Subscribe for updates httpsSecondUnitCenterSMCorgsubscribe Cash Home equity loans Constructionrehab loans Nontraditional financing Some combination of above OPTIONS IT DEPENDS ON ID: 908257
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Slide1
How Do I Pay For It?
Presented on October 13, 2019
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Slide2Cash
Home equity loans
Construction/rehab loans
Non-traditional financing
Some combination of above
OPTIONS
Slide3IT DEPENDS ON:
Slide4Savings
Retirement loans
Personal loans
Inheritance
Gifts
SOURCES OF CASH
Retirement withdrawals (taxes & penalties)
Credit cards
BEWARE:
Slide5Experian
TransUnion
Equifax
https://www.annualcreditreport.com
FREE CREDIT REPORTS
Secure website
Slide6CREDIT SCORES & FICO®
MORTGAGE FICO® SCORES ARE 5-25 POINTS LOWER!
3-Bureau
FICO
®
Scores and credit reports:
https://MyFICO.com
Minimum 620
O.K. 680
Good 700+
Slide7DEBT TO INCOME (DTI)
MONTHLY DEBT PAYMENTS:
Rent/mortgage
Home equity loan
Line of credit
Minimum credit card payment
Auto loans/leases
Student loans
Personal loans
Alimony owed
Child support owed
Other monthly debt
NOT LIVING EXPENSES such as utility bills, food, or entertainment
ANNUAL INCOME BEFORE TAXES
(including non-taxable) such as:
Gross salary
Gross wages
Alimony & child support received
Inheritance & gifts
Welfare payments
DTI CALCULATION:
Total Monthly Debt
$3,000
Total Monthly Income
DTI RATIO:
30%
GOOD DTI:
<43%
DTI CALCULATION:
Total Monthly Debt
$3,000
Total Monthly Income
DTI RATIO:
30%
GOOD DTI:
<43%
Slide8HOME EQUITY
HOME EQUITY CALCULATION:
Home value:
$800,000
Less balance of mortgage(s):
-$480,000
Less other liens:
-$0
HOME EQUITY:
$320,000
(or 40%)
Slide9HOME VALUE
Formal appraisal
Real estate broker’s opinion
Recent comparable sales in your area
Website estimates
Slide10Home Equity Loans
HELOC
CASH-OUT REFI
PROS
Interest-only payments
Faster closing
Low, or no, closing costs
Larger loan size
Up to 30 years
Lower interest rate
Fixed rate option
May lower
(or raise)
existing mortgage rate
CONS
Variable interest rate
Higher rate than refi
Balloon or refi in 10 yrs.
Higher closing costs
Longer processing
Pay principal + interest
Slide11Future Equity Loans
Construction
Federal Rehab
PROS
Based on future value
Pay interest-only during construction
Rates similar to refi
Based on future value
10-20% contingency allowed
Can use for permits
CONS
Must have fixed bid
Must have permits first
More paperwork & fees
Must finish in 1 year
Must pay during construction
Rates higher than refi
Finish in 6 months
Loan limit = $726,525
Slide12NON-TRADITIONAL
LET SOMEONE ELSE BUILD
A RENTAL UNIT FOR YOU
“SHARED EQUITY”
“CO-INVESTING”
PROS:
Zero cost
Low hassle
Faster build
You retain your equity
CONS:
Builder takes at least 50% of rent
Inflexible use of ADU
Unregulated!
PROS:
Fast cash
Flexible use of ADU
CONS:
Most expensive option!
You lose most of future equity forever!
You may have to sell your home!
Unregulated!
Slide13COMPARE
Home value = $1,000,000
$100,000 for 10 years
Home appreciates 5% per year
HELOC at 7%
Interest-only payments:
$70,000
Tax deductible
Total cost:
< $70,000
TYPICAL SHARED EQUITY
$629,000 appreciation
40% Shared Equity
(not tax deductible)
Total cost:
$251,600
DIFFERENCE > $181,600
Slide14SHOP AROUND
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Compare all of your options
Read the fine print
Do the math
Consider total cost of funds over the full term
BEWARE of non-traditional/unregulated funding