Pros and Cons of Remodeling Vs. Moving

June 18, 2019 by Comerica Bank

Almost all homeowners eventually face the question, "Does my property still satisfy my lifestyle?" If the answer is "no" – because your family is growing, the kids are moving out or you're just ready for something new – you need to ask a crucial follow-up: "Should I remodel my home, or should I move?"

Sometimes the answer is easy. If location is the problem, no amount of remodeling will suffice. However, the decision-making process is usually more involved. Homeowners need to consider personal factors such as how attached they are to the property and how long they could see themselves staying should they choose to remodel.

Practicality also weighs into this decision. What is the extent of the remodeling, the cost for those renovations, the amount of time it would take? How might it affect long-term property value, and do you have the capital on hand for remodeling?

As you deliberate, it helps to have all the information you need to make the right choice for your circumstances. That's why we've enumerated some pros and cons to help you make your decision.

Remodeling pros

Remodeling is ideal if you're happy with the school district, local amenities, property taxes and other locational factors. This means that if you're mainly interested in a kitchen with new counters and appliances, or a refurbished patio space, it's in your best interest to remodel your home rather than go through the trouble of putting it on the market and leaving the area you like. Both of these remodeling jobs in particular can yield significant returns on the value of the property.

Financially speaking, a home equity line of credit may make remodeling the more enticing option. A HELOC loan's value is determined by subtracting your existing mortgage from a percentage of your home's value. Presuming you have a healthy credit score (640 or higher) and debt-to-income ratio (the low 40s or less), a HELOC loan provides a revolving line of credit for a set period of time, usually 10 to 15 years, known as the draw period. The loan may have a fixed-rate payment option or a variable rate option. It’s important to closely assess both options, as a fixed-rate HELOC may be more consistent than a variable rate but can end up costing more in the long term since you pay for the additional convenience of an unchanging rate.

A HELOC loan for home improvement can also be applied to a more substantial remodeling effort (adding a new floor), and may also qualify you for tax deductions, according to Forbes®. Ideally, though, you would have enough equity to finance the whole project with a HELOC loan, as this will help lock in interest rates.

Remodeling cons

The most obvious con of remodeling is that it can also be disruptive since you are, in effect, living in a construction zone with workers possibly coming in and out depending on the extent of the project.

Remodeling can also be a financial liability. First, there's the possibility of an unexpected cost arising. This is not unusual, especially for larger-scale remodeling that uncovers previously unresolved issues. The other risk factor is "over-improving" your home. Real estate prices are affected by location, meaning you won't get full return on investment if your renovations are made in a neighborhood with mostly starter homes.

By comparison, remodeling a home to raise the value to match other homes in the neighborhood would likely yield higher return on investment. In other words, you don't necessarily want to put yourself in a position where you have the priciest home in the neighborhood, especially if you intend to eventually sell your house.

Moving pros

The most obvious benefit of moving over remodeling is that you don't have to deal with contractors or live in a construction zone for several months at a time. A new home is also the ideal option for a homeowner who is generally displeased with his or her location, whether it's because the school district leaves something to be desired or because they could use a change of scenery.

In some cases, selling a home with good equity may just be more financially beneficial than remodeling. Rather than borrowing against your equity, you may instead cash out by selling the property, and then use the money to move into a better home.

Another key benefit of moving is that if the home was recently constructed, it’s probably more energy efficient than an older property, which can save money on utilities. And, if the house is new or in good condition, additional spend on repairs may be minimal.

Moving cons

Ironically, the only thing more expensive and time-consuming than renovating your home is buying a new one. The costs of property are generally increasing, partly because nationwide housing inventory has been relatively low in the past year. This means it's harder and more expensive to find a home. Furthermore, because most homes sell quickly on the market today, the seller may not have very much time to make a decision when searching for a replacement home.

There's also no way around the fact that moving is expensive. Realtor fees (for buying and selling), relocation costs, renovations to make your existing property more marketable and countless other expenses add up fast. The process of buying and selling a home is also generally stressful. It demands time, money, patience, coordination and a willingness to act quickly to beat the competition, knowing well that you may end up in a house you actually like less than your old home. This doesn't factor in the emotional strain of moving, the possibility of a longer commute and other personal factors.

The bottom line

Due to generally low inventory and the fact that many American homeowners currently have equity, more people are choosing to remodel instead of move, according to MarketWatch®.

Remodeling spending as an alternative to moving is on the rise, and many of those projects, unsurprisingly, are financed with HELOC loans. Talk to a Comerica Bank lending expert today to learn more.

 

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.    

