Category: Perspectives

Philadelphia Skyline Perspectives

Top 10 things Philadelphia mortgage seekers should know

Living in Philadelphia and ready to take a mortgage to finance your dream home? Buying a home is one of the most vital financial moves you will make in a lifetime. Here are 10 things you should know while seeking a mortgage:

1. Your credit score is vital. Before applying for a mortgage, get a recent copy of your credit report. If you have a low credit score, there are several things you could do to boost it, for example, you could close down your inactive credit card accounts.

2. Make a budget. Before applying for a mortgage, do a budget detailing the amount you need to buy the property and cover the related costs and fees. Always remember that the repayments will depend on the amount you borrow and the interest charged.

3. You’ll be better off avoiding frequent job changes. A number of lenders will prefer to lend to individuals who have been with an employer for a considerable time as an indicator of stable income and thereby a predictable ability to repay. If you are contemplating switching jobs, it is advisable to hang on to your current job until after you have taken the mortgage.

4. Significant unpaid debts can derail you. Lenders are skeptical about mortgage seekers with a whole lot of debts around. Before you apply for a mortgage, cut your credit card debts and pay off student loan in time to demonstrate your ability to manage money responsibly. Your mortgage application is more likely to succeed if you have less debt.

5. You will need proof of income before getting a mortgage. Mortgage lenders will need proof of how much you earn annually and a summary of how much tax is deducted. Also, ready your banking statements and pay-slips so that the lender can know how much you earn.

6. If you are self-employed, you also need to provide your income source. For self-employed people, lenders will want to be sure that you can keep up with the repayments. Here, you will need to avail your account statements detailing your financial position in the recent past.

7. Bigger deposits are a plus. The more the deposit you have, the larger the choices of mortgage that will be available to you. Most Philadelphia lenders reserve their best rates for clients with hefty deposits.

8. Buying with your spouse with a good credit score can boost your prospects. If you have a low credit score or you have no mean of coming up with the required down payment, you can consider applying for the mortgage together, with your spouse as the co-borrower (when the new home will be the primary residence for both). This can boost your chances of getting a mortgage especially if the other person has a strong credit history devoid of any delinquencies and a strong ability to repay the mortgage. However, this is a big commitment, and you may want to sit down with the other person to work out the specifics.

9. Do not alter your application. Once you have made your application, do not try to change any figures that could hold up your home purchase.

10. It is okay to get some help. If you are struggling to zero down on the perfect mortgage deal, or you are not sure of how much you need to borrow, you can enlist the services of a professional mortgage broker. They can conduct good market research for you and help you out with your application process. Getting the right mortgage is not a walk in the park; however, with the right advice and working with the right people, you can get the ideal mortgage to help finance your dream home.

For Philadelphia residents, there are several valuable resources available including the Pennsylvania Housing Finance Agency, Clarifi and Philadelphia Home Buyers MeetupSTEM Lending being Philadelphia-based MortgageTech firm, it offers in-person, online and over-the-phone mortgage consultations from licensed mortgage loan officers toto Philadelphia residents. To take the first step in getting prequalified for a mortgage and save on your mortgage, reach out to STEM Lending’s mortgage experts today:

Meeting Perspectives

Bank or broker: which is best for home buyers?

First-time home buyers often wonder if reaching out to a bank or a mortgage broker is the best option for them.

For a first-time home buyer, navigating the landscape of mortgage products can be a daunting task to say the least. You’ve got conventional vs. government insured, FHA, VA, USDA, Fixed, Adjustable, jumbo and the list goes on. For the first-time home buyer, this can all sound like “Greek” not to mention the stress associated with making the most important purchase decision of your life. While there are two basic options of acquiring a mortgage (direct lender/bank or mortgage broker), many questions remain, especially for millennials, who make up the majority of first time home buyers.

Direct Lender vs. Mortgage Broker? 

Too often, first-time buyers make mistakes that end up costing more in the long run. For example, a certain mortgage product might be geared towards long term occupancy, but if misunderstood, a buyer could pay significantly more if they ended up leaving the home sooner…and vice versa.
Many first-time home buyers end up with a direct lender, usually through referral by their real estate agent. Since direct lenders can only offer the products they sell, they tend to match the borrower to their product instead of the other way around, which often results in wasted valuable time or not getting the best mortgage based on your unique needs.

