Surrey Real Estate and Community News

Feb. 7, 2017

The Home Equity

The Home Equity Playbook

 

What is Home Equity?

Home equity seems to be a very simple calculation—the total amount of mortgages owed subtracted from the current market value of a home. Here is a simple example:

 

Current Home Market Value                  $825,000

Existing Mortgage                                       $725,000

Homeowner Equity                                     $100,000

 

One side of the equation is well defined, and it is found on the monthly mortgage statement, the loan balance. The other side is less obvious—the current market value of the property. The most accurate measurement of market value requires a comparative market analysis from a real estate professional.

 

Putting Home Equity to Work

Home equity represents the largest single asset of millions of people, and because it represents so much of an individual’s net worth, it must be treated with respect. Home equity is not a liquid asset until a property is sold, or it is borrowed against.

 

There are two types of loans that tap into homeowner equity as collateral.

 

Home Equity Loans

 

Many home equity plans set a fixed period during which the person can borrow money, such as 10 years. At the end of this “draw period,” the person may be allowed to renew the credit line. If the plan does not allow renewals, the homeowner will not be able to borrow additional money once the period has ended. Some plans may call for payment in full of any outstanding balance at the end of the period. Others may allow repayment over a fixed period, for example, of 10 years.

 

A home equity loan, sometimes called a second mortgage, usually has a fixed rate and a set time to pay it back, generally with equal monthly payments.

 

 

Home Equity Line of Credit

 

A home equity line of credit is similar to a credit card. The lender sets a maximum amount you can borrow, and you can draw money as you need it, though many home equity lines of credit require an initial draw. The interest rate varies daily, and is usually prime plus a set number, but the required payment is usually interest only. Once the loan has been paid down, the payment is reduced, and it can be paid off and initiated as many times as a homeowner requires.

 

How Much Equity can be Accessed?

Since the financial institution is lending money and using a home as collateral, they will typically loan 80% of the home’s equity. The bank does not want to take the risk that if the house price drops, they would be carrying a loan for more than its market value.

 

Here are some good waysto use money from a home equity.

 

1. Invest in Your Home

Among the very best returns on your investment (ROI) include kitchen and bathroom remodels, adding square footage or an extra bath, enhancing curb appeal and repairing/keeping the existing structure sound.

 

2. Invest in your Children’s Education

Using your home equity to finance a child’s higher education may be the greatest pay off of all.

 

3. Supplement Retirement Needs

At retirement, when monthly income is reduced, a home equity loan could pay for a dream vacation or an unexpected major expense.

 

4. Augment the Impending Sale of a Home

If you’re planning to sell soon, a home equity line of credit may be the best way to finance improvements to maximize your selling price.

 

On the flip side, avoid buying luxury items, assets that depreciate like cars and boats, don’t make investments in financial markets, and do not pay routine monthly bills. You should treat a home equity loan as an investment and not as extra cash when making financial decisions.

 

We Are Happy to Assist You

If you would like an assessment of the market value of your home and the current equity you can access, give us a call for a comparative market analysis.

 

If you are planning a move to or from Surrey area, I can help.  I am licensed  Real Estate Advisor.  Please email me at jas@surreyrealestategroup.com or text or call         778-994-7450 

 

          www.surreyrealestategroup.com

 

 

Dec. 3, 2016

What will Rising Interest Means for Real Estate?

The conventional wisdom is that the interest  rates on home mortgages will increase sometime soon. For a while now, the interest rates on 25-year fixed mortgages have bounced around the 2.75%.something range.  

But an economy with low home mortgage rates is a blessing for home buyers, low-interest rates, in general, aren't that great when you are looking for a relatively safe place to park your money - in government bonds, for example, or in CDs at your bank or your savings account.  For your life savings, the interest you'd earn in a year would maybe put a few gallons into your Prius. 

So here's the thing.   

If the economy really does pick up steam, there could be some inflation and interest rates could rise.  

Higher interest rates, however, mean that if you are buying a house, your monthly payment will be higher than at the current interest rates.  If you are selling a home, fewer buyers might be able to afford your price at the higher rates.  There is a possibility that the current strong seller's market to even out a bit. 

But there is another part of the equation to take into account.  If the economy does improve, it could mean salaries would go up, creating more buyers who could qualify for higher mortgage payments after all.  

But bottom line?  Nobody knows what's going to happen. The world is and will always be an unpredictable place.  And historically, change and uncertainty have usually ended up providing good opportunities, at least for people gutsy enough to tolerate a little risk!  

If you are planning a move to or from Surrey area, I can help.  I am licensed  Real Estate Advisor .  Please email me at jas@surreyrealestategroup.com or text or call 778-994-7450.

I pick up my phone!

          www.surreyrealestategroup.com

 

Oct. 31, 2016

Get Your Credit Score in Shape Before Buying a Home

How strong is your credit? Cleaning up your credit is essential before you make any major financial moves. Having a bad score can hurt your chances of being able to open a credit card, apply for a loan, purchase a car, or rent an apartment. 

It is especially important to have clean credit before you try to buy a home. With a less-than-great score, you may not get preapproved for a mortgage. If you can’t get a mortgage, you may only be able to buy a home if you can make an all-cash offer. 

