No Comments

How the CARES Act Can Help You Buy Your First Home

cares act helps buy home

The COVID-19 pandemic has brought incredible economic hardship to businesses and individuals. At the same time, it has brought unique opportunities to people who are in the market to buy their first home. Read on to learn how you may be able to leverage the CARES Act to help finance a mortgage.

What Is it?

Also known as the CARES Act, The Coronavirus Aid, Relief, and Economic Security Act was a $2.2 trillion economic stimulus bill passed by Congress in response to the economic fallout of the coronavirus pandemic in the United States. Among other things, the legislation includes direct economic relief for businesses and individuals in the form of checks, grants and low-interest loans. It also included waivers that allowed people to tap their 401(k)s early without incurring penalties.

Overcoming the Dreaded Down Payment Obstacle

One of the greatest obstacles facing first-time homebuyers is coming up with a sizable down payment. The CARES Act provides an opportunity for prospective buyers to fund their down payments by accessing their 401(k)s.

The ability to tap into retirement funds was a measure put in place to help combat emergencies. That said, the CARES Act does not forbid anyone from tapping into their retirement savings to help fund a down payment for a new home.

Usually, the purchase of a first home wouldn’t qualify as an exception for early withdrawal or distribution from a 401(k) plan; however, the CARES Act allows certain qualified individuals to borrow up to 100% of their 401(k)’s vested balance. It also waives any early withdrawal penalties for distributions up to $100,000 even if you’re under the age of 59½. That said, distributions must occur in response to financial hardship as a result of COVID-19.

To qualify, you must meet at least one of the following criteria:

  • You, a spouse or dependent received a positive COVID-19 test approved by the Centers for Disease Control and Prevention
  • You experienced adverse financial consequences as a result of being furloughed, quarantined or laid off due to COVID-19
  • You experienced adverse financial consequences as a result of being unable to work due to lack of child care due to COVID-19
  • You are a business owner that experienced adverse financial consequences due to having to shutter or reduce hours due to COVID-19

Maximum Loan Amount

The maximum loan amount you can borrow is usually a $50,000 maximum or 50% of the vested account balance. The vested balance is the amount of money in the 401(k) you “own”. Contributions by employees are always 100% vested, but contributions by an employer may require acares act home loan few years of service by the employee to be considered vested. This depends on the details in your retirement plan documents.

An exception to this set limit is if 50% of the vested balance falls under $10,000. In this case, you can borrow up to $10,000.

Why it’s a Good Idea

If you are eligible, there are a lot of good reasons to look into leveraging the CARES Act distribution from your retirement plan to help buy a home. For one, there’s no obligation to pay back the loan. That said, if you do repay your COVID-19-related distribution within three years, it will be treated as a non-taxable “direct trustee-to-trustee transfer.” If you don’t pay it back, on the other hand, you will be taxed at a rate of 20%.

Bear in mind that most (but not all employers) have agreed to participate in this CARES Act provision, so you will have to confirm that your employer is participating. You will also face the prospect of lost compounding interest on your retirement investment.

If you’re not sure whether tapping your 401(k) to help buy a home is a good choice, talk to your financial advisor. You should also talk to a reputable real estate agent to determine if now is a good time to buy a home, since home values and market conditions will work to determine whether you are making a wise investment.

With more than six decades of collective real estate experience, The Wheaton Team provides comprehensive guidance and expert advice for our clients. Specializing in residential real estate throughout Colorado Springs, our team can guide you through the complex buying and financing process. Contact our attentive, knowledgeable real estate professionals to learn more.

No Comments

Chances of Another Foreclosure Crisis? “About Zero Percent.”

Chances of Another Foreclosure Crisis? “About Zero Percent.” | MyKCM

There seems to be some concern that the 2020 economic downturn will lead to another foreclosure crisis like the one we experienced after the housing crash a little over a decade ago. However, there’s one major difference this time: a robust forbearance program.

