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Mortgage News Matters

What are the Pros & Cons of Selling a Short Sale for Sellers

Though they are not necessarily an ideal situation for sellers to find themselves in, short sales can be beneficial to financially distressed sellers looking to avoid foreclosure.

What are the benefits of a short sale for sellers?

  • Seller can avoid foreclosure. A short sale is one of the last options that a seller has before going into foreclosure, which is more detrimental to their credit.

  • Save on common fees. Sellers can avoid paying common fees, like the cost of a realtor’s commission if they sell their home with a short sale.

  • Possible debt forgiveness for the seller. In certain cases, the lender will accept the money made from the short sale and forgive the seller’s remaining debt. It is important to note that, in some cases, a short sale will not eliminate a seller’s debt if the lender chooses to get a deficiency judgement against the seller for debt owed.

  • No barrier to re-enter the housing market. With a short sale, sellers are eligible to re-enter the housing market if they wish to purchase a new home with an FHA loan, in some circumstances.

What are the drawbacks of a short sale for sellers?

  • No negotiation power. When a seller decides to sell their home through a short sale, they are relinquishing any negotiation power they may have had because the sale is now in the lender’s hands.

  • Loss of profits. Because the seller still owes money to the lender in the case of a short sale, all the profits go to the lender.

  • Damage to credit score. Though the damage to the seller’s credit is much less damaging than in the case of a foreclosure, the seller will still experience a negative effect on their credit.

  • Delay in obtaining another mortgage. When a seller goes through a short sale, they are required to complete a waiting period anywhere from 2-7 years before they can qualify for a new mortgage.

  • Deficiency judgement. There are some instances when the lender will choose to sue the seller for the remaining money owed on the property in what is called a ‘deficiency judgement.’ If the lender chooses to do this, the seller will experience a hit on their credit, like that of a foreclosure.

Are you looking to sell your home through a short sale? To learn more, contact a VanDyk Loan Originator today!

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Mortgage News Matters

What is the Difference Between a Short Sale & a Foreclosure

short sale written on a note

Short sale vs. Foreclosure: What’s the Difference?

Though both short sales and foreclosures provide financial relief to homeowners who are unable to make their mortgage payments, they are two entirely different processes that result in significantly different consequences for the homeowner.

Initiated by the lender, rather than the borrower, a foreclosure is the lender’s last option, in the case that a borrower can no longer make their mortgage payments. In a foreclosure, the lender seizes the borrower’s home to try and make back the money they’ve invested. Most often, foreclosures take place after the homeowner has already abandoned the home, but if the homeowners have not left, they are evicted.

When a foreclosure takes place, it is typically a much quicker process than going through a short sale as the lender will try and liquidate it as quickly as possible.

Foreclosures are kept on a borrower’s credit report for seven years and can prevent the borrower from purchasing a home for 2-7 years after the home is seized by the lender.

A short sale, which is typically a much longer process, is less damaging to a borrower’s credit. And, in some cases, allows the borrower to purchase another home immediately.

To learn more about the difference between a short sale and a foreclosure, contact me today!

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Mortgage News Matters

What’s the Difference Between Refinancing & Home Equity Loan?

house made of dollar bills

One of the major benefits of owning your own home is that it can often be a major financial investment. In the long-term, real estate tends to increase in value over time due to the appreciation of the land it sits on and by building equity.

To determine the value of your property, let’s take a closer look at appreciation, how to build equity, and different ways to obtain a mortgage loan refinance.

What is Appreciation?

Appreciation represents the change in the value of your home over time. This change is typically due to the piece of land that the home sits on, rather than the structure itself which tends to lessen in value, due to typical wear and tear.

What is Equity?

A home’s equity represents the difference between the current market price of the home and the amount that is still owed on the mortgage. Equity grows as you pay down your mortgage. It is important to note that building equity takes time, as it takes a while to lower the principal balance owed on the mortgage loan.

Both appreciation and equity grow over time. This means the longer you own your home, the more valuable it becomes.

With this, homeowners who take out a mortgage to pay for their home can choose to access cash to cover events like unplanned emergencies, necessary repairs, and important updates by choosing to refinance their current mortgage loan.

