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Weighing the Pros and Cons of a 15-Year Mortgage vs a 30-Year Mortgage
Saving up for a down payment. Finding the right house. Negotiating a sale. Then, financing it all. So many steps go into purchasing an Inland Empire home. When it comes to deciding on financial terms, one of the things your lender will discuss with you is whether you want to go with a 15-year mortgage or a 30-year one. Each option comes with both pros and cons. Learn as much about both options before you make a final decision.
Weighing the Pros and Cons of a 15-Year Mortgage vs a 30-Year Mortgage
15-Year Mortgage
Pros – As the name says, a 15-year mortgage gets paid off in half the time as a 30-year mortgage. This means less interest paid throughout the life of the loan. And by “less”, I mean over $100,000 less. For example, let’s say you pay $400,000 for an Inland Empire home. You put 10% down. You save as much as $180,339 in interest if you go with the 15-year loan. If you pay it off in less than 15 years, you save even more money in interest. Since the shorter term is considered less risky by lenders, they offer lower interest rates for a 15-year mortgage, too. When you put less than 20% down on a shorter-term loan, the FHA charges less for PMI.
Cons – With a shorter term, you pay more per month…hundreds more. For example, using the $400,000 Inland Empire home discussed above, your monthly payment goes up by $761. That may put this loan out of reach for many home buyers. However, if you really want to pay that mortgage off in 15 years, it may mean lowering the amount you pay for the home (like from $400,000 to $300,000 or less). This severely limits your options, especially in today’s market. Finally, a higher monthly mortgage payment limits your available cash for things like investing, maintenance, and entertainment.
30-Year Mortgage
Pros – A lower monthly payment provides the biggest draw for a 30-year mortgage. This also allows more flexibility in how you pay your loan. Your lender gives you a set number that you absolutely must pay for your mortgage each month. But, if you find yourself able to pay more at any time during the life of the loan, you can make extra payments that go directly to your principal. Chipping away at your principal even with just an extra $100 a month can pay off a 30-year mortgage in 24 years. Plus, it saves you tens of thousands of dollars in interest at the same time.
Uncle Sam allows you to deduct your mortgage interest from your taxes. Since the majority of your mortgage payment consists primarily of interest in the first few years of your loan, that can be a huge number come tax time. Plus, the lower payment frees up more money for other things.
Cons – On the flip side, lenders charge a higher interest rate for a longer-term loan. Since the term is longer, you also pay much more in interest over the life of the loan. Likewise, a longer term means that it takes longer to build up equity.
When it comes down to it, whether you should go with a 15-year mortgage or a 30-year mortgage depends on your financial means as well as your ultimate goal. Do you want to pay off your loan quicker and can afford to pay several hundred dollars more each month? Then, the 15-year mortgage is ideal. But, if you need a lower payment spread out over a longer period of time (at least for now), choose the 30-year mortgage option. Always discuss this with your mortgage provider. They can answer any questions you may have.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
Pricing Your Home to Sell
The days of receiving tens of thousands of dollars above asking in mere days of listing your Inland Empire home may be a thing of the past. Yes. We are still in a seller’s market. And, yes, we sometimes still see sellers who receive more than one offer on their homes. However, over one-third of the houses on the market in Riverside County saw a price cut last month. Staging your home and making necessary repairs before you list are only parts of the total home sale equation. If you wish to find a buyer quickly, you really need to price your home correctly to begin with. That means paying attention to current market trends.
Pricing Your Home to Sell
Hire a Local REALTOR®
How does hiring a local REALTOR® help you with pricing your home to sell? Well, a local REALTOR® knows the local market. They also know current market trends in that specific area. Fortunately, a good Inland Empire REALTOR® also has many resources at their fingertips to help you set a competitive price for your home that brings buyers to your door.
Using Comps
Your REALTOR® can research recently sold “comps” in the area for you. These are properties similar in size, location, and age to your own. Look for price reductions and how long they sat on the market before they went under contract. Multiple reductions and long days on the market usually mean the seller priced their property too high.
Withdrawn and Expired Listings
See how many sellers ended up withdrawing their listings from the market. Also, take note of expired listings. Withdrawn means that the seller decided to take it off the market. Expired means that the listing agreement between the seller and their agent ran out of time without a sale taking place. Ask your agent to find out why these listings either were withdrawn or expired. Many times, the answer could be due to listing it too high. However, that is not always the case.
