5 of the Worst Mortgage Refinancing Mistakes to Avoid

Want to take advantage of a lower mortgage rate? Looking to switch from an adjustable- to a fixed-rate loan? Need to tap into the equity in your home to cover a large purchase? Any one of these are good reasons to consider refinancing your mortgage.

But while a refinance may be just what you need to do to save some cash, how you go about it makes all the difference. Make sure you avoid the following refinancing mistakes before committing yourself to one.

refinancemistakesmain

1. Assuming Your Home is Worth More Than it Actually is

There are a bunch of reasons why you might want to consider refinancing your mortgage, and one of them is to tap into the equity that you’ve built up in your home. Whether you need to pay for your kid’s exorbitant college tuition fees, or are planning on taking a long-awaited trip around the world, you’re going to need a good chunk of change, which you can siphon from the equity in your home.

Much of your home equity depends on what the current market value of your property is. Do you really know what your home is actually worth? Just because it may have been appraised at $250,000 a couple of years ago, for instance, doesn’t necessarily mean it’s worth that much now. Real estate markets fluctuate, even though they tend to increase over the long haul.

Have you even had your home appraised at all? It would be a crying shame to refinance your mortgage assuming that your home is worth more than it really is, only to wind up with a refinance offer that’s higher than you expected simply because there’s not enough equity in your home.

2. Making Huge Purchases on Credit Right After Applying For a Refinance

Fiddling around with your credit score when applying for a refinance is a bad idea. When it comes to refinancing, you want to make sure that the rate you wind up with is the one you anticipated from the get-go. Don’t go out and buy a new vehicle or take out a student loan right in the midst of your application.

Piling on the debt is the last thing you want to do, as it will do nothing but negatively affect your credit. Your lender just might decide to slap you with a higher rate, or deny your refinance altogether if you’re deemed to have too much debt on the books.

3. Not Shortening Your Mortgage Term

While it’s nice to have a lower monthly payment, your ultimate goal is to pay your house off in full in as short a time period as possible. Doing so will allow you to cut back on the total amount that you’ll have to pay towards interest. When you refinance your mortgage, you’d be making a huge mistake if you don’t consider shortening the length of your loan.

Let’s say your current mortgage has a 30-year amortization period, and you’ve been paying it for three years now. If you refinance to another 30-year mortgage, you’re basically putting yourself in a position to pay your home off in 33 years, considering the three years you’ve already been paying. Not only that, but you’ll probably be paying more in interest that you would have had you not refinanced at all.

4. Not Knowing That You Can Annul the Mortgage Deal

If you’re in the market to refinance your mortgage these days, you’re in luck. With the new Truth In Lending Act (TILA) that came out just last year, borrowers have a lot more rights when it comes to the information they’re privy to. In addition to providing heightened transparency with mortgage documents, the Act allows borrowers to nullify a mortgage refinance deal under specific circumstances within three days of closing.

If you have second thoughts about the refinancing deal, you can back out, as long as it’s not with your current mortgage firm. Of course, you should take your time doing your due diligence before signing on the dotted line rather than resorting to rescinding the refinance. But if worse comes to worse, you should know that annulling the deal is an option if absolutely necessary.

5. Not Comparing Quotes From Different Lenders

Perhaps the biggest blunder you can make with a mortgage refinance is failing to shop around to see what various lenders are offering in terms of refinancing rates. Even a fraction of a percentage point can mean thousands of dollars saved over the life of the mortgage. You can think of a lot of better ways to spend that cash other than on interest payments.

Not only does shopping around allow you to find the lowest interest rate, it’ll also give you the opportunity to land ideal terms and conditions for your loan that best suit your financial situation. This applies both with a refinancing and a conventional mortgage.

The Bottom Line

Just like with any issue surrounding your finances, it’s always best to do your homework and find out as much as you can before putting yourself in a position that you can’t get out of. Refinancing is about making the most of your equity and money, so make sure your decision improves your financial situation at the end of the day.

Can You Gift Money for a Down Payment? Yes! And Here’s How

These days, it can be pretty tough to scrape together a good chunk of change to use as a down payment for a home. The financial recession, housing crisis, and weak job market hit a lot of Americans hard.