Key Factors to Consider

What are the cost differences between a direct lender and a broker? You want to look at the total mortgage costs. Note, that total costs are not the same as fees. While you need to compare the fees charged by direct lenders or brokers, it’s wise to compare the total mortgage costs to make the best choice. For instance, what are the costs of having too few mortgage choices? If the lowest cost mortgage for you never makes it to your comparison list, you probably will pay more than you need to. Another cost to consider is processing time. If your mortgage provider takes months to process your application, you will pay unnecessary rent as well as other expenses. When it’s all said and done, most first-time buyers match well with a mortgage broker.
Ok, you are convinced that a mortgage broker is the way to go, but aren’t all brokers the same?

Here are the three essentials to look for in your mortgage broker:

  1. Knowledge and Expertise: First and foremost, make sure your broker is truly an expert on all things mortgage finance and has knowledge on related areas of the home buying process—namely the big three; credit scoring, down payment, and income requirements. Consider the broad pedigree of the broker—their licensed credentials, industry experience, and perhaps most importantly, their willingness to listen and meet the needs of their clients. A true mortgage expert stands apart by explaining the “why,” not just the “what.” To evaluate customer satisfaction, check business review providers such as Yelp, the Better Business Bureau and others.
  2. Automated Platform: Traditional mortgage processing is extremely manual and paper-intensive. With the rise of financial technologies “fintech,” brokers can now deliver their mortgage and financial expertise via online platforms. Automation accelerates the qualification and application processes enabling brokers who operate on a well-designed platform to pass on the savings to their clients. Mortgage Brokers with automated platforms fit best with millennial buyers.
  3. Flexible Communication Preferences: Many brokers tend to rely heavily on lengthy telephone calls and emails to clients which often results in errors and inefficiencies. These limited communication channels do not align with the preferences of many home buyers. Moreover, millennials tend to prefer brief, online interactions that they can access on their smartphone. The fact is, people have unique communication preferences, whether it be; in person, text, email, or phone, so brokers who offer a broad set of communication channels are better positioned to meet their clients’ preferences.

There you have it. A mortgage expert can be your trusted advisor that helps match your needs to the best mortgage that’s available on the market. While following these tips will not teach you to understand Greek, it can help guide you to the path of achieving your dream of home ownership and financial security.

To take the first step in getting prequalified for a mortgage and save on your mortgage, reach out to STEM Lending’s licensed mortgage experts:

STEM Lending, Village Capital, BFTP, UBS Logo Perspectives

Philadelphia Mortgage Tech startup STEM Lending selected for VC…

STEM Lending, Inc. is proud to announce that we have been selected as one of the eight startups to participate in Village Capital’s VC Pathways program in collaboration with UBS, world’s leading wealth management firm and Philadelphia-based Ben Franklin Technology Partners tech accelerator.

This is the second time Ben Franklin Technology Partners, Village Capital and UBS have teamed up to invest in entrepreneurs solving real world problems. VC Pathways is a national program for training founders to increase their competitiveness for seed-stage venture investments. Entrepreneurs in the VC Pathways program will receive training on the Venture Investment Readiness Awareness Level (VIRAL) curriculum, helping entrepreneurs set key milestones to make them competitive when raising capital.

We are very excited to participate in the program, which will run for three months, from January through mid-April 2018. The application pool was fiercely competitive, representing diverse start-ups from across Philadelphia, Atlanta, and Chicago.

Startups involved in this cohort will receive Amazon Web Services (AWS) credits for two years (up to $5,000), automatically qualify for a $10,000 interest-free Kiva Zip Loan, and receive deeply discounted access to HubSpot’s marketing and sales software to manage customer relationships and business leads. Cohort members also are eligible for up to $2,000 in grant funding, subject to hitting certain milestones.

In addition, STEM Lending will benefit from formal interactions with angel investors, UBS executives and mentors affiliated with the program who are interested in working with early-stage companies through one-on-one meetings, business development sessions and opportunities to highlight their milestone achievements.