Strategize
You can handle pricing your home one of two ways: at market value or slightly below market value. Either way, keep emotion out of the equation. Your REALTOR® will give you their opinion of a good list price based on comps and current market trends. And I highly recommend that you take their experienced opinion into account when you decide on a list price. Ask them if they believe listing it slightly below market value might work in your favor. Keep in mind that this is a gamble because you may end up only receiving one offer at that lower price. On the flip side, it might also encourage several buyers to put their offers in, creating a bidding war and driving the price up. Discuss this option with your REALTOR® to determine if that is a strategy you wish to pursue or not.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
Ways You Can Finance Your Home Renovation
Outdated kitchen. Overrun backyard. Unusable space. If you have a renovation project on your mind for your Inland Empire home, the first thing you have to consider is how you are going to finance it. Here are the most common options to make your dreams become a reality (and finance your home renovation).
Ways You Can Finance Your Home Renovation
Cash
Paying in cash is the most straightforward financing option to finance your home renovation. Just save until you have enough money to cover the expenses. This will help eliminate spending outside your budget. However, it can also extend your timeline.
Mortgage Refinance
If you have been making payments on your Inland Empire home for a few years and your interest rate is higher than current market rates, you may be eligible for a mortgage refinance. This reduced your payments and frees up some money to help finance your home renovation project(s).
Cash-Out Refinance
You can tap into your home equity and borrow up to 80% of your Inland Empire home’s value to pay off your current mortgage plus take out more cash to cover the renovations. This option is encouraged only when you’re making improvements that will increase the value of your home. Why? Because this can add a lot of interest and fees. However, if your home’s value shot up since you bought it and your equity shot up along with it, it may very well be a viable option to finance any home improvement project you have in mind.
Home Equity
Getting a home equity line of credit allows you to borrow money against the value of your Inland Empire home. You receive usually up to 80% of your home’s value, minus the amount of your loan.
Before you decide on a specific choice, weigh each option first. Talk to your lender. Ask them any questions you may have about these options. Then, you can make an informed decision.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
How to Pay Down Debt the “Right” Way
You want to buy an Inland Empire home. However, rising interest rates concern you. You need to get your credit in tip-top shape to receive the best mortgage rates available. A FICO score of 620 may get you approved for a loan, but an 800+ gets you the best rates. That can save you hundreds of dollars a month on your mortgage payment. One of the ways to boost your score is to pay down your debt. This may come as a shocker, though. Did you know that the way you pay down debt makes a difference in how quickly it affects your credit score?
How to Pay Down Debt the “Right” Way
Tackling your debt is always a good choice to make before you take on a home mortgage. Be that as it may, some ways prove more beneficial than others. First, you need to look at installment debt vs. revolving debt. Then, think about whether you want to work on high-interest accounts or your balances.
Installment vs. Revolving
It helps to know the difference between these two types of debt. Installment debt applies to loans for things like mortgages, automobiles, personal loans, etc. With these, you pay a specific amount of money each month for a set period of time. Balances on revolving accounts go up and down depending on what you charge or pay each month with no set time frame for paying it off. Most financial experts suggest you pay down debt on your revolving credit first. Then, tackle your installment loans. Revolving credit carries more weight on your credit score than installment loans. Therefore, paying revolving accounts down first brings your FICO score up faster.
High-Interest Accounts
You have two options when it comes time to pay down debt on your revolving accounts: work on the highest interest accounts first or work on paying off accounts with the lowest balances first. Most credit cards base their interest rates off the prime rate set by the Federal Reserve. So, with rates on the rise, it might behoove you to work on your credit cards with the highest interest first.
High Balance Accounts
Your other option to pay down your debt to your best advantage is to pay off the smaller balances first. Psychologically, a zero balance provides a sense of accomplishment. In turn, it helps motivate you to continue paying down your debt.
How to Pay Down Your Debt
Whichever method you choose, use these steps to pay off your balances. Look over your budget. Figure out how much you can afford to put towards paying off the debt on the first account you choose. Then, only pay the minimum due on your other accounts. Once you pay off the first account, choose your next account. Take that same amount you paid each month for that first account and then add the minimum on top of it. Continue doing this until all of your revolving debt is gone. So, let’s say that you pay $200 per month on your first card. Your minimum payment on your next card is $49 per month. Once you pay the first card off, you start paying $249 per month towards the second card. If you have more accounts, you do the same thing. Simply roll the amount you were paying on the last card on top of the minimum you pay on the next account. This gets is paid off faster without you paying more out of pocket. Before you know it, all accounts show a zero balance!
