Better Understanding the World of Refinancing

I’m sure you’ve seen commercials about refinancing or have even heard from people at work discussing refinancing their home. But what is it exactly? And how can you get started?

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First, let’s break refinance down. There are two types of refinancing:

  1. Rate and Term Refinancing, and
  2. Cash Out Refinancing

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Rate and term refinancing is usually done in order to save some money. It is the renegotiation of the rate and/or the term (number of years it will take to repay the loan) of your mortgage with no actual change to the mortgage.  You might want to consider this type of refinance if your current mortgage is an adjustable rate mortgage and the fixed period is about to expire. Or if mortgage rates have significantly dropped since you’ve taken out your original loan.

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The second type of refinancing is cash out refinancing. This option is not as common as rate and term refinancing because it can be a bit riskier. Cash out refinancing is refinancing your mortgage for more than you owe, then being able to keep the difference. A cash out refinance is basically a replacement of your first mortgage and the interest rates on cash-out refinancing are usually (but not always) lower that the interest rates on a home equity loan. Many people turn to this type of refinancing when they need some quick cash but I would recommend looking into a personal loan instead of a cash out refinance, as the risk might be too high for some.

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For both of these types of refinancing there will be closing costs. These closing costs can go anywhere from hundreds to thousands of dollars. However, the monthly savings from refinancing will usually end up covering these costs over time. You might also come across “No Cost Refinancing.” Which is basically a way to refinance that you won’t have to pay any money up front but you might end up paying more over time in the form of a higher mortgage rate. A no cost refinancing might be an acceptable option if you are only planning to be in a home for a short period of time but does not really make sense if you plan on living in your home for over five years. It’s all about doing the math and making sure that your method of refinancing is right for you and fits your budget.

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Different Types of Possessory Interests

In this post we will be breaking down two different types of estates that come along with owning real property. Real property (aka real estate) is immovable property that most commonly is land and buildings. These types of estates will all be possessory interests. Possessory interest is the intent and right of a party to own and control a particular plot of land.

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The first type of estate, Fee Simple Absolute (aka fee simple estate, fee ownership, is the most common type of ownership on a real property. Not only is it the most common but it is also the highest type of ownership in that in entitles the owner to all right in the land. With this type of ownership, you may do whatever you please with the land. You have the right to sell the house, you have the right to pass along to heirs, and you are even allowed to make changes to the property even if you still owe money on your mortgage. Zoning laws and similar restrictions are the only limitations of this type of estate.

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Another type of estate is Life Estate. With this type of estate you are only allowed to use the property during your life time. As the owner of this type of estate, you can not sell, give or leave the property to anyone. These owners of life estates are called “life tenants.” The life estate ends when the life tenant dies. Ownership of the property then either goes back to the previous owner or to the person that was designated to hold the future interest of the property. An example of this type of estate would be you giving your great aunt. She would then have almost of the rights as if it were a fee simple absolute but the difference is that once she would pass away, the property would be returned to you or to your heirs, not your great aunts.

Homeowners Association: Pros and Cons

Let’s say you are someone who is interested in joining roughly 20% of Americans that live in a condo, timeshare, or planned development. You might have different reasons why you are looking into owning a condominium or timeshare. These types of properties are called common interest developments (CID) and they are the fastest growing form of housing in the world today. Different personalities might be a better fit for these shared communities so it’s important to know what you’re getting into, including the homeowners association. Let’s take a closer look at what this association is and weigh some of the advantages and disadvantages they have.

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A homeowners association is a private association that markets, manages and sells property in the shared community space. Associates are required to pay either a monthly or annual fee. They are also expected to follow a set of rules known as the covenants, conditions, and restrictions (CC&Rs). Some rules can be pretty easy to follow, for example to not have any lawn furniture on front yards while others might be a bit more intrusive, for example not allowing a garage to serve as storage but only can be used to park your car there. Some rule breaking can involve just a warning while other violations could mean a fee. It would be crucial to look into the CC&Rs before buying a home in the area. If you are unable to find the rules for a certain community online, a real estate agent or someone on the homeowners board might be able to assist you.

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Benefits:

There are various reasons as to why some homeowner’s would be interested in buying properties in these shared communities. One of the perks is that some of the fees that you have to pay to the association take care of maintenance and management services of the grounds. Meaning that you might not have to mow your lawn every week. Another benefit is that many of these groups of housing includes amenities such as pools, gyms or small parks. Though there can be a laundry list of rules and regulations that the homeowners need to follow, a perk of those rules is that often community appearance is enforced which could lead to higher property values. Some people also argue that a perk of being a part of a homeowners association is low maintenance. The association takes care of a lot that other homeowners would have to take care of on their own in another setting.

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Disadvantages:

The list of CC&Rs can be a potential disadvantage. Many homeowners want to incorporate their own style into their property and you might be limited to what you can add to enhance the property if it goes against the rules. For example, some associations have a set of colors that you can color the outside of your home, and no exceptions will be made. Another disadvantage are association fees. These fees can range from $200-400 and are used to maintain common areas and the amenities.

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Quick Tips Before Buying a Home and MLS and Clue Report

It could be overwhelming to decide on a new home to buy. Here are some tips and some tools that can be used before you take the plunge.

Some crucial steps to do before purchasing a home or new property are:

–       Establish a budget and decide on what you can and can not afford

–       Ensure that your credit is built up and solid

–       Make sure to save for the down payment as well as the closing costs

–       Plan on living in the property for at least 5 years (most financial experts argue that you make up any of the expenses back until you live in the property for a minimum of five years)

–       Weigh the pros and cons of buying to renting (even though Trulia has found that buying a home is roughly 35% cheaper in the long run)

–       Know the home buying process

–       Learn as much as you can about the prospective home that you want to buy

–       And most importantly, make sure you like the home!

 

Some crucial tools that we will be exploring tin this post are:

–       MLS.com and MLS, and

–       CLUE report

 

MLS.com and MLS:

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MLS.com is a free multiple listing search for you to find real estate listings by realtors and other realty professionals. MLS.com can help you find foreclosures, find new homes, find condos, look into international real estate, moving quotes, and even some real estate training. Though MLS is one tool to use when looking into buying a home, there are hundreds of private MLS that are maintained and paid for by real estate professionals. MLS stands for multiple listing services or multiple listing system. Plain and simple, it is a database of home listing but at the same time, it is much more than that. An MLS database provides brokers access to information about properties and different assets that they might be interested in. Not just anyone can post onto an MLS and access to posting to the database is limited to brokers and licensed agents that pay for their membership. A way that buyers, aka you, can benefit from MLS-listed properties is from obtaining information about all of these properties while only having to work with one broker, if you chose to explore the private MLS listings.

CLUE Report: 

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When looking into buying a new home it would essential to have a CLUE report about the property. A CLUE report provides information on insurance claims and policy numbers relating to the home. The report will also list the dates of the claims made, the amounts paid for losses, and if a claim was denied. Some of the types of claims that can be listed could be fire, weather related losses, vandalism, theft, and water damage to name a few. However, you will need to ask the homeowner where the property was damaged as this information is not provided in the report. If you ask for a CLUE report and it comes back blank, there could be two reasons for this. One, it could be that there have not been any claims made for that property in the past seven years, or secondly, it could be that the home was covered by an insurance company that does not participate in CLUE. It is important to note that only the owner of the property has access to the CLUE report so you must request it from the owner of the home that you are considering to buy.

The home buying process will be extensive and should require lots of research but hopefully these two tools can assist in your home buying process!