Your home is not just a place to live; it’s a valuable asset that can serve as a financial resource when you need it most. One of the significant advantages of homeownership is the opportunity to build equity over time, which can be accessed in various ways to fund life’s important milestones or unexpected expenses.
Whether you’re looking to undertake a home improvement project, consolidate debt, cover education expenses, or simply ensure financial flexibility for the future, your home equity can be a powerful tool to achieve your goals. By understanding the options available and the implications of each, you can leverage your home’s value to enhance your financial well-being and seize opportunities that come your way.
Home Equity Loans are a fixed amount loan using the equity in the home as collateral. The borrower receives a lump sum and pays it back in regular monthly installments over a fixed term, typically at a fixed interest rate.
A Home Equity Line of Credit is similar to a credit card; a HELOC provides a revolving line of credit using the home’s equity as collateral. Homeowners can borrow as much or as little as they need up to a specified limit, and interest is only paid on the amount borrowed.
A Cash-Out Refinance involves refinancing the current mortgage for more than the homeowner owes and pocketing the difference. Essentially, homeowners replace their existing mortgage with a new, larger loan and get the difference in cash to be used any way they want.
A Reverse Mortgage is available to seniors, typically 62 and older and allows homeowners to convert part of their home equity into cash without having to sell their home or pay additional monthly bills. Instead of making monthly payments to a lender, the lender makes payments to the borrower.
Homeowners can choose to sell their current property and purchase a less expensive one, using the profit from the sale (equity) for other purposes. This is a more drastic approach as it involves moving, but it can release a significant amount of equity.
Each of these options has its own advantages and considerations, so homeowners should carefully evaluate which method best fits their needs and consult with financial professionals before making decisions.
Property taxes are an essential part of homeownership, but understanding how they are calculated can feel like unraveling a complex puzzle. However, by unlocking the secrets of property tax calculation, homeowners can gain valuable insights into their tax obligations and make more informed financial decisions. In this article, we will demystify the property tax calculation process, providing homeowners with a comprehensive understanding of the factors involved.
Understanding Assessed Value – The first piece of the property tax puzzle is the assessed value of your home. Assessed value refers to the value assigned to your property by the local taxing authority for tax purposes. It is typically determined by professional assessors who consider various factors such as property size, location, improvements, and recent sales of comparable properties. Understanding how assessed value is determined is crucial, as it forms the foundation for calculating your property tax.
Individual states will adjust and publish the assessed value for the upcoming year. This is usually done in advance of the tax rates being set by the different tax authorities. The property owner will be notified of the valuation and may challenge it. Reasons that could affect the valuation include material mistakes like square footage or others, the deteriorated condition of the property, comparable sales not known to the assessor, and other possible things.
In the assessment notification, there will be timelines for challenging, as well as specific information on the different remedies that may be available.
Knowing the Tax Rate – Once your home’s assessed value is established, the next step is to determine the tax rate which is set by local taxing authorities, which can be multiple ones like city, county, school, hospital, and other special districts. The rate is expressed as a percentage of the assessed value. Tax rates can vary from one jurisdiction to another, and they are often determined based on the needs of the local government to fund public services and infrastructure projects.
The tax rate usually varies annually and even if the property valuation goes up, it doesn’t mean that the property taxes for that year will necessarily be higher.
Accounting for Exemptions and Deductions – Many jurisdictions offer property tax exemptions and deductions that can help reduce your tax liability. Common examples include homestead exemptions, which provide tax relief to homeowners who use the property as their primary residence, and exemptions for senior citizens, veterans, or individuals with disabilities. These exemptions can significantly reduce the amount of property tax you owe. It’s crucial to research and understand the available exemptions in your area to maximize your tax savings.
There may be deadlines for qualifying for a particular exemption for a particular tax year.
Performing the Calculation – Now that we have the assessed value and tax rate, let’s put the pieces together and calculate your property tax. Multiply your home’s assessed value by the tax rate (expressed as a decimal) to determine the preliminary tax amount. For example, if your assessed value is $200,000 and the tax rate is 1.5%, your preliminary tax would be $3,000. Remember to consider any exemptions or deductions you are eligible for, as they will directly impact your final tax amount.
Anticipating Changes and Planning Ahead – Property taxes are not static, and they can change over time. Factors such as reassessments, improvements, changes in tax rates, or modifications to exemptions can influence your future tax bills. Staying informed about potential changes and planning can help you anticipate and manage fluctuations in your property tax obligations. Keep an eye on local tax policies, attend public hearings, and consult with local tax authorities or professionals to stay ahead of any potential changes that may impact your finances.
