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3 Easy Ways to Put Aside a Bit of Extra Cash So You Can Pay off Your Mortgage Faster

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3 Easy Ways to Put Aside a Bit of Extra Cash So You Can Pay off Your Mortgage Faster If your personal budget is similar to many other people’s budgets, your home mortgage payment is by far the largest expense that you pay for each month. In fact, this payment may easily account for 20 or 25 percent or more of your take-home income.

Understandably, you may be focused on trying to pay this expense off early. By focusing on this payment, you can build equity and may be able to achieve financial security more quickly. You simply have to find a way to put aside a bit of extra cash regularly so that you can make extra payments, and there are few easy ways that you can consider.

Use Your Tax Refund

First, if you are one of the many taxpayers who receives a refund each year, consider setting aside some or all of this refund to reduce your outstanding mortgage balance.

Some taxpayers may have such a sizable refund that it can account for two or more mortgage payments each year. However, even a few hundred dollars extra put toward your principal balance will save you a considerable amount of money in interest charges over time and will have a wonderful effect on your balance.

Earmark Your Annual Bonus

If you are lucky enough to receive an annual bonus each year, you may consider using this to pay down your principal balance. While you may usually spend this money on extra holiday gifts or just add it to your spending cash, you can benefit more substantially when you contribute it to your effort to pay down your mortgage.

Use An Automated Draft To Create a Fund

Another great idea that will work well for all individuals is to create an automated draft from your checking account each month. You may set aside the funds in a special account, and you can make an extra mortgage payment from this account periodically. Another idea is to set up auto payments for your mortgage that are higher than the amount due. For example, you may establish auto payments that are $50 or $100 more than your scheduled payments.

Paying off your mortgage earlier can be a life changing event for you. Simply imagine how different your life would be if you were not responsible for this payment each month. The fact is that this could be your reality sooner than you think if you follow these tips. For the best results, apply two or even all three tips to your efforts.

Buying a Home? 4 Steps You Can Take to Ensure You Start out with a Low Monthly Mortgage Payment

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Buying a Home? 4 Steps You Can Take to Ensure You Start out with a Low Monthly Mortgage PaymentAre you thinking about buying a new house or condo? If so, you’ve likely given some thought to your mortgage and as to how you can pay as little as possible in order to own your new home.

Below we’ll share four easy steps that you can take to ensure you start out with an affordable monthly mortgage payment.

Make A Large Down Payment On Your Home

The easiest way to reduce your monthly payment is to invest as much as possible in your down payment. The less you have to borrow, the less you’ll be required to pay back.

If you can put a sizeable amount down on your home you’ll find that your monthly payments are going to be very manageable. You’ll also save a lot of money in interest.

Maintain A High Credit Score

When a lender assesses your financial history they’ll take an in-depth look at your credit score in order to determine how much risk you present to them. If you’ve kept a clean credit rating and have a high score, it’s likely that you will qualify for a lower interest rate than someone with a lower credit score – even if you both have the same monthly income.

Buy A Smaller, More Efficient Home

When you’ve made your short list of homes and you’re scheduling your viewings, ask yourself – do you need a home this big, or this expensive? If you can do with a smaller, more efficient home you can reduce the amount of mortgage financing that you require and this will in turn reduce the amount that you need to pay each month.

Consider A Longer Mortgage Term

Finally, if you need to reduce your monthly payment at any cost you can stretch out your mortgage repayment period by a few years. Note that while this can reduce your payment amount it will actually increase the total amount that you end up paying back as you’ll pay more in interest.

While the above are general tips for reducing your mortgage payment, it’s likely that there are other strategies that are unique to your financial situation. Contact your local mortgage professional at your convenience and they’ll be able to share insights that are relevant to your income, your credit and the price range you’re looking to buy into.

It Is Tax Time Again Learn About Tax Deductions and How to Write off Your Home Mortgage Interest

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It Is Tax Time Again Learn About Tax Deductions and How to Write off Your Home Mortgage InterestMuch to the frustration of taxpayers all over the country, the tax-filing season begins in January and runs through April 15 of each year. The year 2020 brought us many changes, including an extension on filing taxes. Taxes this year are due on July 15th. Are you ready?

