Technically, The Fed’s decision in July to lower interest rates by a quarter-point doesn’t directly affect mortgages. In reality, there are usually some things to keep in mind with any rate decrease or increase.
The Federal Funds rate is a measure of short-term borrowing, or the rate that banks use to lend money to each other. Mortgages are long-term notes.
If you have an adjustable-rate mortgage, you’ll probably see your interest rate go down when there’s a cut. To put that in perspective, a Bankrate article said that a HELOC (home equity line of credit) of $100,000 rises or falls about $250 a year with every change of 0.25 percent in interest rate, up or down. That works out to about $21 a month.
Additionally, variable-rate mortgages usually adjust annually, on their anniversary dates, and some don’t adjust at all for the first two to seven years.
However, this could be a good time to refinance into a fixed-rate mortgage and lock in the historically low rates. The average rate on a 30-year mortgage fell to 3.75 percent, down from a high of almost 5 percent in 2018.
Do a little math to figure out your savings over time, as well as closing costs, to determine whether this is a good move for you.
Category: Home Insurance
Hot trend: Build to rent
An interesting real estate trend has cropped up in recent years: while demand for rents has stayed strong, consumers have also turned their attention to single-family homes.
Renting is like having a home without the commitment. Or living in a home but retaining the agility to up and move quickly.
As prices of single-family homes have risen and lending remains strict, down payments and loans have become harder to come by. Add in Millennials, a generation of buyers with sometimes staggering student loan debt but growing families, or Baby Boomers, who don’t want the headaches involved with homeownership.
Flexibility and mobility have become the driving force.
Now, builders and investors are building single-family homes with the intent to rent instead of sell. In one of the bigger moves nationwide, Toll Brothers announced earlier this year that it had committed to invest $60 million in a $400 million venture that would build homes for rent in seven major U.S. cities.
An article in CNBC this summer called the built-to-rent (or B2R), the fastest-growing trend in real estate. Last year, about 43,000 single-family homes were built for rent, it said. And the built-for-rent share of housing starts is also rising, to nearly double its recent historical average from 1992-2012.
In Pradera, a gated community of three- and four-bedroom homes in San Antonio, Texas, the rents are $1,800 to $2,300 a month and the community includes a pool, fitness center, community kitchen and party space, plus dog park and dog-washing station. Interestingly, the average annual household income in Pradera is more than $100,000 — meaning many of the tenants can afford to buy but have chosen not to.
Should you refinance your mortgage?
With mortgages still at historically low rates, many people consider refinancing to save money. But is it a good idea? Maybe, maybe not.
Refinancing involves a number of moving parts and some understanding of amortization, so make sure to do your homework. Lenders vary on how long you have to wait to refinance, but you can sometimes do so within a year of purchase.
First, remember that refinancing involves closing costs, which can run into the thousands. So before anything else, calculate how long it will take you to recoup that amount and whether you’ll stay in the house that long.
Do the long-term math. If you are 10 years into a mortgage and refinance for 30, you could very well wind up paying many thousands more over the lifetime of the loan. This is of course a personal decision; sometimes it’s worth it to free up the cash on a month-to-month basis. Just understand the numbers.
Some homeowners refinance and increase their monthly payments — on purpose. You might consider refinancing from a 30-year loan to a 15-year loan to pay off the balance sooner. It’s often surprising how little it takes per month to make this happen.
Another good reason to refinance is if you’re in an adjustable rate mortgage and want to refinance into a fixed rate. This often occurs when rates are rising and you want to avoid the higher costs; if rates are low, it might not be worth the trouble.
Other folks refinance in order to pay off other debt, like credit cards or student loans, or to pay for a renovation project. Again, it’s time to do the math and consider the scenario. Although credit cards usually involve high interest rates, there isn’t much to lose if you default; transferring that debt to your mortgage, however, puts your house on the line.
Sell or rehab? The homeowner’s dilemma
If you are debating on whether to sell or renovate, first ask yourself some questions and then do some math.
First the questions:
- Do you love or hate your home? If you hate it, will remodeling really make you love it or just hate it less? If you’ll just hate it less, sell.
- Do you love the neighborhood or hate it? If you hate it, remodeling won’t help. Sell.
- Do you want more improvements than are reasonable for the neighborhood? Carpet, kitchen, bath, and landscape all recoup costs. But if you want fixtures and amenities that will make your home cost way more than others in the neighborhood, consider moving. You probably won’t recoup the costs at your eventual sale.
If you decide to remodel, calculate how much a renovation or rehab project will cost. Or should cost.
Whether you’re debating on hiring vs DIY or deciding between competing contractors, it’s a good idea to understand what you get for the money as well as what constitutes a fair price.
A few rules of thumb can help, so here are some tips on how to estimate your rehab costs:
Be wary of finding overall estimates online and assuming they work for you. The cost of materials and labor vary by region of the country, so make sure you’re comparing like with like.