Conclusion – Understanding the secrets of property tax calculation empowers homeowners to make informed decisions and better manage their finances. By following this step-by-step guide, you can gain clarity on the factors involved in property tax calculation, such as assessed value, tax rates, and exemptions. Your real estate professional can be a resource to help you understand the process and provide comparable sales data and other recommendations.
Making an informed decision about securing a mortgage loan is vital, as it involves understanding the available options and considering relevant factors. With a range of mortgage types designed to cater to diverse needs, it is essential to carefully evaluate your circumstances and goals to select the most suitable option. By taking the time to gain a broad understanding of the mortgage landscape, you can make a confident and well-informed choice that aligns perfectly with your unique situation.
Primary Types of Mortgages
Fixed-Rate Mortgage (FRM) – With a fixed-rate mortgage, the interest rate remains constant throughout the loan’s duration. This ensures that your monthly principal and interest payments remain unchanged, providing stability. While taxes and homeowner insurance costs may fluctuate, your mortgage payment remains steady. This mortgage type is ideal for long-term homeownership, typically spanning a decade or more.
Adjustable-Rate Mortgage (ARM) – An ARM offers an initial fixed interest rate for a specific period, after which the rate adjusts periodically. These mortgages often commence with lower interest rates, resulting in lower initial monthly payments. The adjustment periods can vary, with some ARMs remaining fixed for several years before adjustments occur. ARMs are suitable when long-term fixed rates are high or if you plan to sell the property within a shorter timeframe.
Other Mortgage Loan Types
Balloon Mortgage – This mortgage involves monthly payments based on a 30-year term, with the remaining balance due in a lump sum after a specific period. It may include options to reset the interest rate and extend the due date based on specific conditions.
Conventional Conforming Loans – These loans adhere to standards set by Government Sponsored Enterprises (GSEs) like Freddie Mac or Fannie Mae, allowing lenders to sell them. Conventional loans can be fixed- or adjustable-rate and finance various property types.
Conventional Non-Conforming Loans – Unlike conforming loans, these conventional loans do not conform to GSE standards, making them less standardized. Their terms and pricing may vary based on property price or creditworthiness.
Government-Guaranteed Loans – Designed to increase homeownership accessibility, government agencies offer mortgage loan guarantees for specific populations.
FHA Loans – These loans offer low down payment options, as low as 3.5%, to eligible homebuyers. They are insured by the federal government and allow lower credit scores, though they tend to be slightly more expensive than conventional loans.
USDA Loans – Aimed at low- and moderate-income buyers, the USDA offers programs for purchasing or building homes in rural areas. These programs include options for down payment assistance.
VA Loans – Exclusively for eligible military personnel, veterans, and their spouses, VA loans provide favorable terms, often without down payment requirements or private mortgage insurance.
HUD 184 and HUD 184A Loans: – The HUD 184 loan program supports American Indian and Alaska Native families, while the HUD 184A loan program assists Native Hawaiians on Hawaiian homelands. These loans offer low down payment options, flexible underwriting, and unique benefits for eligible borrowers.
Interest-Only Loans – With interest-only mortgages, homeowners initially make payments on interest only, typically for a fixed period. After this period, payments include both principal and interest. This type can be suitable if you plan to sell or refinance before the interest-only period ends.
Manufactured Home Loans – Designed for affordable housing, manufactured home loans require lower down payments and are specifically tailored to finance manufactured homes built to national safety standards.
Hard Money Loans … Hard money loans are a type of short-term financing option secured by the property itself, rather than the borrower’s creditworthiness. Hard money lenders are private individuals or companies that provide these loans based on the value of the property and its potential for profitability.
Owner Carried Loans – Owner carried loans, also known as seller financing, are a type of financing arrangement in which the seller of a property acts as the lender. Owner carried loans can benefit both parties, providing the buyer with an opportunity to acquire the property and the seller with a steady income stream from the loan payments.
Choosing the right mortgage loan involves evaluating your financial circumstances, long-term plans, and personal preferences. By understanding the diverse range of mortgage options available, you can make an informed decision that aligns with your homeownership goals. Consult with a reputable mortgage professional to explore these options further and determine the best mortgage type for your specific needs. We would be pleased to recommend a trusted mortgage professional to you.
With new mortgage rates approaching 8%, many buyers have decided to wait for rates to come down. While there may be some easing in the fourth quarter of 2023 and 2024, assuming an existing FHA mortgage with a lower rate made in the last three or four years might be a much better alternative.