As the current tax season approaches, it presents an opportunity to help tax-payers clarify their responsibilities and remind them of certain important tax deductions that may be available.

Filing Responsibilities

Every person in the United States is required to file their tax returns by July 15 so long as they have some form of qualifying income. Based on filing status, income and available deductions, tax-payers must file a 1040EZ, 1040A or 1040 (long-form for itemized deductions).

Qualifying income is generally defined as, but not limited to wages, commissions, miscellaneous income (rental, interest), investment income and alimony. These forms of income are reported on a periodic basis to the IRS and State governments by employers, banks, contract employers and/or other responsible parties.

The most common tax receipts that must be sent to tax-payers by January 31 are W-2s and 1099-Misc forms.

Calculating Taxes

While the IRS requires individuals to report all forms of income, they also allow certain living costs to be used as deductions to offset income in order to arrive at a “taxable income” number on which tax liabilities are calculated.

If a tax-payer’s deductions fail to exceed the combined statutory standard deduction,, they will want to file the 1040EZ or 1040A. If itemized deductions exceed this number, the 1040 becomes preferable.

Mortgage Interest Deduction

For a majority of tax-payers, the largest tax deduction available is usually mortgage interest paid on secured debt where the primary residence and in some cases second homes or rental property serve as collateral. In most of these cases, all interest paid during the year is deductible.

If the mortgages are large enough, the total interest paid will typically push the tax-payer into position to itemize deductions. It is important for tax-payers to read the rules related to mortgage interest deductions as they tend to be somewhat complicated.

Other Important Deductions to Consider

Once a tax-payer qualifies to itemize deductions, many other living expenses become deductible. Other prominent deductions include property taxes, charitable contributions, childcare costs, qualified moving expenses, certain work related expenses and certain medical expenses.

Prior to using any deduction, it is incumbent on the tax-payer to review deduction guidelines in order to determine applicability.

You Ask, We Answer: What is Private Mortgage Insurance or ‘PMI’ and How Does It Work?

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You Ask, We Answer: What is Private Mortgage Insurance or 'PMI' and How Does It Work? For many homeowners, their mortgage payment contains more than just principal and interest. A little something called PMI could be representing a significant portion of that payment, and it’s important for home buyers to understand this cost.

What Is PMI?

PMI stands for private mortgage insurance, or sometimes just mortgage insurance. However, it isn’t intended to mitigate risk for the homeowner, but rather the bank.

Statistics show that when a home buyer puts less than 20% down on a home, he/she is much more likely to default. So, requiring these buyers to carry PMI helps the bank hedge their losses in the event of a default.

It’s important to note that the home buyer doesn’t shop for PMI; this is all taken care of by the lender. However, the cost of PMI should be calculated out well before closing to help the home buyer be aware of his/her final mortgage payment.

Who Needs PMI?

Who will need to carry PMI depends on factors like the credit rating of the buyer and the exact mortgage being sought out. However, it’s safe to say that most home buyers with less than a 20% down payment will be required to carry PMI.

Does PMI Ever Go Away?

Eventually, PMI can be removed from a mortgage once enough of the principle has been paid down or enough years have passed.

It’s important for home buyers to fully understand the terms of their PMI requirement. Sometimes, it will be automatically removed once 20% of the house has been paid off, while other times, refinancing may be required.

Should Those Who Cannot Put 20% Down, Not Buy A House To Avoid PMI?

Unfortunately, this is not an easy question to answer. Yes, PMI is an extra cost that needs to be calculated into the cost of the home – but putting off a home purchase isn’t necessarily the right course of action.

For many families, it’s financially challenging to save up 20% of the cost of a home. After all, in 2010, the median home price of new homes sold in America was $221,800. A 20% down payment on such a home would be $44,360.

However, many find that it’s still cheaper, or just financially wiser, to buy a home with PMI than to continue renting. Each potential home buyer should call their real estate professional to get more information about market trends in their area and to decide the appropriate course of action.

3 Tips To Consider When Buying A Home With An FHA Mortgage

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Tips to Sidestep Common FHA Loan Problems

FHA loans are becoming increasingly popular these days as potential homeowners may not able to qualify as easily for conventional mortgages.

