Benefits of a Home Equity Line of Credit (HELOC)

For most people there is a time in your life when you could use a little bit of extra cash — to help pay for tuition as your child goes away to college, pay off medical bills, make repairs or renovate your home, or pay off high-interest debts. Your home might offer an opportunity to borrow money through a home equity line of credit (HELOC).

HELOCs are a great opportunity to borrow money against the value of your home.

What is a HELOC?

A home equity line of credit is a special type of loan that allows homeowners to use the equity they have in their home as a line of credit, and get cash to use right away. A HELOC isn’t the right choice for everyone, but there are definitely situations where it can offer you a financial lifeline. Here are some of the benefits of these loans.

Fixed Payments

When you get approved for a HELOC, your lender will provide the terms of the loan and a schedule of all your payments. That makes it easy to budget from month to month as you get the loan paid off. In most cases these loans also have multiple options for the length of the repayment period, giving homeowners the ability to choose whether you want a higher monthly payment and shorter repayment period, or a longer time to repay it and a lower monthly cost.

Fixed Interest Rates

Unlike credit cards and other loans, a HELOC usually has a fixed interest rate. That means your lender can tell you what your monthly payments will be, and they won’t change even if interest rates go up. Since most credit card interest rates are tied to the “prime rate” set by the Federal Reserve, borrowing money with a low-rate card today could result in very high interest payments in the future if it takes you a while to pay off the loan.

Money Up Front

A HELOC is structured to provide you with all the money for your loan immediately. As soon as the loan is approved, you get the cash that you need to do whatever you are planning. If you don’t need it all right now — for example, if you borrow the money to pay for four years of college tuition — you can even put it into an interest-bearing account and earn some money on your money to help pay back the loan.

The Downside of HELOCs

While HELOCs can be very beneficial, there are some important things to know before you take out one of these loans:

  • Your home is the collateral for the loan, so if you can’t make payments on your HELOC, you could lose your home.
  • If your home’s value declines as a result of a market downturn or other factors, you might owe more than your home is worth between your mortgage and your HELOC.
  • A lender may charge closing costs for most HELOCs, just like any second mortgage loan.

To learn more about HELOCs and find out if they are the right financial decision for you, talk to the experienced lenders at Integrity First Lending today.

4 Questions to Ask Before Deciding if You Should Refinance (Part 2)

In part one of this blog post we discussed two important questions that you should start with before deciding whether to refinance your mortgage:

  • Why are you considering refinancing right now?
  • How long will you be living in your home?

These two questions can help you decided whether it’s a good financial decision to refinance, but they’re not the only questions you need to ask. Here are two additional questions to consider in the process.

Refinancing is a big decision, use this guide to help you determine if it’s right for you.

3: Do you qualify for the loan?

A final consideration before refinancing is whether you can qualify for the new loan. If your economic situation is different, you have more debt, or your credit score is lower, it might be difficult to get approved. If you can’t qualify for a new loan, there may be other options available to you. You can talk to your lender about whether they have mortgage relief programs. By law, your lender must offer some options for federally-backed loans (FHA, VA, USDA, Fannie Mae, and Freddie Mac). Other lenders may have their own programs to help if you need assistance making payments, or may be willing to restructure your loan to help you through a difficult time and avoid foreclosure.

4: Can you pay cash for closing costs?

You have a couple options for closing costs on a refinance – you can pay them out of pocket if you have cash, or you can finance them into your loan. If you have the cash, it’s usually advisable to pay them up front. Financing them into your loan means adding to the principal balance with no added value to your home, and you will pay interest on that amount for the life of the loan. Financing $3,500 in closing costs into a 30-year loan at 3.5% interest will actually cost you more than $5,600 in added interest over the life of your loan.

Other Considerations

Refinancing isn’t always the right choice, so make the decision carefully. Mortgage loans are front-loaded so you pay more interest at the beginning. As time goes on you pay a much larger part of your monthly payments toward principal. The exact time that your payment switches depends on your interest rate, but typically it’s between years 10 and 15 of a 30-year loan. While refinancing might save you money on the total payment, you “reset” your loan back to 30 years at that time. If you’ve already made payments for 12 years, you go back to paying more interest and your total mortgage will now extend to 42 years (12 years of your first loan and 30 years of the refinanced loan). In that case it might be a worse financial decision to refinance than to keep your higher interest rate.