During the housing crash of 2006-2008, many felt homeowners should be forced to pay their mortgages despite the economic hardships they were experiencing. There was no empathy for the challenges those households were facing. In a 2009 Wall Street Journal article titled Is Walking Away From Your Mortgage Immoral?, John Courson, Chief Executive of the Mortgage Bankers Association, was asked to comment on those not paying their mortgage. He famously said:

“What about the message they will send to their family and their kids?”

Courson suggested that people unable to pay their mortgage were bad parents.

What resulted from that lack of empathy? Foreclosures mounted.

This time is different. There was an immediate understanding that homeowners were faced with a challenge not of their own making. The government quickly jumped in with a mortgage forbearance program that relieved the financial burden placed on many households. The program allowed many borrowers to suspend their monthly mortgage payments until their economic condition improved. It was the right thing to do.

What happens when forbearance programs expire?

Some analysts are concerned many homeowners will not be able to make up the back payments once their forbearance plans expire. They’re concerned the situation will lead to an onslaught of foreclosures.

The banks and the government learned from the challenges the country experienced during the housing crash. They don’t want a surge of foreclosures again. For that reason, they’ve put in place alternative ways homeowners can pay back the money owed over an extended period of time.

Another major difference is that, unlike 2006-2008, today’s homeowners are sitting on a record amount of equity. That equity will enable them to sell their houses and walk away with cash instead of going through foreclosure.

Bottom Line

The differences mentioned above will be the reason we’ll avert a surge of foreclosures. As Ivy Zelman, a highly respected thought leader for housing and CEO of Zelman & Associates, said:

“The likelihood of us having a foreclosure crisis again is about zero percent.”

No Comments

How to Refinance Your Mortgage

refinance your mortgage

With interest rates hovering near historic lows, more and more homeowners are looking to lock in lower monthly payments by refinancing their mortgages. If you’re thinking of refinancing your mortgage loan, here’s how to approach the process.

Step 1: Establish a financial goal

You should have a clear reason for refinancing your mortgage, whether it’s tapping equity for debt repayment, shortening the term of your mortgage, or reducing your monthly payments. Bear in mind that refinancing doesn’t always save you money in the long run. If you’re lowering your interest rate but restarting a 30-year mortgage, you could end up paying less per month, but more over the full term of your loan. This is because most of your interest charges occur in the early years of a mortgage loan. Be sure you will be able to achieve your financial goal before you start the refi process.

Step 2: Know your credit score and payment history

To qualify for mortgage refinance you will need approval from your lender. The better your credit score, the more likely you are to get approved. You will also enjoy better interest rates if your credit score is high and your payment history is sound. It may make sense to spend a few extra months improving your credit score before you begin the refi process.

Step 3: Figure out your established home equity

Your home equity is the current value of your home minus what you still owe on your mortgage. To determine yours, get your current outstanding balance from your mortgage loan statement. Then, get a local real estate agent to run an analysis to determine your home’s current estimated value. Your equity will be the difference between the two. For instance, if you still owe $225,000 on a home that’s worth $300,000, your equity will be $75,000.

Although you might be able to refinance your loan with as little as 5 percent equity; you will get better rates and have to pay fewer fees if you have at least 20 percent equity. When it comes to equity, the more you have, the less risky the loan is from the viewpoint of your lender.

mortgage refinanceStep 4: Compare lenders

You can save thousands of dollars during the refi process by getting quotes from several different lenders. Once you settle on a specific lender, ask when it will be best to lock in your interest rate, so you won’t lose money if rates start to climb before your loan closes.

In addition to comparing lender interest rates, inquire about fees and ask if they will be rolled into your new mortgage or due upfront. It’s not uncommon for some lenders to offer “no-closing-cost loans” that ultimately add to the loan balance or come with higher interest rates.

Step 5: Document your finances

Your lender will want documentation that gives clear insight into your finances. Gather bank statements, recent pay stubs, federal tax returns and anything else your lender needs to process your application. Your lender will also look at your net worth and credit history, so be prepared to disclose your liabilities and assets upfront. By having all of your documentation available upfront, you can streamline the refi process.