Know the cost of materials. This is one of the easiest things you can do to prepare. Create a file and visit your local home stores to find the prices of lumber, windows, flooring, paint, and the like.
Understand the time involved. Have a basic idea of how long it should take to replace a roof or install a window so you can better understand the contractor’s quote. (An entire roof can be done in a day or two, while an uncomplicated window install can be done in a half hour.)
Accessories add up. Remember to budget for things like cabinet knobs, door hinges, trim, and the like.
Think in terms of function, not space. If you’re undertaking a larger project and are the one drawing up a Scope of Work, it’s more accurate to calculate by category of professional. A plumber will take care of your kitchen sink as well as your bathtub, for example. This also helps with the flow of a project, as each of these contractors does their work at different stages.
Home Insurance Options in Cypress, TX
A home insurance policy helps you rest a little easier in case of covered items, which may include vandalism and theft. Learn more about what home insurance coverage would work for your home and family from your InsureUS agent. In the meantime, here are some essential facts home insurance in Cypress, TX.
What is Home Insurance?
A home insurance policy pays to replace or repair your home and belongings in the case of an unforeseen event. Home insurance typically protects you when your home or property is damaged by a covered event, like a storm or fire. Besides basic coverage, you may want to invest in optional coverage. Texas has a Consumer Bill of Rights that discusses the rights of rents and homeowners. Be sure to ask for a copy of the Bill of Rights when you purchase or renew a home policy.
Is Home Insurance Required?
Home insurance is not required by Texas law. However, if you have a mortgage loan, your lender will require you to buy a policy. Even if you own your home, it’s a good idea to protect your house and personal belongings.
Types of Home Coverage
Ask your insurance agent which of the following are covered in a policy you’re considering.
Dwelling coverage covers the house if it’s destroyed or damaged by an event in your policy.
Personal property coverage pays for clothing, furniture, clothing, and other belongings if they are damaged, stolen or destroyed.
Other structures coverage reimburses you for repairs on unattached structures on your property. This could include storage sheds, garages, and fences.
Loss of use coverage covers other lodging expenses if you can’t use your home due to a covered event.
Personal liability coverage takes care of lost wages, medical bills and other costs for those who suffer injuries you’re responsible for. It may also pay for damages to someone’s personal property that occurs in your home as well as court costs.
Medical payments coverage pays the medical bills if someone else if hurt on your property.
Contact InsureUS in Cypress, TX to set up an appointment for a free quote.
Determining Comps When You Want to Sell Your House
The home you’ve cared for and loved might seem incomparable to you, but when you sell (or get a home equity loan), someone is going to have to find a comparison.
In the language of real estate and mortgage that is called comps.
Comps help answer the biggest question on your mind and a lender’s mind when you look to sell your house: What’s my home worth?
The answer? It depends.
It’s important to note that home values boil down to educated — and sometimes uneducated — guesses. They are merely opinions, with the one that truly matters being the bank’s. Toward the end of the process, the buyer’s bank needs to approve of the purchase price in order for the loan to be approved.
Before then, however, you have a few ways of gathering information. The best is to consult with a real estate professional who can provide you with a figure based on “comps” — comparative sales. The agent will conduct a comparative market analysis, or CMA, and give you their professional opinion on your home’s potential sales value. This is generally a far better option than relying on your neighbor’s or your uncle’s opinion, as the agent is trained and experienced at comps.
What goes into a CMA? The agent will find recent sales of similar properties in your location; the best comps are within 90 days or less, though if you live in an area that’s less populated, you’ll likely use comps from six months back and sometimes longer.
If your home is ranch style, it should be compared to sales of other ranch homes. A cape or a contemporary is different. Comps also take into consideration the number of bedrooms and bathrooms, the acreage, whether there’s a garage and a basement, and things like central air and the type of heating.
The key is to work with someone who understands your specific market and who has a track record of accurately providing figures. Top-selling agents (not necessarily top listing agents) are generally the ones who do best at this. As a seller’s agent, they know how to price your home to move while also getting you a fair price; as a buyer’s agent, they typically understand how to negotiate well.
Considering a vacation home? It might even pay for itself
A vacation home may be just the ticket if you love to visit sunny climes, the forest, beach, or mountainside.
These days, thanks in part to the sharing economy, more people than ever can afford a second home.
Today you can buy a home at relatively low interest rates, then rent that home out when you are not there.
Homeowners have successfully covered their mortgages and leases by renting out as little as one room thanks to sites like AirBnB.
According to John Banczak, executive chairman of TurnKey Vacation Rentals, for every $100,000 you spend to purchase a vacation home, you should expect yearly rental income of $12,000 to $14,000.
Vacation homes are appealing to owner and vacationer alike. The rate is often less than or equivalent to a hotel, but with the option to spread out more and eat meals in. For locations with popular attractions, owners can visit when they like and rent when they aren’t there.
