The goal of homeownership isn’t always an easy one to achieve. But when you do become a homeowner with a mortgage, you can then use that achievement to realize other objectives. Let’s look at a few ways that refinancing can help you to utilize the equity you have in your home as a tool to reach a variety of financial goals. 

Investing as a Goal 

For a huge number of Americans — almost one in five based on a recent survey — investing is their top financial goal. And this objective is nearly equal across different age demographics, with Generation X, millennials, and Generation Z all showing similar desires to invest more. Baby boomers lag just behind them with about 15% of people in that age group looking to make more investments.  
 

Cash-out refinancing may be one of the best ways you can use the equity you have in your home to help you invest. With this strategy, you would replace the mortgage you currently have with a larger one, and, as the product’s name suggests, take out the difference in cash. You can then use that money to fund a host of different investments. The key here is to invest in something stable that has a rate of return that’s higher than the rate you are paying on the funds you took out through refinancing.  

Stocks can be one way to do this. While subject to market forces and not 100% guaranteed to be profitable, historically, the stock market offers an average return of 10%. As a hypothetical, if one is paying 5% interest on the cash they use to invest, and that investment is returning at 10%, they’re making a steady profit. Granted, the rate of inflation will reduce those profits, and stock values fluctuate, so the stock market is a long-term strategy best managed with the help of financial professionals who know what they are doing.  

And you might consider that the money you may gain isn’t limited to what the investment earns; given today’s attractive interest rates, you could very well get a better rate on your current mortgage through refinancing and lower your monthly payments. 

Refinancing and Real Estate Investing 

One of the most direct ways to employ cash-out refinancing to invest in real estate is to use the money you get to put a down payment on an investment property. This could be a considerable amount, as cash-out refinancing allows for borrowers to get up to 80% of the equity they have in their homes — with low credit score requirements, as low as 640. Some borrowers could very well have enough equity in their homes to buy an investment property outright with cash.  

Also, keep in mind that refinancing works for the second property as well if, like many, you use a mortgage loan to buy an investment property. Just as you can with your primary residence, you can use refinancing to change the mortgage terms on an investment property. One might wish to refinance from a mortgage with an adjustable rate to a fixed one. Or shorten the term of a loan to own a property sooner, paying higher monthly payments but accruing less overall interest. You might also use cash-out refinancing with the mortgage you have for an investment property to pay for maintenance and repairs on that property. 

Paying Down Debt 

Recent data shows that paying down debt is the number-one financial goal of people in the United States, as about 20% of Americans are looking to reduce what they owe. You may be able to simply achieve this goal by using the money you save in monthly payments by refinancing at a lower rate and putting that difference toward debt each month. Though one can also use cash-out refinancing to pay off debt by consolidating high-interest debt with a lower-interest loan. Credit card debt, for example, tends to have a higher interest rate than mortgage rates. 

Home Improvement as a Financial Strategy 

Repairing or upgrading your home isn’t just a goal that could improve your living situation in the short term — it’s also a long-term financial goal. Several home improvements offer significant returns on investments by increasing property values. While not all home upgrades pay off, many do. These often include kitchen updates, replacement entry doors, energy-efficient windows, wood decks, and new garage doors. In terms of cost versus value, Remodeling magazine found that adding stone veneer to a home’s exterior recoups 95.6% of its cost when a property sells. These improvements, paid for through refinancing, could earn you money in the long run. 
 

To utilize refinancing to pay for some or all of these upgrades, you can look to an FHA 203k Rehabilitation Loan. Backed by the Federal Housing Authority, these versatile loans can be used for basic upgrades such as a revamped kitchen or a bathroom makeover, or extensive projects such as additions or even tearing structures down to their foundations to rebuild. It’s a simple deal: you just roll the renovation costs into your current monthly mortgage payment. All with credit-score requirements as low as 580, no tax returns are needed, and you don’t have to currently hold an FHA mortgage to take advantage of FHA refinancing. 

More Money for Retirement 
 

One way to use refinancing with retirement goals in mind is to shorten the term of your mortgage so that you pay off a home sooner and retire with less debt. Entering retirement with a home paid off offers peace of mind that goes beyond pure financial stability. But others use a different strategy: using cash-out refinancing to invest in their retirement savings by contributing to a 401(k) or an IRA. This might make sense if the return on the investment is higher than the interest rate on the home loan.  

Are you ready to take proactive steps to secure your financial future? If so, City Lending is waiting with a range of loan products designed to help you achieve your financial goals. Contact us today. 

Are you struggling with high monthly mortgage payments? Maybe you’d just like some extra cash to spend each month. Then you should know that there are some simple ways to cut your monthly costs through mortgage refinancing. And with today’s attractive interest rates, refinancing may make sense more now than ever. Let’s look at the options you have for monthly savings. 