And the millennial generation of today is taking their time moving out of their parents’ homes specifically because they simply cannot come up with enough money to warrant a half-decent down payment.

In fact, more parents are helping out their adult children purchase a home these days compared to decades past; 17 percent, to be exact, according to a recent survey.

Depending on the exact type of property being purchased, its location, the lender, and the type of mortgage, the down payment on its own can be a huge sum. In order to help cover this expense, many buyers turn to family and friends to chip in. And while that’s helpful and all, there are actually certain rules that apply to this type of gifting before the funds can be used to put towards a home purchase.

The Money’s Got to Come From Family

While you might be generous enough to want to financially help out your co-worker’s niece or your best friend’s son to buy a home, your money won’t be good in these circumstances. You can gift down payment funds to your kids, grandkids, and even your siblings, but not to your neighbor, friend, or fourth cousin on your mother’s side.

Not only does it matter who is giving the money, it’s also necessary for the cash to be easily tracked. Lenders want to have total transparency when it comes to where the funds are coming from, and are cautious when it comes to all-cash gifts that are put towards a mortgage. If you’re going to give money as a gift for a down payment, do it through a wire transfer or check instead of cold-hard cash.

Avoiding ‘Gift Taxes’

Seems that Uncle Sam is always lurking when it comes to money, and that’s no exception in the case of gifted funds for down payments. In order to avoid paying taxes on your monetary gift, you need to stick to a cap of $14,000 per individual. However, you and your spouse could give up to $28,000 to one child, which implies two separate gifts. That number can be doubled if you and your spouse are gifting your child if he or she is married. Just make sure that each check is no more than $14,000 a-piece, or you’ll be dinged by the IRS.

Down Payment Borrower Contribution

The rules when it comes to borrower contribution as opposed to a gift will vary depending on the exact type of mortgage. For an average conventional mortgage, all of a 20 percent-or-more down payment can be in the form of a gift. If less than 20 percent is being put down, part of it needs to come from the individual receiving your monetary gift; this amount will vary by loan type.

Fannie Mae requires a 3 to 5 percent contribution from the borrower, and Freddie Mac requires a 5 percent minimum borrower contribution if the down payment is under 20 percent.

In addition, the transaction needs to involve a two- to four-unit property that’s either a primary or secondary home. VA and FHA mortgages will only allow monetary gifts to be used towards primary homes.

Down Payment Gifts Need to Be Well-Documented

The money that you give as a down payment contribution needs to be documented. Usually, mortgage lenders will provide a letter for both you and the individual you’re gifting to sign, which shows that the money was actually a gift and not a loan that will need to be paid back.

Lenders will typically ask for bank statements from those who are planning to use a monetary gift towards their purchase in order to comply with the Patriot Act. They want to know that the funds aren’t going to be used for any nefarious reasons, like money laundering or funding for any terrorist activity.

The rules will vary from one lender to the next, so you’d be well-advised to find out exactly what your beneficiary’s specific lender requires from the both of you.

The Bottom Line

The gift-giving season may have just passed, but the spirit of generosity doesn’t have to. If your loved one is having a tough time coming up with the necessary funds to put towards a down payment, helping them out is a noble gesture. Just make sure you’re aware of the rules that come along with offering gift money for a down payment to avoid headaches and pesky tax implications.

9 Out of 10 of the Priciest Real Estate Markets in the Country Are in California

There is so much that attracts people by the hoards to California. From the climate, to the cultural diversity, to the employment opportunities, California certainly has a lot to offer. With such popularity, it’s no wonder that housing prices in many communities throughout the state are comparably more expensive than other parts of the country.

But some areas are more expensive than others. In fact, according to a recent report, 9 out of 10 of the most expensive real estate markets are located right here in Cali. 

Have a look at the top ten priciest markets in the US based on the median listing price of homes of similar size, and you’ll quickly notice that just about all can be found in the Golden State.

california9outof10

10. Redwood City, CA

Situated smack dab in the middle of San Francisco and San Jose, Redwood City dropped a little bit on this list. In 2014, they were listed as the 4th most expensive housing market in the US, and this year, it’s tumbled a bit to #10. It’s a great spot to call home, with employment opportunities running rampant. Techie conglomerates like EA and Oracle have planted roots in Redwood City, where the average listing price for an average house is tacked at $1.36 million.

