Rising home prices, low-rate mortgage loans and shrinking inventory are contributing to a rapidly improving housing market. People are starting to see their homes as an asset again, one whose value may improve over time instead of decline. If you’re a homeowner who has stayed in your home, you may be asking yourself, ‘Is it time for home improvements?’
After several years of decline, the money you’ll likely recoup on home improvement projects is finally on the rise. While not a guaranteed profit generator, home improvement projects can make life easier, improve the value of your home, and make it more marketable.
Are you going?
If your goal is to increase your home’s value for resale, above all, be sure your improvement correctly mimics your community. A very high-end kitchen remodel, for example, may only pay off in an expensive neighborhood. Over building or choosing projects that aren’t universally valuable can actually harm your return on investment.
Conversely, if you’re the smallest house on your block, an additional bedroom and/or bathroom, especially if it doesn’t overcrowd your lot, could help you compete with other houses for sale in your area.
When making improvements to a home that you don’t plan to stay in over the long term, you should consider the concept of mid-range remodeling. Overspending can diminish the return on your investment; however, affordable improvements can add up to big value increases. For example, modest improvements like new counter tops, flooring or appliances can make a vast difference in the appearance of a kitchen, without adding up to big costs.
Are you staying?
If you’re planning to stay in your home for a long time, you may not be as concerned about fully recouping the money you spend. You may want to make improvements that are valuable to your family, like a new addition or a gourmet kitchen. Or, maybe you’ve always wanted a pool or an outdoor entertainment area. Now is a good time to invest in your home, your lifestyle or your family without worrying about the resale implications years down the road.
If you need to finance your home improvements, you may need to demonstrate your home’s value with a home appraisal. Typically, financial institutions lend up to 80% of your home’s value minus your first mortgage balance.
You can start by estimating your property with a home value estimator, like Zillow.com. We often find these estimates are a little off; however, they are a good start. Divide your mortgage balance by your estimated value and multiply by 100. If that number is less than 80%, your value may qualify for a home equity loan or line of credit.
If you don’t have sufficient equity for a home equity loan and have much needed home repairs to get done, you may consider a personal loan.
For more information, call one of our real estate specialists. We’re happy to help.
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by Hemlata, AVP, Real Estate
It’s in the news. Mortgage rates are hitting record lows – again. If you fall into any of the categories below, it may be time to consider your refinancing options.
You have a variable- or adjustable-rate mortgage (ARM) Loan.
If you’re currently in an adjustable-rate loan and you have at least 80% equity in your home, this is the time for you to refinance. Even if refinancing won’t lower your payment, fixing your interest rate and your payment could still save you a lot money in the long run.
Your rate is a half a percentage point above today’s rate.
As a rule of thumb, if your current loan is more than half a percentage point higher than current mortgage rates, you may save money by refinancing if you plan to stay in your home. Be sure to ask about closing costs and any points or fees associated with the loan. Those costs could reduce or eliminate your potential savings.
You have a balloon payment.
A loan with a balloon payment has a remaining balance that must be paid off or refinanced after your term is completed. For example, your payment is based on a 30-year amortization term; however, the loan itself is only for a term of 15 years. If you have a loan with a balloon payment, consider refinancing to a traditional fixed-term loan. It may not necessarily lower your monthly payment, but it will remove the balloon payment and help you lock in today’s low rates.
You have equity.
Home values are improving in most areas. People that couldn’t refinance even a year ago are finding that they can now. If you have been paying down your mortgage loan for some time and think you may now have at least 80% equity in your home, it’s worth the effort to lower your mortgage interest rate. Your lender should be able to quickly assess your home’s market value to determine if you will be eligible to refinance; however, ultimately, a professional appraiser will be required in most cases to complete loan processing and confirm your eligibility. Depending on your loan type, your lender’s requirements, and your approximate loan-to-value ratio, you may have to pay out of pocket for an appraisal. An appraisal typically costs $300 to $500.
Call your mortgage lender as a starting point, or better yet, a real estate specialist at Pacific Service CU. We’re happy to help.
by Hemlata, AVP, Real Estate
One of the questions we hear from members is “Will a short sale damage my credit?”
In short, yes. In fact, there’s no real credit rating advantage to a short sale over a foreclosure. Credit will be negatively impacted after both. Your lender will report the financial loss as a major derogatory event on your credit record whether it’s a short sale or a foreclosure.
Here’s the difference:
A foreclosure occurs when a homebuyer doesn’t make their monthly payments on a mortgage loan. The lender then uses its legal right to foreclose on the home and take possession. The home is first offered for sale at auction. If there are no buyers willing to pay the opening bid, the house reverts back to the lender. The lender will use a traditional sale process and apply the sale proceeds to the unpaid mortgage balance to recover all or part of the loan amount.
