Claudia Hargrove Thoughts

 

Consider the following to get a sense of how likely a refinance is to help you, if you’re eligible for one, and how to go about structuring it:

1. Current Interest Rate
Simply put, if you can get into a lower rate mortgage, a refinance is worth looking into. That said, consider how long it will take you to recoup closing costs.

For example, if you paid $2,000 to refinance your mortgage to a lower rate and your payment dropped by $150 per month, it will probably take you just over a year to break even. Generally, at least a half point to a full point reduction in the interest rate will save you enough money to cancel out the closing costs within a few years.

2. Jumbo Loan
If your initial mortgage was a “jumbo loan,” but you have since paid down the balance to less than $417,000, you may be able to get a “regular” refinance. In other words, there’s a good chance you’ll qualify for a lower interest rate even if rates in general have not gone down significantly.

3. Closing Costs
Since every mortgage, including a refinance, has fees associated with it, you need to understand how you’ll be paying them and if even it makes sense for your situation.

For example, in a “no cost” mortgage, you are either tacking the fees onto the loan balance or accepting a higher interest rate to cover those fees. If you can afford it, you’ll save money over the long-term by paying the fees out-of-pocket. However, if you can’t afford it and plan to stay in your house for a while, adding the fees to your loan balance is likely to work out better than accepting a higher interest rate. But if you expect to move over the next few years, accepting the higher interest rate will be more advantageous.

Consider your whole financial picture when determining whether or not to finance your closing costs. For example, if you have high interest credit card debt, but have cash on hand to afford the closing costs, it might make sense to pay off the high interest debt and finance the closing costs instead. Then, you can direct the payments that would’ve gone to your credit card to your home loan. In this way, you could pay off the closing costs faster than you could have paid off the same amount of credit card debt.

4. Mortgage Prepayment Penalty
Some mortgage brokers and banks offer loans that have a mortgage prepayment penalty. While a loan with a prepayment penalty usually has lower fees or a better rate, if you pay the loan off early, you’ll owe a fee which can be steep. The penalty is in place for a set period of time and can sometimes go down with time. But if you want to refinance your mortgage before the prepayment penalty expires, you’ll have to pay the penalty, which can ultimately make refinancing more expensive than it’s worth.

5. Length of Time You Stay in the Home
This is important in the context of closing costs and especially if you’ll consider a new loan with a prepayment penalty. When it comes to closing costs, you want to make sure you recoup the expense before you move.

For example, if you paid $2,000 in closing costs and you now pay $100 less in interest each month, it will take 20 months before you actually break even and start seeing real savings. If you financed those closing costs by adding them onto the loan balance, it will take even longer.

If you aren’t planning to be in your home for at least two years, it’s probably not worth refinancing at all – unless, perhaps, you refinance from a very high rate to a much lower one, or if you trade out-of-pocket closing costs for a higher interest rate that is still lower than your original mortgage rate.

If you’re entertaining the idea of tacking a prepayment penalty onto your new loan to get a lower rate, you should be committed to staying in your home through the prepayment penalty period, which could be as long as five years or more.

6. Your Credit Score
If your credit has improved since you got your original mortgage, you may now qualify for a lower rate. Check your credit report before you begin the process to confirm whether or not this is the case. Often, a few years of timely mortgage payments will improve your score such that you qualify for a lower interest rate.

Also, compare your debt and income now to what it was when you took out the original mortgage as banks generally require that your debt to income ratio fall below 36%. If you’ve since accumulated significant debt or if your income has declined, you may not qualify for a lower rate or a refinance at all in spite of stellar credit.

7. Amount of Equity in Your Home
Most lenders want to see some amount of equity in order to qualify you for a loan. Generally speaking, the more equity in your home, the easier it will be to refinance. A minimum of 20% is ideal, but you may still be eligible for a refinance even if you have less, such as 10%. However, the terms may not be as favorable.

8. Adjustable-Rate or Balloon Mortgage
Most people who have an adjustable-rate mortgage or a balloon payment mortgage count on refinancing at some point if they plan to stay in their home. Since refinancing can take a while, give yourself enough time to apply and get approved before your rate adjusts or your balloon payment comes due. Double-check your loan documents to make sure you know exactly when this date is and plan ahead.

9. Loan Term
Many people refinance into a new 30-year mortgage over and over, and never get closer to the goal of owning their home outright. Since interest makes up the large majority of your payments in the first ten to fifteen years, you will pay a lot more in interest if you keep resetting the clock.

Therefore, it’s generally a good idea to request a loan term as long as the number of years remaining on your original mortgage, as long as you can afford it. This allows you to pay off your mortgage according to the original schedule, while still reducing your rate. You can even refinance into a shorter term, which may raise your payment, but could get you an even better rate and set you up to pay the loan off sooner.

Remember, don’t focus on the monthly payment to the exclusion of the loan’s term, your rate, and closing costs. For example, some unscrupulous mortgage broker may show you a loan with a lower payment that actually has a 30-year term, high expenses, and a rate that isn’t much lower than the rate on your current mortgage.

10. People Listed on the Refinanced Mortgage
Generally, if you’re trying to add or remove someone from a mortgage, such as after a marriage or divorce, the lender will require you to refinance. This is done to determine whether or not the other person will qualify, or if you will qualify alone.

However, you may be able to work something out with the mortgage lender in order to accomplish your goal without going through a full refinance. This is especially true if the person who will have been on both mortgages can qualify for the mortgage by themselves.

11. Second Mortgage or Home Equity Loan
If you have a second mortgage, a home equity loan, or a home equity line of credit (HELOC), you may be able to save a lot of money by refinancing that into your primary mortgage.