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Taxes and homeowners Perspectives

How The Tax Bill Affects Homebuyers

For years, the US tax code has encouraged Americans, especially first-time homebuyers, to get “a piece of the American dream” by becoming homeowners. Since the 1940s, America has seen the positive effects of building credit and building equity through homeownership.

America is one of the few countries in the world to offer potential homeowners a fixed-rate 30-year mortgage product. Homeowners have benefited for decades from tax incentives that allow us to deduct mortgage interest from our tax bill, and from home equity lines of credit that can help pay for a child’s college tuition.

Get ready for some changes in 2018.

This week, both the US House of Representatives & US Senate passed the most sweeping changes to the US tax code since 1986. The new tax bill cuts the corporate tax rate, revises the existing tax bracket structure at every income level, and includes several significant changes to deductions that historically offered incentives to first-time homeowners.

The bill is ready to be sent to President Donald Trump, and could be signed into law before Christmas, so we at STEM Lending wanted to tell you about several specific changes that are likely to affect your search in 2018:

tax code us tax bill

How The New 2018 Tax Bill Could Affect You:

Mortgage Interest Deductions

Mortgage interest deductions were once thought to be untouchable as a strong incentive for first-time home buyers. The history of this incentive was originally a part of a 1913 tax provision which allowed business owners (ex. farmers) to deduct any interest they paid on business expenses. The mortgage-interest deduction now lets people who buy homes deduct part of the cost of their mortgage on their taxes. According to the Joint Committee on Taxation, MID saved Americans $77 billion last year!

What was finalized in the new tax bill, however, caps the limit on deductible mortgage debt at $750,000 for loans taken out after Dec. 14, 2017.  If you took out a mortgage loan before Dec. 14, you will still be able to deduct interest on mortgage debt up to $1 million. Mortgage interest on second homes can be deducted but is subject to the $750,000 limit.

Current Tax Law Through December 31, 2017

New Tax Law in 2018

Mortgage interest

You may deduct the interest you pay on mortgage debt up to $1 million ($500,000 if married filing separately) on your primary home and a second home.

For homes bought before Dec. 15, 2017, no change. But for homes bought Dec. 15, 2017, or later, you may deduct the interest you pay on mortgage debt up to $750,000($375,000 if married filing separately).

Property Taxes

Currently, taxpayer can fully deduct what they pay in state and local property, income, and sales taxes from their federal tax returns. The new tax law in 2018 caps these total deductions at $10,000. This new law may have a very real affect on your bottom line if you reside in a state with above-average local and state taxes like New Jersey, New York, Oregon, or California. *One caveat* the $10,000 cap can be any combination of property, income, and sales taxes. This compromise between House & Senate Republicans was very closely watched, and will surely be a rallying point in the coming months, when midterm elections are held.

Current Tax Law Through December 31, 2017

New Tax Law in 2018

Property taxes

You may deduct the property taxes you pay on real estate you own.

You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes.

Capital Gains Exclusion

If you’re planning on selling your house in 2018, you know that capital gains taxes = the difference between the price you paid for the house and the price you ultimately sell it for. If you have not lived in the home you are selling for at least two years, your capital gain is treated as taxable income under the ‘ordinary income’ tax brackets (which also just changed). Home sellers can benefit by excluding up to $500,000 for joint filers or $250,000 for single filers for capital gains when selling a primary home as long as the homeowner has lived in the residence for 2of the last 5 years.

Current Tax Law Through December 31, 2017

New Tax Law in 2018

Capital gains

In order to qualify for this provision, it is mandatory that you have lived in the home as your primary residence for at least 2 of the last 5 years, before selling.

With all the 2018 tax changes set to take effect January 1, 2018, how will this affect your decision to buy a home? If you are looking at getting pre-approved, or already searching with a real estate agent, give us a call at 646-798-1800, or email us at support@stemlending.com so we can help find you the best mortgage loan. Visit STEM Lending to apply online, or learn more about the mortgage process.

We look forward to helping you find your dream home in 2018.

Immigrants Family Perspectives

Solving the mortgage needs of STEM immigrants in US

Recent immigrants to the United States face unique hardships and challenges when seeking all forms of loans: credit cards, auto loans and most significantly mortgages.

