Should You Pay for Your Home in Cash Upfront?

Should You Pay for Your Home in Cash Upfront- 150x150Generally, people buy homes by taking out mortgage loans, which they will pay back over a number of years. Those who have better financial situations have the option of paying upfront for the home, and not have to deal with the hassle of making mortgage payments each month. Paying cash upfront for a home if you have the financial means sounds good and has its advantages, but it also comes with a few disadvantages that have to be taken into consideration before making this step. Before investing a large sum of money into a home, you should take a close look at your financial situation and your long-term investment strategies.

How to Buy a Home with Cash Upfront

Before buying a home with cash, try to evaluate all your assets and financial obligations in order to determine if you really can afford spending all that money at once. Make sure you have enough money to continue paying off any debt that you might have, health insurance, school tuition and other current and future expenses. If you come to the conclusion that you can afford paying upfront for a home, the next step would be determining how much you can realistically spend on a home. Aiming for a budget that’s smaller than what you can really afford is a good idea, because there will probably be some fees and costs that you will overlook.

Start searching for a home in the desired area or hire a real estate agent to do it for you. Hiring a real estate agent means that you will have to pay an extra commission, but it will increase your chances of finding a home quicker, and maybe even cheaper. After finding a home, it is time to make an offer. If the appraiser agrees with the selling price, make sure that you offer a deposit immediately. Also, be prepared to provide documentation that proves you can afford to buy the home in cash. Arrange a closing date and prepare a check for the full amount of the price that was agreed upon.

Advantages and Disadvantages

The largest advantage to buying a home with cash is that you won’t have to pay interest on a loan. At 4 or 5 percent, interest rates seem low, but they will become tens of thousands of dollars over time. Not paying interest can save you a lot of money that can be invested into something else. Another advantage which will save you a nice sum of money is that you won’t have to pay closing costs, like you would when taking out a mortgage loan. Application fees, mortgage insurance and other fees can cost you several thousands of dollars, even up to 4 percent of the home price. Last, but not least, paying cash for a home offers you security. If you lose your job or have other financial trouble, you won’t be in danger of losing your home.

The biggest disadvantage is that you will have to spend a large amount of money at once when buying a home in cash. That money could have been invested into something that would yield a better return. Another disadvantage is that, if you come across financial hardships in the future, it would be more expensive for you to borrow money than it would be for someone with a mortgage. A third disadvantage would be that home owners who have bought their homes with cash upfront don’t receive any tax deductions, unlike those who have bought their homes with a mortgage.

Paying cash for a home has its advantages and disadvantages, but your decision should also be largely influenced by your financial situation. Buying a home with a mortgage loan while interest rates are low might be more beneficial, but, as interest rates rise, it makes more sense to pay for your home in cash upfront.

Refinancing Your Home: The Complete Process

Refinancing Your Home-The Complete Process- 150x150Refinancing your home at the right time can bring you great financial benefits, but the process can be a little intimidating for those who are refinancing for the first time, and even for those who have done it before in the past. Changing your mortgage loan to a different loan with different terms can get a bit confusing, and you might be afraid not to make any mistakes and end up doing the exact opposite of saving money.

There are consultants who can guide you through the refinancing process, and it’s not a bad idea to use them, but it’s important that you understand how refinancing works, from deciding to refinance to actually taking out the new mortgage loan. Understanding the refinancing process will help you avoid making simple, but expensive, mistakes, which can end up ruining your plans.

Deciding to Refinance

Home owners generally refinance when the interest rates are lower than they were when they took out their mortgage loan, but interest rates should not be the only deciding factors when you consider refinancing. First of all, the advertised interest rates are usually reserved for those who meet some very strict requirements, like having a perfect credit score. Anything less than a perfect credit score and you will find that the interest rate that you’ll be required to pay on your new loan is not that attractive anymore. Secondly, you should not be blinded by the low interest rates that lenders are willing to give you. The closing costs of refinancing can be very high, and might make the overall value of your new mortgage loan even greater than the value of your current loan.

Getting Prepared to Refinance

If you have decided that refinancing is the right step for you, and you will be saving money by doing it, then it is time to get prepared. Like most mortgage loans, refinancing will require a good credit score and a significant number of documents. Before talking to a lender, you should check your credit score, and make sure it’s in good shape, without any inaccuracies. You are entitled to one free credit report check per year, and you should report any erroneous information to the credit bureau. Also, having some of the paperwork ready before applying for a refinance will save you a lot of running around, and it will make the whole process go faster and smoother.

Choosing the Right Refinance Loan

There’s no perfect mortgage loan that will benefit everyone. Depending on your financial situation and many other factors, you should closely look at all loans that will be made available to you and decide once you find one that meets all your requirements. For example, you may want a lower monthly payment, in which case you should look at 30-year fixed-rate loans. Alternatively, you may want to pay off your mortgage sooner, in which case you should look at 15-year mortgages.

Applying for the New Mortgage Loan

Like we’ve mentioned earlier, preparing certain documents, such as personal tax returns, bank statements, pay stubs, and others, will make the refinance application process go by very quickly and, in some cases, you can even apply over the phone. The quicker you submit the required information, the faster will your new mortgage loan be approved.

Appraisal and Approval

After submitting your application, you will normally have to get your home appraised by a home appraiser. These appraisals usually cost a few hundred dollars and are paid by the borrower. The home appraisal is required in order for the lender to find out how much your home is worth and if you have enough equity in your home to support the new mortgage loan. All your paperwork, including the appraisal, will then be reviewed by the lender. If the lender comes to the conclusion that you are able to repay the new loan, your refinancing loan will be approved.