To determine if you can, add up all your home loans together. If your home’s current value exceeds the value of the loans, you may be able to refinance your loans into one. In this way, you’ll pay one low rate on the entire amount instead of one low rate on your primary mortgage and a higher one on the second.

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Claudia Hargrove Thoughts

I am here to help!
Let’s face it, home-buying can be an equally frightening and exciting endeavor. Luckily, I am here to provide assistance – both digitally and in person. Whether we’re walking through the home-buying process together, or you’re going solo, I have your back! Here are the 6 home-buying tips I believe are most important:

Find out what your total monthly housing cost would be
Include taxes and home insurance in your cost. In some areas, what you’ll pay for your taxes and insurance escrow can almost double your mortgage payment. Compare mortgage rates now to find the right loan for you. To get an idea of what insurance will cost you, pick a property in the area where you want to live and make a call to an insurance agent for an estimate. You won’t be obligated to buy the policy, but you’ll have a good idea of what you’ll pay if you decide to buy. To estimate what you’ll pay in taxes, check your property appraiser’s website. Just remember that exemptions and the intricacies of local tax law can create differences between what a homeowner is currently paying and what you can expect to pay as a new homeowner.

Find out how much you’ll likely pay in closing costs
The upfront cost of settling on your home shouldn’t be overlooked. Closing costs include origination fees charged by the lender, title and settlement fees, taxes and prepaid items like homeowners insurance or homeowners association fees.

Look at your budget and determine how a house fits into it
Fannie Mae recommends that buyers spend no more than 28 percent of their income on housing. Push past 30 percent and you risk becoming house-poor.

Look at the big picture
While buying a house is a great way to build wealth, maintaining your investment can be labor-intensive and expensive. When unexpected costs for new appliances, roof repairs and plumbing problems crop up, there’s no landlord to turn to, and these costs can quickly drain your bank account. 7. Prepare for the hunt If the numbers make sense for you, making these additional moves at the very beginning of the purchase process can save you time, money and aggravation.

Examine your credit
Blemished credit or the inability to make a substantial down payment can put the kibosh on your homeownership plans. That’s why it pays to look at your creditworthiness early in the homebuying process. Get your free annual credit report and examine it for errors and unresolved issues. If you find mistakes, contact the credit reporting bureau to make sure they are corrected. It’s also a good idea to get your FICO credit score, which will cost you a small fee. . 9.

Get your docs in a row
Collect pay stubs, bank account statements, W-2s, tax returns for the past two years, statements from current loans and credit lines, and names and addresses of your landlords for the past two years. Have all of that paperwork ready for the lender. It may seem like a lot, but in this age of tight credit, don’t be surprised if your lender wants a lot of documentation.

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Claudia Hargrove Thoughts

Women are gaining notoriety in commercial real estate, but more support within the industry is necessary to encourage future female entrepreneurs to ascend the ladder of leadership, panelists said during the Chicago Association of REALTORS®’ recent commercial forum. The discussion was part of the forum’s annual

“Successful Women in Commercial Real Estate” series, which aims to highlight women as thought leaders and provide mentorship opportunities for aspiring professionals in the commercial field. “Women need to collaborate and boost each other up to succeed in any industry, but especially in high-demand commercial real estate,” said Chicago association CEO Ginger Downs. “Diverse companies with more women statistically perform better. We need to promote mentorship and look at what initiatives can make an impact, like slashing the wage gap and increasing the number of women executives.” Here are some of the most important takeaways from the discussion.

1. The human touch is paramount in real estate. “Disruption has been coming for more than 10 years now and still hasn’t happened,” said Constance Freedman, founder and managing partner of real estate venture capital fund Moderne Ventures. “People still want a person as an advisor or consultant.” Karin Kraai, senior managing director at commercial real estate firm Newmark Knight Frank, added that technology disruption has largely eluded the commercial space because “brokers don’t want to be disrupted.”
2. Technology must meet your needs. “Question a technology provider if they will not entertain integration with other applications essential to business,” said Emily Line, vice president of commercial services at REALTORS Property Resource®. “Strong providers recognize the value in open architecture, allowing an overall easier workflow through the connection of services needed to efficiently conduct business. If they won’t share with you, they are not your friend.”
3. Quality of life at work matters. Real estate companies are shifting their culture not only to attract younger talent but also to improve satisfaction among current agents and staff. “Millennials will soon be the largest demographic in the workforce, so it’s important to consider what they are looking for in a workplace and find spaces to make those dreams a reality,” Downs said. “Because so many of us live tech-heavy, fast-paced lives, we need our workplaces to be innovative and efficient.”
4. Effect change by becoming part of it. “One of the most effective ways for women to establish themselves in the male-dominated tech space is by embracing opportunities to test technology offerings,” Line said. “Don’t just use a commercial real estate technology—give feedback. Become an active user.” Freedman added that getting involved in such a way also helps you build relationships with startups and companies.
5. Commercial clients demand smart tech, too. There is a movement toward smart buildings in smart cities. “Buildings are becoming greener and offering more smart tech options for tenants,” Kraai said. “We are seeing a definite desire on the part of tenants and firms to have a smaller footprint.” Office buildings that can automatically adjust the space for employees are more desirable than traditional spaces, where a company must pay extra fees to turn an entire floor back on for an after-hours work session, for example.
6. Women must make their presence known. In order for women to become local real estate authorities, they have to “go to the events and make the effort to get to know people,” Freedman said. “Make the calls to connect with mentors; show up and ask questions.” Though women are obvious assets to their companies, they walk a fine line in commercial real estate, Kraai added. She noted that at least 20 percent of key positions at the top 20 tech firms in the nation are held by women. “We have to be confident but not too assertive. The key is to let people know us. To be human.”

                       —Jacob Knabb, National Association of REALTORS®

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