Research done by United States Department of Commerce’s Economics & Statistics Administration has established that Science, Technology, Engineering and Math (STEM) graduates workers drive innovation and competitiveness in the United States by generating new ideas, new companies and new industries.

The US National Foundation For American Policy (NFAP) presented an article on The Importance of International Students to American Science and Engineering in their October 2017 Policy Brief. The article presented statistics based on the US National Science Foundation’s survey of graduate students and postdoctoral scholars and showed an impressive observation: foreign nationals in the US account for 81 percent of the full-time graduate students in electrical engineering and petroleum engineering, 79 percent in computer science, 75 percent in industrial engineering, 69 percent in statistics, 63 percent in mechanical engineering and economics, statistics, 59 percent in civil engineering and 57 percent in chemical engineering.

Unique needs of immigrants concerning mortgages

With nearly 80 percent of Science, Technology, Engineering and Math (STEM) graduates being international, we at STEM Lending set out to explore what were the major challenges faced by immigrants when attempting to fulfill their American Dream – having a home of their own.

Coincidentally, The Wall Street Journal recently published an article titled Foreigners Seeking Mortgages Face Close Scrutiny. The article underscored that while the mortgage-application process can be daunting for even the most creditworthy borrower, the process is even more challenging for foreigners working in the US, who may not have adequate credit history or a permanent residency. Mortgage lenders typically seek two years of credit history of applicants, however recent immigrants often don’t have two years of residence or credit history in the U.S.

Inadequate credit history translates into unique challenges immigrants face despite having strong job prospects, stable earning potential and consequently, a strong ability to repay a mortgage. One argument that is often cited is that in the event of a job loss, an immigrant visa holder may decide to “dump everything and move back to home country”. The counter argument though, is that a job loss can in fact render a resident declaring a Chapter 7 bankruptcy, potentially eliminating their personal liabilities for mortgage loan.

How is STEM Lending addressing the needs of immigrants looking for a mortgage?

STEM Lending’s co-founder, Shantanu, is himself a first-generation immigrant entrepreneur. After earning a PhD degree in STEM field from the University of North Carolina at Chapel Hill, Shantanu embarked on his professional journey – industrial experience in science and technology jobs in US, while on a visa. Despite stable earnings from graduate school fellowship, it was challenge to obtain loan for even buying a car, let alone a mortgage.

Having first-hand experience of hardships encountered when seeking loans as immigrants, we at STEM Lending are committed to providing fair and accessible mortgages to creditworthy immigrants.

We firmly believe in evaluating mortgage application based on good faith determination of applicants’ ability to repay the mortgage: basing credit assessment on applicants’ income, assets, employment, credit behavior and their monthly expenses. We have partnered with multiple lenders to provide a diverse set of mortgage opportunities under one platform, thereby increasing the number of mortgage avenues immigrants get to explore.

Busy working professionals no longer need to visit multiple banks in person, fill out the same mortgage application form time after time, shopping and hoping to qualify for a mortgage. By streamlining the mortgage experience, we hope to help all creditworthy Millennials, inclusive of immigrants, will be able to gain access to fair credit, without hassle.

Please feel free to reach out to help@stemlending.com or contact us via stemlending.com/contact-us if you have any questions.

Wishing you a happy home buying experience!

– STEM Lending Team

millennials first house Perspectives

How Millennials Have Changed Mortgage Shopping

Tech Savvy Mortgage Millennials

You’ve probably seen us mention (multiple times) that Millennials are the single largest segment of home-buyers in America.

It’s still true. For the 4th consecutive year, Millennials were the largest group of home buyers (34%) according to NAR’s 2017 Home Buyer and Seller Generational Trends study. By comparison, baby boomers were only 30% of buyers. Additionally, Millennials represented 45% of the purchase loan volume in the first three months of 2017.

However, the differences between Millennials & Baby Boomers on how they search and shop for a mortgage lender are drastic.

What Differences Separate Millennial Borrowers from Baby Boomers?