Locking in the Interest Rate

Once your new mortgage loan is approved, you will have the choice of locking in the interest rate or letting it float until closing. By locking in your interest rate, you are protected from an increase in interest rates before you close on the loan. If you don’t lock the interest rate, there is a chance that the rate on your new loan might increase, but there’s also a chance that it might decrease by closing time.

Signing the Loan Documents and Closing

At closing, you will be required to sign all of the loan documents. You should carefully review each document before signing, making sure they contain everything that was agreed upon. When closing, you will also be required to pay various closing fees, which can be pretty costly. However, some of these closing costs can be reduced at your request, or even waived, if you have a good relationship with your lender.

Refinancing is a pretty straight-forward process once you understand it, but you should still pay attention to the details. Refinancing can turn into a costly nightmare if you don’t carefully take all of the aspects into consideration. Doing your homework before refinancing will ensure that the whole process goes by smoothly and making your mortgage payments will be much easier.

Are You Paying Too Much in Property Taxes?

Are You Paying Too Much in Property Taxes- 150x150Usually, based on the value of your home, property taxes are used by the local government agencies to fund infrastructure, public schools and other programs. Home owners who don’t pay their property taxes can end up losing their homes in a tax sale or tax lien foreclosure. Property taxes are one of the major expenses for a home owner and they usually increase year after year.

It is important to make sure that you are not being overcharged on your property taxes, so you should understand how the tax system works. Let’s take a look at how property taxes are calculated and what you can do to lower them.

How Property Taxes Are Calculated

Property taxes that are raised by the states are a large source of income for the government. Most of the time, property taxes will be in the form of a percentage, determined after several boards and councils will have to decide how much money will the government need to cover its expenses without running into any financial issues. Many important programs, such as education, transportation, emergency services and parks are funded by the government with money raised from property taxes.

Home owners are normally required to pay a flat rate percentage of their home value as property taxes. Property taxes usually vary between municipalities, but they are the same for all home owners in a certain district. Taxes are collected by many government levels, such as states, counties, and districts, so the property tax amount will be the combined percentage of home value from every one of these institutions.

Your home’s value will be determined through a professional assessment made by the local government. This assessment will be used solely to determine how much you will have to pay in property taxes, and cannot be used for insurance or sale purposes. The inspectors will make note of all improvements made to your home and areas that have problems. In order to determine your home’s value, they will also look at recent home prices in your area and if your neighborhood is regarded as safe or not.

The government has the power to increase or decrease property taxes based on how much money it needs. For example, if there is a need for improvements to schools, then the taxes will most likely increase until the deficit is improved substantially. On the other hand, lowering taxes can attract new residents, which will in turn stimulate the local economy.

Other things that can increase your property taxes are improvements or additions that will add to the value of your home, but also buying a car, a boat or other type of vehicle can increase this as well.

Lowering Your Property Taxes

Property taxes can be real burdens for most home owners, so lowering them will not only save you money, but will also lower the risk of you being unable to pay your bills and risk losing your home. Here are a few steps to lower your property taxes:

  • Go to the town hall and request your property tax card from the assessor’s office. The property tax card includes info that the town has compiled about your property over time, and it should be carefully studied. You should report any mistakes or erroneous information to the assessor and request a re-evaluation. While they are not very common, mistakes do happen, and it would be a shame to go on paying years of property tax based on false information.
  • Research other homes in your neighborhood to find any discrepancies between what your home and other homes were valued at. There is a chance that you will find a home with more rooms or additions that was valued lower than your home, in which case you can ask for a reassessment.
  • Don’t leave the assessor alone during the inspection. Walk with him or her and point out the good parts of your home as well as the parts that need repairs or updating.

Owning a nice home in a good neighborhood is expensive enough without having to overpay in property taxes. Of course, the nicer the home, the higher the property taxes will be, but you should of course make sure that you are not overpaying due to a mistake or because the assessor over-evaluated your home. As you have read in this article, lowering your property taxes is not an impossible task and it is something that will certainly make your life easier.

Disputing a Low Mortgage Appraisal

dispute loan appraisal- 150x150Due to the downward trend of home values since the recent recession, home buyers have been facing a considerable challenge in dealing with low mortgage appraisals, which affects not only their mortgage options, but even the chance of the loan process falling through. While a lower-than-expected appraisal is not technically ‘wrong’, it may certainly reflect on whether a lender will approve the loan application or not.

As a rule, the appraiser is responsible for comparing home values with those of ‘comparable’ features within the surrounding market. Problems arise when a lender utilizes an appraisal agency that may not be familiar with the market conditions of a certain location, which will affect the home value. In turn, a particular market might be subject to high rates of foreclosures or short sales, or poor sales in general, which would cause an appraiser to ‘comp’ outside of the appropriate market.

The resulting appraisal affects the amount of funding the lender will allow toward the loan proceeds, and if the appraisal comes in below the loan pre-approval amount, the lender is forced to disqualify the loan. While the potential home buyer cannot direct or influence a property appraisal, there are procedures to challenge the results if necessary.

Steps to Challenging an Appraisal

Contract Cancellation – Most pending sales contracts have an appraisal contingency that permits buyers (and sellers) to cancel a contract due to a low appraisal figure.

Renegotiate – Buyers have the option of renegotiating an entirely new loan package. However, the seller must also accept the lower valuation, or the buyer may be forced to offer additional funds or concessions to meet the agreed sale price.

Challenge the Appraisal – The buyer can request a review of the appraisal, and provide any facts or details disputing the ‘comps’, or discrepancies in square footage or number of rooms to support the challenge.

Request a Second Opinion –  If the resulting appraisal review or subsequent challenge does not alter the outcome, the buyer can request the lender to employ a different appraiser, and one that may be better acquainted with the specific housing market in the area.

If you follow these steps, you will hopefully get a new appraisal that will meet your expectations. If not, you will have to decide how you would like to proceed.