Since December 1, 1986, FHA has had the right to approve the purchaser of an existing FHA loan. Prior to that, anyone, regardless of credit worthiness or other qualifications, could assume an existing FHA loan.
Existing FHA mortgages are assumable at the current interest rate for owner-occupied buyers. The benefit is that the rate could be much lower than a new current mortgage. The borrower must qualify for the loan under current FHA underwriting guidelines, but it will be easier because the payment will be lower due to a lower assumable mortgage rate.
The buyer’s closing costs on an assumption are less than a new FHA loan because an appraisal and survey are not required. The transfer fee is $500 instead of the 1% loan origination on a new loan.
An existing mortgage is further into the amortization schedule than originating a new loan which means there is more being applied to the principal each month accelerating the payoff. Another benefit is that lower interest rate loans amortize quicker than higher interest rates loans.
It will generally take a larger initial cash investment on an assumption to buy the equity than buyers were planning to use as a down payment. Secondary financing can be used for the difference which is referred to as the assumption gap. Purchase Price less Existing Balance on Mortgage = Equity less Planned Down Payment = Assumption Gap.
The difficulty is that lending institutions are slow to add second mortgages to their offerings. Another reality is that lenders make much more money on a new loan than an assumption. Alternative sources for the second loan could be the seller, relatives, credit unions, local banks, and hard money lenders.
Conventional loans have had a “due on sale” clause in their loan documents since the early 1980s which not only require the borrower to qualify for the assumption but allows them to escalate the interest rate to the current rate. For practical reasons, there is no benefit to assuming a conventional loan; the borrower might as well get a new conventional mortgage.
Buyers who assume an FHA mortgage without obtaining lender approval risk triggering the due-on-sale clause.
Lenders must grant a release of liability to the original borrower (seller) if the assumptor (buyer) is approved and agrees to execute a statement to assume and pay the mortgage debt.
The practical difficulty in finding assumable FHA loans is that there is no searchable field in most MLS databases and anything identifying it as an assumable mortgage is limited to the description or the agent comments.
Another issue is that many agents have never done an assumption and, in some cases, are not even aware that FHA mortgages are assumable at the original mortgage rate. An experienced agent can show you the savings on an assumption compared to a new mortgage at current interest rates and knows how to locate assumable loans.
If you’re interested in learning more about it, find an agent familiar with FHA, VA, & USDA assumptions. Each type of mortgage has slightly different requirements, but each is assumable.
Homeowners who are facing financial difficulty are often targeted by mortgage relief scams. These scams can be very convincing, and homeowners may be desperate for help, making them vulnerable to these schemes.
Scammers often pose as government officials or mortgage experts, and they may promise homeowners that they can help them avoid foreclosure or modify their mortgage loan. However, these promises are often false, and homeowners who fall victim to these scams may lose their homes and their money.
If you are facing financial difficulty and you are considering a mortgage relief program, it is important to do your research and be very careful. Here are some tips to help you avoid becoming a victim of a mortgage relief scam:
Only work with a HUD-approved housing counselor. You can find a housing counselor by calling 1-888-995-HOPE (4673).
Be wary of anyone who promises to help you avoid foreclosure or modify your mortgage loan for a fee. It is illegal for anyone other than a licensed attorney to charge a homeowner a pre-paid fee to negotiate a mortgage modification on the homeowner’s behalf.
Read all paperwork carefully before signing anything. Do not sign anything that you do not understand.
Do not be pressured into making a decision quickly. Take your time and do your research before making any decisions about your mortgage.
The warning signs for fraudulent mortgage rescue schemes:
You are charged an upfront fee for assistance in avoiding foreclosure or modifying your mortgage loan.
You are asked to transfer the deed to your home. It is very unlikely you will ever get the deed back, regardless of what you are told.
The individual or company “helping” you asks you to make future mortgage payments directly to them, instead of paying your mortgage company directly. This is a common tactic used by scammers to take your money and run.
You are asked not to contact your current mortgage company. This is another common tactic used by scammers to prevent you from getting help from a legitimate source.
The scammer refuses to provide you with a written plan or contract, or alternatively pressures you to quickly sign documents you do not understand. This is a red flag that the scammer is not interested in helping you, but rather is trying to take advantage of you.
Review this HUD guide for homeowners having difficulty making mortgage payments. This guide provides information on your rights and options if you are facing foreclosure.
If you think you may have been a victim of a mortgage relief scam, you should contact your state attorney general’s office or the Federal Trade Commission (FTC). You can also file a complaint with the FTC online at ftc.gov/complaint.