Why would you want to Refinance?

The main reason homeowners choose to refinance is to lower the overall cost of their mortgage or obtain equity that has been built over time.

Borrowers can lower the overall cost of the mortgage loan by refinancing during a period of lower interest rates. Or, they can choose to access the equity they’ve built in their home get cash out to pay for upgrades, remodels, or other life expenses.

What types of Mortgage Loan Refinances are there?

The two most common forms of mortgage loan refinancing are rate-and-term refinancing, which is when a borrower exchanges their current loan for a new one, or by accessing equity in their home, which can be done by obtaining a cash-out refinance or home equity loan. Though these are the most popular forms of refinancing, there are many methods out there and it is important to understand each to assure that you are selecting the right one for your unique situation.

What is a rate-and-term refinance?

A rate-and-term refinance is when a borrower replaces their current mortgage with a new one, typically with a better interest rate. No money is exchanged in this type of refinancing, other than any costs associated with closing or funds from the new loan to pay off the existing one.

What is the difference between a cash-out refinance and a home equity loan?

A cash-out refinance pays the homeowner a portion of their home’s equity in cash. This method results in a new mortgage loan for the homeowner at a larger amount than was owed on the previous loan, giving owners cash in hand. Compared to a rate-and-term refinance, a cash-out refinance will typically result in borrowers paying a higher interest rate or more points.

A home equity loan gives homeowner’s cash in exchange for the equity they’ve built up in their property as a separate loan. They typically carry a lower interest rate than personal loans because, when you get

Home equity loans are often structured as lines of credit with variable interest rates and payments which make them less predictable. Borrowers should consider obtaining a copy of their credit report before going through the process of applying for either loan, to be sure it is the right decision for them.

What are the benefits of refinancing?

Refinancing can be beneficial to homeowners in many ways. Whether you are looking to lower your mortgage payments or access equity in your home to pay for necessary upgrades, a child’s education, or collect some extra cash for the upcoming holiday season, a refinance can help you access cash quickly.

Visit our blog post on the Top 5 Reasons to Refinance here.

To learn more about the different methods of mortgage loan refinancing and to determine which one is right for you, contact a VanDyk Loan Originator today!

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Mortgage News Matters

Common First-Time Homebuyer Mistakes & How to Avoid Them

real estate agent handing keys to new home buyer

Navigating the housing market can be challenging for seasoned and first-time homebuyers alike. And in an ever-changing, competitive market – like the one we find ourselves in today – it can feel even more overwhelming.

To help, we’ve listed FIVE of the most common mistakes that first-time homebuyers often make – and how they can best avoid them.

Mistake #1: Looking for a home before applying for a mortgage.

In a competitive market like today’s, offers are typically not even considered without a buyer providing a mortgage loan preapproval. Most sellers won’t entertain these offers, because removing a home from the market before a buyer has even applied means the potential loss of other, serious buyers.

To avoid this common mistake, borrowers should make sure to get a full underwritten preapproval BEFORE starting their home buying search.  This shows the seller that their offer is solid and can be taken seriously. Borrowers should also make sure they are working with a mortgage lender who is doing a full review of their credit, income, and assets so that they know they can assist with meeting all the contract terms before the borrower makes an offer.

Mistake #2: Purchasing a home that is OVER budget.

Though it may be tempting – especially when it feels like they have finally found the perfect home – it is never a good idea for borrowers to overextend themselves. Not only will it add more day-to-day financial stress, but it also puts buyers at risk for foreclosure if their financial situation suddenly changes.

Borrowers can avoid this common mistake by focusing on the amount of monthly payment they can afford, rather than the maximum amount of loan they qualify for.

Mistake #3: Being careless with your credit.

Many borrowers make the mistake of taking on new loans or credit cards after their initial preapproval, which can greatly jeopardize their closing and final loan approval. Most lenders will do a final credit check prior to closing and any changes to the borrower’s credit profile could impact the ability to close or the final terms of the loan.

