You’re almost there! You’ve been saving so long for a down payment on a new house and even set a budget for your monthly mortgage payment. But there’s one more thing you’ll need to consider: closing costs.
Surprisingly, many home buyers get caught off guard by closing costs, which can certainly be an unpleasant surprise if you’re unaware.
According to a 2021 Realtor.com survey of 3,000 adults, 44% said they weren’t aware of all the costs associated with buying a home.
What Are Closing Costs and What Do They Cover?
Closing costs encompass a variety of expenses above your property’s purchase price. They include things like lender fees, title insurance, government processing fees, upfront tax payments, and homeowners’ insurance.
In short, closing costs are a collection of fees and payments made to a variety of individuals and organizations who are involved with your transaction. They cover things like:
- Government recording costs
- Appraisal fees
- Credit report fees
- Lender origination fees
- Title services
- Tax service fees
- Survey fees
- Attorney fees
- Underwriting Fees & Processing Fees
- Escrow
- Home inspection
- Property tax
- Private Mortgage Insurance (PMI)
Be sure to ask your Greenway Loan Officer for a detailed list.
How Much Should You Budget for Closing Costs?
Closing costs are typically between 2% and 5% of the total purchase price of your home. With that in mind, here’s how you can get an idea of what you’ll need to cover your closing costs.
Example:
- You’ve found a home for $500,000.
- Your closing costs (based on the 2%-5% Freddie Mac estimate) could be between $10,000 and $25,000.
Keep in mind that if you’re in the market for a home above or below this price range, your closing costs will be higher or lower.
How Can You Best Prepare Yourself for Closing Day?
When starting the mortgage process, it’s important to understand all costs involved from the down payment to closing costs. Working with a team of trusted professionals will ensure a smooth journey.
The Loan Officers at Greenway Mortgage can help connect you with a local Real Estate Agent. Together, we can help answer any questions you might have.
Bottom Line:
In today’s real estate market, making sure you budget correctly is key. Gather all the knowledge you need to be confident going into the home buying process ahead of time so there are no surprises. Most importantly, lean on us, the team at Greenway Mortgage for any guidance. We are here to help.
Find out how much you qualify for by applying for home loan with us today. It only takes a few minutes!
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Should You Use a Cash-Out Refinance to Consolidate High-Interest Debt?
Many homeowners refinance to pay off debt that has built up over time, such as credit cards and auto loans. If you find yourself struggling with high-interest debt, you’re not alone. According to Experian, the average American household has $92,727 in personal debt.
For homeowners, the good news is that you can use a cash-out refinance to pay off debt. With a cash-out refinance homeowners get a mortgage for more than they owe on the home. In turn, they can take the difference in cash and pay off high-interest debt with it, which helps them to save more money over the long term.
Mortgage interest rates can be an amazing bargain compared to consumer and installment rates. Total interest, total term, and cash flow savings can be significant with the right plan.
Consolidating multiple debts into one home loan is not for everyone. For instance, using your equity to have the equivalent of a 30-year car loan is rarely a great idea. But it may work if you have the discipline to take advantage of a low rate to speed up—rather than slow down—payment terms. Consolidation can make debts disappear with less total interest expense than they would otherwise.
Homeowners’ Equity is On the Rise
Now could be a great time to cash-out home equity and pay off debts. According to CoreLogic, equity levels rose by nearly 30% between 2020 and 2021. Plus, believe it or not, mortgage rates are still low. Qualified homeowners may be able to significantly lower their debt payments and increase their monthly cash flow by using a cash-out refinance.
Homeowners looking to refinance to pay off debt must make sure they have enough equity. For instance, if 80% of the home’s value is owed after you refi, you’ll have to buy mortgage insurance. This is something you’ll want to avoid.
How to Calculate Your Loan to Value (LTV)
How is an LTV calculated? Simply divide your current mortgage balance by the approximate value of your home to get your loan to value ratio.
How to Qualify for A Cash-Out Refinance
Lenders usually check to see that you have a credit score of 620 or higher and enough equity in your home that you can keep 20% equity after the refinance.
Reason to Use a Cash-Out Refinance to Consolidate Debt
One of the main reasons homeowners consider using a cash-out refinance to consolidate debt is that you can typically get a lower rate on a mortgage loan than you can with personal loans. Some other benefits can include:
- Paying off high-interest debt faster
- Frees up extra cash for other expenses
- Consolidating debt makes it easier to manage monthly payments
- Mortgage Interest may be tax-deductible (always consult a tax or financial planning professional to discuss your specific situation)
Bottom Line:
If you have high-interest debt hanging around and eating away at your monthly budget, a cash-out refinance may be the solution you’re looking for. This will allow you to reduce your monthly payments but also frees up extra money for living expenses, savings, and beyond.
Questions?