When Refinancing Makes Financial Sense 

As a rule of thumb, if you can lower your current interest rate between 0.5% and 1%, then refinancing your mortgage usually makes sense. Does a 1% reduction really make that much of a difference? Yes. Let’s take a hypothetical existing 30-year mortgage for $225,000 with a fixed rate of 4%. Then refinanced at 3% after three years. Just calculating by interest and principal, the monthly payment at 4% would be $1,074 and after refinancing at 3%, it would be $846. That’s a difference of $228 per month, or an annual savings of $2,736. 

Monthly Savings with Mortgage Length 

Beyond simply getting a new interest rate on your mortgage, you may also consider lengthening the term when you refinance; by going from a 15-year mortgage to a 30-year one, you can significantly lower your monthly payments. It makes sense if you plan to stay in your home for a while. And consider that the savings don’t have to be just cash in pocket — you could invest that money. For example, earning, say, 8% interest by investing that monthly savings nicely offsets the lower rate of interest you pay on the refinance loan. 

What about rising interest rates? 

Yes, the historically low interest rates we’ve seen in the recent past have been going up; the rise was inevitable. And you may look at these increases and assume that refinancing won’t help you save money, or at least not enough money to make the effort worthwhile. But that’s simply not true for millions of Americans who, indeed, would benefit from refinancing.  

Recent findings from Black Knight show that close to four million homeowners in the United States would be able to lower their monthly payments by refinancing their mortgages. The data and analytics firm identifies prime candidates for refinancing as homeowners who have 30-year fixed-rate mortgages, loan-to-value ratios that are less than 80%, with credit scores of 720 and higher. These homeowners should be able to cut 0.75% or more in interest on their mortgage loans. 
 

It’s worth noting that the conditions for refinancing approval that Black Knight cites may be stricter than those of some lenders. With more lenient prerequisites, the number of borrowers who could reduce their monthly mortgage payments through refinancing jumps to nearly seven million people, according to Black Knight. 

Figure Out When the Savings Really Start 

If you are thinking about refinancing, you’ll want to determine your break-even point, when the costs of the new loan are surpassed by the savings. These refinancing costs are often anywhere from 2% to 5% of the loan’s total amount. Say, for example, that refinancing reduces your monthly payments by $100 and you paid $5,000 in closing costs. It will take 50 months (just over four years) to recoup the closing costs: that’s your break-even point when the saving begins. 

Save With VA Streamline Refinancing 

If you’ve already qualified for a VA Loan, you know it comes with big benefits, such as no down payment and no private mortgage insurance. But there’s another plus: an Interest Rate Reduction Refinance Loan, or IRRRL. Commonly called VA streamline refinancing, an IRRL is similar to refinancing for conventional mortgage loans. But with fewer restrictions than there are with other types of refinancing. 
 

There’s a reason they call it “streamlined” — the road to approval is generally smooth with few obstacles. With a VA IRRRL, there’s no need to get an appraisal as you do with some other refinancing programs, and there’s often no need for a credit check, as credit underwriting packages aren’t required by IRRRLs. So even if your credit has taken a few hits since initially getting approved for your VA Loan, approval for an IRRRL is still possible. Plus, the funding fee and the closing costs of the refinancing can get rolled into the mortgage. 

Steps to Take Right Now 

As you approach refinancing, you might consider these first financial steps to get yourself prepared. 

• Make a goal. Are you looking to move from an adjustable-rate to a fixed-rate mortgage? Or go from an FHA mortgage to a conventional loan? Beyond saving money each month, what you wish to achieve through refinancing should be clear from the start.  
   
• Determine your home’s equity. Your lender will look at your home equity during the approval process, so you should, too. The more equity you have in your home, the less of a risk you are to lenders, and the better your refinancing terms may ultimately be. To figure out your equity, first determine your home’s market value; an online home value estimator will get you close. Subtract what you owe on your mortgage from that amount to determine your equity. If you have more than 20% equity, you’re well-positioned for refinancing. 
    
• Check your credit report. Lenders almost always look at credit scores in evaluating applications for refinancing, so you don’t want any surprises. You can get a free credit report from the credit reporting agencies TransUnion, Equifax, and Experian. And know that you have the right to contest any errors you may find. 
    

• Gather the needed paperwork. Your lender is going to want some financial information from you, so make sure you have the paperwork for your current mortgage. You’ll want to get your W-2s from the past two years, and your most recent pay stubs, or bank statements if you are self-employed or have non-traditional income. 
   

Whether you stick with your loan’s current length, or stretch things out to pay less each month, City Lending is here with a range of refinancing programs that could very well lower your monthly payments. 