Borrowers can avoid this mistake by deciding not to take on new credit cards, close existing accounts, or take out new loans in the period leading up to applying for a mortgage through closing day. If possible, borrowers should spend their time paying down their existing balances to below 30% of their available credit limit and continue paying all monthly bills on time.

Mistake #4: Waiting for the ‘unicorn’.

It’s understandable that many buyers – especially those who are purchasing a home for the first time, will want to wait until they find the PERFECT home. You know, the one they have been building in their mind for years – the one that checks off all the boxes. The reality is, the perfect home is rare, and if borrowers spend their time waiting for it to come around, they are likely to pass up options that could be great – even if it isn’t exactly what they imagined it would be. This is especially important to keep in mind when buyers find themselves in a highly competitive seller’s market, like the one we find ourselves in today.

Borrowers can avoid this common mistake by deciding ahead of time to be flexible with certain elements they are looking for in a home and to also be willing to put in sweat equity. There are even some loan programs that allow borrowers to include the cost of repairs into their loan amount.

Mistake #5: Overlooking all your mortgage loan options.
Many home buyers might not know that there are programs out there that provide down payment assistance specifically to first-time home buyers. From zero to low down payment options, to flexible credit requirements, these programs can often be lifesavers for many borrowers.

So, what are they?

FHA Loans

Insured by the Federal Housing Administration, an FHA loan is ideal for first-time homebuyers with less-than-perfect credit.

With a down payment as low as 3.5% and interest rates generally lower than conventional loans with the same terms, this type of loan is perfect for those who may not meet the qualification factors required for a traditional conventional loan program. An FHA loan encourages homeownership by providing affordable housing opportunities with low down payments and flexible credit requirements.

What’s more, is that borrowers have the option to use gift funds and seller credits when borrowing money to purchase a home with an FHA loan. Making it particularly beneficial to those borrowers with less cash available to them.

Pros of FHA loan program:

  • 3.5% down payment
  • Easier credit and income qualification
  • Up to 6% in seller credits allowed
  • Gift funds available

Cons of FHA loan program:

  • Requires monthly mortgage insurance
  • Mortgage insurance is permanent for life of loan

VA Loan

Backed by the U.S. Department of Veteran Affairs, a VA loan is ideal for veterans or active-duty military who are looking to purchase a home.

This type of loan offers low-interest rates with zero down payments and no monthly mortgage insurance. With an upfront funding fee that can be rolled into the loan amount, veterans are not required to pay out of pocket.

The VA loan program is an excellent choice for first-time and repeat buyers alike. With zero down payment and up to 6% seller concessions available to cover closing costs and pre-paids, it is possible for borrowers to structure a VA loan with little to no money out-of-pocket at closing.

Pros of VA loans program:

  • Zero down payment required
  • No monthly mortgage insurance
  • Low monthly payment

Cons of VA loan program:

  • Not available to all borrowers, this program is limited to veterans or military personnel
  • Has an upfront funding fee (VA’s version of mortgage insurance)

A VA (Veterans Administration) guaranteed home loan is the preferred loan program for active, non-active, Reserve, National Guard, and retired military of the armed forces because there is no down payment needed and no private monthly mortgage insurance required.

USDA Loan

Backed by the U.S. Department of Agriculture, a USDA loan is ideal for buyers looking to purchase a home in a rural or suburban area with no down payment and minimal investment.

This type of mortgage loan program offers many advantages for borrowers who may not qualify for other programs, such as flexible credit guidelines and low monthly mortgage insurance costs. It is important to keep in mind that properties that qualify for USDA funding must fall within certain geographical areas.

Pros of USDA loan program:

  • No money down payment option
  • Flexible credit and qualifying guidelines
  • Ability to finance repairs and closing costs into loan

Cons of USDA loan program:

  • Geographical restrictions
  • Income limits
  • Single family, owner occupied homes only – no investment properties

Purchasing a home, no matter what your financial situation may be, is a big decision. Before starting your search, make sure that you know what some of the most common first-time homebuyer mistakes are, and how you can best avoid them.

To start your homebuying journey, contact a VanDyk Mortgage Loan Originator today!