Talking about your options with a member of our dedicated loan team can help you make the best decision for your specific scenario. Speak with one of our expert Loan Officers to explore what a good consolidation plan could mean for you.
For More Information Check Out These Blogs:
Buying a home is certainly one of the biggest financial investments you’ll ever make. Keeping a home as comfortable and up to date as possible is key to loving the home you’re in. However, sometimes it’s difficult to come up with extra cash for home renovations and repairs. If you find yourself in this position, you may want to consider a cash-out refinance which allows you to tap into your home’s equity.
A cash-out refinance has many benefits and so much to offer. With a cash-out refi, you can renovate your home, consolidate high-interest debts into a single, low-interest loan, buy that dream vacation you’ve been longing for and so much more. Continue reading and we’ll uncover the benefits of a cash-out refinance so you can determine if one is right for you.
What is a Cash-Out Refinance?
A Cash-Out Refi is designed for homeowners who have an existing mortgage and want to refinance to get cash in hand at the time of closing. This is achieved using the equity in your home.
What Does it Mean To Have Equity In Your Home?
Basically, having equity means that you have cash value built up in your home. It is the difference between what you own on your mortgage and what your home is currently worth.
Take for instance if you owe $150,000 on your mortgage and your home is worth $200,000, you have $50,000 in equity in your home.
Equity grows year by year as you pay down your mortgage and as your home increases in value. Don’t think of equity as liquid cash. Instead, to put the money to work, you need to convert home equity into liquid cash.
How Does a Cash-Out Refinance Work?
A cash-out refi will replace your existing mortgage with a new home loan for more than you owe on your home. The difference goes to you in cash, and you can spend it on things such as home improvements, paying off debts, or other financial needs.
Cash-Out Refinance Benefits
Some advantages of a cash-out refinance include the following:
#1 Lower Your Rate: This is the most common reason. These types of refinances typically have lower interest rates. Plus, rates are still near historic lows, making this a great time to take advantage of a cash-out refi.
#2 Your Cost to Borrower Could Be Lower: A cash-out refi is normally a less expensive form of financing because mortgage rates are typically lower than rates on personal loans or credit cards.
#3 Improve Your Credit Score: Need to pay off debt? If you use the funds from a cash-out refinance to pay off debt, you may be able to boost your credit score if your credit utilization ratio drops.
#4 Tax Deductions: A cash-out refinance may be eligible for mortgage interest tax deductions if you’re using the funds to improve your home. More on this later.
#5 Increase Your Home’s Value: Think about reinvesting the cash you get back into your home. Any cash you put towards repairs and improvements could increase your home’s value.
#6 Use Cash However You Want: A cash-out refi can help you eliminate high-interest debt, pay for education, pay off a wedding, buy your dream vacation, build a home office or gym, and so much more.
Let’s Talk Taxes
As we mentioned above, a cash-out refinance may be eligible for mortgage interest tax deductions if you use the funds to improve your home. What do these deduction-eligible projects include? They include things such as permanent addition and home improvements that increase the property’s value and extend its longevity. You’ll need to prove you’re using the cash in a way that qualifies when you file your taxes. Make sure to save receipts and other important paperwork associated with your projects.
Here are some Deduction-Eligible Projects:
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Adding a Pool or a Hot Tub
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Constructing a New Bedroom or Bathroom
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Building a Fence Around Your Home
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Replacing a Roof
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Upgrading Windows
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Setting up a Central AC or Heating System
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Installing a Home Security System
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And more
Keep in mind that capital improvements are defined as permanent additions that will increase the value of your home. Repairs such as fixing a broken window or painting a room do not count. Have questions regarding what projects may be eligible when it comes to tax time? Reach out to us and we’ll let you know.
Bottom Line:
With rates currently still low, now might be a uniquely good time to tap into your homes’ equity. Reach out to the experts at Greenway Mortgage to discuss your options.
For More Information Check Out These Blogs:
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More than ever, we have realized that our homes are so much more than the houses we live in. Over the past couple of years, they’ve become our workplaces, schools for our children, and a safe place where we’ve weathered the most challenging moments of a worldwide pandemic. From rural counties to bustling cities, owning a home offers an opportunity to lay down roots, start a family and embark on new beginnings.
As National Homeownership Month kicks off this June, homeowners certainly have many reasons to celebrate. Read on to learn about the non-financial and financial benefits it has to offer.
In an annual Gallup poll, Americans chose real estate as the best long-term investment. It’s not the first time it’s topped the list, either! Real estate has been on a winning streak for the past eight years, consistently gaining traction as the best long-term investment. Even when inflation is rising, like today, many Americans agree real estate is a strong investment. When you lock in a mortgage payment, you’re shielded from housing cost increases, and you own an asset that gains value over time.
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How Did Homeownership Month Start?
National Homeownership Month started as a week-long celebration of homeownership during the Clinton administration in 1995. In 2002, President George W. Bush proclaimed June as the National Homeownership Month. Today, the mortgage industry continues the message of helping people realize the dream of responsible homeownership.