Scrolling through lists of home features as you shop for a new house can be a dizzying experience. It can be difficult to know which home features you really want, which add value to the home, and which don’t. Let’s look at some things that contribute to a home’s value over time, and ways in which you can add value yourself.

The Features Most Folks Want

• A dedicated laundry room. Turns out, the old saying about airing your dirty laundry in public is true; a separate laundry room is one of the most desired features with home buyers, according to the National Association of Home Builders. People will pay for the privilege of keeping dirty laundry out of their living spaces.
• Three bedrooms. Three is the magic number when it comes to how many bedrooms the majority of home buyers want. Overall, 47% want three, compared to 32% who are looking for four bedrooms or more. Though drilling down on NAHB stats shows that 47% of married couples who have children want a minimum of four bedrooms.
• Open floor plans are highly desirable. So much so that a whopping 85% of home buyers say they want free-flowing space between the dining room and kitchen, while 79% want to have an open space between the family room and the kitchen, and 70% want the same between the family room and the dining room.
• Walk-in pantry. One of the most popular kitchen features with home buyers, walk-in kitchen pantries means more living space and less storage in the kitchen. Lots of people these days buy in bulk at big box stores, and it’s nice to have a place to store all those non-perishables mere feet from the cooking area.
• Two bathrooms are perfect. But not by an overwhelming majority: 37% of homebuyers want two bathrooms; 21% are looking for 2.5; while 26% wish to have more than three baths.
• Full bath on the first floor. According to the National Association of Homebuilders, having a half-bath on the first floor increases an average home’s value by 10%. Which is impressive enough. But that doubles to 20% if it’s a full bathroom: toilet, sink, shower, and tub. From families with young children they can bathe on the main floor to older adults who wish to climb stairs less, nearly everyone loves a full bath on the first level.
• Two-car garage. The majority of prospective home buyers, 42%, want a two-car garage, more than double those that want space for just one car (18%), and those looking for a three-or-more car garage (12%).
• The suburbs win with location. This is clear with the top sought after aspects of prospective areas to buy a home in, which are walkable suburban communities with trails for walking and jogging, close to both parks and ample retail options.

Areas Where You Can Add Value

When looking for a new home, it’s a good idea to keep an eye out for untapped potential, namely areas where improvements will pay off with increased resale value.

• Exterior illumination. This top feature on the NAHB’s list is also one of the cheapest to install. A few hundred dollars can illuminate a home’s exterior in dramatic fashion, with walkway lights, pendant lights, and strategically positioned spotlights. It’s a small investment with an attention-grabbing payoff.
• Upgrades over revamps. While going all-out on a full upscale kitchen remodel may seem like a solid investment, Remodeling magazine’s data shows that kind of large-scale overhaul brings in a 53% return when balancing cost against added value. A more moderate kitchen upgrade brings in an 81% return. The same is true with bathrooms; conservative updates see returns in the 70% range while extensive remodels return 56% on average.
• Ceiling fans. Simple, energy-efficient, and comparatively cheap, ceiling fans are desired by the overwhelming majority (83%) of potential home buyers. Energy.gov says any rooms in which you install ceiling fans should have heights of at least eight feet.
• Energy Efficiency. From energy-efficient replacement windows to Energy Star-certified appliances, most buyers are looking for homes that don’t waste money with utility bills.
• Side-by-side kitchen sink. Most people want a double sink in the kitchen. You can install one for about $500 and have a kitchen feature that more than 80% of homebuyers want.
• Adding usable square footage. Square footage has a direct impact on home value; bigger homes fetch bigger prices. But beyond additions such as second stories, consider making existing space more livable. Building a deck or finishing a basement are two of the best ways to create more usable space. Patios and front porches are two of the most wanted outdoor features for buyers, according to the NAHB.

And if you’re wondering how to pay for these value-adding improvements, home refinancing may be the perfect way to use the equity you already have in your home to get the cash you need for home improvements.

And some things that may not add value…

There are some common misconceptions about things folks think add value to homes, but actually don’t.

• Swimming pools top the list; while pools can increase the value of a home by up to 7%, they also come with maintenance costs (and upkeep hassles) some potential buyers won’t want.
• Overbuilding, such as a second story in an area of one-story homes, won’t considerably boost the resale value if the home goes beyond the neighborhood norm.
• High-end upgrades are great — if they’re consistent throughout the house. A sleek new kitchen won’t move the needle on the resale price very much if that’s the home’s only major renovation.
• Wall-to-wall carpeting. Processed with chemicals and known to trap allergens — not to mention the cleaning issues — carpeting can be a turnoff to would-be buyers. Best to tear out the carpeting and put in wood flooring.