Step 6: Prepare for the home appraisal

In some instances (but not always), your lender may require an appraisal to determine the property’s current market value. If so, you should expect to have to pay a few hundred dollars for the appraisal. Be sure to let the lender know of any repairs or improvements you’ve made since buying your home since this could lead to a higher appraisal.

Step 7: Raise some closing cash

Although you may be able to lower your monthly costs by refinancing your mortgage, it will cost you some money in the short-term. The loan estimate and closing disclosure should list how much money you are expected to pay out of pocket to close on your new mortgage. You can finance your closing costs, but this will generally result in a higher rate on your loan.

Step 8: Monitor your new loan

Once you close on your new mortgage loan, be sure to store copies of your closing paperwork. You should also consider setting up autopayments to make sure you always remain current on your loan. Some lenders will even give you a lower rate if you agree to sign up for auto-payments.

Bear in mind that some lenders will resell loans on the secondary market after closing or, in certain instances, years later. This means you will owe mortgage payments to a completely different company, so watch for any mail notifying you of such changes.

With six decades of collective experience, The Wheaton Team provides expert advice and invaluable guidance for clients. Our team specializes in residential real estate throughout the Tri-Lakes area and all of Colorado Springs. We can guide you through the complex buying, selling and financing process, so you can bring your vision to life.

No Comments

6 Things To Consider When Applying For Mortgage Relief During A Pandemic

mortgage relief during pandemic

The recently enacted CARES Act provides a certain level of relief for borrowers who have experienced financial hardship as a result of the Coronavirus outbreak. How does it affect homeowners with federally-backed mortgages? Here’s what you should know.

  1. What it Does

The Coronavirus, Aid, Relief, and Economic Security Act (CARES Act) directs banks and other lenders to suspend a qualified borrower’s federally-backed mortgage payments for up to 360 days. The CARES Act also stipulates that lenders or loan servicers may not foreclose on qualified borrowers until at least December 31, 2020. All of this is designed to help prevent foreclosures and avert another mortgage crisis like the one in 2008.

  1. Who Qualifies?

To qualify for mortgage forbearance as outlined by the CARES Act, a borrower must have experienced financial hardship due to the COVID-19 outbreak. This could mean you lost a job due to the outbreak. It could also mean you couldn’t work because you fell ill, or you had to stay home from work to take care of a sick family member. Whatever the case, if you were financially affected by the outbreak or state-imposed restrictions, you likely meet the criteria for relief under the CARES Act.

With that said, a borrower is only entitled to mortgage forbearance if they have a federally or GSE-backed mortgage loan.

  1. How to Request Mortgage Relief

Since your mortgage relief options depend on who backs or owns your mortgage, you need to figure out who actually services your loan. This will almost always be the company that you send your payments to each month. If you aren’t sure, call them to find out.

If you have a federally or GSE-backed mortgage loan and have experienced financial hardship due to the pandemic, you have a right to obtain a forbearance for up to 180 days. You also have the right to obtain an extension for an additional 180 days if necessary.

Start by calling your loan servicer. Be prepared to answer a few questions. It can help to review this script provided to services by the federal government.

  1. What Should I Ask?

In addition to answering key questions, you will want to ask a few questions of your own. These should include:

  • What criteria will you use to determine whether I am granted a forbearance?mortgage relief
  • What are my rights if I do not agree with your final determination?
  • What options do I have to help temporarily suspend or reduce my payments?
  • Are there loan modification, forbearance or other options that apply to my situation?
  • Are there any fees associated with each option?
  • When will you waive all the late fees on my federally or GSE-backed mortgage account?
  • What should I do at the conclusion of my approved forbearance period?
  • Will I owe interest on unpaid mortgage payments during the forbearance period?

Once you secure forbearance or another mortgage relief option, ask your servicer to deliver written documentation confirming the details of your agreement.

  1. What if Your Mortgage Doesn’t Qualify?

If you do not have a federally or GSE-backed mortgage loan, contact your servicer to ask what options are available to you. The Consumer Financial Protection Bureau and other financial regulators have strongly encouraged lenders to work with borrowers to help prevent foreclosures and delinquent payments due to COVID-19.