To learn more about refinancing, find current interest rates, and get started on your loan, talk to our experienced mortgage loan professionals at Integrity First Lending.

4 Renovations to Consider Using a Home Equity Loan

As millions of people sheltered in their homes over the last few months, home renovations have become a booming business. When you add on the fact that interest rates are at their lowest in history, and home values haven’t suffered during the current market downturn, you get the perfect formula as a homeowner to look at a home equity line of credit (HELOC) as a great way to pay for those upgrades you have been thinking about.

Before you consider any renovations, though, it’s important to do things that are really going to improve your home’s value and functionality. Think about why you’re renovating, because that can significantly impact what you want to do — homeowners who are planning to put the house up for sale may want to do some things differently than those looking to stay in the home for a long time.

Here are some of the best updates and home renovations to use your HELOC.

Home equity lines of credit are a great way to start on those home renovations and updates.

Kitchen Renovation

Few rooms in your house will get as much use as your kitchen. For many families it’s a focal point where everyone gathers, from weeknight homework sessions and dinners to weekend dinner parties with extended family and friends. Updating a kitchen doesn’t always mean gutting the room and starting from scratch. Simply updating the flooring, adding new countertops, or painting the cabinets can make a big difference with less stress and a lower budget.

Carpet Replacement

Another project that can usually be done pretty quickly and can make a big difference is replacing the carpet. The average cost to install new carpet is between $3.50 and $11 per square foot (depending on the quality of carpet you choose, carpet pad, and other factors). Usually a carpet installation can be completed in just one or two days, depending on the size of your home, and is a great way to update the look and feel of a space. It’s also a great selling point if you’re planning to put your home on the market soon.

Adding a Bedroom

Do you have unfinished space in your home? Many people have extra space in the basement or over the garage that could easily be turned into livable space as a bedroom. This can add significant value to a home for resale, or give you and your family a little more room to spread out. Before adding a bedroom, make sure the space meets all building codes and requirements.

Updating the Exterior

You never get a second chance to make a first impression, which is why your home’s exterior is so critical. If your home looks outdated and needs a fresh coat of paint, some siding repairs, or new garage doors, a HELOC is a great way to get them.

To see how easy it can be to get approved for a HELOC and start working on your own projects around the house, talk to Integrity First Lending today.

4 Questions to Ask Before Deciding if You Should Refinance (Part 1)

With interest rates hitting all-time lows in 2020, a lot of homeowners have started wondering whether it is a good time to refinance. Generally with very low interest rates, the answer to that question is yes. However, there are some important things for you to think about before you move forward that can impact whether refinancing is the right choice for you. Here are three questions to ask.

Ask these important questions before you decide if a mortgage refinance is right for you.

1: Why are you thinking about refinancing?

In general you shouldn’t refinance just for the sake of refinancing, but there are times when it makes sense. For example:

  • You currently have a high interest rate, and rates have dropped significantly. Refinancing when rates drop is a great way to lower your monthly cost and save thousands on interest over the life of your loan. Reducing your interest rate just 1% on a $200,000 loan can save you around $45,000 over 30 years. It can lower your monthly payment, especially if you are currently paying private mortgage insurance (PMI) because you didn’t have 20% to put down at the time you bought your home. If your home has increased in value or you have paid down some of the principal balance, you may be able to remove PMI from your payment to save even more each month.
  • You have a variable interest rate that is set to expire soon and want to refinance into a fixed rate loan. Variable rates are fine right now as interest rates have remained low, but they can be unpredictable. Rather than hoping that the rates stay low forever, it’s better to get a fixed rate now and lock in that savings for the duration of your loan.
  • You can’t afford your monthly payments. If your financial situation has changed since you first got approved, refinancing could provide you with a lower monthly payment that better reflects your economic reality.

2: How long will you be living in your home?

When you refinance you do have to pay closing costs on the new loan. If you don’t have cash you may be able to put those costs into your new loan, increasing the principal balance on your loan. To calculate the “break-even” point when the savings will be greater than the closing costs, divide the closing costs by your monthly savings.

For example, if you are refinancing and you will save $150 a month on your payment, but it’s $3,500 in closing costs:

  • $3500 / $150 = 24 months

It will take you 24 months, or around 2 years, to get the full financial benefit from your refinance. If you are planning to sell your home in the next 5 years, that might not be worth the costs and hassle.

