Listing Courtesy of JOE MAGGIO REALTY
Something new is stirring in the ordinarily hidebound world of residential mortgage offerings: a new way of approaching the financing of home purchases. If successful, it might well shift the way some Rehoboth Beach mortgage contracts are written.
The experiment is known as the "Wealth Building Home Loan," and it addresses a home-ownership problem that has been talked about for a long time, with little being done to solve it. The issue in question is how to unburden new homeowners from spending years in a situation that bears more resemblance, financially, to renting than to owning— especially during the first 3 to 5 years. For low- and moderate-income mortgagees, that’s the difference between sinking into more debt and actually building wealth. After all, every dollar that goes toward interest is lost, while dollars that pay down principal are investments.
According to Edward Pinto, one of the authors of the WBHL, often during the opening years of a 30-year loan, "68% goes to pay interest." In the new program, 77% of monthly payments go to pay off principal—with the result that in a short time, new homeowners have a much larger equity stake in their homes. And, it is hoped, a sizeable increase in pride of ownership: "a stake in the game."
It sounds good, but you might be wondering how this could be possible. Is this just a ‘pie in the sky,’ feel-good idea that will never see daylight in the real world? Apparently not. The pilot program is being put into action by some serious players: the American Enterprise Institute (if that sounds like a conservative outfit, it is) and administered by the Neighborhood Assistance Corporation of America (if that sounds like a liberal outfit, ditto). And it’s being funded by Bank of America and Citi Mortgage—neither of which would be likely to bankroll some fly-by-night scheme.
The mechanics of this kind of mortgage work out like this. First, it’s based on a 15-year term, which of course speeds the rate at which equity builds; and second, it’s a mortgage that carries a very low interest rate. Something for nothing? Not quite: the concept is to
· change the underwriting standards to tilt away from credit history and toward recent payment history and residual income, thought to lower lender risk
· eliminate the down payment altogether, instead allocating that initial cash toward "points": buy-downs of the mortgage’s interest rate to .5%, (or even 0%)!
It boils down to an approach that could be a win-win. Borrowers (even those who suffered credit black marks during the economic downturn) could be newly eligible for a home loan, and because lenders pocket the interest rate buy-down amount, a proposition they might find acceptable.
Should Rehoboth Beach mortgage applicants expect this deal to be available next week? Not likely: it’s in the pilot phase. But if it seems to work out, it could be a shot in the arm for homeowners who can manage a slightly higher monthly payment. If you would like to chat about today’s home loan availability (or any other current Rehoboth Beach real estate doings), I hope you’ll give me a call!
At some point while weighing the pros and cons of buying a new home in town, you begin to mentally fix on a price range. If you are able to depend on a family income that’s fairly predictable, the issue is simplified. If not (small business owners, entrepreneurs, and many sales professionals frequently find themselves in this category), finding an appropriate price range takes careful deliberation.
Sometimes the issue can be decided for you. In most cases, buying a home will involve a mortgage, so lenders get to weigh in. Since it’s a good idea to seek preapproval from a Rehoboth Beach mortgage lender early on, you can let their professional opinion help with the price range.
Let’s say the Martins have been preapproved for a $260,000 home loan. They have $20,000 set aside for a down payment, and are certain to clear another $20,000 once they sell their current home and retire its mortgage (it’s in very good shape in a nice neighborhood, but just too small for their growing family). So it’s good news: they can buy a $300,000 home!
It’s at this point in buying a home that the Martins can also decide to make a decidedly atypical decision. That decision would be to pick a number below their peak eligibility as the top figure in “their” price range, and to shop accordingly. Most folks don’t wind up doing that.
Maxing out your budget and purchasing the most expensive home you can afford is undeniably appealing. The math might tell you that you can afford the monthly mortgage payment, even if buying your new Rehoboth Beach home puts you at the top of your price range. It can mean you get the space and features you've always dreamed of. However, there are some sound reasons why buying a home at the top of your price range might not be your best choice—
1. Additional Expenses
That mortgage amount alone does not take into account the other expenses and financial obligations that come with being a homeowner. Homeowners' insurance and neighborhood association fees can add to your regular monthly expense, as will property taxes—a considerable figure. If you are moving to a larger property, any maintenance and utility expenses that you’ve grown accustomed to might be greater. If you plan on buying the most expensive home you can, those extra bills might be budget-busters.
2. Room to Renovate
Even if you're buying your dream home, chances are very good that you'll want to make a few changes to the new place. From fresh coats of paint to changes of carpets, appliances, or countertops, changes are a normal phenomenon after buying a home. Even if you're pleased with the existing aesthetics, you might need additional furniture if the move is into a bigger space. Purchasing at the top of your price range can limit your ability to make needed changes.
3. Emergency Fund Savings
An emergency fund is a stress-relieving must for homeowners. When the refrigerator fails, the furnace needs to be replaced, or a busted pipe floods the bathroom, you’ll be relieved to have the extra cash. Even true do-it-yourselfers need to call for professional help occasionally. When you purchase a more affordable home, you'll have extra cash to set aside for emergencies.
One of the greatest benefits of buying a home in Rehoboth Beach is the sense of stability and security it brings. Working with a group of experienced professionals is the surest way to achieve your home buying goals…as well as a sound reason to give me a Call/Text me Russell Stucki at (302) 228-7871, email me at firstname.lastname@example.org, visit more listings at www.beachrealestate.com