How to Refinance a House: Top 6 Things to Consider

1. Your Reason Why

The first thing to consider when starting your refinancing journey is the specific reason why you want to replace your current loan with a new one. What is your financial goal? Here are some questions to ask yourself:

• Do you want to lower your monthly payment?
• Do you want to shorten or lengthen your term?
• Do you want to convert your mortgage, such as switching from an adjustable-rate to a fixed-rate loan, to avoid a payment jump?
• Do you want to access your home equity for home improvements?
• Do you want to do a cash-out refinance to consolidate debt?
• Do you want to eliminate the need to have mortgage insurance?

Refinancing your home can be a wise strategy for achieving your goals. A solid understanding of your endgame will help guide you as you start to compare lenders and refinancing options.

2. Your Credit

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Your credit is just as important when refinancing your home as during your initial purchase. Lenders still consider your credit score, credit history and debt-to-income ratio (DTI) as part of the loan approval process. To qualify for the best rates, lenders typically look for a credit score of at least 740.

If your credit score is on the lower side, you may want to explore loan options with less stringent credit requirements, such as FHA loans. On the other hand, a higher credit score may allow you to qualify for more favorable rates, thus, putting a home refinance to your advantage.

3. Your Home’s Equity

Knowing how much equity you have in your home is key if you’re considering a refinance. Home equity is the difference between your home’s current value and mortgage balance. For example, if your home’s market value is $500,000 and your mortgage balance is $200,000, your home equity amount is $300,000 or 60% of the market value.

To qualify for refinancing, it may help to have at least 20% equity in your home, but it isn’t necessary by any means.

The more home equity you have, the more you could potentially tap into if you do a cash-out refinance. A cash-out refinance is when you refinance your current home loan for a higher amount. You’ll receive the difference at closing and can use it as your wish for debt consolidation, home improvements, education and more.

4. The Costs of Refinancing

Refinancing to a lower rate or shorter term can save you money, but the process isn’t free. Many of the fees and closing costs you paid when you first purchased your home apply with a refinance. Costs may include:

• Origination fee
• Appraisal fee
• Attorney fees
• Title search and insurance fee
• Application fee
• Escrow charges, including property taxes and homeowners insurance premiums

Closing costs can vary widely based on rate, loan program and the situation overall. Depending on the lender and your amount of available equity, you may be able to wrap the costs in your new mortgage, which will increase your monthly payment.

To help offset some of these costs, try these refinance tips:

• Look for the most competitive rates—compare lenders and evaluate different rate and term options
• Try to increase your credit score, which may help you qualify for lower rates
• Don’t be afraid to negotiate any closing costs

5. Your Break-Even Point

Consider your break-even point if you’re refinancing to reduce your monthly payment or shorten your loan term to pay less interest. The break-even point is the length of time it will take to recoup your refinance closing costs in monthly payment savings.

You save money by refinancing if you stay in your house beyond the break-even point. That also means if you plan to move before the break-even point, you will not recoup your closing costs, and refinancing may not be worth it. A refinancing calculator can help you figure out your break-even point.

Thinking about doing a cash-out refinance to consolidate debt? Calculate how much interest you’ll really be saving by refinancing vs. paying off your debt using your current method.

6. The Refinancing Rates and Terms

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It’s essential to thoroughly understand the rates and terms of your potential new mortgage and how the loan could affect your monthly payments and the total amount you’ll be paying over the life of your loan.

For example, say you’re switching from a 30-year mortgage to another 30-year mortgage at a lower rate. While you’ll pay less per month for your principal, since you’ve extended your loan, you’re actually paying more interest over time.

What if you move from a 30-year mortgage to a 15-year mortgage? Shortening your loan term is a great way to reduce your total amount of interest and build equity faster, but your monthly principal will be higher. However, this can be a smart option if your income can manage the higher payments.

Ready to Refinance?

Note: For those in the state of Virginia, by refinancing your existing loan, your total finance charges may be higher over the life of the loan.

For many homeowners, refinancing has many advantages. However, thoughtful consideration about your finances, current home equity, and personal goals provide the foundation for making the best decision for your unique situation.

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Taking out a land loan is different from securing a mortgage for a house. Land loans are not easy to come by as home loans. You may also need to put a large down payment for it, and the interest rates could also be higher than a traditional mortgage.

Indeed, you should brace yourself for the challenges of getting a loan for your land purchase. For you to better understand land loans, read this guide below.

Seller Financing

Some individuals and companies sell land and also offer financing options for their buyers. The only catch is that seller financing is different from land loans provided by traditional banks and credit unions. You may not get the right loan for your financial situation because some land sellers only offer limited financing options.

Your loan may come with a higher interest rate and considerable down payment. The repayment term may also be shorter than a regular mortgage. Seller financing is best as a last resort if you fail to obtain another type of land loan.

Land Loans from Credit Unions and Local Banks

While it’s hard to get financing for a land purchase from big national banks, you can try your luck at credit unions and community banks. Look for a lender that works in the area where your prospective property is located. Local lenders surely have a better knowledge of this particular market, and they can evaluate the land value effectively.