Ultimately, the features you want in your new home, and those you wish to add, are matters of personal choice. When you do find the home you desire, City Lending is here for your mortgage needs from purchase to home improvements.

Your credit score plays a big role in your mortgage eligibility. And understanding this is often the key to getting your dream home. Here’s what a credit score is and why it matters when you’re looking to buy a house.

First, what is good credit? From the perspective of your lender, good credit means a history of using the credit you’ve been given in the past with care and paying back previous loans according to their terms. With these positive credit behavior patterns, you are more likely to get approved for a mortgage at a low interest rate with favorable terms.

Credit Reports and Credit Scores Are Not the Same Thing

A credit score is a number that’s assigned to you as an estimation of your worthiness to get credit. A credit report is a detailed look at your credit history. Let’s drill down a bit on each.

• Your credit report shows how much money you have borrowed, how you’ve paid it back, and how much credit that you have available to you. The report includes debts such as student loans, auto loans, and credit cards, among others. Credit reports also show any red flags, such as referrals to collection agencies, long-overdue bills, bankruptcies, and tax liens. You have a right to receive your credit report; federal law requires each of the nation’s big three credit reporting companies to give you a free copy of yours. You should check out your credit report before applying for a mortgage.
• Your credit score is a number between 300 and 850, determined by a number of factors related to how you’ve managed credit in the past, including the type of credit that’s been extended to you and for how long. The most commonly used credit score is the FICO score, created by a data analytics company previously named the Fair Isaac Corporation, now simply FICO.

Factors That Determine Credit Scores

• Payment history is a big factor in determining a credit score. About one-third of the calculation that sets your credit score relies on how you’ve made payments on your bills. Consistent on-time bill paying gets you good marks, late and partial payments will result in negative marks.
• Balance ratios rank a close second. Known in the finance world as a credit utilization ratio, this split between the debts you owe and the amount of credit you have available is hugely important in determining your credit score. Keeping this number under 30% has a positive impact.
• Credit timelines come in third. Got an old credit account you rarely use? Don’t close it! The longer you’ve had a credit account, the better this longevity contributes to your credit score. Conversely, closing longtime accounts could lower your score.
• Your credit mix is also considered. Lenders like to see diversity with credit, giving credence to the fact that you can handle a variety of credit situations. Open credit, revolving credit, installment credit — it all comes together to paint a good credit picture.
• Recent credit activity plays a part. The flip-side of credit longevity, a flurry of recent credit activity doesn’t bode well for a credit score. While not as significant a factor as payment history or balances owed, applying for multiple credit accounts over a short, recent period can put a dent in your credit score.

What credit score do I need to get a mortgage?

This is often the biggest question people ask before they apply for a mortgage loan and the one that weighs the heaviest in their minds as they await approval. While this varies from lender to lender and other factors may influence the results, a credit score of 620 is generally considered the floor for getting approved for a conventional mortgage. A score of 740 or higher is often considered the range to get the best possible terms and best interest rate on a conventional mortgage.

Can you still get a mortgage if your credit score is in the 500s? Yes. Though if your credit score falls below 620, your best bet is usually to apply for an FHA Loan mortgage, as government-backed loans often have lower credit-score thresholds — with higher down payment requirements based on your credit score. If you have a score of 580 or higher, you may be able to get an FHA loan with only 3.5% down. With a score in the 500 to 579 range, you’re probably looking at a 10% down payment to secure an FHA mortgage.

Specifically designed for veterans and active-duty members of the military, VA Loans are similar to FHA Loans in that they are guaranteed by the government, backed by the Department of Veterans Affairs. The credit-score requirements tend to skew slightly higher for VA Loans over FHA Loans; 600 to 640 is a common range for getting approved for a VA Loan, which often has the advantages of 100% financing with no down payment and no requirement for mortgage insurance.

How can I improve my credit score?

While there is no quick fix, there are steps you can take to improve your credit score. If you have long-standing debts, such as student loans, paying them down will help. All the better if you can close out the debt. But don’t close out paid-up credit cards; best to keep these open as longer-term lines of credit positively affect credit scores. If you can’t completely pay down a credit card, making more than the minimum monthly payments will help.

What if my credit score is still too low to get a mortgage?

Whether it’s due to no credit or bad credit, this is an issue many would-be borrowers face. For many, having a co-signer who does have a good credit score is the answer. Another option is to have another person, a family member or a significant other, buy the home and put your name on the title. When your credit score improves, you can then apply to refinance to have the mortgage in your name.

A good credit score can change your life, handing you the keys to the home you desire. And when you’re ready to embrace that change, lenders at City Lending are ready to serve.

Thinking about buying a new home or refinancing? Call today to get pre-approved.