Learn More About Refinancing

In part two of this blog post we’ll cover two additional questions to consider before you decide if refinancing is the right choice for your loan. If you have questions about refinancing, reach out to the experts at Integrity First Lending to learn more.

What is “PITI” When Calculating a Mortgage?

When you are thinking about buying a new home, one of the first things you probably do is calculate how much you can afford based on your current income. During that search you may come across the term “PITI”, and as you’re calculating those monthly costs for your new home, it’s important to understand what this term means so you can figure out costs accurately.

PITI stands for principal, interest, taxes, and insurance, and is a holistic calculation of what your total monthly payments will be for a new home. We’ll break down the basics of each part.

Figuring out your monthly mortgage payment means understanding what PITI means.

Principal and Interest

Basic mortgage payments include two things: principal and interest. These two numbers are calculated using the total amount you plan to borrow, your interest rate, and how long you plan to take to pay it off. This determines how much you will owe each month to the lender. For fixed-rate loans, your monthly payments won’t change but you will pay more toward interest at the beginning of your loan, then as you pay down the principal, the percentage of monthly payment that goes toward interest will decline.

You can see how much you are paying toward principal and interest each month for the entire life of the loan by looking at your amortization schedule.

Taxes

You will also owe property taxes, which are determined by the local area where you plan to move. Taxes are calculated as a percent of your home’s value, and can vary from year to year if they go up or down, or if the county tax assessor determines that the value of your home has increased. You can look up local property tax rates, or get a rough estimate by calculating about $1 in taxes for every $1,000 of home value per month (so a $300,000 home would be about $300 in taxes).

Insurance

Most lenders require that you pay for property insurance as part of your loan, in case the home is damaged by fire, weather, a break-in, etc. There may also be specific requirements to protect against things like earthquake or flooding, depending on where you live. You can get a quote from an insurance company to determine what your monthly cost will be for this.

Why PITI Matters

While you can look at just the principal and interest for your loan, that doesn’t give you the whole picture of what you will owe. Failing to take the extra costs of taxes and insurance into account could lead to financial strain later if your monthly budget is maxed out before taxes and insurance, which you still have to pay. It can also impact how much you will be able to borrow; for example, if you are buying in an area with high property taxes, you may not be able to borrow as much because the total PITI payment will be too high.

Integrity First Lending can help answer all your questions about PITI and monthly costs for a mortgage. Contact us today to find out more.

Is Now a Good Time for a Home Equity Loan?

Right now there is a lot of uncertainty in the world. As COVID-19 continues to have an impact on economies and jobs, there are many who are looking for ways to stay afloat financially through tough times. If you own a home and you have a significant amount of equity in that home, you may have thought about taking out a home equity loan to help cover some of your bills in an emergency as you watch your personal or emergency savings dry up.

Those lucky enough to still have a steady job where they can work from home, or one that is “essential,” like healthcare workers, may also be looking at current interest rates and wondering whether now is a good time to use the equity in your home to borrow money for something you have been planning, like a home renovation or even college tuition.

Rates are extremely low, and you may need emergency cash, but is a home equity loan a good idea?

Benefits of Home Equity Loans Right Now

There are a lot of reasons that a home equity loan might make sense for you right now. These loans:

  • Can be used for almost anything, including paying off debts, making home improvements, or just to get some emergency cash for necessary living expenses.
  • Offer fixed payments with a set interest rate so you will have a predictable payment over the entire life of your loan.
  • Generally offer lower interest rates than credit cards or other personal loans, especially if you have good credit. You can also pay them off early without a penalty, which can save on interest costs over the years.
  • Some home improvements are eligible for tax deductions, but check your local tax laws before you get the loan to make sure yours is covered if you’re counting on a deduction.
  • The Consumer Financial Protection Bureau (CFPB) recently created a rule that speeds up home equity loan closing processes, which can help you access emergency cash sooner.

Drawbacks of a Home Equity Loan

Home equity loans can also have some drawbacks:

  • Not all lenders are offering home equity loans right now, especially lending institutions worried about the risks.
  • Some lenders may have stricter restrictions or requirements to get a home equity loan in the current financial climate, so good credit is essential.
  • Your loan is secured with your home as collateral, so if you are unable to make payments on it, you risk foreclosure.
  • If home prices drop, you could find yourself “underwater” in your mortgage, even if you’ve paid down some of your original loan.

