Refinancing Redux: What Happens the Second Time Around?

Given persistent low-interest rates, some homeowners are asking if it’s worth it to refinance a second time before rates creep back up. Counting all types of refinances, Freddie Mac, the government-sponsored mortgage outfit, says the average loan refinanced in the first quarter of 2015 was about 5.6 years old, and homeowners cashed out a total of $7.6 billion.

Is it really advantageous to go through all that paperwork just to save a little bit each month? Here are five things to consider before any “redo-refinancing.”

1. Assess Your Penalty

Unlike the first time you refinanced, dipping back into the pool can come with special penalties. While you likely won’t have a no prepayment clause, the industry isn’t really set up for back-to-back refinancing. If you refinanced within the past 60 to 90 days, double check for any red flags. For example, an FHA Streamline refinance requires 60 days with the previous loan before you can refinance again.

2. Calculate Your Potential Savings

With any refinancing, it’s important to have a crystal-clear view of what you will save overall, not just in monthly payments. The general rule of thumb used to be that you refinanced when current interest rates fell two points lower than your loan. Today people are refinancing for less, so you really need to read the fine print. Some homeowners also refinance for a higher monthly note so they can pay off their loans faster.

3. Understand All Costs and Fees

You can’t get a decent picture of refinancing — once, twice or beyond — unless you understand every single cost and fee, like mortgage-recording taxes. Refinancing can reduce your principal owed, but it can also maintain the same loan amount. If you plan on moving any time soon, this is also a key consideration. Chances are you won’t recoup the costs unless you plan on sticking around.

4. Gather Documents

No matter how many times you choose to refinance, you still have to have all the paperwork ready to go. Required documents usually include driver’s license, pay stubs and tax returns. Unique situations, such as self-employment, may prompt a need for additional paperwork.

source: totalmortgage.com

The Why and How of Investing in a Second Home

If you already have money invested in stocks, bonds or higher-­yielding savings products, it might be time to consider alternative investments and diversify your portfolio.

There are several options to consider, such as investing in commodities, peer-­to-peer lending or buying a franchise. But if you’re somewhat familiar with real estate — or if you’re willing to learn the ins and outs — purchasing a second home might be the right investment for you.

Here are three benefits of investing in a second home, as well as financing tips.

1. You Can Earn Rental Income

If you’re seeking a long-­term investment strategy, buying real estate and renting out these properties can be profitable. This investment strategy can provide steady monthly income, increasing your cash flow and helping you achieve other goals. Income from rental properties can go toward paying off debt, increasing your emergency fund, or you can put this cash toward growing your retirement account.

In addition, if you buy a second home as a vacation rental in a touristy area, this offers the perfect vacation spot for you and your family when you need to getaway or escape. Since you’ll pay taxes on rental income, plan accordingly and seek advice from a real estate tax professional.

2. You Can Turn an Immediate Profit

Maybe you don’t like the idea of being a landlord. If so, there’s another way to invest in real estate. You can purchase a second home on a short-­term basis and then resell for a profit.


Many novice and experienced investors have made quick profits buying distressed properties like foreclosures. They hold onto the property for a few months, fix up the property and then sell at fair market value.

The only downside to flipping real estate is that you need sufficient income to afford a remodeling project. However, some banks offer short­term real estate loans specifically for real estate investors. Speak with a loan officer to learn and compare options.

3. You Can Take Advantage of Tax Deductions

As mentioned, you have to pay taxes on income earned from your rental property. But you can also take advantage of landlord tax deductions. You’ll undoubtedly spend a lot of money over the years maintaining and repairing the property. There’s also the expense of traveling back and forth to the property.

These expenses can cut into your profit. Deducting expenses associated with owning an investment property reduces your tax liability and you can keep more of your profit.

Financing Options for a Second Home

Unfortunately, purchasing a second home for investment purposes limits your financing options. Some people prefer FHA home loans because they feature a low down payment of only 3.5 percent. However, these loans are only for owner-occupied residences. For an investment property, you can apply for a conventional home loan. Just know that some lenders require a minimum down payment between 10 percent and 20 percent for investment properties.

The lender will also review your credit history and income to ensure you can afford the additional mortgage payment. As a general rule of thumb, this mortgage payment along with all your other monthly debt payments must not exceed 36 percent of your gross monthly income.

Another option for financing a second home involves taking out a home equity loan on your primary residence. This might be an option if your primary residence is paid off, or if you have substantial equity in the house. You can tap your equity and use this money to pay cash for a second home.

Just know that getting a home equity loan will either create a new mortgage on a paid off house, or increase the mortgage balance on an existing home loan. So make sure you can handle the extra expense.

Bottom Line

Buying a second home as an investment can put quick cash in your bank account or provide steady cash flow. But getting started can be expensive, and as a landlord, you’ll be responsible for two properties. However, if you’re up for the challenge, a second home is an excellent investment that can increase your net worth.

source: totalmortgage.com

 

How to Get a Mortgage With Little Savings

If you don’t have a lot of cash in your savings account, you might think you can’t qualify for a mortgage. Between closing costs and down payments, getting a mortgage is expensive. And some first-time homebuyers think every mortgage lender requires a 20 percent down payment. However, many lenders require much less from buyers, which is good news if you have little savings. The truth is, there are several mortgage provisions for people in your situation. Here’s a look at four options for getting a mortgage with little savings.

1. Low down payment mortgage loans

You don’t need a large downpayment for some conventional mortgage or FHA home loans. FHA home loans only require 3.5 percent down, and conventional mortgage lenders recently reduced their minimum down payment from five percent to three percent.

The downside is that you’ll have to pay mortgage insurance with both options. Mortgage insurance protects the bank in case of default and its required on every loan with less than a 20 percent down payment. Since annual premiums are added to your mortgage payment, mortgage insurance increases your monthly payment. FHA mortgage insurance is 0.85 percent of the loan balance, and private mortgage insurance with a conventional mortgage loan is 0.50 percent to one percent of the loan balance.

2. USDA home loan

The U.S. Department of Agriculture encourages growth in rural parts of the country. So if you’re thinking about buying a home in a small town or a rural  area of your city, you might qualify for a no-money down USDA home loan which features low interest rates and flexible credit guidelines.

However, don’t think you have to move to the country or live far from civilization to qualify. Interestingly, many homes in populated areas are eligible for a USDA home loan. Provide your loan officer with the address of the property you’re thinking about purchasing and he can determine whether the address is eligible for USDA financing.

3. VA home loan

If you’re active-duty military or a veteran, you might be eligible for a VA home loan. Like a USDA home loan, these loans do not require a down payment. There’s no private mortgage insurance and limitations on buyer’s closing costs, which also saves money.

4. Increase your credit score

A high credit score says you’re responsible with money and you’re most likely to pay your mortgage on time. FHA home loans require 3.5 percent down regardless of your credit score, but some conventional lenders will require a higher down payment if your credit score is lower than 650 to 680. In this case, the down payment can range between 10 percent and 20 percent. You can increase your credit score by paying bills on time and paying off debt before applying for the loan.

You’ll face hurdles when buying a home, but don’t be discouraged if you have little savings. Know your mortgage option and think of ways to build your savings, such as liquidating personal belongings or borrowing cash from a retirement account — as long as you’re committed to repaying these accounts.

You also have to deal with closing costs. Getting multiple mortgage quotes is one way to lower closing costs. You can also wrap closing costs into your mortgage to avoid any out-of-pocket expense or you can negotiate seller paid closing costs.

source: totalmortgage.com