Read More

Planning a Home Budget

March 20, 2019 by Comerica Bank

Planning a home budget is among the most important steps any homeowner or family needs to take to ensure their financial health. It can be easy to think you can get by without this step. However, the fact of the matter is when you don't have concrete means to tracking your monthly cash inflows and outflows, spending can get out of hand.

Sitting down to plan your home budget can seem like an intimidating experience. Some even avoid the practice because they don't want to look at the hard numbers. Yet there's no two ways around it: home budget planning is an essential task. Not only is a budget central to the day-to-day and month-to-month financial well-being of your family, but it also matters down the road. Trying to start a college savings fund? Looking to secure your retirement? Home budget planning and long-term financial management go hand in hand.

4 steps to crafting a budget

Though a budget may seem like an intensive exercise, it's not all that complex. Planning your home budget can be accomplished in four steps. All you need to do is come ready with the facts and figures:

  1. Add up your monthly income: Your budget starts with what you earn on a monthly basis. If you combine income with a spouse or significant other, then make sure to reflect that in the budget. Leave no source of income out of the equation so you have the fullest picture of your financial situation.
  2. Subtract monthly expenses: Identify all or your fixed monthly costs. Be sure not to omit anything at this step: monthly debt payments, expected credit card payments, mortgage payments, utilities, food and drink, household goods, living essentials, soccer team dues, car insurance, retirement contributions - all of it matters. Not only is this comprehensive accounting important to the numbers but also to your overall understanding of where your money goes.
  3. Factor in discretionary spending: After deducting monthly expenses, continue to subtract your discretionary spending. This refers to all the other extras you might spend on, like dining and ordering out or entertainment. Discretionary spending has a habit of sneaking up on consumers, ballooning by the month's end if unchecked.
  4. Make your adjustments: If you have leftover money, good, that can be put toward savings or debt; if your figure is negative, it's time to make changes. If in the latter camp, start with adjusting your discretionary spending. Cutting back on takeout can save a lot more than you might think. Also, consider your monthly expenses: Would a smart thermostat help control energy costs? Can you consolidate debt or refinance student loans? Even if you're in the black, planning a monthly budget can clue you into new areas where you can save.

How home budget planning is linked to long-term financial management

Budgets have evident use in the near-term. Segmenting your spending categories while planning a home budget gives you precise insight into your financial health. However, it is important not to forget their value outside the immediate time frame, as your long-term financial goals and objectives are all part of the same budgeting conversation. 

While long-term financial planning is undoubtedly different from home budget planning, there are intersections between the two. For instance, it helps to know what monthly retirement account contributions you make as you plan out the golden years and what you will need to live comfortably. If you need to increase those amounts, finding ways to trim discretionary spending through a home budget plan is a simple way to prioritize long-term goals. When you have a home and family to look after, the links between near-term budgeting and long-term financial well-being are clear.

The same workflow can be applied to any type of savings families want to increase or establish. Emergency funds are necessary to maintain, but often at the very end of the considerations list. College may seem incredibly far down the road, but wait too long to start saving and challenges arise. When you have a full picture of your current finances and your future goals, you can more easily marry the two: And it all starts with planning a home budget.

If you are looking for professional help to align your spending and financial means, as well as plan for long-term goals, talk to Comerica Bank today. Getting further personal financial advice can help you make the most of your budget. When you are saving to apply for a mortgage or another type of loan, there is no greater benefit than knowing how it factors into your monthly spending. Start your home budget today, and consider contacting us for more information on how we can help plan your personal finances in other ways.

 

 

This information is provided for general awareness purposes only and is not intended to be relied upon as legal orcompliance advice. 

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.

Read More

Renting Vs. Selling a Home: Which is Right for Your Property?

March 18, 2019 by Comerica Bank

A day may arrive when you find yourself having to choose between renting and selling your current property; for example, you might need to temporarily or permanently relocate for employment purposes. In this situation, renting out your property is not necessarily preferable to selling it, and vice versa. Rather, the optimal choice for your current property will depend on various factors that we explore in this post. 

Your future housing plans

Homeowners who leave town altogether typically opt to sell their home rather than rent it out. This is especially true for homeowners whose only reason to return to the city or town they leave behind is to check on the property.

Homeowners leaving the property for a few years with the intent of returning, on the other hand, may be more inclined to rent that property out to cover the mortgage cost until they return. This option appeals particularly to homeowners who feel attached to the property or the location. The only hitch is that homeowners in this category will need to act as a landlord in the interim or hire a property manager. The former can be a time-consuming process, while the latter can be expensive. 