What Are the Non-Financial Benefits of Homeownership?
Owning a home brings you and your family happiness, satisfaction, and pride.
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Pride of Ownership: A place to call your own. You’ll be able to customize it according to your likes and personality without anyone telling you how.
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Civic Participation: Homeownership creates stability, and a sense of community, and increases civic engagement.
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Provides Stability and creates a positive environment for families.
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Provides a Safe Place: Owning gives you a sense of security and privacy. Two things that have become very valuable in our lives.
What Are the Financial Benefits of Homeownership?
Buying a home is also an investment in your and your family’s financial future.
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Forced Savings: Your monthly mortgage payment is a form of ‘forced savings’ which builds your net worth with every payment!
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Home Equity: Homeownership builds equity every month. You can use that equity to start a business, pay off debt, send your kids to college and so much more.
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Appreciation: Home prices increase annually which helps to create a safety net.
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Net worth: A homeowner's net worth is 44x greater than renters! This gives you the financial freedom to invest.
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Stability: Rent prices may increase each year. However, a fixed mortgage payment allows you to save for future projects and guard against inflation.
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Tax Benefits: Speak with your CPA to discuss the possible tax benefits homeownership can bring you.
Bottom Line
Homeownership is and will always be part of the American Dream. There are many financial and non-financial benefits to take advantage of when owning a home. Greenway Mortgage is proud to be a part of the industry that makes homeownership a reality for so many Americans!
If owning a home is part of your dream, reach out to us to get your journey started. And if you’re a current homeowner, take the time this June to celebrate the ways homeownership has added value to your life.
Happy Homeownership Month from your friends at Greenway Mortgage!
Home Buyer Resources
To encourage and educate aspiring home buyers, Greenway offers free information and resources. You can visit us online to learn more.
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FREE First-Time Home Buyer eBOOK – Includes handy resources & checklists
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First-Time Home Buyer Resources – Learn about our First-Time Home Buyer Programs
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Home Buying Comparison Chart - Take this chart with you during your home search
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Buying Your First Home – Learn everything you need to know
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Refinance Your Mortgage - Get a free loan quote
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Renovation Mortgage Programs - Put your home improvement plan into action
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Construction Loans - Can't find your dream home? Build it with a Construction Loan
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FREE Construction Loan Guide Book - Learn everything you need to know about construction loans and the process
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Mortgage Calculators – We have an entire library of easy-to-use calculators!
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Mortgage Terms – Get up to speed on some mortgage terminology
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When Can You Cancel Your Private Mortgage Insurance? - Find out by using our easy calculator
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Ready to get started? Apply Now using our online application.
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The value of most homes has been on the rise. If you’re in need of cash to replace the roof, update the kitchen, pay for education, or help finance a new place for the kid who’s back from college and living rent-free in the basement, your home's rising value may provide the leverage you need to make it happen!
When homeowners inquire about accessing cash from their homes, they’re often thinking about getting a Home Equity Line of Credit (HELOC). However, there’s another way homeowners can get cash from their home and that’s by choosing a cash-out to refinance instead.
In the current environment, many people want to keep the great interest rate they already have on their home loan, so they automatically choose a HELOC over a refinance. But wait—there’s a big difference that can make the benefits hard to compare at a glance. We’ll explain.
Is it better to use a Home Equity Line of Credit or to do a "Cash-Out" Refinance despite a higher interest rate?
When we suggest they look into refinancing instead, even if it’s at a higher rate than they pay on their current mortgage, they stop listening and consider us crazy! But hear us out…
Believe it or not, there are times when a higher fixed rate can be a great idea and a far safer choice. The simple reason is that rates on HELOCS are usually adjustable and based on the prime rate as influenced by the federal reserve board. Rates have been low for years, but they typically move in cycles. In the past, they’ve been anything but low peaking at more than 20%.
HELOC vs. Cash-Out Calculator
Not everyone loves math, but a little of it can be your friend when you want to use your money wisely. Besides, we’re doing the hard work for you! Using this calculator, you’ll be able to see how taking cash out with a fixed rate loan compares with using an adjustable rate HELOC.
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Simply plug in the numbers for the amount of cash you might like for both a HELOC and again as an amount over your current loan balance, set the rates, and there you go – an instant payment comparison.
Don’t just look at the comparison today. The real benefit of a fixed rate is not always obvious in the beginning. To see what happens if rates rise further tomorrow, move the slider on the HELOC loan and watch how high that payment can climb.
HELOC loans have their place and so does the peace of mind that can come from a fixed rate loan with a principal and interest payment that will never change.
For More Information Check Out These Blogs:
- Should You Use a Cash-Out Refinance To Consolidate High-Interest Debt?
- Benefits of a Cash-Out Refinane
