Cash Crunch? Maybe It’s Time to Cash Out?

It’s that time of year when people start scrambling for cash or assess their financial standings. Thinking about pulling equity out of your property? Know what your options are before making a move…

It’s probably safe to say that today’s current economic situation is not ideal for the majority of Americans. As rates continue to creep down, many people start to consider refinancing. And if you’re going to refinance, it’s always a good time to discuss cashing out some equity in the property.

Why is it a good topic for discussion? For one, if you are refinancing on the secondary market, you’re going to pay closing costs. It’s best to consider all options before you leap. Not that cashing out equity necessarily makes sense for you. If you just want to take the kids to Disney or throw a silver wedding anniversary party for your parents, you might take a second to think of a better way to finance these items. Do you really want to pay for them over the next 30 years? However, if you’re paying a mound of money in credit card debt and your existing interest rate is way higher than current market rate, than it’s something to consider. Or maybe it’s time to send a kid off to college.

A cash out refinance works this way. Say you bought your house three years ago, financed $100,000 of the $125,000 purchase price at a rate of 7%. In the meantime your house is worth $150,000 now, and you have amassed some icky credit card debt. You’d like to pull out $10,000 in equity from the house to pay off the credit card, and the current rate available to you is 5.75%. This scenario would make sense to consider a cash out.

The down side to a cash out refinance is that, as mentioned before, you have to pay closing costs. You do usually pay a lower rate in title insurance by commanding a re-issue rate. And this charge can be a big ticket item, but other than that the other costs are pretty much standard as they would be for a purchase. The money you would need to set up escrow probably will come back to you from your old escrow account when your old mortgage is paid off. So, that’s more palatable.

Also, keep in mind that if you pull too much equity out of your house, you might have to face monthly mortgage insurance. Right now, the minimum loan to value for a cash out on aprimary residence on a Conventional loan is 85%. For FHA, it’s 95%. But you can expect that to change soon. The reason for the changes? Many people in a tight financial bind sucked the equity out of their homes, then defaulted on the mortgages. As you can imagine, this move hasn’t helped our economy much. Not much at all. So, lenders have safeguards now and higher loan to values, to prohibit this from happening as often.

Make sure you really consider all options when refinancing. Don’t fall into a trap of cashing out for a quick return with a long term pay back. Make sure cashing out has a real purpose and benefit for doing so. Your mortgage lender should be able to crunch the numbers and present your options. Take your time and don’t move too, quickly. But if it makes sense, then lock that low rate!

Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at http://www.kristinmortgage.com/ Home Loans Plain Talk.

Cool Country: Rural Housing Loans

The USDA offers a fantastic program that allows for 100% financing. What’s the catch? Your house you want to buy has to be in the right part of the county…

Remember that old Donnie and Marie Osmond song, “I Was Country, When Country Wasn’t Cool”? I know, I’m dating and embarrassing myself all in one fell swoop. I loved their variety show when I was a kid. Weird as it may seem, that song comes to mind when I think of Rural Housing loans. The United States Department of Agriculture (USDA) offers a home loan guaranty program in Tennessee that is truly affordable and beneficial for moderate to low income families/borrowers. The only catch is you have to be on the right part of the map. Rural areas only, please. But you’d be surprised as to what constitutes “rural”. Did you think Powell was rural?

I think this program is often overlooked because lenders forget that some properties qualify for it. And it’s super easy to figure out. If you go to http://www.rurdev.usda.gov/, you can click on a link that allows you to determine if a specific property address is eligible. Lately, I’ve been happy to discover this program is available for more of my customers than I would have initially guessed.

Why are Rural Housing loans so cool? First and foremost, they allow for 100% financing. Yep, the elusive 100% financing still exists (at least in some counties). Another very attractive feature is the program allows you to finance Rural Housing’s 2% guarantee fee (required) into the loan amount as well. So if you buy a $100K home, you can borrow $102K. And perhaps the most exciting feature? You have no monthly mortgage insurance with this product. That’s right, no monthly mortgage insurance. Now you see what makes this product so affordable.

Of course, you have to be able to qualify. You obviously can’t be making a ton of money and qualify for this type loan. It varies from county to county, but for example, in Knoxville, a 2 person family can’t earn more than $56,600 a year. You have to have been on the job or have recently produced a professional/educational degree or certification during the past two years. And it goes without saying these days, you need a clean credit history. You can’t buy a McMansion or anything. Your loan size is limited by what you can afford. As a general rule of thumb don’t expect to go over $150K.

The seller can pay all of your closing costs or you can get a gift from a family member to pay your closing costs. You can’t buy an investment property-you need to plan to live in the house. And although it’s a terrific product for first time homebuyers, you don’t have to be one to qualify. However, if you are a first time homebuyer, chances are you can fund this loan through Tennessee Housing Development Agency (THDA). That’s a double whammy. You see, THDA offers a fabulous interest rate for first time homebuyers.

So dust off your blue jeans and drive around the county roads with your realtor. You may just find your dream home nestled down at the end of a country lane. Now, wouldn’t that be cool?

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Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910.

For more information visit her website at http://www.kristinmortgage.com/ Home Loans Plain Talk.