9. Orono, MN

Don’t get comfortable with a market outside California on this list, because it’s the only one you’ll see. Orono is a quaint little town located on the glistening waters of Lake Minnetonka in Minnesota. But don’t let the small size and population of 8,000 fool you. Orono boasts some of the most expensive properties in the country. With a median household income of just over $68,000, homeowners can certainly afford the average listing price of $1.38 million.

8. Sunnyvale, CA

Redwood City isn’t the only Californian area that centralizes tech-based companies. Sunnyvale – which happens to be located in the tech-heavy area of Silicon Valley – also has its fair share of these firms, including the likes of Yahoo, Juniper Networks and Fortinet. With giants like these paying decent salaries to area residents, it’s really no surprise that the average home here is listed at $1.45 million.

7. San Mateo, CA

Another Silicon Valley area listed here is San Mateo, which inched its way from the 9th priciest city in the country to 7th this year. It’s conveniently located near both San Fran and San Jose in the high-tech hub of Silicon Valley, and is one of the bigger suburbs on the San Fran Peninsula. The commute into work is an easy one for area residents, who pay a median price of $1.46 million for the average home.

6. Arcadia, CA

Located north-east of LA, Arcadia residents have the privilege of earning a handsome household income of nearly $81,000 annually. They’ll need a sizeable income in order to help them pay for the average home, which rings in at $1.54 million on average. Arcadia – which is named after the city of the same name in Greece – was ranked one of the “Best Places to Raise Your Kids” by Bloomberg. The city’s Upper Rancho neighborhood was listed as the 23rd richest community in Southern California by Business Insider in 2014.

5. Los Gatos, CA

A theme appears to have solidified on this list. It seems as though tech giants and expensive housing markets go hand-in-hand, as #5 on this list goes to yet another Californian city with a heavy tech influence. San Gatos is located within the San Francisco Bay area, with tech titans like Netflix calling it home. As the average home price increases, so does the median household income. In San Gatos, area residents can use their average income of about $130,000 to put towards a median price of $1.57 million for the average house.

4. Cupertino, CA

Continuing on with the tech-slash-expensive-market theme is #4 on this list, which goes to Cupertino. Located in the hub of Silicon Valley, Cupertino is home to none other than Apple’s international headquarters. The median household income in the area is just over $127,000, and the average listing price for a property is $1.66 million..

3. Saratoga, CA

Rounding off the top 3 on this list is Saratoga, which is also located in Silicon Valley and boasts a median price of $1.98 million for the average home. This area is keeping steady on this list – it also made #3 for the last three years. Saratoga is tucked neatly within the gorgeous Santa Cruz Mountains, and boasts a unique combination of big-city amenities with a small-town feel. It offers those who need to be close to work in Silicon Valley with a quiet escape at the end of the day.

2. Palo Alto, CA

If Facebook founder Mark Zuckerberg himself calls Palo Alto home, you can just imagine how expensive the homes are in this city. Mr. Z isn’t the only tech exec to plant some roots here – Tumblr founder David Karp and Google CEO Larry Page also lay their heads at night in Palo Alto. There’s something about the glory of California that’s attracting tech gurus of all sorts. The median price for an average house in Palo Alto currently clocks in at $2.06 million.

1. Newport Beach, CA

And the winner is . . . Newport Beach. This stunning beachside town in Orange County is always making an appearance on this list, and for good reason. Outdoor enthusiasts can revel in all its the bike trails, surfing, and sailing. Wine lovers can use up all their free time to sample a few reds and whites among all the area’s wineries, and the sophisticated type can enjoy the plethora of boutique shopping and yacht adventures. The average listing price in Newport Beach stands at $2.29 million. In fact, Newport Beach is more than 7 times the national average! 