  1. What to Do After Receiving Mortgage Relief

During your coronavirus forbearance period, there are a number of other things you can do to protect yourself. This includes paying attention to your monthly mortgage statements and stopping any auto-payments for your mortgage. You should also keep a close eye on your credit rating and make sure you or your loan servicer is keeping up with property taxes and insurance payments.

Once your income is fully restored, it’s important to contact your servicer and resume your payments as soon as possible. With forbearance, you will still owe the payments you missed, and fewer missed payments will reduce the amount you owe down the road.

With 60-plus years of combined experience, The Wheaton Team provides expert advice and guidance for clients. Our team specializes in residential real estate throughout all of El Paso County, including the Tri-Lakes area and all of Colorado Springs. Let us guide you through each step of the buying, selling and financing process, so you can turn dreams into reality.

No Comments

When Should You Refinance Your Mortgage?

when to refinance mortgage

When mortgage rates begin falling, more and more homeowners decide to refinance their loans. Depending on a person’s individual situation, however, it isn’t always the best move. Here’s what you should know about refinancing, along with tips for deciding whether it’s right for you.

Why Do People Refinance their Loans?

There are several different ways to refinance a mortgage, and finding the right loan will depend on your financial goals. You might want to switch from your adjustable-rate mortgage to a standard fixed-rate loan with a steady monthly payment. On the other hand, you may want to shorten the term of your mortgage loan from a 30-year plan to a 15-year agreement to avoid interest charges. A refi can also allow you to escape the high costs of private mortgage insurance once you accrue 20% equity in your home.

The majority of homeowners seek straight rate-and-term refinancing that lowers their interest rates while providing a comfortable repayment term. Some are looking for lower monthly payments to free up cash for college tuition, auto loans or other expenses. Others want cash-out refinancing, in which they borrow more than they owe and use the cash to pay for home renovations, eliminate credit card debt or fund some other major expense.

When is a Good Time to Refinance?

Most people start thinking about refinancing their mortgage loans when they learn that mortgage rates are on the decline. While lower mortgage rates are definitely a key factor in determining whether you should refinance, there are other good reasons including:

  • You want to pay off your home loan quicker with a shorter term.when should I refinance my mortgage
  • You’ve accumulated enough equity in your property to refinance into a loan that doesn’t have mortgage insurance.
  • You are looking to tap some of your equity with a cash-out refinance.

In general, it’s a good idea to refinance if it will help you build equity, allow you to save money or pay off your mortgage faster. It’s best to consider refinancing if you will be able to lower your interest rate by about one-half to three-quarters of one percentage point since this can significantly lower your monthly payment.

Things to Consider

To gain noticeable benefits from refi, you need to make sure your total monthly savings will offset the overall cost of refinancing. It may not be a good idea to refinance your existing loan if you plan to move in the next 24 months since you won’t have a lot of time to recoup the cost.

While interest rates are a primary consideration when it comes to refinancing; it’s important to remember that they aren’t the only key factor. To qualify for the right refinance loan, you will need to have good credit. Mortgage interest rates are influenced by various market factors, including the current yields on long-term Treasury bonds, and the lowest rates and best terms will always go to borrowers with the best credit scores.

Is it Worth the Costs?

Anytime you refinance a home loan, you will typically spend an average of between 2% and 5% of the entire loan amount in closing costs. With this in mind, it’s very important to figure out how long it will take for your monthly savings to recoup those high costs. In mortgage refinance, this is often referred to as the “break-even point.” For example, it would take 40 months to break even on $4,000 in closing costs if your monthly mortgage payment were to drop by $100. If you decide to move during those 40 months, you will ultimately lose money in a refinance.

When deciding whether to refinance, don’t just think about current mortgage rates; think about whether your current home will continue to fit your lifestyle in the future. If you’re thinking of starting a family or headed toward an empty nest, there’s a chance you won’t stay in your home long enough to break even after refinancing.