When studies or data on “Millennials” is cited in reference to real estate, many of these “Millennials” do not feel like the term is the best fit or description, as they are 29-36 years old. A large percentage of this population only had a flip-phone in their teenage years, and didn’t get a “smartphone” until their adult years (remember, the 1st iPhone came out in 2007).

However, this Millennial or “Xennial” group has integrated technology into their daily habits. When it comes to mortgage shopping, their first action is not to call a real estate agent or ask their parents –> they go to Google.

Millennials are more likely than older adults to shop around for a mortgage and compare apples-to-apples rates: 86% of 18-34 year-olds shopped around for a loan vs. 75% of 35-54 year olds and 55% of those 55 years and older, According to a Survey of adults in 2016 by Ipsos on behalf of Zillow,

This is why 90% of new prospective homebuyers will use online resources to research homes and the mortgage process before they speak to a real estate agent, mortgage broker or lender.

Millennials Are Actually Comparison Shoppers

Millennials are far more willing to obtain multiple quotes from lenders vs. Baby Boomers or Generation X – on average, Millennials obtained 6 quotes, vs an average of 4 quotes by Gen X shoppers and 3 quotes by Boomers. Websites like Kayak, Yelp!, and even Amazon have honed our Millennial demographic into savvy comparison shoppers, which is why we started STEM Lending as a way to closely align ourselves with this trend.

Lastly, even though 90% of Millennial purchasers still engage with a real estate agent, Redfin data shows that 73% of millennial sellers try to negotiate with the listing agent for a lower commission, compared to 44% of Gen-Xers and 24% of boomers. Nearly 63% of the millennials who tried to get a lower commission rate percent reported being successful.

Millennials (18-36) have changed the way individuals shop for a mortgage; they demand transparency, simplicity, and multiple lender options.

Are Millennials Engaging With Traditional Lenders Differently? How?

Since the financial crisis began in 2008, we’ve seen the percentage market share of the mortgage market shift dramatically. To put it in perspective, By the end of 2016, 6 of the nation’s top 10 lenders were non-banks, while banks contribution to new mortgage loans fell to 21%, according to The Washington Post. Keep in mind that as recently as 2011, 50% of all new mortgage money was loaned by JPMorgan Chase, Bank of America and Wells Fargo.

Banks No Longer Make the Bulk of U.S. Mortgages

As lenders have changed, so have consumers, and their behaviors. Millennials have reported a higher willingness to switch banks (A recent Accenture study showed 18% of millennials switched their consumer bank partner within the last 12 months).

Millennial Expect a Digital First Mortgage Process

Whether a preference for technological automation, or the desire to educate themselves online first to narrow the knowledge gap, Millennials’ expectations when engaging with mortgage brokers or lenders demands the following:

  • Seamless user experience enabled by technology 
  • Trust through transparency on pricing and fees
  • Honest, transparent communication from mortgage experts 
  • Educational tools for customers with a longer lead time until they buy

Millennials want a parallel track –> they want a seamless process that can be 100% online, and a mortgage product expert ready and able to step in to provide concierge level help should they have a question.

Trust through transparency means having a bulletproof platform where a customers’ personal information will reside, should they need to work on their application in chunks over a period of days or weeks.

With apps like Acorns, Clarity Money, and now Rocket Mortgage, today’s mortgage shoppers expect to be able to access all their information digitally, even if the application itself still happens at home on a desktop. Companies like STEM Lending who can integrate with third party vendors such as Plaid, Finicity, and TurboTax to verify income and assets seamlessly, are in the best position.

How Have Lenders and Brokers Responded?

A number of mortgage lenders have created incentives to attract and retain Millennial homebuyers. Chase Bank recently announced it will give 100,000 reward points, to existing credit-card customers who take out a home loan with the bank for a limited time. Capital One offered cardholders earned air travel miles if they purchased property or refinanced their home with the bank. Wells Fargo gave out rebates to cardholders to use for its mortgages and home equity loans. Several other lenders have announced similar programs to launch in 2018. Eagle Home Mortgage, a mortgage lender and a subsidiary of Lennar, also recently announced a new mortgage program that will help homebuyers pay off their student debt, by directing up to 3% of the purchase price to pay their student loans, with the caveat that they buy a new home from Lennar.