The FHA insures some higher-risk loans, in turn allowing borrowers with low down payments and less than perfect credit to purchase homes and bolster the housing market.

However, while getting through the loan process with an FHA mortgage loan is not necessarily more difficult than with a conventional or conforming loan, there are some issues that you will want to be aware of.

Property Condition

You can’t buy just any property with a FHA loan, or any other loan for that matter. All lenders are concerned with the condition of a property, especially as it relates to livability and safety. 

Major deficiencies in a home will almost always be noted when the home is seen by the FHA appraiser. The appraiser must deem it to be livable, without any conditions that could jeopardize health or safety. 

Sometimes you can get the seller to make the needed repairs to pass the lender requirements. In other cases, you may want go an alternate route. The FHA 203K streamline loan allows you to borrow up to $35,000 for home repairs to bring the house up to code.

Low Appraisal

The primary role of the appraiser is to estimate it’s market value. These estimates are based on the property’s features and a comparison to similar properties that have sold recently. If the appraisal is low, the loan funding could fall through because the FHA underwriting guidelines (along with almost all conventional guidelines) will not let you borrow more than the home’s appraised value. You can, however, add to the amount you bring in to closing if you prefer to compensate for a low appraised value.

Rather than trying to scrape together a bigger down payment, you may want to take the information to the seller to renegotiate the purchase price. The seller will likely recognize that other buyers would be in the same boat, leading the seller to agree to a lower purchase price.

High Debt-to-Income Ratio

Debt to income ratios are a concern with virtually every type of mortgage loan on the market today. Your FHA loan may encounter a snag in the underwriting process if your total debt payments, including your new mortgage, would be a high percentage of your income.

FHA has an automated underwriting program called TOTAL Scorecard which uses an algorithm to determine a borrower’s qualification. The process is quick, and often you can make up for a high debt-to-income ratio with other compensating factors, like a larger down payment or a cash reserve of several months of mortgage payments.

If you have any questions regarding FHA loans or any other home financing questions, please give us a call!

Refinancing to Pay for Renovations? Consider the VA’s Energy Efficient Mortgage Program

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Refinancing to Pay for Renovations? Consider the VA's Energy Efficient Mortgage ProgramMaking renovations that are energy efficient is not just a great way to reduce energy output, but it’s also an effective way of decreasing monthly utility costs. It serves as a one-time investment that will save money in the long run.

However, renovations are costly and not everybody has the extra finances required to make energy efficient changes. This is where the VA’s energy efficient mortgage (or EEM) program comes into play.

The program is designed to allow veterans to apply for a new mortgage or refinance an existing one with extra funds to renovate the home to be up to energy efficient standards.

The Three Tiers Under The VA’s Energy Efficient Mortgage Program

The VA has three tiers for the cost of renovations to be done under the EEM program. The lowest, and easiest to be accepted for, is for improvements that will total under $3,000. A list of costs or a contractor’s quote may be required in the application process.

The second tier is for renovations that will cost between $3,001 and $6,000. This will require the homeowner or homebuyer to get a Home Energy Rating System report to detail how efficient a home is currently and what can be done to decrease its HERS rating.

The final tier is for any improvements to the home that will cost over $6,000. This is the most difficult tier to receive acceptance for as both the Department of Veterans Affairs and the private lender will need to approve the renovations.

Types Of Improvements Under The EEM Program

The program covers a variety of renovations for the home. These include: new insulation to walls, floors and ceilings, solar powered heating and cooling systems, thermal doors, thermal windows and new caulking and weather stripping.

There are also items that will not be covered by the program, including new roofing, vinyl siding and air conditioning units.

Using The EEM Program To Receive A Larger Loan

Any veteran or currently active military member looking to buy a brand new home can still benefit greatly from the energy efficient mortgage program. If a new home undergoes a HERS report and passes as being energy efficient, this can be applied to a VA mortgage to receive as much as $6,000 extra on the loan.

Speak with your local mortgage professional to go into more detail on the intricacies of refinancing under the EEM program and whether or not your home will qualify.