If you have a card that allows you to do an interest-free balance transfer for a certain amount of time, this may also provide a quicker (and cheaper) alternative to paying down your debt. But you need to make sure that you pay that debt off in the zero-interest timeframe or else you will be hit with a huge interest rate at the end of it. Let’s say that a card offers 0% interest on balance transfers for 12 months. Take the total amount you transfer and divide it by 12. For example, you have $4800 total debt mixed among three revolving accounts. If you transfer those balances into one account with 0% interest and pay $400 per month (plus whatever transfer fees are due), all of your debt is paid off in a year with no further interest due.
Paying down your revolving debt helps boost your FICO score the fastest. A higher credit score opens you up to more possibilities for mortgage loans. And that is always a good thing.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
Down Payment Saving Tips
One of the biggest obstacles for Inland Empire home buyers tends to be saving up for their down payment. That typically runs anywhere between 3.5% and 20% or more of the sale price. For a $500,000 home, that means you need between $17,500 and $100,000. (The more you put down, the lower your monthly payment.) But do not forget about your closing costs. Buyers pay around 2% of the sale price in closing costs, according to The Mortgage Reports. Before you freak out over how you’re going to come up with that much money, saving up for your down payment and closing costs may be a little easier than you think.
Down Payment Saving Tips
Open a Dedicated Savings Account
Preferably, this savings account should be at a completely different bank than your normal one. Additionally, make this a bank that includes limited access. This reduces your chances of tapping into it for frivolous expenses. Plus, automate your savings. Most employers offering direct deposit allow you to allocate your earnings into more than one account. This puts money away before you even see it and helps keep your spending in check.
Withdraw From Your IRA Account
Traditional and Roth IRAs are both great places to put your money while saving for a down payment. You may take out as much as $10,000 for your down payment when buying a home. With a traditional IRA, that money will be taxed. However, with a Roth IRA, you do not pay tax as long as you have had it for five years or more and are a first-time home buyer. Just remember that whatever you take out of your IRA affects how much you have for retirement. So, talk to your financial advisor about the pros and cons of using this method for your down payment before making a final decision.
Minimize Frivolous Spending
And speaking of keeping your spending in check, take a look at your spending habits. Now, that does not mean that you need to live like a hermit while saving up for your Inland Empire home. Instead, make a few subtle changes and you might see your savings add up quicker than you think. For example, if you find yourself spending $10 to $15 dollars a day for lunch, take leftovers from dinner the night before to work. That saves you anywhere from $200 to $300 a month. Minimize eating out. Notice that I did not say “eliminate”. Instead of eating out for lunch and dinner on the weekends, opt for a nice lunch (the cheaper of the two meals) on Saturday or brunch on Sunday and cook for yourself at home the other times. That can add up to $50 to $100 savings per meal for two people.
Get rid of cable and sign up for a streaming service instead. Instead of paying $200 to $250 a month, you pay as little as $10 instead. Eliminate your $40 gym membership and opt to walk or run for free. Finally, empty out your purse or pockets of any change at the end of the day. Save it up in a coin jar. When the jar gets full, take it to your bank to deposit into your savings account. Just remember to put the money you would have spent on any of these things into your savings account.
Look at Assistance Programs
Finally, check out available down payment assistance programs. Riverside County offers down payment assistance and homeowner education classes. Cal FHA and GFSA also offer assistance for first-time and low-income California home buyers.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
Home Buying Tips for Navigating a Seller’s Market
Several years ago, home buyers had the pick of the litter when it came to purchasing a Southern California property. Decent interest rates and tons of inventory helped first-time buyers easily enter the market. Oh, how the tide has turned. Rising interest rates, low inventory, and high buyer demand put us in a strong seller’s market. As of April 2022, Riverside homes sold for 2.8% above asking on average. And it does not show signs of slowing down anytime soon. So, if you plan on investing in a property during a seller’s market, keep these home buying tips in mind.
Home Buying Tips for Navigating a Seller’s Market
Worst House/Best Neighborhood
Many of today’s buyers prefer a move-in-ready home. But these come at a premium cost. Thus, lowering your expectations and buying a fixer-upper might prove much more budget-friendly…and profitable. For decades, real estate experts suggested buying the worst house in the best neighborhood in order to increase your return on your investment. Just make sure to keep the costs of renovation/repair in mind when putting in your offer.
