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Mortgage News Matters

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

One of the major benefits of owning a home is that it is, in fact, a major financial investment. By obtaining a mortgage loan refinance or home equity loan, homeowners can access cash to cover events like unplanned emergencies, necessary repairs, and important updates.

So, what is the difference between the two and when should a borrower consider each?

What is a Mortgage Loan Refinance?

Refinancing is the act of paying off a borrower’s current mortgage with a new one, typically at a lower interest rate, saving them money in the long run.

What is a Home Equity Loan?

A Home Equity Loan gives homeowner’s cash in exchange for the equity they’ve built up in their property as a separate loan.

Both methods can be beneficial to homeowners who need to access a home’s equity. However, a borrower’s circumstances can determine which method is best for them.

When should a borrower Refinance?

Refinancing is ideal for homeowners who intend on staying in their current home for at least the amount of time that the benefits of reduced monthly payments or another tangible benefit will recoup the closing costs associated with a full new mortgage. Refinances can either be “rate and term” or “cash-out”, meaning the equity in the home can be leveraged to pay off just the current loan or both the current loan and receive additional equity as cashback at closing.

When should a borrower take out a Home Equity Loan?

A home equity loan is ideal for borrowers who are looking for a significant sum of money right away for a specific purpose, like paying for a major home improvement. A home equity loan may be the best option for borrowers who currently have a low-interest rate on their first mortgage and the “blended rate” and payment of their current 1st mortgage and new 2nd mortgage is less costly than replacing it with a whole new loan.

Another consideration to keep in mind is that Home Equity Loans are often structured as lines of credit with variable interest rates and payments which make them less predictable. Any borrower on a tight budget with limited disposable income would need to take this into account.

It is important to note that for borrowers to refinance or obtain a home equity loan, they must take into consideration their credit score. If their score is lower than when they originally purchased their home, refinancing may end up increasing their interest rate. Borrowers should obtain their credit report before going through the process of applying for either loan, to be sure it is the right decision for them.

To learn more about the differences between refinancing and home equity loans and to determine which method is right for you, contact a VanDyk Mortgage Loan Originator today!

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Mortgage News Matters

What is the Homebuyer Gift Tax?

Gifting money is a great way to help your child to cover a down payment or closing costs for a new home. What makes it so appealing? The Gift Tax and Lifetime Gift Tax Exclusion.

What is The Gift Tax?

The Gift Tax is the taxation of any monetary gift exceeding $15,000.

Many individuals stay within the $15,000 limit per year, per person, and easily avoid having to pay this tax. However, in the case of gifting for a down payment or closing costs on a new home, this limit can be reached quite quickly.

The solution? The lifetime gift tax exclusion. This is an additional $11.7 million that you can gift over your lifetime that is free of gift tax.

How does it work?

Once you exceed the tax-free limit of $15,000, you dip into your lifetime gift tax exclusion of $11.7 million. Which extends over the lifetime of the giver. Making it possible for you to gift down payments or closing costs for a child or relative looking to buy a home, without having to worry about the gift tax. So, go ahead, give!

To learn more about the Gift Tax and Lifetime Gift Tax Exclusion, contact a VanDyk Loan Originator today!

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Mortgage News Matters

7 Questions to ask your Lender when Obtaining a Pre-Qualification Letter

Pre-qualification is an essential first step in the home buying process. It determines how much money you can borrow and gives you insight into what your mortgage options are – allowing your lender to better identify your unique needs and goals.

To help you best get prepared, we’ve listed 7 important questions to ask your lender when starting the pre-qualification process.

  1. What is your pre-qualification process? Every lender has a different process. To help you best prepare and save yourself the most time and energy, ask your lender what documentation is required before starting the process.

  2. How long can I expect the process to take? There are many factors that go into the overall timeline, such as processing, underwriting, title search, appraisal, and other verification procedures.

    By asking how long the process will take up front, you can set realistic expectations for yourself. It can also be helpful to ask what factors could delay the home closing, so you can best prepare for any likely hurdles.

  3. Are my taxes and insurance included in the payment? This will determine how much your monthly payments will be, as well as how much money you will need to bring to the closing.

  4. Is there anything that could increase my interest rate or loan payment? If a borrower chooses a fixed interest rate loan, their payment will never increase throughout the life of the loan. However, if taxes and insurance are included, your payment could change over time due to increases in HOI premiums and property taxes.

  5. Can I lock in my interest rate? And if so, how long will my interest rate be locked? Typically, mortgage rates are priced with a 30-day lock, but you can choose to delay this if you are purchasing a foreclosure or short sale. A shorter lock period means a lower interest rate, while a longer lock period results in a higher interest rate.

  6. How will my credit score affect my interest rate? This is an important question to ask, especially if you have had any changes in your recent credit scenario.

  7. How much should I expect to pay at closing? There are many factors that go in to determining your closing costs, such as your earnest money deposit, appraisal fees and seller contributions. By getting this number up front, so you can properly budget for closing day.

To learn more about the pre-qualification process and get the answers to your questions, contact a VanDyk Loan Originator today!

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Mortgage News Matters

What are the Benefits of Paying with Mortgage Points?

We’ve said it before and we’ll say it again, purchasing a home is one of the biggest financial decisions one can make in their lifetime. Those home buyers who could use help with financing may want to consider using mortgage points.

What are Mortgage Points?

Mortgage points, or discount points, are fees paid to the lender at closing to reduce the borrower’s interest rate. Completely optional for homebuyers, paying for discount points can lower the monthly mortgage payments and is often referred to as “buying down the rate.”

How do they work?

Homebuyers buy points from their lender and each point costs 1% of the mortgage amount. For example, one point of a $400,000 mortgage would be $4,000. Each point lowers the rate by 0.25% and homebuyers can buy more than one point or fractions of a point.

What are the Benefits of paying with Mortgage Points?

  • Lowers interest rate for the buyer
  • Lowers monthly mortgage payments

Keep in mind your monthly savings depend on the interest rate, the amount borrowed, and the length of the loan’s term.

To learn more about mortgage points and determine whether they are right for you, contact a VanDyk Loan Originator today!