At STEM Lending, as a leading online mortgage broker, we will work with you to understand your specific financial situations, your priorities in the homebuying process, and find you the best mortgage rate, regardless of lender. Explore your options on our website, here: https://www.stemlending.com/apply/

 

Mortgage Pre-approval Application Perspectives

How to prequalify for mortgage?

Home buyers can simplify the steps of buying their dream home by prequalifying for a mortgage. So, what exactly does a prequalify mean?

Mortgage pre-qualification enables you to estimate how much you can borrow from a lender. This helps you plan for the maximum price of the home you can afford using a mortgage financed by that lender.

Clearly, for maximum value, you would want to explore multiple lenders, comparing their mortgage products and the interest rates they quote. This is where working with an online mortgage broker such as STEM Lending helps you save. You can compare multiple options with much lesser time spent as compared to shopping offline. Explore options here: https://www.stemlending.com/apply.

What are the factors influencing the prequalification amount?

Factors that influence the dollar value of pre-qualification by a lender include:

  • Credit score
  • Monthly disposable income
  • Financial assets; and
  • Overall debt at the time of application.

It is essential to build up a strong credit score and monitor your credit before applying for pre-qualification. To learn more, check out STEM Lending’s article on credit report monitoring: Proactively monitor credit report before seeking mortgage.

A key metric to understand regarding mortgage pre-qualification is your monthly Debt-to-Income ratio, often abbreviated as DTI. The debt-to-income ratio is: (Sum of all the Monthly Debt Payments) divided by (Gross Monthly Income).

This number is measure by which lenders assess your ability to repay the mortgage, since a high debt-to-income ratio can render the borrower miss a scheduled mortgage payment in the event of a large unforeseen expense, increasing the potential likelihood of default.

Common metrics that are included in monthly debt payments, thereby impacting the DTI, include:

  • Monthly payment on new mortgage
  • Student loan payments
  • Credit card payments
  • Auto loan payments
  • Home appliance loan payments; and
  • Other recurring debt payments present in credit report.

Lenders may set DTI thresholds for mortgage applicants and many lenders may not pre-qualify applicants with Debt-to-Income ratio greater than those thresholds. To learn more about DTI, and how it impacts your mortgage application, check out STEM Lending’s article: Explaining Debt-to-Income “DTI” and Its Importance.

Notably, other factors also indirectly impact the DTI by means of monthly mortgage (Debt) payment. These include:

  • Approved mortgage interest rate
  • Loan-to-value ratio (LTV)
  • Credit score
  • Property usage
  • Late payment history and
  • Any foreclosures or bankruptcies on record

Pre-qualification is not the same as Pre-approval

First-time home buyers should note that mortgage pre-qualification is not the same as pre-approval. Pre-qualification is a conditional approval of the mortgage — an estimate of how large a mortgage one can afford. However, it doesn’t create a binding commitment between the home-buyer and the lender. Pre-approval, on the other hand, involves a detailed review of applicant’s debt, income, assets and credit history and the borrower can receive a Pre-Approval Letter documenting the amount that the borrower has been approved to borrow. To learn more about differences between Pre-approval and Pre-qualification, read STEM Lending’s article: Mortgage 101: Pre-approval vs. Pre-qualification Letter.

To take the first step in getting prequalified for a mortgage and save on your mortgage, contact STEM Lending for a free initial consultation:

  1. Message: stemlending.com/contact-us
  2. E-mail: hello@stemlending.com
  3. Call: +1 (833) 600-0490 (toll free)

STEM Lending also offers simple and free mortgage calculators for you.

Wishing you a happy home buying experience!

– STEM Lending Team

Mortgage Refinance Perspectives

Mortgage Refinance 101: when to refinance and why?

Refinancing a mortgage can potentially be a great financial strategy, especially when the original mortgage was purchased at relatively unfavorable terms.

However, there are definite costs associated with pursuing a refinance transaction, which is why its important to understand when to refinance and why. In this STEM Lending post, we cover why you should consider refinancing the mortgage and if so, when is a good time to refinance.