A short sale is selling your home for less than the balance of the mortgage loan. The mortgage lender must approve this option in advance after the homebuyer provides a letter of hardship, proof of income, assets and bank accounts, along with a comparative market analysis to prove that the local property market does not support selling the home for the full mortgage loan amount.
There may, however, be differences in how a short sale and foreclosure impact your life and credit score.
When a lender forecloses, credit may be more severely damaged than with a short sale because of the impact of ongoing late payments prior to foreclosing. In a short sale, often the borrower hasn’t missed a payment.
In a short sale, the homeowner controls the transaction and can remain in the home through a traditional realtor-involved transaction. The lender is able to avoid the costly and lengthy process of a foreclosure and the borrower is able to avoid the unpleasant process of an eviction and a public sale of their home.
One big advantage in a short sale is how you may appear to a prospective lender. Credit bureau scoring models and lenders tend to be more forgiving if the loan is marked “settled,” as in a short sale, compared to a record of “default,” as in the event of a foreclosure. For a little perspective, in the event of a foreclosure, Fannie Mae and Freddie Mac typically won’t lend to you again for five years. However, in a short sale, that timeframe shortens to two years.
If you are struggling to make ends meet or are considering a foreclosure or short sale, we encourage you to reach out to your lender now. The sooner you act, the more time and flexibility you have for resolution. Fully explain your situation to your lender. Your lender doesn’t want your house, they want your payments. Show them you’re making an effort toward repayment and ask for options.
If you’re having difficulty making payments on a first or second mortgage loan with us, call one of our specialists for help. To determine the best way to assist you, we will work with you to review your financial situation and identify your options. Complete a Financial Worksheet and fax to (925) 609-3262.
by Chris, Vice President, Lending
If you’re considering buying a home, you’ve probably heard about tax breaks associated with home ownership. But what does that mean to the bottom line?
Tax breaks may help you afford a home. Under current IRS rules, you can deduct mortgage related items on your federal income tax return if you itemize deductions and meet other requirements.
Possible deductions include:
• Interest paid on your primary residence
• Property taxes
• Points paid on a loan
• Interest paid on a home equity loan
Tax deductions for homeowners can make home ownership more affordable by lessening your taxable income. Here’s an example:
Let’s assume John wasn’t already itemizing deductions. Now, he buys a home and finances $400,000. John will pay nearly $18,000 in mortgage interest and approximately $4,000 in property taxes the first year.
At tax time, John can now itemize and deduct his home related expenses to lessen his taxable income.
Reducing his taxable income by $25,000 could save John thousands of dollars in taxes.
Please consult a tax advisor for complete details. For more information about the tax benefits of homeownership, see IRS Publication 530, Tax Information for First-Time Homeowners and IRS Publication 936, Home Mortgage Interest Deduction.
Pacific Service CU cannot give financial, tax or legal advice. Please consult your tax advisor for details.
by Hemlata, AVP, Lending
Buying a home is an exciting time! You’re putting down roots, joining a community and planning your future. You’re also entering into a major commitment of time and money.
Here are five tips to help avoid homeownership mistakes:
Be level headed as you consider each home. Try not to compromise on things that are on your top priority list and make sure, above all, that you can afford the monthly payment. No matter what you think will happen with rates or home values, purchasing a home is a long-term investment decision.
You spent time searching for your home. Put the same amount of effort into shopping for your loan. After all, it could be around as long as your house. Beyond rates, ask about applicable closing costs, any fees associated with the loan and if you have to pay points. Also, be sure that you’re assessing the loan on the amount you want to borrow. Often rates, fees and costs are different depending on the loan balance.
Lastly, get pre-approved before you house hunt. You’ll know how much you can afford, which makes you a more competitive home buyer when negotiating and if the sale comes down to multiple bidders.
Buyers can get a great deal on homes that need a little TLC. However, home improvements can be very costly. Before you decide on that adorable fixer-upper, have a licensed general contractor quote the improvements, especially those that you need to make right away, like roofing, plumbing, electrical and foundation. You should reserve enough cash to make those improvements without borrowing.
Buying a home is fun and emotional. It can be a decision of the heart instead of the mind, which is why homeowners often find themselves overextended. It’s essential to have savings when you purchase – beyond your expected expenses. It is also important to maintain savings going forward so you can handle the cost of a roof repair, a fallen fence or a leaky window. Maintaining accessible cash on hand is an important part of homeownership.
Home improvements are never-ending, especially if you buy an older home. As you make improvements, be sure to keep detailed records, including photos, paperwork, costs and permits. Being able to show your improvements will be important for resale value, getting a good appraisal for financing or in the unfortunate event of an insurance claim down the road.
Homeownership is an incredibly rewarding prospect, filled with fun and commitment. Minimize the unexpected and enjoy the memories you’ll create over the years.
By Hemlata, AVP, Lending