Up With a Down Payment

How to Come Up With a Down Payment Down payments on a home show lenders that you are responsible with your money. They also give lenders an added sense of security, since they are not having to issue a loan for the full value of your new home.

Being able to put a down payment on a home opens up options that help you find the perfect place to live. You may even be able to enjoy benefits such as not having to pay private mortgage insurance, if you can afford to put a large payment down on the house.

While you may understand the benefits of making a down payment, it is easy to feel overwhelmed when you think about having to save a large sum of money. Now that you are eager to buy a house, you can use these strategies to come up with the funds faster.

Determine How Much You Need to Put Down

A typical down payment is usually between 10 – 20% of the price of the home. However, paying at the higher end of these numbers provides you with the most benefits, and it allows you to stand out to more lenders.

Start by determining the average cost of a house within your desired neighborhood. Then, do the math to determine what 20% down would be for a home in your price range. You can then use this figure as a starting goal for your savings.

Explore the Different Types of Home Loans

You may be able to put a lower down payment on a house, or even avoid having to pay one completely.

There are several types of loan options that you may be eligible for that change what is expected by lenders for down payments. For instance, an FHA loan lets first-time home buyers put as little as 3.5% down on a loan.

Cut Back On Unnecessary Expenses

Most people have some fat that they can trim from their budgets. For instance, you may not really need to buy that pricey cup of coffee on the way to work when you can make a pot at home for less money. You may also have room in your cable or phone bill to trim expenses.

Keep in mind that your credit cards may be one of the biggest expenses in your budget. If possible, pay down your balances so that you have one less payment to make each month.

This not only makes your credit look better, but you can put what you used to pay toward saving for a down payment.

Check Out Your Retirement Plan

How to Come Up With a Down PaymentWhile it is usually best to leave your retirement funds untouched, you may decide that it is worth withdrawing a portion of the balance to buy your home. This may be true for you if you spend more money to rent than you would on a home mortgage payment.

Keep in mind that you may be restricted regarding how much you can take out. For instance, the IRS allows you a one-time opportunity to withdraw up to $10,000 from a traditional IRA for buying a home if you fall within their guidelines for being a first-time homeowner.

If you do choose this route, consider using the savings that you generate by no longer paying higher rent costs to replenish the fund later on.

The amount you put down on a house will vary according to several factors, such as your eligibility for government-backed homebuyer programs. Always begin with the end in mind; talk to our loan specialist about what you need to begin saving up for the house of your dreams.

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5 Financial Benefits: Buying vs Renting

5 Financial Benefits of Buying Over RentingIn life, being willing to make a change is critical for enjoying greater financial success.

At times, renting has its benefits. You may rent an apartment or house for its location or the ability to split payments with roommates. Yet, there comes a point when the rent cycle may be hurting you financially.

The decision to move toward buying over renting can offer you these financial benefits over time.

Choose Upgrades That Save You Money

Rental homes and apartments typically limit the types of work that you can do on the property. For instance, you may not be able to invest in solar panels or upgrade to an energy-efficient HVAC unit.

With a home, you can plan upgrades that increase the energy-efficiency of your home so that you save on heating and cooling costs each season.

Enjoy Greater Tax Benefits of Buying Over Renting

Homeowners are potentially eligible to choose a mortgage interest deduction when they do their taxes. In most cases, the majority of homeowners are able to deduct all of their mortgage interest.

This deduction also currently applies to interest payments made on loans for both primary residences and second homes.

Since tax laws change from year to year, you will need to consult with a professional to know how much savings this will bring you. However, this deduction helps to offset the cost of any interest that you pay on your mortgage annually.

If this is your first year filing taxes after buying a home, then you may also be eligible to claim things such as closing costs for even more savings.

Skip Annual Rent Increases

Today’s housing market has created a situation where property managers often increase the rent on a property each time a lease is up for renewal. This means that you could be paying more to live in a house that is a whole year older with depreciating appliances.

Once you sign on a mortgage loan, your payments will stay mostly the same each year. Being able to watch your payments stabilize as rental rates rise means you can save more money each year as a homeowner.

Gain Equity With Each Payment

In most rental agreements, all of the money that you pay goes straight to the landlord and property management company. This means that you will never see any of it returned to you in the future.

When you make a house payment, it goes toward paying down the mortgage loan and results in equity. Equity is the market value of your home with the amount that you still owe subtracted, and represents your percentage of ownership.

Build Wealth Over Time

Buying a house requires you to commit to a large investment. This can sometimes make it seem as though renting is better.

However, being able to save money on bills and future housing costs allow you to sock money away for the future. You can also strategize your home purchase so that your new house gains in value over time so that it may be worth more than you invested in the beginning.

For the average homeowner, buying a home is the biggest investment that they will make in their life. Our loan specialists are here to help you make sure that you receive the optimum financial benefits from your decision. Breaking the rental cycle can give you better financial security while also upgrading your quality of life.