4.Newport-Beach5

And there you have it, folks. There’s definitely a lot of cash flowing in California, which is reflected on the expensive housing markets in the state. Plenty of wealthy techies currently call this southern state home, which is certainly helping to fuel housing prices here. And the sheer beauty of California cities coupled with the bustling tech sector is fueling California’s takeover of the most expensive communities the US.

Home Buyer Incentives You Probably Never Thought Of

In a sellers’ market, unloading your home might be pretty seamless. But in a buyers’ market where the competition is stiff, you’ve got to get a little creative to make your home stand out from the rest.

In the case of the latter, offering incentives can be a great way to get buyers to notice your home. Here are a few ideas to help sweeten the deal and get prospective buyers to pounce on your property.

Offer a Home Repair Credit

Unless your home is brand-spanking new, there are most likely certain issues that might need to be addressed, no matter how small. Maybe you’ve got a couple of loose door hinges, or a chipped tile on the bathroom floor. Whatever the case may be, you can offer the buyers a credit to be used to rectify any minor issues that they might be less than satisfied with.

buyerincentivesrepair

Don’t handle the repairs yourself, unless the buyers specifically ask you to before the deal closes. If you do, you’re just opening the door for any potential complaints from the buyers if they’re dissatisfied with your work. Offering a credit towards repairs gives buyers the cash they need to spend how they wish, and frees you from the responsibility of making sure they’re happy with the results.

Throw in Some of Your Home’s Goodies

Furnishing a home from top to bottom can be ridiculously expensive, not to mention time-consuming. Throwing in your home’s furniture and decor can help make the deal that much better in the eyes of the buyers (if they like your taste, of course). Offering furnishings, window treatments and accessories is especially beneficial if they’ve been custom made to fit your specific home.

Not only will this save the buyers money and hassle in outfitting the home after you’ve vacated, it’ll also help you avoid having to deal with the furniture yourself. If there are certain items in the home that the buyers absolutely fall in love with, consider leaving them there for them.

buyerincentivesstuff

‘Buy Down’ the Interest Rate

The rate that buyers are offered by the banks at the time of mortgage application might not necessarily be the same come closing time. And many times these introductory rates are short-lived, which means the buyers might very well end up with a higher rate when all is said and done.

Many buyers choose to pay an upfront fee in order to lock in at a lower mortgage rate, which is known as “buying down” the interest rate. But rather than the buyers covering this cost, sellers can flip the bill instead to make the deal more attractive.

Let’s say the bank offers the buyers 3.5 percent today for a 30-year fixed mortgage. The buyers can pay the bank one percent to go towards the principle to get a lower rate, like 3.0 percent. A lower interest rate translates into lower monthly mortgage payments, which can really shave a good chunk of change off the interest payments made over the mortgage term. Offer to buy down the rate for the buyers, and you just might have a deal.

Offer Monetary Compensation For a Quick Closing

The longer you hang onto your home, the more money you’ll be dishing out to carry it. From the mortgage payments, to the utility bills, to the property taxes, carrying a home comes with hefty costs. And if you’ve already closed on a new home, that means you’ll be carrying two homes at the same time for a while until your current home closes.

Even if you bridge your mortgage, it’s still money out of your pocket. If this is a situation you want to avoid, consider offering the buyers a monetary credit for closing at your convenience. The expense associated with this type of incentive is typically a lot lower than the losses you might experience if the sale of your home takes forever.

buyerincentivescash

Cover the Buyers’ Closing Costs

Once a buyer accepts a specific purchase price, the expenses don’t end there. In fact, closing costs can run into the thousands of dollars. But the last thing you want is for the buyers to get cold feet while the sale is in escrow once they start crunching numbers and discover how much it’s really going to cost them out of pocket to cover these expenses.

To help get the deal closed, consider chipping in for some of the closing costs, such as title insurance, home inspection fees, property insurance, moving expenses, lawyer fees, and home warranties. A little can go a long way in helping the buyers out, and getting your home off the market.

As a seller, you can offer a number of incentives and put them out there as part of your overall marketing strategy. The incentives you choose to offer and how you promote them can work amazingly well at getting buyers to bring the offers to the table. If your home isn’t getting as much attention as you would have hoped when you initially put your home up for sale, pull an incentive or two out of your hat to inch the deal to the buzzer.