Understand Your Options

For some people other options might be better:

  • Using low- or no-interest credit cards in the short term
  • Borrowing money from a friend or family member
  • Talking to your lender or creditor(s) about forbearance
  • Borrowing from your 401(k) savings
  • Getting a personal loan

Talk to an experienced lender at Integrity First Lending to learn more about home equity loans before you determine if they are a good option for you.

Benefits of VA Mortgage Loans and Who Can Qualify (Part 2)

In part one of this post we reviewed some of the biggest benefits of getting a mortgage loan backed by the Department of Veterans Affairs, called a VA loan or a VA mortgage. Now we’ll cover the eligibility requirements.

Part two of our blog post on VA mortgages, with information about how to qualify.

VA Mortgage Eligibility Requirements

To qualify for a VA loan, you must first meet the qualifications of being a member of the armed services. The criteria are set by the Department of Veterans Affairs (VA), along with any other lender requirements, such as income thresholds and credit score qualifications.

You must meet at least one of these criteria (if you meet more than one you still qualify):

  • You are/were an active duty service member for at least 90 consecutive days during wartime
  • You are/were an active duty service member for at least 181 days during peacetime
  • You are serving/served in the National Guard or Reserves for at least 6 years
  • You are the spouse of a service member who died in the line of duty or from another service-related disability

There are some exceptions to these criteria that may still allow someone to qualify for a VA loan. To find out if you might qualify, speak to a home loan specialist at Integrity First Lending, where we specialize in VA mortgage loans.

Certificate of Eligibility

In addition to the qualifications above, you will need to have a VA Certificate of Eligibility (COE) to confirm you are eligible for the loan. You won’t need the COE at the time you apply, but your lender will need it before they can approve the loan. In most cases, the lender can pull the COE directly from an automated system through the Department of Veterans Affairs. Almost all COEs are provided electronically, and about two-thirds are approved instantly.

You can have a VA-approved lender request the COE or you can:

You will need some documentation, such as your Statement of Service, DD Form 214 (regular military) or your NGB Form 22 and NGB Form 23 (National Guard or Reserves), although some service members will need other documentation to prove your eligibility.

Lender Requirements

Lenders also set some of their own requirements for these loans, which are similar to other mortgages, such as a reliable income source, low levels of debt, and a high enough credit score.

Talk to Integrity First Lending today to find out how you can qualify for a VA loan if you meet the criteria. We’ll help you figure out whether this is the best option to get you into the home of your dreams.

Benefits of VA Mortgage Loans and Who Can Qualify (Part 1)

There are mortgage loan options specifically available to veterans of the armed services and their spouses called VA loans. These loans often have better interest rates and may not require as much of a down payment, but they do have very specific requirements for who is eligible and how you can qualify. Here is a quick overview of VA loans and how to know if they would be a good option for you.

VA loans provide a lot of benefits for those who can qualify, with competitive rates.

VA Mortgage Benefits

VA mortgage loans come with several benefits, especially if it’s your first home or you don’t have a lot of cash available for a down payment. Benefits include:

  • No down payment required
  • No private mortgage insurance (PMI), even if you put less than 20 percent down
  • Government guarantees, making them a safe option for lenders
  • Competitive interest rates, often lower than even conventional mortgage rates
  • No prepayment penalties if you want to sell your home or pay off your loan before the loan term is over
  • Eligible for both fixed and adjustable rate mortgages
  • Flexible guidelines that make it easier even for new borrowers to get a loan
  • Lower total out-of-pocket costs for the loan

There is a funding fee required for a VA loan that ranges from 1.4% to 3.6% of the loan amount, but you can pay it in cash, or you can finance it and pay it over time.

Another great benefits of VA loans is that they are assumable, which means that someone else who qualifies for a VA loan could take over the loan payments (after getting approved by the lender) instead of starting from scratch with their own mortgage loan. They still must meet the eligibility criteria for a VA mortgage, and any criteria from the lender, but this can save someone a lot of money and be a significant selling point when it’s time to sell your home.

This can save someone a lot of money, especially when interest rates are on the rise. Since interest rates are at or near all-time lows right now, that could be really great for a future buyer if rates do go up. Your future buyer who qualifies for the VA loan will get the same monthly payment and interest rate as you have today and will benefit from any money that you have paid toward the principal.