So lets cover the basics: what really is refinancing a mortgage? Refinancing refers to replacing an existing mortgage with another mortgage under different terms. In US, refinancing terms may vary based on economic factors, including projected risk and borrower’s credit worthiness. Usually refinancing is done for borrower’s primary residency mortgage.

Interest rates are currently close to all-time low (see figure below on Average US 30-year Fixed Mortgage rates), therefore mortgage refinancing remains a good option for many homeowners, especially if you bought your mortgage before the 2008 financial crisis:

Refinancing programs in United States

There are several mortgage refinance programs available in the United States, including:

  • Adjustable Rate Mortgage (ARM): You may chose to refinance to an adjustable rate mortgage if you project interest rates may go down in the future. As we highlighted earlier, current interest rates are already at historic lows so substantial future reduction in interest rates is unlikely.
  • Fixed Rate Mortgage: By refinancing to a fixed-rate mortgage can help you plan for monthly mortgage payments well in advance thereby helping you set a budget with predicable cash flows.
  • Cash Out Refinance: Using cash-out refinancing, you can convert part of your home equity into cash, which can be used for expenses such as home repairs
  • HARP: Federal Housing Finance Agency’s Home Affordable Refinance Program helping home-owners experiencing significant drop in their home values refinance with better mortgage terms.
  • FHA Streamline: refinancing existing FHA-insured mortgages requiring limited borrower credit documentation and underwriting.
  • USDA Streamlined Assist Program: available to existing USDA home loan borrowers, by US Department of Agriculture (USDA), providing more affordable refinance payment terms to borrowers with low or no equity.
  • VA Cash-Out Refinance Loans: providing qualified veterans an opportunity to withdraw cash for a near term need from their existing conventional or VA loan.

Two important factors to keep in mind regarding refinance are: (i) Refinancing resets the clock on your mortgage, so a fresh 30-year refinance on an existing 30-year mortgage will extend the mortgage duration to a fresh 30-year duration from the day of refinancing closure, although at a potentially lower interest rate and monthly payment. (ii) There are transaction costs associated with accomplishing a refinance, including a concept of points as we discuss below. Even with mortgage clock reset and transaction costs, refinancing can potentially be a valuable financial decision, for following reasons:

Motivation for refinance

Mortgages can be refinanced for multiple reasons:

  1. Reducing monthly payments by lowering the interest rate.
  2. Debt consolidation of multiple mortgages into one for a potentially different term based on prevailing interest rates.
  3. To reduce the risk of rate fluctuation, switching from an adjustable rate mortgage to a fixed-rate mortgage.
  4. To make cash accessible by altering the terms of mortgage (cash-out refinancing).

Also note that there can be potential tax benefits available with refinancing, particularly if the borrower doesn’t owe the Alternative Minimum Tax.

How do you proceed with refinancing? We recommend you to reach out to a licensed professional mortgage broker who can help discuss your mortgage options and guide you whether you will benefit from a mortgage refinance.

To explore your refinancing options with STEM Lending in more detail, we encourage you to reach out to contact@stemlending.com or contact us via stemlending.com/contact-us / +1-833-600-0490 (toll free), if you have any questions regarding refinancing. We offer free initial consultation to discuss your mortgage options. We also offer a number of handy mortgage calculators to help you compute the mortgage monthly payments and other analytics.

Mortgage Points

A fraction of the net mortgage value is often required to be paid upfront for refinancing. Usually, this fraction is expressed as percentage of  the mortgage amount and is referred to as points, i.e. 1 point equates to 1% of total mortgage amount. Larger upfront payments for refinance (i.e. larger number of points) often yield reduction in interest rates in the refinanced loan.

For further information, feel free to contact us:

  1. stemlending.com/contact-us
  2. Mortgage Calculators – Essential for financial planning

Wishing you a happy home buying experience!

– STEM Lending Team

New Homes. New Homeowners. Perspectives

Unexpected Costs for First Time Homebuyers

How to Keep New Homeowner Costs in Check

Buying your first home is an exciting and breathtaking experience. However, as you become a new homeowner you’re focused on closing and moving into their home with no hassles, it’s easy to be naive about the unexpected costs involved in being a homeowner.