Be Wary of These 5 Risks of Buying A Foreclosure

Looking for an amazing deal on a house? Then you’ve probably toyed with the idea of buying a foreclosure. These types of sales have long been praised as an excellent way for buyers and investors to snag a great deal on a property. But there are potential risks involved with this type of an arrangement. Be prepared for the ugly perils when it comes to buying a foreclosed property.   

1. Damage and Vandalism to the Home

You’ve got to keep in mind that homes that have gone into foreclosure were once owned by people who couldn’t afford to make regular payments anymore. Basically, they’ve had their homes taken away from them, which no doubt would leave anyone a little jaded. It’s not uncommon for homeowners who have lost their homes to foreclosure to vandalize the place before they finally vacate.

Whether they spray paint the walls or take a sledgehammer to the floors, damage happens. Many times the vandalism doesn’t start until after the homeowners have left, leaving the place open for criminal activity. No one’s there to watch the place, and ne’er do wells are always ready to strike when the opportunity arises. So be prepared to walk into some unpleasant environments when you consider buying a foreclosure.bewaryvandelize

2. Issues With the Actual Purchase

Sure, you might have to put up with a few physical issues with a foreclosed home, but it can still turn out to be a really good deal for you. If you’re willing to put up with certain issues and are able to fix them, you can really add some value to the property despite paying a discounted price. But there are other issues that you might have to face that have nothing to do with the physical property.

Instead, you might encounter problems with the actual purchase itself. Homes that have gone into foreclosure will likely now be owned by the bank, which means this is the entity you now have to deal with. Many times banks won’t use the purchase and sale contract from the local real estate board, nor will they necessarily follow standard procedures.

Instead, expect banks to follow their own path, and use their own contracts and processes in order to protect its interests. You’ll still wind up with the house, but the process itself could become really lengthy and cumbersome.

3. Problems With the Lender

Getting a mortgage for a traditionally purchased home can come with its own set of issues, so don’t expect the situation with a foreclosed home to be any different. In fact, expect more hurdles to jump over.

Lenders aren’t in the business of handing out cash to borrowers for a home they deem to be uninhabitable, or that is appraised a lot lower than what it was sold for. And since the home was likely vacant in the weeks or even months leading up to the sale, they’ll probably have no knowledge of any current problems with the place. That means there’s no seller disclosure statement, leaving you to have to uncover all there is to know about the home yourself.bewarylender

4. Liens

Many municipalities have specific regulations when it comes to properly maintaining a foreclosed property, such as regularly cutting the lawn. If a bank owns the house, and doesn’t keep its end of the maintenance bargain, the municipality can put a lien on the property if it has to maintain the lawn itself instead.

A bunch of other liens could be found to be placed on the home from unpaid utilities, contractors, HOAs, and so on. If you put an offer on a foreclosure, make sure that all liens are investigated by a title officer and rectified before you take title on the property. 

5. Plumbing, Mechanical, and Electrical Problems

Busted-up drywall and ripped out carpeting is one thing, but issues with the major systems in a home is quite another. Some of the most catastrophic issues in foreclosed homes stem from faulty plumbing, mechanical, and electrical systems.

Broken plumbing pipes can wreak havoc on the components of a home, not to mention leave mold behind that will render a home unfit to live in. When it comes to duct work, you may be unpleasantly surprised to find an exorbitant amount of dust and debris, not to mention rodents and other unwelcome guests.

If humidity has been left around furnaces for a long period of time, the heat exchangers will likely corrode, requiring them to be replaced at a costly expense. Any shoddy electrical work is considered to be a potential fire hazard. And in cases like this, the whole house might need to be rewired. Not exactly a cheap endeavor.

The Bottom Line

There are definitely some awesome deals out there on foreclosed homes. It’s just a matter of wrapping your head around some of the potential obstacles and pitfalls, and being prepared to deal with them head on. One thing’s for sure – don’t let a super low listing price cloud your judgement and allow you to gloss over the basics that make a foreclosure purchase a good deal.bewarybottomline

How to Buy and Sell a Home at the Same Time Without Going Insane

insanitysanityFirst-time homebuyers might have their own unique set of challenges, but one thing they do’t have to worry about is dealing with the sale of a current home while looking to throw the mortgage onto another.