More Earnest Money, More Attractive the Offer
When a seller accepts your offer, you must place an Earnest Money Deposit in escrow. Also considered “good faith” money, this deposit goes towards your down payment once the sale goes through. Oftentimes, this costs between 1% and 3% of the purchase price of the Inland Empire home. But, as one of my home buying tips in a seller’s market, I suggest that you put at least 3% down if not a little more. Not only does it show the seller that you are serious, but it may also push your offer up high enough to outshine other buyers you compete with.
Get That Pre-Approval Letter
Gone are the days of pre-qualification being enough for a buyer to be taken seriously. Most sellers will not even consider an offer without a pre-approval letter. But if you really want your offer to stand out above the rest, get your loan to pre-underwriting status.
Add an Escalation Clause
If you really believe this house is your dream property, add an escalation clause into your offer when you find yourself competing against other buyers for the home. For example, let’s say that a seller lists their house for $450,000. You are willing to pay as much as $475,000. But you find out that someone else also put in an offer. So, you offer $450,000 but add in an escalation clause that states you will pay $5,000 above the highest offer up to $475,000. Your offer never rises above your limit but it also does not go higher than $5,000 over the highest offer either. That might be just enough to make a seller accept it.
Lease-Back Option
Once a homeowner sells their property, they need to find another home. A 30-day escrow may not provide enough time to do so. So, another one of my home buying tips to follow in a seller’s market is to offer a lease-back option. This allows the seller to stay in the property for a specific time period (usually 30 to 60 days after the close of the sale) and for a specific amount of money per month. Basically, once the buyer becomes the owner, they also become the landlord for a short time.
Not all of these options work for every situation. Talk to your REALTOR® to determine which ones offer the best advantage for you to seal the deal. When you decide you want to look for your next Inland Empire home, contact me. I’m always ready to help you navigate the market, whatever it may be.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
Home Upgrade Areas to Focus On
With so many people spending more time in their homes over the last couple of years, millions of homeowners faced the reality that their properties needed some updating or renovation. What used to “work fine” no longer fits the bill. So, whether you plan on living in your Inland Empire home for a while or need to put it on the market soon, here is where you should focus your efforts with your home upgrade for the best return on your investment.
Home Upgrade Areas to Focus On
Flooring
Flooring has come a long way over the past several decades. Today’s buyers love wood flooring. And when I say “wood”, I mean wood laminate, vinyl wood planks, solid hardwood, and engineered hardwood. Carpeting works fine in the bedrooms. But kitchens, hallways, and main living areas need wood flooring. In fact, when you use the same flooring materials throughout all of the main living areas, you make your home’s floor plan appear much larger.
Kitchen
They say that the kitchen is the heart of the home. So, if your “heart” looks a bit worse for wear, you might want to focus your home upgrade efforts there. A bit of paint and new hardware for your cabinets and drawers goes a long way to update an outdated kitchen without breaking your bank. Do your countertops need some zhushing up? According to Better Homes & Gardens, the five best budget-friendly countertops are butcher block, concrete, laminate, solid-surface, and tile.
Bathrooms
Strapped for cash? One room that benefits really well from a home upgrade is the bathroom…especially, the master bathroom. Here, flooring choices can be very important. Replace a shower/tub surround with tile. Paint or replace the cabinets. Add new hardware. Get rid of the wall-sized flat-panel mirror and add one or two framed mirrors above the sink(s) in its place. Place a newer, nicer light fixture above each mirror as well. Newly tiled backsplashes look great in here, too. If you have a good tub in place, you might be able to reglaze it instead of replacing it altogether.
Garage Doors
Finally, this may sound odd, but replacing the garage doors brings you the second-best ROI of any remodeling projects you might tackle on your Inland Empire home. The first is adding/updating a manufactured stone veneer to the exterior of your home. Garage door replacement makes sense. After all, it takes up a huge portion of the front elevation of your home. At an average cost of $3800, it is well worth the monetary investment, too.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
How Bankruptcy Affects the Home Buyer
The last couple of years affected the lives of billions of people around the globe. For some, that meant losing their job. If you took a financial hit to your household income, you might have needed to declare bankruptcy. Afterward, you managed to pull yourself up, dust yourself off, and found a great job. In turn, you started looking at the possibility of buying an Inland Empire home. With rents going up, it seems to make the most sense. But you start to wonder how your bankruptcy may hinder your chances of purchasing a property of your own.
How Bankruptcy Affects the Home Buyer
How Long Must I Wait Before I Can Buy a Home?