Some of the unexpected costs are unavoidable, such as closing costs. Other costs may depend on where you live, the kind of home you purchased, and your lifestyle choices. Additionally, most people are unprepared for any unexpected repairs that come up just as you’re moving in.

At STEM Lending, we are committed to helping you understand the full picture of what your true costs of owning a home are. Read below to learn more about unexpected costs that can arise when buying a home.

Property Taxes

A common mistake homebuyers make is to find a dream house, plug in the principal and interest rate payments into their calculator, and use that number (ex. $2,000) to compare vs. their current rent. This calculation is incorrect as it leaves out a major expense — property taxes!

Find out what your expected property taxes are by checking the MLS (Multiple Listing Service), divide it by 12 and then add that to your estimated monthly payment.

Buyers are typically required to pay for three months’ worth of city & county property taxes at closing. You may also have a choice of rolling your monthly mortgage payment + monthly property tax bill into one lump payment, but this not required in every location.

Be aware that property taxes (just like HOA fees) always go up — sometimes by 1-3% per year, so make sure you’ve saved enough for a cushion for any unforeseen tax increases.

Closing Costs

As we’ve mentioned in previous blog posts, closing costs can be a very unpleasant experience, especially if you are surprised at the last minute. Between January 2016 – January 2017, ClosingCorp, surveyed 1,000 first-time and repeat homebuyers to gauge their biggest surprises.  Here were some of the findings:

  • 17% of all homebuyers were surprised closing costs were even required
  • 35% of all homebuyers were surprised that their closing costs were higher than expected
  • 24% of all homebuyers were surprised by unexpected costs regarding mortgage insurance

Educating yourself on the specific state requirements for closing costs is key. Some states allow the seller to pay some or most of the closing costs, but to be on the safe side, budget for 2-3% of your home’s value to be paid at closing.

Home Maintenance

As a new homeowner, all of the landscaping, lawn-care, and maintenance is now all on your budget. If you’re a first time homeowner, you probably have never had to be responsible for a lawn or the grass on the other side of the sidewalks. You will need to budget additional funds to buy home maintenance tools such as a lawnmower, shovels, and rakes.  If you live in a colder climate, you may need to purchase a snowblower to help plow the snow in a big snowstorm.

Overall, plan on spending 1 to 2% of your home’s value every year in maintenance and upkeep, according to the Harvard University Joint Center on Housing Studies.

Furniture

One of the largest triggers for a family to move away from large city apartments to single-family residences is the need for space. If you and your spouse have just had a second child, or are thinking of expanding your family, you’ll likely be moving to a much larger house. This means that you will likely have to buy more furniture to make your house a home.

There are ways to reduce your expenses by buying furniture from your friend’s parents (who may be downsizing) or by shopping estate sales. You can also space out your furniture purchases over months. Given how expensive items such as beds, couches, and dining tables can be, consider what your total expenditure on furniture based on the square footage of the house.

Utilities

As a current homeowner, believe me when I say: your utilities costs can be as high a number as your property taxes. The seasonality of these bills is a big factor in how they appear as an unexpected cost. Additionally, if you were previously a renter, depending on the state where you lived, you may or may not have had to pay for heat or hot-water.

In the U.S., energy costs account for 5 – 22% of families’ total after-tax income, according to a national study. Although climate and location plays a significant role in consumption, the age of the housing stock also plays a role.

Estimates for annual utility bills change with climate, and the national average is ~$3,000. Ask a parent, co-worker, or friend with a home in the same county you’re considering, and go over their most recent utility bill. This kind of real world comparison is very helpful when it comes to considering unexpected costs in home maintenance.

Kids

This may come as a surprise, but kids (young children) can be difficult to keep track of in your new house! They are the biggest joy in your life, but…they can also put holes in walls, draw on walls, and spill all types of juices on carpets and rugs. Kids who’ve just learned to walk could run into a screen door, or throw a toy that breaks a window.

When you were a renter, your biggest fear was losing your security deposit due to damage to the unit. Now that you’re an owner, the costs can be hundreds, if not thousands of dollars more.

Setting aside even a few hundred dollars for accidental damages from children can be a useful war chest as your family grows.