|By Marcie Geffner|
|RISMEDIA, Monday, August 28, 2017— (TNS)—Many VA borrowers know that the VA home loan doesn’t require a down payment.
Indeed, the U.S. Department of Veterans Affairs, which guarantees this type of mortgage, is practically famous for its zero-down option, which opens the doors of homeownership to veterans, active duty service members, surviving spouses and other VA-eligible buyers. Many VA borrowers have little or no cash to purchase their first home.
VA loans also don’t require mortgage insurance, which is usually the case when you don’t put down 20 percent.
Though a down payment isn’t required for a VA loan, borrowers can still make one. Should they? Or is the no-money-down strategy so attractive that a down payment never makes sense?
The answer depends on the borrower’s type of military service, homeownership experience, cash position and other factors.
Down Payment Lowers Funding Fee
The funding fee supports the loan guaranty, which encourages lenders to offer VA loans at lower rates and with easier qualifying guidelines.
Borrowers typically finance their funding fee as part of their loan amount, rather than pay it upfront at closing.
VA borrowers in the Reserves or National Guard pay a slightly higher funding fee with or without a down payment.
Borrowers who have a service-connected disability are generally exempt from funding fees.
First-Use Funding Fees Lower With Down Payment
With a 5 percent down payment, the fee is reduced to 1.5 percent. With 10 percent or more down, it drops to 1.25 percent.
Subsequent Funding Fees Higher
With a down payment, the funding fee for subsequent-use again drops to 1.5 percent with 5 percent down, and 1.25 percent with 10 percent down.
For example, the monthly principal and interest payment for a $200,000 home loan with no down payment, a 3.5 percent interest rate and 30-year term is $898.
Financing the 3.3 percent funding fee adds $6,600 to the loan amount and raises the payment by $30 to $928.
A 5 percent down payment reduces the fee to $3,000 and the payment to $912. That means the borrower would save about $16 each month.
Down Payment Lowers Monthly Payment
“The 5 percent down payment factors in (to the savings) as well because you’re financing 5 percent less,” says Mike Dill, corporate trainer at a major lender.
For borrowers who need to “target their payment within a certain range,” to use Dill’s characterization, a down payment could mean the difference between qualifying for the loan and not qualifying.
Down Payment Finances Future Closing Costs
Closing costs to sell can be 6 percent or more of the home’s value.
“If you didn’t have any equity, potentially you’d have to write a check for that amount,” says Michael Frueh, director of Loan Guaranty Service at the VA in Washington, D.C.
The alternative could be a default or even foreclosure.
Other Uses for Your Cash
Frueh says the average VA borrower has only about $10,000 at closing.
That cash might be better used for home-related purchases, repairs or other purposes. As Dill says, “The advantages of putting money down are so slim compared with keeping that money in case you have repairs or as a safety net.”
Consider Return on Investment
A borrower who purchased a $200,000 home and later sold it for $300,000 could net $80,000, use $30,000 to make a 5 percent down payment for a new $600,000 home and keep $50,000 in cash, tax-free.
Visit Bankrate online at www.bankrate.com.
|CFPB: Reverse Mortgages Not Worth the Risk|
|RISMEDIA, Monday, August 28, 2017— A reverse mortgage can appear to be an attractive option for homeowners in retirement who require income, but wish to withhold from Social Security benefits until a later age. A new report by the Consumer Financial Protection Bureau (CFPB), however, shows the advantage of delaying Social Security is generally not worth the risk of taking out a reverse mortgage.
The report found the cost of a reverse mortgage can be more than what a homeowner would receive if he or she waited for full Social Security benefits. Reverse mortgages taken by those age 62 average seven years; by 69, the borrower would have paid 60 percent in costs—$2,300 higher than full Social Security benefits.
The report also shows that the value of the borrower’s home will likely not keep up with the pace of the reverse mortgage. A 62-year-old homeowner, for instance, with a home worth $175,000 at 2 percent annual appreciation, will have 61 percent equity by age 67, but only 16 percent equity by age 85.
“A reverse mortgage loan can help some older homeowners meet financial needs, but can also jeopardize their retirement if not used carefully,” says Richard Cordray, director of the CFPB. “For consumers whose main asset is their home, taking out a reverse mortgage to delay Social Security claiming may risk their financial security because the cost of the loan will likely be more than the benefit they gain.”