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Touring Etiquette for Home Buyers

Home Touring Etiquette for Buyers

Home buyers get excited about touring potential new homes. Not only do you get the chance to find your perfect living space, but you also get to check out new design concepts that help you narrow down what you want in a home.

However, you do need to remember that this is someone else’s house, even if it is unoccupied. You may also run into situations where the homeowners are present.

Before you head out for your next house visit, be sure to brush up on these etiquette basics so that you don’t step on any toes.

#1: Be On Time

Searching for a new home sometimes means squeezing in tours after work or seeing several houses on the weekend. While life does get hectic, you need to remember that showing up late gives a bad impression to the seller and anyone else involved.

Try to plan your tours with enough time that you can arrive early. This also gives you some time to check out the overall neighborhood as you drive up.

#2: Limit the People in Your Group

Buying a house is a big decision, and it helps to have other people’s input. However, you should still limit your touring group to only you and any other people who are directly involved in the purchases.

This limits the amount of traffic coming through the home and allows you to focus on finding out the answers to your questions.

#3: Take Care Of the Flooring

Many of the houses that you tour may have brand new flooring or carpets that have just been professionally cleaned. When you arrive, look for clues as to whether or not you should remove your shoes.

For instance, some sellers place a shoe rack or disposable shoe covers nearby to make there preferences clear. If you are unsure of what to do, then follow your real estate agent’s lead. If they slip off their shoes, then you should, too.

#4: Respect the Homeowner’s Privacy

In most cases, it is generally accepted that you need to open up features of the house that will impact your daily life.

For instance, you should feel comfortable opening closets, pantries and other areas that you would not normally enter in a stranger’s house. This helps you to check the condition of these areas along with the amount of space each contains.

However, you should not open anything that the homeowner is likely taking with them or that could contain personal items. For instance, it is best to leave the medicine cabinet and dresser drawers closed.

#5: Ask Before Using the Plumbing

It is always best to handle using the restroom before you arrive for the home tour. If you find yourself in an emergency situation, asking before you go is just polite.

You may also simply want to know if all of the plumbing fixtures in the house work. Always ask the homeowner or the realtor before you flush a toilet or turn on a faucet. The water may already be turned off in an unoccupied home.

As you tour houses, remember that each one could be your future home. When in doubt, just ask if something is appropriate before you do it. This way, you can relax and fully explore the potential of the houses that you visit.

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Questions to Ask Before Buying a New Home

Questions to Ask Before Buying a New Home

If you are buying a new home for the first time, you may be wondering exactly what is involved in the process of closing on a home purchase.

You can start by asking these questions, which will help you feel confident when it comes time to finalize your new home purchase.

How Much Should I Budget?

You always want to start off as a new homeowner with confidence that you can afford the payments. Start by determining how much of a mortgage you can fit into your budget.

As you do, be sure to also take into consideration other costs that come with owning a home. Are you planning to live in a community with an HOA? If so, then those fees need to be included in your budget.

You may also need to factor in the costs for remodeling if that is something that you plan to do after you move in. Repairs and home maintenance costs are an additional item to include in your financial plans.

Can I Secure a Loan?

You may have been saving for a down payment and working on your credit. However, this niggling question is often on people’s minds.

Before you start home shopping, you should seek pre-approval for a loan. This will give you the reassurance that you need before moving forward with the next step – searching for a home. Having a pre-approval in hand also shows realtors and sellers that you are serious about buying a new home today.

What Type of Loan Should I Get?

There are specialty loans available for veterans and ones designed for first-time home buyers. You can also choose from a 15-year mortgage loan or one that spans 30 years. There is also the question of whether or not you should get a fixed or variable rate loan.

Getting a loan requires multiple decisions to be made, and the best way to determine the right answer to each is to talk to one of our loan specialists. After taking a look at your financial standing and discussing your goals for the future, we can help you make the right choices.

Does the House Fit My Preferences?

As you walk through the house, get a good feel of the layout and make sure that it will fit your needs. You should also get information on the history of the house. For example, look into whether or not the house has sustained damage from events such as a fire or flood, so that you go into your purchase with a clearer picture of what you are buying.

How Do I Compete Against Other Offers?

Obviously, you want to make an offer on the house that you can afford and that will make sense to the seller. There are a few things that you can do to make yourself stand out.

Consider sending a personal note with your offer, noting a few things that you love about the house, along with your goals for the future. This simple gesture often tugs at the heartstrings of a seller and helps them picture you living in their former home.

As you go through the process of buying a new home, more questions are sure to arise. Be sure to write them down in your home buying journal, and remember to seek answers to each one before you close on your new house. We are here to answer those questions and guide you throught the home buying process.