It is important to be aware of the red flags for fraudulent mortgage rescue schemes. If you are contacted by someone who claims to be able to help you avoid foreclosure or modify your mortgage loan, be sure to do your research and ask questions before you hand over any money.
Imagine you’re on the verge of securing a mortgage, and a slightly higher credit score could mean a lower interest rate. The good news? There’s a quicker way to make that possibility a reality. Mortgage loans are often more time-sensitive than other loans. If you find yourself in a situation where a slightly improved credit score could open doors to better rates, the solution might lie in rapid rescoring.
When it comes to mortgage loans, time is of the essence. Your offer has been accepted, and you have a limited window to qualify for a new loan. But what if there was a way to boost your credit score swiftly and improve your chances of securing a lower interest rate?
Enter rapid rescoring … a powerful tool that mortgage lenders use to diagnose potential actions that could lead to a credit score increase. It’s important to note that these diagnostic reports are estimates, and their accuracy can vary since different lenders employ distinct scoring formulas. However, this innovative approach can provide a viable solution for improving your credit score in a time-sensitive scenario.
Let’s say you realize you have sufficient funds in your savings account to significantly pay down your credit card debt. Acting on your mortgage officer’s advice, you make the payment, anticipating a positive impact on your credit score. This strategic step is a prime example of how you can proactively influence your credit standing.
Following your payment, your lender can initiate a rapid rescore by obtaining an updated copy of your credit report from one or more of the three nationwide consumer reporting agencies … Equifax, TransUnion, and Experian. With this fresh data in hand, your lender can reevaluate your credit scores based on the latest information, including your substantial debt payment aimed at elevating your scores.
Rapid rescoring is designed to be swift, typically taking three to five business days to complete. The exact duration may vary depending on your individual circumstances, but the benefits can be significant.
Before requesting your lender to initiate a rapid rescore, it’s prudent to evaluate your entire financial situation. Ensure there are no unforeseen negative developments on the horizon, such as new delinquent payments or other potential issues that could affect your credit.
If you find yourself in a credit score range where a few extra points could unlock better terms for your mortgage, rapid rescoring could be an excellent option to explore.
In the intricate world of mortgage loans, rapid rescoring emerges as a valuable strategy for potential homebuyers aiming to secure favorable terms. By understanding the potential of rapid rescoring and acting strategically, you can potentially save time and even money in the long run. When considering this option, remember to assess your entire financial landscape and consult with a trusted mortgage professional to make an informed decision that aligns with your goals.
Are you thinking about moving to an Assisted Living or another type of housing with services setting?
Studies show people who do not plan ahead, often spend more of their hard earned money and are less informed to deal with a long term health crisis. Don’t wait, plan now. Get information and assistance to understand the risks you might have that could lead to the need for an expensive move. Understand how to manage those risks. (more…)
National Eldercare Locater Line: 1-800-677-1116, www.eldercare.gov
This nationwide number is particularly beneficial if you are trying to help someone in another state. When you call the number they will ask for the zip code of the person whom you are trying to assist; they will then direct you to a “help line” that serves the area.
Senior Linkage Line (Minnesota only): 1-800-333-2433 and TTY 1-800- 627-3529, www.mnaging.org
By calling this toll free number you will be connected with a help line that serves your area. Information is available on all services and programs; Medicare, transportation, legal, financial assistance, caregiver support, chore and minor home repair, home health care, meal delivery and nutrition. You may have to leave a message, but they will return your call within 24 hours.
United Way: 2-1-1, Dial 211, or 651-291-0211, www.unitedwaytwincities.org and www.211unitedway.org
United Way 211 assists people of all ages find help and community based resources. Information is also available in most languages.
Senior and community centers offer a wealth of information. They vary in the services they offer; some are the focal point for aging services in communities while others offer serve a more recreational function. If you need another Twin Cities Senior Housing Guide you can pick one up free of charge at the senior centers listed below.
Where Else Can I Pick Up a Free Guide?
The Twin Cities Senior Housing Guide can also be picked up free of charge at most libraries and the AARP office at the Mall of America. Places listed below with an * are not senior centers, but also have the Guide available for free.
If you would like to have one sent directly to you send $6: Housing Guide 1474 Sargent Ave. St. Paul MN 55015
All information is dynamic and can change by the respective companies listed herein at ANYTIME. Use this guide as a reference point ONLY. We believe the information herein it is accurate but not guaranteed and may not be current as we are not able to update all information.