Or if you do get preapproval, you might get a higher mortgage rate, which can be a huge added expense. For example, if you have a 30-year fixed rate mortgage of $100,000 and you get a 3.92% interest rate, the total cost of your mortgage will be $170,213. However, if your interest rate is 5.92%, you’ll have to spend $213,990 for the same mortgage  - that’s an extra $43,777 over the life of the loan! If you had secured the lower mortgage rate, you could use that additional money to fund a four-year college degree at a public university. 

So now that you know how important it is to maintain a good credit score, how do you start cleaning up your credit? Here, we’ve collected our best tips for improving your score.

Talk to a loan professional 

You can protect your score from more damage by getting a loan professional to check your credit score for you. A professional will be able to guide you to whether your score is in the ‘good’ range for home buying. Plus, every time that you request your own credit score, the credit companies record the inquiry, which can lower your score. Having a professional ask instead ensures that you only record one inquiry. Once you know your score, you can start taking action on cleaning up your credit. 

Change your financial habits to boost your score

What if your score has been damaged by late payments or delinquent accounts? You can start repairing the damage quickly by taking charge of your debts. For example, your payment history makes up 35% of your score according to myFICO. If you begin to pay your bills in full before they are due, and make regular payments to owed debts, your score can improve within a few months. 

Amounts owed are 30% of your FICO score. What matters in this instance is the percentage of credit that you’re currently using. For example, if you have a $5000 limit on one credit card, and you’re carrying a balance of $4500, that means 90% of your available credit is used up by that balance. You can improve your score by reducing that balance to free up some of your available credit. 

Length of credit history counts for 15% of your FICO score. If you’re trying to reduce debt by eliminating your credit cards, shred the card but DO NOT close the account. Keep the old accounts open without using them to maintain your credit history and available credit. 

Find and correct mistakes on your credit report

How common are credit report mistakes? Inaccuracies are rampant. In a 2012 study by the Federal Trade Commission, one in five people identified at least one error on their credit report. In their 2015 follow-up study, almost 70% thought that at least one piece of previously disputed information was still inaccurate. 

Go through each section of your report systematically, and take notes about anything that needs to be corrected. 

Your personal information

Start with the basics: often overlooked, one small incorrect personal detail like an incorrect address can accidently lower your score. So, before you look at any other part of your report, check all of these personal details:

  • Make sure your name, address, social security number and birthdate are current and correct.
  • Are your prior addresses correct? You’ll need to make sure that they’re right if you haven’t lived at your current address for very long. 
  • Is your employment information up to date? Are the details of your past employers also right?
  • Is your marital status correct? Sometimes a former spouse will come up listed as your current spouse. 

Your public records

This section will list things like lawsuits, tax liens, judgments, and bankruptcies. If you have any of these in your report, make sure that they are listed correctly and actually belong to you. 

A bankruptcy filed by a spouse or ex-spouse should not be on your report if you didn’t file it. There shouldn’t be any lawsuits or judgments older than seven years, or that were entered after the statute of limitations, on your report.  Are there tax liens that you paid off that are still listed as unpaid, or that are more than seven years old? Those all need to go. 

Your credit accounts

This section will list any records about your commingled accounts, credit cards, loans, and debts. As you read through this section, make sure that any debts are actually yours. 

For example, if you find an outstanding balance for which your spouse is solely responsible, that should be removed from your report. Any debts due to identity theft should also be resolved. If there are accounts that you closed on your report, make sure they’re labeled as ‘closed by consumer’ so that it doesn’t look like the bank closed them. 

Your inquiries 

Are there any unusual inquiries into your credit listed in this section? An example might be a credit inquiry when you went for a test drive or were comparison shopping at a car dealer. These need to be scrubbed off your report. 

Report the dispute to the credit agency

If there are major mistakes, you can take your dispute to the credit agencies. While you could send a letter, it can be much faster to get the ball rolling on resolving a mistake by submitting your report through the credit agency’s website. Experian, Transunion and Equifax all have step-by-step forms to submit reports online. 

If you have old information on your report that should have been purged from your records already, such as a debt that has already been paid off or information that is more than 7 years old, you may need to go directly to the lender to resolve the dispute. 

Follow up

You must follow up to make sure that any mistakes are scrubbed from your reports. Keep notes about who you speak to and on which dates you contacted them. Check back with all of the credit reporting companies to make sure that your information has been updated. Since all three companies share data with each other, any mistakes should be corrected on all three reports. 

If your disputes are still not corrected, you may have to also follow up with the institution that reported the incident in the first place, or a third-party collections agency that is handling it. Then check again with the credit reporting companies to see if your reports have been updated. 

If you can keep on top of your credit reports on a regular basis, you won’t have to deal with the headaches of fixing reporting mistakes. You are entitled to a free annual credit report review to make sure all is well with your score. If you make your annual credit review part of your financial fitness routine, you’ll be able to better protect your buying power and potentially save thousands of dollars each year. 

How to clean up your credit now

Does your credit score need a boost so you can buy a home? Get in touch with me. I can connect you with the right lending professionals to help you get the guidance you need. 

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Posted in Buying a Home