All posts by rtradmin

From the inbox: I see lenders advertising lower than 620 VA loans. Is this for real?

Short answer: yesno. Read the fine print.

Longer answer: the VA actually has no minimum credit score for insuring the loans of qualifying servicemembers. However, most lenders will require a minimum credit score.

There are lenders that offer loans to qualifying servicemembers with lower credit scores. There is always a cost, though. It’s usually in the form of a higher interest rate and higher loan costs.

That said, this can still be a good decision. There is something to be said about locking in housing costs vs renting, for example. But you have to run the numbers and do a cost benefit analysis.

From the inbox: Should I roll debt into my mortgage?

I’m in a coding bootcamp but wanted to take a moment over lunch here to answer this question that I’m seeing pop up via email, PM and I’m also hearing more ads on the radio offering this.

I think this is a marketing tactic related to the rising interest rates and home prices (as companies try to generate additional revenue).

This is not legal or financial advice but I believe the short answer is: it depends.

The longer answer is it depends on your circumstances. While rolling high interest debt into your lower rate mortgage may sound good , there are a number of variables to consider, two of which are:

  1. If you take the surplus of income and turn it around into paying down your home mortgage, that could be a good thing.
  2. Doing so raises the value at which you have to sell your home (in a peaking market, this may cause trouble for you, if you have to sell).

What do I mean by the first option?  If one has credit card debt of $25K that’s costing $450 in interest monthly, you may be able to roll that into a mortgage refi. But consider that may raise your mortgage payment. If it does so by $125, that leaves you $325. If you are disciplined and build an emergency fund with that or invest it or turn it back around into paying down the principal of the home, I could see this being a good option.

However!!! (emphasis intentional), know that it raises the amount you need to sell your home at by that corresponding value plus some (if you use a percentage based commission agent to sell, for example). If you are looking to stay in your home long term, that may still be a good option. But – and here’s the bottom line of this post – please understand it’s putting you in a position where you must have continued market appreciation to sell (unless you have a lot of equity). 

And if you have a short horizon on home ownership, or are looking to sell soon, this could put you in a bad spot.

S2155 and the Veteran

image from pixabay

Let’s talk about S. 2155, “The Economic Growth, Regulatory Relief, and Consumer Protection Act” and the Veteran.

Buried deep (Section 309) in this bill (now law) are a couple of provisions that directly impact veterans with home loans (or veterans who will be getting home loans).

First, there’s a “Net Tangible Benefit Test” in which:

all of the fees and incurred costs are scheduled to be recouped on or before the date that is 36 months after the date of loan issuance

What does this mean? 

Essentially, to refinance a VA loan, the total cost of the refinance must be less than or equal to the cost of the refinance over 36 months.

Is this a bad thing? 

I submit that it is not. It protects the veteran from paying potentially extra dollars in fees. VA streamline refinances are often sold as “not having to pay anything up front to lower your payment!” This is true but there is a cost. That cost is added to the mortgage balance and reissued for 30 more years. This test imposes a test to make sure the veteran isn’t being taken advantage of in the form of higher fees.

Won’t this make it harder to refinance?

Potentially. However, it’s also going to put pressure on lenders to contain the VA refi costs.

The second provision address the minimum interest rate reduction:

in a case in which the original loan had a fixed rate mortgage interest rate and the refinanced loan will have a fixed rate mortgage interest rate, the refinanced loan has a mortgage interest rate that is not less than 50 basis points less than the previous loan

In short, these means the new loan will need to be approximately .5% lower than the previous loan. As with the test above, this doesn’t  necessarily harm the veteran.

There’s long been a mantra in real estate – a rule of thumb – that suggests “It’s good to refinance if you can drop the rate 1% or more.” As a rule of thumb, this is good advice (but always run the numbers). It seems this provision codifies this rule of thumb into law in the form of “A veteran may not refinance unless the new interest rate is .5% or lower.”

Taken together, these provisions essentially state:

A veteran may not refinance unless the new interest rate is .5% or lower and the fees for the refinance are recoupable inside thirty-six months.

In sum, I submit these provisions are likely going to have the effect of protecting the veteran from being sold a product that is high cost for marginal gain.

Is cash king in Colorado Springs?

There’s a common perception that, “Cash is King.” By this, it’s meant that cash tends to command a large discount.

Is that true in Colorado Springs?

Statistically not in December 2016.

There were 1,309 MLS listed sales for the month in the Pikes Peak Multiple Listing System (PPMLS) last month. Of those, 146 were cash. Of those 146, the average closing price to list price ratio was 98.3%.

Contrast that with VA loans for the same month, where the ratio was 100%.

Cash in December 2016 commanded a 1.7% discount.

Colorado Springs, Denver among top 10 best cities for retirement

coloraltitudeI agree!  When we moved here, we knew we’d be staying and retiring here.

From the article: The Bankrate.com survey of the best cities to retire ranked 196 U.S. cities based on their health care quality, cost of living, tax rate, crime rate, weather, well-being and walkability. 

What brought you to Colorado?