In part two of this blog post we’ll cover some of the eligibility requirements and what kind of paperwork is necessary to qualify. In the meantime, talk to our experts at Integrity First Lending about whether a VA loan is a good option for you.

Understanding When Mortgage Points Are Worth Paying (Part 2)

In part one of this blog post we covered the basics on mortgage points (or discount points), including the costs to purchase them. We recommend reading that post if you have questions or need more information about mortgage points.

Part two of our blog post on deciding whether you should pay for mortgage points.

When Mortgage Points Could Be Worthwhile

If you are not planning to stay in your home for at least as long as the break-even point (and preferably longer to get some financial benefit from the points), then paying mortgage points is definitely not worth it. However, if you are planning to stay in your home for much longer than the break-even point, having a lower rate can save you a lot in interest. In the same example above, if you stayed in your home for the full 30 years of your loan, you would save more than $15,000 in interest with the lower rate.

Other Considerations

In addition to whether you plan to stay in your home long enough to realize the financial benefits of paying for a lower interest rate, there are some other things to consider.

  • Tax benefits: for people who meet the criteria, mortgage points are tax deductible, which provides an added incentive to pay for points if the other reasons (including the time you plan to stay in your home) are also aligned.
  • Investment opportunities: not paying points keeps more cash in your pocket at the time of closing. If you have an opportunity to invest that somewhere that it could earn interest, that may offer more financial benefit that the lower monthly mortgage. For example, if you have an opportunity to put the same $3,000 into your 401K and you can earn a decent return on that, it may be a better financial choice.
  • Cash needs: beyond your mortgage, there may be other costs after buying a home for which you would want to have cash on hand; for example, adding window coverings or landscaping your yard. If that’s the case, keeping the money might be a better choice.

Even without any immediate costs, having that money in a savings account can help if an emergency comes up—for example, if your water heater breaks or you need to make some roof repairs on the new home in the next five years. If you are going to use most or all of your savings for a down payment and closing costs, consider keeping the money and putting it into a high-yield savings account instead.

The decision of whether mortgage points are a good option should be determine on a case-by-case basis depending on your circumstances. Talk to Integrity First Lending to answer questions about mortgage points and whether they’re a good choice for you.

Understanding When Mortgage Points Are Worth Paying (Part 1)

Anyone who has ever applied for a mortgage has probably heard the term “mortgage points” or “discount points.”Perhaps you wondered exactly what these points were, and whether they are worth the cost to purchase them. We’ll review the basics on mortgage points, and when it makes sense to consider them in this two-part blog post.

Part one of our blog post to help you understand how mortgage points work in home loans.

The Basics: What is a Mortgage Point?

Mortgage points, which are sometimes called discount points, are essentially a fee that most lenders offer at the time of closing to lower your interest rate. When you purchase discount points or mortgage points, you get a lower interest rate for the entire life of your home loan. While the costs can vary, it usually costs about $1,000 per $100,000 of your loan, which will lower your interest rate by 0.25%.

For example, if you are trying to get a loan on a home that is $300,000 and your initial interest rate would be 4.5%, you could pay $3,000 for a rate of 4.25% instead. Having a lower interest rate will mean lower monthly mortgage payments, and less interest that you pay over the life of the loan, which are both great benefits. However, it’s important to weigh that against the up-front costs of purchasing the points to determine if it’s the right choice for you.

Calculating the Break-Even Point

To determine the “break-even point” of purchasing mortgage points, calculate the total savings per month as a result of your lower interest rate, then divide what you are paying for the points by that amount to see how long it takes to recoup the costs.

Example: You are purchasing a $300,000 house with a 5% down payment ($15,000).

  • At your current rate of 4.5% your monthly principal and interest payments are $1,444
  • If you purchase points to lower your interest rate to 4.25% your paymentsare $1,402
  • It will cost you $3,000 to purchase the points
  • With a $42 lower monthly payment, it will take about 72 months, or 6 years, to recoup that up-front cost

You can use a mortgage calculator to determine how much you will save each month with the lower interest rate. The break-even point calculation here is also simply dividing the total cost by monthly savings, which doesn’t take into account any opportunity costs of not investing that money elsewhere.

In part two of this post we’ll discuss when it might not be worthwhile to purchase mortgage points, and what other options you have for the cash you would have paid toward these points. Talk to Integrity First Lending today to determine which is the best choice for you.