Today’s mortgage rates are very low, making it an ideal time for equity-rich homeowners to explore cash out refinancing options. If you’re thinking of applying for a cash out refinance, Luxury Mortgage offers this option in a variety of loan products. We will highlight these products in today’s post and offer a simple overview of the cash out refinancing process.
What is a Cash Out Refinance?
In a typical rate and term refinance, a homeowner refinances their existing mortgage with a new one, usually with a lower interest rate or better terms. Traditional refinances cover the remaining balance of the old mortgage. However, with a cash out refinance, homeowners can refinance their existing mortgage for more than what they currently owe and receive the difference in cash. The amount they can receive depends on how much equity they have in the home and the guidelines can vary depending on the type of home loan program they’re using for the refinance.
Thinking about switching up your mortgage structure to save money? Today’s lower rates could mean now is a great time to refinance your mortgage, and shave off extra time and interest if you refinance into a shorter loan term.
In case you haven’t been keeping up with the latest mortgage interest news, rates on home loans have dropped pretty significantly lately. In fact, the Mortgage Bankers Association (MBA) recently reported the average contract interest rate for 30-year fixed rate mortgages with conforming loan balances ($484,350) or less decreased to 3.90 precent from 3.93 percent.
Mortgage refinance applications have been increasing lately, leading many to consider if now is a favorable time to do so. With mortgage rates remaining near historic lows, and more homeowners regaining equity, it’s no real surprise that more Americans are considering a refinance – whether they want to switch from an adjustable rate to a fixed rate, or simply lower their rate altogether. Continue reading Is it a good time to refinance?→
In New York City, key decisions often come in pairs: Yankees or Mets? LaGuardia or JFK? MoMA or the Met? In real estate, it comes down to this: condo or co-op?
Cooperative buildings, better known as co-ops, are abundant in New York’s five boroughs but are far less common in other cities. In a co-op building, buyers purchase a share of the entire property and co-own it with fellow residents. With a condo, the buyer purchases the real property.
The choice between a condo and a co-op also relates to lifestyle, saysMichael Shapot,an associate broker with Keller Williams Realty NYC. “Somebody who likes an older building with character tends to pick a co-op apartment rather than a shiny new condo,” he says. “It’s a white gloves, old-world, live-in help sort of situation, whereas in the new condos, there’s a doorman [but the building has] a more international flavor.”
Lenders may tread more carefully when financing a condo, saysJohn Walsh,CEO of Milford, Conn.-based Total Mortgage Services. If too
many units in the building are sitting empty, more than 10% of units are owned by a single investor or if a high percentage of homeowners are delinquent on association fees, a lender may turn down a mortgage.
Some lenders track these factors in condo and co-op buildings and keep an approved building list. A building that is on the approved list at the start of the mortgage-application process could be removed by closing, saysAlan Rosenbaum,CEO of Manhattan-based GuardHill Financial. “It’s something totally out of control for a customer,” he says.
A lender may also feel more secure with co-op borrowers because they often have to undergo even more stringent financial vetting by the co-op board. “Joining a co-op is akin to joining a country club, and the club members who are voting on your membership want to know that you play in the same financial arenas they do,” Mr. Shapot says.
In contrast, condo buyers include many international buyers who pay cash because they don’t want a close inspection of their personal finances, and they want the flexibility to sublet the unit or use it as an occasional pied-à-terre, he adds.
Still, financing a co-op comes with quirks. Some buildings don’t permit a home loan at all, or the boards require reserves up to the amount of the purchase price, saysPeter Grabel,managing director of Stamford, Conn.-based Luxury Mortgage. Other boards won’t let buyers finance more than 50% of the purchase price. “Many times the lender is willing to lend more than the board allows,” he says.
One loan-approval problem that was common a few years ago has almost disappeared for both New York condos and co-ops—appraisals not keeping up with rapidly rising home values, saysPeter J. Goodman,a broker with Brooklyn-based VA Loan Captain Realty.
In metro New York, the average home price in the fourth quarter of 2014 was $841,000, according to the Real Estate Board of New York, a state trade association for real estate professionals. This average, which includes condos, co-ops and single-family homes, is 11% over the same period of 2013.
“The market has been heating up for a couple of years now, and it doesn’t feel like there’s a ceiling anytime soon,” Mr. Goodman says. He has seen a lot of financed and cash purchases in Brooklyn, including multiple cash offers, even in the $800,000 to $1.2 million range, he adds.
Those high prices usually mean that buyers who finance must choose a jumbo mortgage, a loan that exceeds the $625,500 limit of government-backed loans. (Loans over $417,000 are considered jumbos in less expensive areas of the country.)
A few more tips:
Lower closing costs for co-ops.New York condo buyers typically have to pay 1.8% of the purchase price in state mortgage tax. Because co-op borrowers buy a share of the property instead of the real property, they don’t pay this tax or title insurance.
Limit mortgage shopping.It’s the opposite of the usual advice to find the best mortgage rate and terms, but a contracted lender who has preapproved the building may provide faster financing and be reassuring to both buyer and seller, Mr. Goodman says.
Finance it yourself.Co-op or condo buyers may consider taking a margin loan against their stock portfolio to put toward a purchase, Mr. Shapot says. The move can be risky if the stock market falls precipitously and the brokerage demands immediate repayment. Still, because the money obtained in a margin loan is considered cash, the approach may help a buyer if a co-op board has financing limits or is in a competitive bidding situation, he adds.
Corrections & Amplifications. New York co-op borrowers pay a “mansion” tax for properties over $1 million. An article on condo and co-op financing in New York that appeared in Friday’s Mansion section incorrectly stated that co-op buyers don’t pay this tax.