Even if your new loan will lower your rate considerably, you should consider whether it’s worth taking on the added interest. If you’re already more than ten years into your loan, refinancing to a new 20- to 30-year loan will tack on interest costs since interest payments are front-loaded. The longer you pay on a mortgage, the more you pay toward the principal instead of interest.

Before going ahead with refinancing, ask your lender to run the numbers on a loan term that’s equal to the number of years you have remaining on your existing mortgage. You might end up lowering your payment, reducing your mortgage rate and saving on interest by deciding not to extend your loan term.

No Comments

Are Interest Rates Going Down?

are interest rates going down

Mortgage rates play a huge role in determining the cost of a home loan. Recently, rates have been trending downward, creating great opportunities for affordable home loans. Here’s what you should know about current mortgage rates, along with some insight into what drives interest rates higher and lower over time.

How Low Are Current Rates?

A year ago, the benchmark rate of a 30-year fixed-rate mortgage loan was about 4.05%. Since that time, it has been trending downward in a big way. As we head into the third and fourth quarters of the year, rates are hovering at or below 3.5%. This makes now a great time to buy as long as you understand how interest rates affect the overall cost of your mortgage loan.

Why Do Interest Rates Matter?

When you buy a home, the listing price, down payment and closing costs are only a small part of the cost equation. One of the smallest (but most significant) numbers home buyers need to understand is the mortgage interest rate. The interest rate significantly affects monthly mortgage payments and determines the total amount you pay for your home.

In essence, the interest rate on your loan determines how much you are paying every year to your lender for just having the mortgage loan. Basically, lower interest rates mean a lower overall cost for your real estate investment.

For instance, consider a $300,000, 30-year fixed-rate loan with an interest rate of 4.5%. Over the term of the loan, you can expect to pay an extra $247,220 in interest on top of the initial $300,000). You can also expect monthly mortgage payments of about $1,520.

interest rates going downNow, if you were able to get a loan at 3.5 percent, you’d only pay $184,968 in interest, and your monthly mortgage payments would be about $1,347. Although it may not seem significant at first glance, that 1% difference in interest could cost (or save) you around $170 a month and more than $60,000 over the life of your mortgage loan.

In addition to saving you money on a loan, lower interest rates allow you to look at homes that might normally be outside your price range. This is why it’s so important to pay close attention to fluctuating interest rates and strike when an ideal opportunity arises.

How Are Mortgage Rates Determined?

Contrary to common belief, mortgage rates are not actually based on the 10-year Treasury note; they are based on the bond market, meaning mortgage-backed securities or mortgage bonds. Mortgage-backed securities are essentially mortgage loans that are packaged into bundles or groups of securities and then sold in the bond market. The price of these bundled debt securities is driven by global and national news events, which also impacts individual mortgage rates.

While that may sound complicated, it simply means that there are a lot of factors that influence the benchmark rate of 30-year fixed-rate mortgage loans. That said, just because national mortgage rates are low doesn’t mean you can expect to acquire a loan at an affordable rate. There are a lot of other things that work to determine the rate on each borrower’s loan. Individual lenders adjust mortgage rates based on how risky they judge a loan to be. The riskier the mortgage loan, the higher the overall interest rate.

When judging risk, lenders will consider how likely you are to fall behind on payments, and how much money they stand to lose if the loan goes bad. The major factors are loan-to-value ratio and credit score. Lenders may also charge higher interest rates for adjustable-rate mortgages, cash-out refinances and loans on condominiums, manufactured homes, investment properties and second homes because they are viewed as riskier.

Working with an Expert

When it comes to getting the best deal on a home, it’s important to take advantage of low interest rates. It’s also important to have an expert in your corner to help you make important decisions and navigate the complex home buying process.

With 60-plus years of combined real estate experience, The Wheaton Team specializes in residential real estate throughout Colorado Springs and all of El Paso County. Our considerate team of seasoned professionals can guide you through each step of the buying and financing process, so you can find the home you’ve always dreamed of. To learn more, contact us today!

Related Posts:

Home Loan or a Mortgage?