Considerations for selling 

Homeowners interested in selling their home usually start by calculating the amount they need to pay on their current loan compared to the current value of the house. Profits made on the purchase price will ideally be enough to cover the loan balance while leaving some money left over to fund the move and, if applicable, finance a down payment for a new property.

If you're in a difficult market, or have a new loan subject to prepayment penalties, you aren't necessarily stuck in that house. It may be worth exploring a land contract, which is a common path to "rent-to-own" a home. This is where a homebuyer who is unable to secure financing through traditional means provides the seller (you) with a down payment on the house and then pays monthly rent. The seller may apply that rental income toward paying off an existing loan on the house. Either way, that rent gradually increases the buyer's equity in the home.

Sellers may want to look into rent-to-own because it widens the scope of potential buyers and gives homeowners who feel stuck in a tough market a means to sell their property. Should the buyer back out, the seller keeps the down payment and any rental income, meaning it's a relatively low-risk affair for sellers.

Considerations for renting

Homeowners may choose to rent out their current property for several reasons, including: 

  1. With the intent of eventually returning to the house.
  2. To continue paying off the mortgage with the long-term goal of rental income and eventually profiting from capital gains.

Renters who intend to return to their property can continue paying off their mortgage and possibly profit from rental income in the time spent away from their property. The extent of those profits depends on the price-to-rent ratio. A low price-to-rent ratio means it's cheaper to buy than to rent in that area, so there's a good chance the rental income will yield a profit. A high price-to-rent ratio means that it is more expensive to own than to rent, which will yield narrower cash flows. These metrics can be useful for rental property owners, but it's also important to consider the market (e.g., is there actually any demand to rent in that area?).

The same price-to-rent rules apply to homeowners who decide to treat their current house like a permanent rental property. The main difference is that an investment property will be subject to capital gains taxes on the sale. 

The bottom line

The decision to rent or sell your current property depends predominantly on your priorities, such as whether you're attempting to find, or retain, the home of your dreams, or profit from an investment property. Contact Comerica Bank to begin discussing your options.

 

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.   

Read More

Renting vs. Buying: Pros and Cons

March 13, 2019 by Comerica Bank

Despite their significant spending power, U.S. millennials are more reticent than previous generations to put those finances toward buying a house. Only 37 percent of millennials between the ages of 24 and 35 own a house, compared to 45 percent of baby boomers and Gen Xers, according to CNBC®.

Many factors may contribute to this generational disparity. However, the important question for millennials – and potential first-time homebuyers in general – is whether it makes more sense to buy or rent their next home.

Renting: Pros and cons

Pros 

The main benefit of renting property is that it requires less upfront investment and less commitment than buying it.

Landlords typically demand first month's rent, a security deposit and, sometimes, last month's rent. By comparison, a mortgage requires a down payment of preferably 20 percent of the value of the property. An FHA home loan allows for a down payment of as little as 3.5 percent, but the borrower still has to commit to the property for a longer term than for rent. Additionally, any mortgage with a down payment less than 20 percent requires private mortgage insurance (PMI), which usually costs between 0.5 percent and 1 percent of the full loan amount per year, according to Investopedia®.

Renting is also less work than home ownership. The renter does not need to worry about property maintenance or purchasing new appliances. The monthly cost is predictable, and leases typically expire after a year. Renting may therefore be the more suitable option for someone who is not ready to commit to a particular geography for any longer than a few years.

Cons 

The biggest downside of renting is the sunk cost. Rather than putting monthly payments toward actually owning something of value, each rent check is money that you cannot get back. Conversely, your monthly mortgage will help you build equity in a home. It's also worth noting that some landlords require tenants to sign through a rental agency that will charge an equivalent fee of one month's rent. Other costs to consider when renting include utilities, parking fees, application fees, renter's insurance, fees for early termination of the lease, and more.

Another downside of renting is that you usually cannot renovate the property to make it a more suitable living space for you, your partner and your family. So, while you are not as bound to the property as if you owned it, you are bound to its state and condition.

Buying: Pros and cons

Pros

The main benefit of buying a property is that it's a tangible, long-term investment. Every mortgage payment you make goes toward equity in your home, which has value that can be tapped through various mortgage refinancing options. In other words, your monthly payments don't just go into a vacuum as they would with renting. The closer you come to paying off your home, the better your equity. Once you have paid off your mortgage completely, the only recurring expenses will be property taxes, maintenance costs, utilities and so on.

Property also tends to increase its value over time, allowing you to eventually profit on the sale of your house should you choose to relocate. As long as you have used that property as your living space, you most likely will not have to pay capital gains taxes, meaning you get to pocket the profits. Homeowners can also deduct the interest on a mortgage of up to $750,000. Property taxes, private mortgage insurance and home equity loan interests also qualify for tax deductions.