Unless you’ve got the cash to carry two or more homes at once, things can get tricky when it comes to repeat home buying. In a perfect world, you’d find a new home, put yours on the market, and close both deals at the exact same time so there’s no worrying about carrying two mortgages at the same time or having to find a temporary place to lay your head if there’s a gap between closings.

While this is possible, it’s not going to happen without a little suaveness on your part – and a little luck. The truth is, you’ll probably have to put up with a little bit of juggling when buying and selling at the same time.

The good news is, this doesn’t have to be a pull-your-hair-out type of scenario. You can survive the buying and selling process at the same time, and here’s how.

Get a Good Handle on the Market

Should you buy first or sell first? Depending on who you ask, you’ll get a different answer. The best way to answer this question is to start off researching the real estate market in your area. 

Identify if you’re in the middle of a buyer’s or seller’s market, which will help sway your decision whether to buy or sell first. For example, if you’re in the midst of a buyer’s market, it might be a better idea to put your home up for sale first, since it might take longer to sell than to buy in that type of a market. You don’t want to be stuck paying interest on two mortgages that you’re carrying because you managed to find and close on a new home while your current home sits on the market waiting for an interested buyer.

The opposite is true in a seller’s market. In this case, looking for a new home first might be the better option, since you’ll probably be able to sell faster than find your next home.

Do Your Best to Keep Both Closing Dates in Sync

As mentioned earlier, having both closing dates happen one right after the other would be ideal, but it can be pretty tough to make that happen. But that doesn’t mean it can’t be done. There are some things you can do to try and bridge these two dates as closely as possible.

For starters, consider listing your home for sale and start the search for a new home at the same time. Research all of your options, make sure your credit score is healthy, and start getting pre-approved for a mortgage. The sooner you get your finances in order, the better.

Think about adding a contingency in your buyer contract – whether it’s the purchase agreement for your current home or the one you’ve put an offer on – to get the closing dates to line up. For the contract involving the home you’re buying, ask the seller to make the purchase conditional upon the sale of your current home. This could work if the sellers aren’t able to find a buyer in a decent timeframe. Just make sure you can give them reasons why your home should be sold quickly.

When it comes to the contract involving the sale of your home, wheel and deal with the buyer, and ask for a contingency to be added to the contract to make the closing date line up with the closing date of your new home. While this might not work with many buyers, those that absolutely love your home might be willing to make a sacrifice to ensure their name ends up on title. So make sure you paint your home is the best light possible with some professional home staging to up the odds of making this plan work. 

Offer a “Rent-Back” Option

If you’ve managed to snag a buyer who wants in, but you haven’t found a new home just yet, consider offering a “rent-back” option to the buyer. In this scenario, the buyer agrees to rent out your current home to you for a stipulated time period while you continue your search for a new home. You can negotiate a lower selling price or pay rent in exchange for being able to stay in your home until you find a new one.

Just bear in mind that some lenders might have a problem with this arrangement. But this can be a lot more convenient then shacking up with your parents or renting an extended-stay hotel room, so it’s worth a shot.

Tap Into a Bridge Loan

Bridge loans are specifically designed for those who have closed on a new home before closing on the sale of their current property. In this case, you’re given a short-term mortgage to cover the down payment on your new place before you sell your current one. This temporary arrangement essentially “bridges” the gap between the purchase of a new home and the sale of an old one, hence the name.

Bridge loans are secured by the buyer’s existing home, and the money from the bridge loan is put towards a down payment on the next property. When your current home is finally sold, the loan is repaid using the proceeds from the sale.

This is an attractive option, because it eliminates any restrictions that you would have otherwise faced worrying about lining up both closing dates. Not everyone’s got the cash to pay two entire mortgages, but a bridge loan can cover them both for a temporary amount of time in an affordable way.

Just the thought of buying and selling at the same time might sound incredibly stressful, but it doesn’t have to be. With a little research and preparation – and the help of a professional real estate agent and mortgage specialist – you can totally minimize the hassle of buying and selling a home at the same time.