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Forecast for Arizona 2019 Mortgage Interest Rates

Forecast for Arizona 2019 Mortgage Interest RatesIt’s that time of year when we have a better idea of what the future holds for homebuyers in Arizona. The rise and fall of mortgage interest rates is always at the forefront of the decisions that we help people make.

In fact, getting the lowest interest rate possible can help you afford more on a home purchase than you thought was possible. While interest rates can fluctuate wildly depending upon factors outside of our control, we can now issue you our best forecast for the rest of the year.

Factors That Affect Mortgage Interest Rates

It often seems as though interest rates fluctuate on a whim. However, there are both external and internal factors that influence how high and low rates get in a given time period.

For instance, lenders tend to charge higher rates when more people are buying homes. The Federal Reserve Board also lowers and raises rates, depending upon the need to influence the economy.

Internal factors that affect interest rates are things that you can often control. Your credit score, along with the type of loan that you seek, have a significant impact on the rates you are offered. Putting down a higher down payment can also help you to receive a lower rate.

Recap of 2018

The forecasts for last year mostly came true. Before the year started, it was predicted that mortgage interest rates in Arizona would rise slightly and end at just above 5%. While this did happen, they also took a slight dip towards the end of the year with the market swinging in favor of buyers.

We ended the year nicely with an average interest rate that was just below 5% for the typical loan applicant.

What to Expect This Year

Right now, the average mortgage loan interest rate on a 30-year fixed rate loan is hovering at around 4.6%. It is slightly lower if you opt for a 15-year fixed rate loan, which is around 4.07%. Since the rates are expected to stabilize, this should stay true for the majority of the year.

Variances According to Location

If you are moving from a different state, you may notice that the average home loan rates differ in Arizona from where you currently live.

In past years, interest rates also varied among the different cities in Arizona. For 2019, however, they stay close to the same rate throughout the state. Therefore, you can expect to see similar rates for Phoenix as you would for another city, such as Flagstaff.

How to Get the Best Mortgage Interest Rate

Naturally, every home buyer wants to get the best mortgage interest rate possible. After all, even the difference of a single percentage adds up over the term of your loan.

In addition to buying your house while the interest prices are low, you can improve your financial standing. Making the effort to pay down your debt and make timely payments helps to increase your credit score, which is one of the ways lenders determine your rate.

You can also compare the rates offered to you by different lenders. Our team is adept at quickly getting those numbers so that you find the one that helps you save more on interest over time.

Depending upon your eligibility, we can also help you find types of loans that offer lower mortgage interest rates. For instance, a VA loan has negotiable interest rates.

With interest rates stabilizing, the time to buy your new house is now. If you were deterred by higher interest rates in the past, give it another look.

From now through the end of the year, your forecast looks better than it has in years.

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What is an Extreme Buydown?

Extreme BuydownThe housing market has undergone tremendous change in recent years that affects everyone during the home buying and selling process.

Not only are home buyers concerned about rising interest rates, but many sellers are also finding that their house’s increased value makes it harder for prospective buyers to afford the mortgage.  

Fortunately, an extreme buydown is a potential solution that helps everyone achieve their goals.

What Is an Extreme Buydown? 

Buydowns have long been a strategy used by home buyers, who typically purchase points that they can use to lower the interest rates on their mortgage loan. In some cases, sellers cover these costs as part of their concessions.

While this helps make mortgage payments more affordable, it is not always enough to help a buyer afford the asking price for a home.

Extreme buydowns work a little differently since they involve having the seller offer the buyer 3% of the home’s value toward buying down the interest rate, which significantly increases the savings for the buyer.

How Does It Help Buyers? 

Offering a larger percentage to buy down the interest rate as a seller concession makes it possible for a buyer to then be able to afford a home with a higher value.

For example, being able to save $200 a month allows a buyer to now consider purchasing a house with a value that is approximately $36,000 higher than what they could afford before the extreme buydown.

As a buyer, this means that you could afford the house of your dreams or one that fits your lifestyle better without having to worry about how you will make those monthly mortgage payments.

What Are the Benefits For Sellers?

Naturally, the big question is how this helps sellers, since they are technically giving up a portion of the asking price in the deal.

Offering buyers 3% towards buying down the interest rate is a strategy that can help sell the house faster. For sellers who are currently paying two mortgages, making a fast sale saves more money over time.

 Builders and sellers who continue to stay within the same community also prefer this option, because it allows them to sell the home at its value, and the surrounding homes do not lose theirs.

In a constantly changing housing market that is tighter for both sellers and buyers, it is necessary to be willing to be aggressive with the strategies that you use, no matter which role you are playing in the home buying process.

 Keep in mind that extreme buydowns are only one of several different options that you can use to make the process easier, so be sure to work with your loan specialist to find the one that works best for your situation.

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What Are the 3 Main Types of Home Loans?