The down payment and interest rate of a lender land loan are usually higher. But if you’re planning to build on the land soon, your lender may give you a lower interest rate and down payment offer. There’s also the possibility to take advantage of a longer loan term so you can manage your repayment well.

USDA Rural Housing Land Loans

Some land buyers look for vacant lots where they can build a house in rural areas. If you’re one of these buyers, you can apply for a land loan at the United States Department of Agriculture (USDA).

USDA offers Section 523 loans that are intended for people who plan to buy a rural vacant lot to establish a primary residence in it. For people who want to hire a contractor to construct a house for them, the alternative Section 524 loans are the best financing option.

Families who have low to moderate-income can avail of these USDA loans. The loan term typically lasts up to two years, and such financing has low-interest rates. For example, Section 523 loans only have a 3% interest rate, while the interest rates for Section 524 loans are based on the present market rate.

Home Equity Loans

You can take advantage of your existing house’s large equity and avail of a home equity loan. This loan is better than a land loan because you have your home’s equity as collateral . It means that you don’t need to put a down payment, and the interest rate is more affordable than land loans.

The only drawback of home equity loans is that you may lose your house if you fail to make timely payments. You may not also enjoy tax deductions on the interest you pay for this loan option. Repayment terms of home equity loans can range from 4 to 30 years, depending on the agreement between you and the lender.

SBA 504 Loans

One of the best financing options for people who want to buy land for business purposes is SBA 504 loans. Taking out an SBA 504 loan helps you cover a part of the total expenses of your land purchase.

SBA 504 loans work by distributing the credit among three parties. The United States Small Business Administration can provide you with a loan amounting to 40% of the total cost of buying the land you want, a traditional lender will put in 50%, and the 10% will be your down payment.

This financing option has repayment periods ranging from 10 to 20 years, and interest rates will depend on the current rates in the market.

Things to Consider Before Getting a Land Loan

Before you apply for a loan to finance your land purchase, you should take note of these things below to ensure that you get the right loan for your financial situation.

Check Zoning, Boundaries, and Access

It’s crucial to be clear on the land fundamentals before you apply for a land loan. Go over the boundaries delineated by surveyors, as well as the zoning restrictions. You also have to check if utilities, such as sewer, water, and electricity are accessible. And, don’t forget the public road access.

Before buying land or getting a land loan, it will be smart on your part to check the potential for development in the area. If you’re planning to sell the property in the future, make sure that the land sits in a neighborhood that has the likelihood of becoming a focus of interest by property buyers.

Figure Out How You’ll Use the Land

Lenders will always look at the intended use of the land before approving your land loan application. This assessment by the lender will determine the risks associated with providing you financing for your land purchase.

The planned use of the land will affect the interest rate and the down payment of the loan. If you have plans to construct a home or a business in the land right after buying it, you can secure a land loan with a favorable down payment and interest rate.

If you’re purchasing the land as a speculative investment, the down payment and interest rate could be larger.

Takeaway

Getting a land loan is more challenging than securing a mortgage for an already-built home. In such a case, you have to do your research about the different land loan options, where to obtain the best one for your situation, and what are the considerations that you have to keep in mind before signing the loan contract.

reference:

https://www.investopedia.com/terms/h/homeequityloan.asp

The post The Different Types of Real Estate Lot and Land Loans appeared first on RealEstategn.

The entire process is based on:

• %age down payment
• No. of monthly installments
• Total monthly installment

This is all what is known as Mortgage.

Taxes in Mortgage

There are a number of factors that is involved in the mortgage amount.

• Property Tax
• Fire Insurance
• Maintenance

Property Tax

This property tax is also variable depending on the cost of the house and the amount that is being offered by the bank for the loan purpose. You have to abide by the rules and regulations implemented by the government of your country.

Fire Assurance

In case of fire, agents or companies have to pay the cost of the house that is being insured. For this purpose the person who is getting assurance needs to pay a monthly amount to that agent which incurs it as a tax in its account. If the house gets fire then that agent has to pay the amount to the owner of the house. Fire insurance also has the advantage for the owners or the person who get injured needs to be cured. Fire insurance also gives the life insurance of those people who get hurt during the fire. It is very necessary to get the fire insurance of your house so you can avoid any damage and life risks.

Maintenance

Every owner wants to keep his/her home neat and clean. For this purpose, they spend some amount to keep their home updated so that they don’t have to pay much extra or don’t have to pay several thousand at the end of the year. Like after every 3-4 years the wooden rooftops needs to be replaced which may cost several thousands to the owner of the house. Similarly, the cooling and heating system doesn’t remain working throughout life and require some maintenance at every 5 years.

Formula for Calculating Monthly Installment

In a spreadsheet’s column right the below mentioned formula

= -PMT(X/12,Y,Z)

• X is the interest rate
• Y is the no. of months
• Z is the loan amount

This formula will help you in calculating the monthly installment against the loan but property tax and insurance amount needs to be added in it. Hence it is very necessary to know the amount of mortgage that you need to pay so that you should be able manage the funds accordingly.

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