In 2017, about 12 percent of home buyers purchased vacation homes. According to Economist Outlook, buyers wanted a second home for vacations (42 percent), for future retirement (18 percent), or because real estate prices offered good deals (12 percent). The median household income in 2016 for vacation home buyers was $89,900.
If you’re considering a vacation property, make sure to find a trusted local real estate agent to help you navigate the purchase. The agent will know the area and any local and state contract laws.
It’s also important to find a local person to keep an eye on the property, whether it’s your housekeeper, the agent, or a contractor. If you rent the property regularly, your housekeeper can be your second set of eyes, letting you know how the latest guests treated the property as well as how everything looks overall.
As part of your due diligence, factor in a higher insurance rate for a second home.
Consider installing a home security system for yet another set of eyes as well as a way to make sure the heat has stayed on.
Common ways to save money on homeowner’s insurance
Although homeowner’s insurance is a necessary expense, there are several ways to reduce these costs with or without spending money on improvements, according to Nerd Wallet.
Some of the simplest reductions, such as bundling the home insurance with auto insurance through the same company or improving your credit score, won’t cost a penny and will likely only require a short phone call. Similarly, raising the amount of the deductible on a policy or lowering the maximum payout for possessions can reduce the rate without any upfront cost. According to Bankrate, you can also receive discounts between 1-20 percent for being a nonsmoker, over the age of 55, part of a homeowner’s association, and not having filed a claim in many years.
For those looking to spend money on home upgrades and renovations, there may be discounts available to help offset some of that spending if the changes make the home safer or more durable.
Many older homes, for instance, have older wiring that poses a much more significant risk of catching fire and causing property damage that insurance companies will often grant a 10 percent reduction in premiums to avoid the potential payoff. In fact, home electrical fires cause an average of $659 million in losses each year while a wiring-related issue causes more than half of those reported. Meanwhile, wind and hail caused by powerful weather can wreak havoc on an unprepared or deteriorated roof, and discounts of 5-10 percent can be had for installing newer, impact-resistant roofing material.
Why It May Be a Good Time to Update Your Home Insurance
Many times, people get home insurance when they first move into a home and forget about it. However, it may be a good time to update your insurance, especially as we get into the winter months in Cypress, TX. It’s important to review your policy when you make changes to your home and your lifestyle, and if you aren’t making a lot of changes, at least review it once a year. If it’s been a while since you reviewed and have made these changes, take out your policy and contact an agent at InsureUS to make sure you are adequately covered.
Home Remodeling: Major remodeling can increase the value of your home, which would mean that you need more coverage.
Big Ticket Items: If you have big-ticket items, such as artwork, electronics, or jewelry, they may not be covered under your insurance. You want to make sure you have enough insurance to cover those items should anything happen.
You Have Stopped Smoking: Smoking can raise your premiums because the chance of a fire is greater. If you have stopped smoking, you may be able to get a break on insurance premiums.
You Have Retired: Retirement might come with an insurance discount because retirees spend more time at home and can spot the signs of a fire more quickly. Retirees also are less likely to be burglarized and can spend more time maintaining their homes.
You Have Installed an Alarm System: An alarm can make it less likely a thief will break in, which may lower your premium.
You Have a New Pet: It’s not good to keep your pet a secret, even if you are worried that your rates may go up, because you want to make sure you are covered if your dog bites someone on the property.
You Have Added a Swimming Pool: A swimming pool can increase your liability risk, so it’s necessary to make sure that you are covered and maybe add some additional insurance.
Contact InsureUS, serving Cypress, TX, to get a quote on homeowners insurance.
Options for refinancing with credit card debt
If you are thinking about refinancing your home, but concerned about your credit card debt, know that you do have options, but your situation needs to be clarified.
You’ll need to qualify for the new mortgage and that means your credit should be in order. You’ll have to document your income, assets and debts and prove you can make the payments on the new loan.
You must have enough equity in your house to refinance your mortgage and cover your outstanding credit card debt.
If you have owned your home for some years, you might have some happy news about your home value. Home prices have been rising in many locales and homeowners often find they have more equity than they thought.
If you have sufficient equity, then you could do a cash-out refinance. That means you refinance your mortgage for more than you owe and take the difference in cash.
You’ll need at least 20 percent equity to do a cash-out refinance.
It is likely that your new interest rate on a cash-out refinance will be higher than your current one, since interest rates are rising. If that is the case, then you might consider a home equity loan or a Home Equity Line of Credit (HELOC).
A home equity loan has a fixed interest rate on a lump sum of cash.
A HELOC works like a credit card secured by your house. Like a credit card, you have a credit limit that you can spend up to. The interest rate on a HELOC moves up and down with the prime rate.
Most experts agree that for short-term purposes, such as paying off credit cards, a home equity loan or HELOC can be better. That’s because you will pay off those loans faster and not be locked into a higher interest rate for 20 years (or whatever the life of your mortgage is).