Other key benefits of buying a home instead of renting include:

  • You can rent part or all of the property out if necessary.

  • Your family cannot get "priced out" of the neighborhood if rental prices increase.

  • You could improve your credit score by making on-time payments.

Cons

The main con of buying a house is that you need a cash down payment of 20 percent or more if you don't want to pay for private mortgage insurance. This does not count closing costs associated with buying a home and taking out a mortgage.

Another downside is that it's more difficult to move once you've purchased a home. There is greater stability in owning a home, but at the cost of some flexibility. You will likely need to sell your property before moving into another. Even then, the sale price will need to be greater than your remaining mortgage, meaning you may be at risk of taking a loss if you sell too soon after buying.

Homeowners are responsible for handling maintenance and upkeep on the property, including the replacement of broken appliances. They also need to factor in insurance, utilities, pest control, lawn care and other expenses. Beyond just the costs, homeowners will also need to dedicate a significant amount of time to caring for their property.

Making the right decision

Homeownership is clearly dependent on a variety of circumstances, including your desired level of mobility and whether or not you're content paying rent with no promise of return on investment.

If you're a potential first-time homebuyer, contact Comerica Bank to discuss your options

 

 

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, compliance or accounting advice. You should consult your own tax, legal, compliance and accounting advisors before engaging in any transaction.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.   

 

Read More

The Answers to Your Top 5 Mortgage Questions

March 12, 2019 by Comerica Bank

When making a home purchase, consumers can enter the process with a wide range of questions. These can be practical, such as "How much house can I afford?" or personal, like "What are my deal breakers in terms of style and location?" While those preference-related questions depend on your lifestyle, we're here to help you on the practical parts, especially when it comes to your mortgage.

We dug into the weeds of what mortgage questions consumers typically have and narrowed it down to the top five.

1. What questions should I ask my bank when applying for a mortgage?

Generally speaking, you want to get broad information that helps you better understand the process so you can make more informed choices down the line, especially if you're a first-time homebuyer. Questions to ask include:

  • Do I qualify for any specialty programs, like FHA, or first-time homebuyer programs?
  • How do different types of payment options work, and how will they impact my monthly payments?
  • What kind of fees and secondary costs can I expect as I go through this process?
  • What documents should be prepared prior to a formal application?

These are just a few examples of the types of questions you should ask your mortgage banker. The key is to create a strong sense of transparency and openness so you know what to expect from your mortgage and your mortgage banker.

2. How do I choose a mortgage lender?

Don't just consider the interest rate on the loan and leave it at that. You must also assess how the makeup of the loan will impact total costs over the course of the contract. If one lender gives you a great interest rate to start out, but with an adjustment five years later that leads to high costs, you may be better off with an initially higher interest rate in a fixed contract.

Beyond getting the best value, you must also consider trust as a priority. You don't ever want to be surprised by your mortgage. Instead, it's often best to seek a lender that will help you assess what will work best for your situation. Ideally, you'll have a strong relationship with your lender and not just see them as a source of financing.

3. What questions should I ask a mortgage banker about rates?

Instead of the big-picture questions that come up with a mortgage banker, this is the time to get really specific on issues such as:

  • If the rate being offered is locked in, what is the lock-in period?
  • Could the rate change over the duration of the purchasing process?
  • What factors are impacting your rates and if you can take action to improve those circumstances?

By getting into these specific issues relating to the interest rate, you not only can pin down the kind of deal or offer, but you can also get a clear idea of how the banker operates.

4. What is private mortgage insurance?

Private mortgage insurance is designed to safeguard the lender in the event you cannot pay back a loan. Typically, lenders will mandate that you take on the insurance cost if you are unable to make a down payment of 20 percent (or more) of the purchasing price.

Costs can vary substantially for the insurance, but you can generally expect them to add up to more than $1,000 per year and be built into the monthly payment for your mortgage. It's possible to forgo the insurance after enough equity has been accrued on the property.

5. What's the difference between a variable and fixed rate?

In the simplest terms, an adjustable-rate mortgage will have a shifting interest rate over the course of the loan. A fixed rate, as the name implies, remains the same over the life of the loan.

Weigh your options carefully and make sure you understand when a variable-rate loan will change, and how to ensure you're prepared for the future.

Any more questions?

Do you still have questions about how a mortgage works? We'd be happy to talk with you. At Comerica Bank, we take a customer-oriented approach to lending in which we're happy to advise and help you find the right loan for the house of your dreams.

 

 

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice. 

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.

Read More