Types of Home LoansAs a home buyer, knowledge is power, and one of the first questions people ask us is about the different types of home loans.

While most people understand that the interest rates can vary on home loans, they are often unsure of how to sort through the various benefits and drawbacks of each type of loan to find the right one that works for their situation.  

These 3 types of home loans help to break down your options so that you have a better idea of what to talk about when you sit down with your loan officer. 

 

Fixed and Adjustable Rate Loans 

Out of the 3 types of home loans, understanding the difference between fixed and adjustable rate loans is one of the most important things for you to do as a home buyer.  

The main difference between these two types of loans is that a fixed rate loan keeps the same interest rate throughout the repayment period. This means that the monthly payment on your house will never change.

Adjustable rate loans have an interest rate that changes over time. In some cases, this may involve a hybrid type of loan where you begin with a fixed rate and transition to an adjustable one after at a certain time during the repayment period.

While fixed rate loans give you the benefit of consistency, adjustable rate loans have the potential to help you pay lower interest rates during certain points of the repayment period.  

Government Backed and Conventional Loans 

Conventional home loans loans are those that are not insured by the federal government. While these are harder to qualify for, they may be your best bet if you do not fit the requirements for a government backed loan.  

Government backed loans include the following main types, and each one has specific guidelines and benefits that we can help you to understand as you begin the loan application process. 

  • FHA loans
  • VA loans
  • USDA loans 

Since the government backs these three types of loans, lenders are more likely to approve them for people who are considered to be a higher risk than others.  

These may be an option for you if you are a first-time home buyer, have a short or negative credit history or if you need to put down a lower down payment than what is required for a conventional loan. 

Jumbo and Conforming Loans 

The first thing you need to know about conforming loans is that Fannie Mae and Freddie Mac are two major corporations that are involved with purchasing and selling loans to investors as securities.

Since these government-backed corporations plan to sell the loans on Wall Street, they set specific guidelines that minimize the risks involved.

For you, the most important guideline to be concerned with is the limits that they place on the size of the loan that you can secure.

In today’s housing market, it is possible that you may not find a house with a price that fits within the guidelines set for conforming loans. When this happens, you have the option of using a jumbo loan to secure the financial assistance you need to make your home buying dream a reality.

Non-conforming, or jumbo loans, are provided by lenders who do not plan to see them to investors. For this reason, they typically have more lenient standards regarding limits as well as credit standing requirements. 

The type of home loan that you choose affects your financial security and happiness for many years. Let us help you understand the pros and cons of each different type so that you can make the right choice for your future.

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Phoenix Home Loans – We Make it Easy

Phoenix Home Loans - We Make it an Easy Process

The process involved with getting a loan for your new home is complicated. For a first-time home buyer, just trying to understand the differences between each type of loan gets confusing.

If you have bought a home before, then you are also likely to be surprised by just how much has changed, since the requirements to get a loan are constantly being updated.

The Jimmy Vercellino Team stays up-to-date on all the latest information, so that we can guide you each step of the way toward obtaining the best mortgage loan and help you meet your goals for home ownership.

Determining Which Type of Home Loan Is Best

There are several different types of Phoenix home loans that you can get, and they all have specific benefits and requirements that you need to understand.

For instance, an FHA loan typically requires a lower down payment than a conventional loan, which can make this type of loan ideal for a first-time home buyer.

VA loans offer benefits for military members and their families, yet they do have restrictions in place that limit the size of the loan that you can get.

We will help you sort through each one of your options to find the type of loan that works best with your financial and personal situation.

Assistance with Submitting Your Documentation

All mortgage lenders require you to submit important information to document your identity as well as your current financial status.

Veterans who are applying for Phoenix home loans will also need to submit additional information such as the Certificate of Eligibility (COE) form.

Our team understands that paperwork is one of those tedious necessities that generate stress for people applying for home loans, so we do everything we can to assist with this part of the process.

For instance, we can help you request the COE form, or send you a reminder to send in a pay stub, so that you don’t miss a critical step that delays your application decision.

Understanding Complicated Loan Terms

While you may know some basic terminology regarding how Phoenix home loans work, it is also common to feel as though you’re in over your head once you start to discuss the actual loan with a lender.

For instance, you may not know what escrow is or if you need to pay private mortgage insurance. Professional loan officers know how to break down complicated terminology and mathematical figures so that it all makes sense.

Knowing Exactly What You Are Signing

At some point, you have probably heard of someone you know signing on a loan without fully understanding the terms.

One of our biggest goals is to make sure that you never get surprised by something, such as a prepayment penalty or interest rate increase.

We walk you through each part of your loan and are always willing to answer your questions – you can sign your new home loan agreement with confidence.

We believe that the excitement of buying your first home should never be overshadowed by the stress of applying for a loan. We are truly dedicated to ensuring the process of getting a mortgage loan is smooth sailing.

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