Home Prices Grow Twice as Fast as Incomes
From REALTOR Magazine
DAILY REAL ESTATE NEWS | MONDAY, MAY 01, 2017
Strong buyer demand this spring is pushing home prices up at double the rate of increase in income growth, The Wall Street Journal reports. The median price of an existing home for all housing types was $236,400 in March, up 6.8 percent from a year ago, when it was $221,400, according to the National Association of REALTORS®. Incomes, meanwhile, increased 3 percent in February from a year earlier, according to the Labor Department.
“Bolstered by strong consumer confidence and underlying demand, home sales are up convincingly from a year ago nationally and in all four major regions, despite the fact that buying a home has gotten more expensive over the past year,” says NAR chief economist Lawrence Yun.
Home prices are nearly 40 percent above where they were at the bottom of the housing crash in February 2012, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. Some markets are seeing even more increases. In Dallas, home prices have surged nearly 53 percent from their low and are now 35.5 percent above their previous high. In Denver, home prices are 59 percent above their low and are 36.5 percent above their previous high.
“It can’t be sustained,” warns David Berson, chief economist at Nationwide Insurance and a former economist at Fannie Mae. “It can’t go on forever.”
The shortage of homes for sale has led to higher prices, economists say. Inventory in March was 6.6 percent lower than a year ago, according to NAR. Further, the level of home construction relative to the number of U.S. households is at its lowest level since the Census Bureau began tracking such data in 1957, according to the Federal Reserve Bank of Kansas City.
“Sellers are in the driver’s seat this spring as the intense competition for the few homes for sale is forcing many buyers to be aggressive in their offers,” Yun says. “Buyers are showing resiliency given the challenging conditions. However, at some point—and the sooner the better—price growth must ease to a healthier rate. Otherwise, sales could slow if affordability conditions worsen.”
Source: “Rising Home Prices Stir Overheating Fears,” The Wall Street Journal (April 26, 2017)
4 Landscaping Mistakes to Avoid
From Realtor Magazine
Good landscaping could potentially boost a home’s value anywhere from 6 percent up to 28 percent, according to a Clemson University study of homes in Greenville, S.C.
So that means a bad landscape design could potentially dent a home’s value by that much. And that isn’t chump change; it equates to potentially thousands in lost money just from poor curb appeal.
Realtor.com® recently highlighted several do-it-yourself landscape disasters to avoid:
- Huge Piles of Mulch: Don’t overdo it with the “mulch volcanoes” that pile high over the trunk of a tree. Mulch needs to be applied loosely. “Mulch mounds may look like the norm, but it’s a harmful practice,” says Michael Rittenhouse Rigby, an arborist in central Virginia.
Read more: Planning a Smart Landscape
- Overplanting:Some home owners don’t think through their plantings before they start planting. The result? An overgrowth of plants that quickly become unruly. In general, tall plants should go in the back; small plants in front. Also, avoid planting too many large plants. They may have a tough time taking root. Small foliage, on the other hand, tends to have a better chance at survival.
- Disrupting tree roots:If you end up expanding your home or garage, per se, make sure you maintain a sizable distance from any large trees in the yard or take special precautions to protect the tree’s roots. It can take awhile to see the damage of roots from large trees, but eventually it will show itself. Trees can be costly to remove or cause damage to your home if they fall. Hire a tree specialist prior to any construction projects in your yard.
- Too much gravel:Just like mulch, you can quickly overdo it here. Landscaping with gravel can save water but it reflects heat and can potentially damage even the hardiest of plants, landscapers note. What’s more, gravel may get mixed into the underlying soil and then make it more difficult for plants to absorb rainwater. Use gravel cautiously.
From Realtor Magazine
The U.S. Forest Service Pacific Northwest Research Station says that planting a tree in front of a house increases the home’s sale price by an average of $7,130. So, in essence, money can grow on trees.
Planting a tree on the west side of a home can reduce a home’s energy bills 3 percent within five years and 12 percent within 15 years. Specifically, west-side trees can bring summertime electric bills down by an average of $25 a year and reduce air conditioning use by 30 percent, according to the Forest Service.
Trees and other landscaping can also lower the impact of damaging winds on a home, potentially reducing 35 mph winds to 10 mph, according to the Arbor Day Foundation. This also lessens the load on the furnace working to heat the home on those cold, windy days, which can bring energy bills down by 30 percent.
Additionally, a Clemson University study found that landscaping has the potential to increase the value of homes by about 6 percent. Some of the most desired landscape trends among consumers include: rainwater harvesting, native plants and drought-resistant plants, permeable paving, and fire pits, according to the 2016 Residential Landscape Architecture Trends Survey conducted by the American Society of Landscape Architects.