What Are Mortgage Points? Should You Pay Them?

(TNS)—When people want to find out how much their mortgages cost, lenders often give them quotes that include loan rates and points.

What Is a Mortgage Point?
A mortgage point is a fee equal to 1 percent of the loan amount. A 30-year, $150,000 mortgage might have a rate of 7 percent but come with a charge of one mortgage point, or $1,500.

A lender can charge one, two or more mortgage points. There are two kinds of points:

  1. Discount points
  2. Origination points

Discount Points
These are actually prepaid interest on the mortgage loan. The more points you pay, the lower the interest rate on the loan and vice versa. Borrowers typically can pay anywhere from zero to three or four points, depending on how much they want to lower their rates. This kind of point is tax-deductible.

Origination Points
This is charged by the lender to cover the costs of making the loan. The origination fee is tax-deductible if it was used to obtain the mortgage and not to pay other closing costs. The IRS specifically states that if the fee is for items that would normally be itemized on a settlement statement, such as notary fees, preparation costs and inspection fees, it is not deductible.

How do you decide whether to pay mortgage points, and how many? That depends on a number of factors, such as:

  • How much money you have available to put down at closing
  • How long you plan on staying in your house

Points as prepaid interest reduce the interest rate—an advantage if you plan to stay in your home for a while—but if you need the lowest possible closing costs, choose the zero-point option on your loan program.

By the Numbers…
A lender might offer you a 30-year fixed mortgage of $165,000 at 6 percent interest with no points. The monthly mortgage principal and interest payment would be $989. If you pay two points at closing (that’s $3,300) you might be able to drop the interest rate down to 5.5 percent, with a monthly payment of $937. The savings difference would be $52 per month, but it would take 64 months to earn back the $3,300 spent upfront via lower payments. If you’re sure you will own the house for more than five years, you save money by paying the points.

©2017 Bankrate.com

Distributed by Tribune Content Agency, LLC

This article is intended for informational purposes only and should not be construed as professional advice. The opinions expressed in this article are those of the author and do not necessarily reflect the position of RISMedia.

For the latest real estate news and trends, bookmark RISMedia.com.

The post What Are Mortgage Points? Should You Pay Them? appeared first on RISMedia.

Most people don’t think too much about their FICO scores until they want to get a loan. No matter the type of loan you want—mortgage, new car—the higher your FICO score, the more likely you’ll be approved.

Understanding the five factors that make up your scores can be the first step toward improving them. Financial experts at the Motley Fool break down where your scores come from and suggest a few ways to improve them.

Know Where Your FICO Score Comes From

Payment History – Thirty-five percent of your score is determined by whether you pay your bills on time every month.

Credit Utilization Ratio – Thirty percent reflects your credit utilization ratio—the percentage of available credit you’re using. Using less than 30 percent of your available credit can help your credit score.

Length of Credit History – Fifteen percent reflects the length of your credit history. Paying bills consistently over time can definitely work in your favor.

New Accounts – Ten percent of your score is based on the number of accounts you open. Opening too many new accounts simultaneously suggests you’re highly reliant on borrowing to keep up with your expenses.

Credit Mix – Ten percent reflects the types of accounts you have. Credit bureaus make a distinction between your credit card accounts versus student loans, car loans, and mortgages.

Three Ways to Improve Your FICO

Pay off a chunk of your balance. If you carry a balance, pay off as much as you can, even if it means you must work a second job or sell off stuff you no longer need or use.

Ask for a raise in credit limit. If you’ve paid your bills consistently, this may not be difficult to get—and since your credit utilization ratio carries significant weight, that should help to improve your overall score.

Correct reporting errors. It’s estimated that 20 percent of credit reports contain errors. If you spot one on yours—such as an error in the amount you owe or a paid-off account not shown—getting it corrected will almost certainly boost your score. Review your FICO score for free once each year to make sure it’s accurate.

For the latest real estate news and trends, bookmark RISMedia.com.

The post Learning the ABCs of FICO appeared first on RISMedia.

(TNS)—Back when house-flipping was the major fad of the mid-2000s, Matt and Elizabeth Faircloth were not like most. As tens of thousands of people across the nation were securing mortgages they never should have received to fund flips, the New Jersey couple were tapping into money for projects in any way they could find: personal savings, money from friends and their inner circle.

They were the outliers: Only 30 percent of flippers were paying with cash, the majority instead borrowing from banks and other lenders to get a lot of money fast.

For years, the system worked. Until it didn’t.

At the peak of the flipping boom in second-quarter 2005, when 95,000 people across the country flipped single-family homes or condos, many flippers were holding two, three or four mortgages, experts say—partially driven by investors who lied on their applications, saying the homes would be their primary residences so they could get cheaper interest rates. Lenders who severely loosened their borrowing standards were also part of the problem.

When the housing bubble burst and values plummeted, flippers with multiple mortgages suddenly couldn’t sell their properties and couldn’t pay their loans. The rest is history.

Now, flipping—buying second-rate homes, rehabbing them quickly, and selling them for a profit—is back. In 2016’s second quarter, more than 51,000 U.S. homes were flipped, the most since 2010.

Can we ensure what happened in the mid-2000s doesn’t happen again? Industry experts say there’s something that can help: the internet and the crowd.

Thanks to websites such as Kickstarter and GoFundMe, we live in an era in which the public can fund almost anything. (Years ago, a man made headlines for receiving more than $55,000 on a project to make potato salad.)

It was only a matter of time before flippers got money the same way. But crowdfunding a flip is a bit more complicated.

The concept in theory is still the same: Potential flippers who can’t get mortgages from banks and lending institutions solicit internet and crowdfunding sources for loans.

At some of these, loans are created using funds from individual investors—some of whom pay as little as $5,000 to get in on the deal. The smaller loans are packaged together. In return, the investors receive 10 percent to 15 percent interest back on the loan they provided. Terms may differ by lender.

Founded in 2012, Fund That Flip, based in New York, is one such company, created to fill what founder Matt Rodak saw as a void in the industry.

“I was doing some house-flipping on the side…and found the (funding) process to be very frustrating, filling out lots of applications and dealing with a sometimes opaque process,” Rodak says.

He touts a more simplistic process: Borrowers have less paperwork and fewer hidden fees. And in most cases, he promised, interest rates are not as high as with loans from hard-money lenders, in which the loans are secured by the properties.

In return, investors make safer bets, Rodak says. Instead of writing large checks for one borrower, Fund That Flip investors can “take that same $200,000 and spread it over 20 or 40 deals and diversify their risk.”

It’s something the Faircloths have explored, and with the right opportunity they would try to team with Fund That Flip, Matt Faircloth says.

“People are getting sick and tired of Wall Street as the only place they can go to invest hard-earned money and to build long-term wealth,” Faircloth says. “Crowdfunding allows you to invest in something that’s down the street from your house.

“I’d like to be a part of that space as it becomes more popular— we need another choice for building wealth.”

©2017 The Philadelphia Inquirer
Distributed by Tribune Content Agency, LLC

For the latest real estate news and trends, bookmark RISMedia.com.

The post On the House: A Crowdfunded Alternative to House-Flip Financing appeared first on RISMedia.

Style Selector
Select the layout
Choose the theme
Preset colors
No Preset
Select the pattern