One of the most often asked questions for a home buyer is how long do I have to wait after declaring bankruptcy before I am eligible to get a home loan? Factors for this vary. Typically, you must wait a minimum of two years. Even VA loans require a two-year waiting period. However, a conventional loan requires a two to four-year waiting period after bankruptcy discharge to even be considered eligible for applying for a mortgage loan. As time goes on and you put distance between you and your bankruptcy discharge, your score should improve significantly.
Time is Not the Only Factor
You also need to bring up your credit score. FHA loans require a score of at least 580 for a 3.5% down payment. However, if it falls below 580, you might still receive approval. You just need to increase your down payment significantly.
How to Help Increase Your Score While Waiting
Avoid late payments at all costs. Request a free credit report from AnnualCreditReport.com for each of the three credit reporting agencies. Check each for any mistakes. File a dispute with the appropriate agency if you find errors. Keep new credit to an absolute minimum. Instead of obtaining unsecured credit (such as credit cards or personal loans), apply for a secured card instead. These typically have lower interest rates and fees than an unsecured card. Why? Because your card is backed by your own money. This helps build your credit back up faster without loading you down with high rates and fees.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
Home Selling Costs That Eat Into Your Profit
You have probably heard the phrase “never count your chickens before they hatch”. Well, the same goes for your profits when selling your Inland Empire home. Just like buying a house, it also costs money to sell a property. So, before you count up all the profit you expect to receive, keep these home selling costs in mind.
Home Selling Costs That Eat Into Your Profit
Repairs
The majority of home buyers today want a turn-key property, not a fixer-upper. Falling behind on your regular maintenance tasks may cost you a pretty penny at the bargaining table. Smaller tasks should be tackled before you list by a reputable handyman. For major repairs (such as a roof replacement or HVAC overhaul), it might work more to your advantage to either lower your list price or offer a credit at closing. Replacing a roof in Riverside costs as much as $11,000+. But you only receive 72% of that cost back.
Professional Photos
Many homebuyers begin their search for Inland Empire homes online…even before contacting a real estate agent. Since the start of the pandemic, this number has only gone up. So, if you want to make a great impression (and bring buyers to your door), you need to showcase your property with high-qualify professional photos. Fortunately, many real estate agents work closely with photographers and videographers. They may even include photos and video as part of their services. If so, yay! It will not cost you extra. However, if they do not, it is still well worth the money to get a pro out to highlight your property’s best assets.
Landscaping
Never neglect your curb appeal. You might get away with an older paint scheme and slightly worn-out flooring. But buyers always want to see a nicely landscaped yard. Therefore, another one of the home selling costs that eat into your profit is hiring someone to make your curb appeal pop. Luckily, you can save some money by doing some of the work yourself.
Closing Costs
Yes, even sellers pay closing fees as part of their home selling costs. These include real estate commissions, transfer tax, title insurance, mortgage processing fees, escrow fees, and notary fees. You also pay any outstanding property taxes as well as a prorated water and sewage bill dependent upon the date of closing. Also, any remainder of your mortgage (including a second mortgage, if applicable) must be paid out of the money received for your home’s sale. If you used a real estate attorney for any part of your transaction, their fees must be paid at closing as well.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
Pre-Approval vs Pre-Underwriting
When buying an Inland Empire home in the past, you may have heard about pre-qualifying and pre-approval. In today’s highly competitive real estate market, most sellers will not even look at an offer if the buyer does not include a pre-approval letter. But, there is something even better than a pre-approval letter. And that is pre-underwriting. So, what is the difference between the two?
Pre-Approval vs Pre-Underwriting
Pre-Approval
When you go through the pre-approval process, you fill out your initial loan application with your lender. Then, you provide them with bank statements, paycheck stubs, tax returns, and any other financial documentation they request. They verify your employment status and run a credit check on you. Using all of this information, they determine if you 1) qualify for a mortgage loan and 2) the maximum amount you qualify to borrow.
Pre-Underwriting
After all of the pre-approval process ends, your loan then goes to underwriting. The underwriter conducts a more thorough audit of all the information you provided in the pre-approval process. It also takes a longer amount of time. Therefore, if you can get your loan as far as possible in pre-underwriting before you even write an offer on an Inland Empire house, your time in escrow shortens up. This makes an antsy seller very happy!
When you deal in a highly competitive seller’s market like ours here in the Inland Empire, you want your offer to look as good as possible. Pre-underwriting helps with this endeavor. However, since this is a relatively new option, some lenders do not offer it. For this reason, you need to ask your lender about it first thing.
After you get your financing together, contact me. I’d be happy to show you what’s available in your price range here in the Inland Empire. I look forward to hearing from you soon!
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
