Whether you’re a first-time homebuyer or a seasoned homeowner, there’s no denying that purchasing a home is a huge financial decision.
You’ll likely have to make a down payment and commit to a monthly mortgage payment for 30 years (unless you decide to sell before then). Even so, the obligation should not be taken lightly.
Just from preparing to buy a home, you know that your credit score is an incredibly important number. It determines your eligibility for a home loan, and also plays a major role in determining your interest rate.
The higher your credit score is, the lower your interest rate will be, which can really affect your monthly payment. Hopefully, yours is in top shape when it’s time to buy. However, it’s also important to consider what happens to your credit score after you actually purchase your home.
You might be surprised to find out that buying a home has both positive and negative impacts on your credit scores. Read on to find out exactly what to expect of your credit score when you get a mortgage. We’ll also teach you how to minimize any potential damage that could occur.
How Applying for a Mortgage Affects Your Credit Score
It’s smart to shop around for interest rates from different lenders when you’re looking for a mortgage. Interest rates can vary greatly depending on the lending company and the type of mortgage loan they offer you. However, it’s essential to employ the proper strategy when comparing those offers.
That’s because each time you apply for new credit, whether it’s a mortgage, auto loan, or credit card, a credit inquiry appears on your report. Your credit score drops anywhere between five and ten points.
Unfortunately, if you have an excessive number of credit inquiries, mortgage lenders may think you’re desperate for cash and be reluctant to lend to you. The dip in your credit score reflects this potential risk.
The Benefits of Mortgage Pre-Approval on Credit
So, how can you mitigate this issue when shopping for a mortgage? First, limit the number of lenders you apply to. You can also ask for a pre-approval to find out what interest rates you’d be eligible for. The difference is that there is not a hard credit check performed. Instead, the mortgage lender only does a soft pull, which doesn’t have any effect at all.
You’ll still have to go through the formal application (and hard credit pull) once you decide on a mortgage loan. However, the preapproval process gives you the opportunity to compare offers without any type of commitment.
Multiple Credit Inquiries for the Same Type of Loan
Another way to protect your credit scores from too many inquiries is to limit your loan search to two weeks. When evaluating your credit history, credit reporting agencies realize that consumers want to shop around for different rates to get the best loan. So, if you have several of the same types of inquiries listed in a two-week span, they’ll only be counted as a single inquiry.
Mark your calendar with the first date of your loan application so you can track how long your search has lasted. This will help you keep your credit scores intact. Plus, you’ll also keep yourself on schedule for getting your mortgage in order.
The Effect of Mortgage Debt on Your Financial Profile
Your credit score could also take a hit because of the amount of mortgage debt you have, especially if this is your first time owning a home. Luckily, there is a good side and a bad side to this.
Let’s start with the negative. Since a home costs so much, your level of debt is going to skyrocket. This is true, especially if you’re a first-time homebuyer or someone who just upgraded to a more expensive home.
Think about it: Say your previous levels of debt included a small credit card balance, a student loan, and a car payment, and that came to about $65,000 in debt. If you buy a $200,000 house, you’re nearly quadrupling your level of debt.
Yes, you were approved for the home loan and can afford the monthly mortgage payments. However, that is still a significant number to be added to your credit reports, and your credit history will reflect this change. It’s not going to plummet by any means, but you will notice a decrease.
How Your Mortgage Affects Debt-to-Income Ratios
Another way your new mortgage can influence your access to credit is through your debt-to-income ratio. This isn’t part of your credit score, but it is part of how future lenders analyze your application for credit. Basically, your DTI is how much monthly debt payments you owe versus how much money you earn each month.
Rent isn’t included in your DTI, but mortgages are. So, the next time you go to apply for a car loan or refinance your mortgage, you’ll have to consider how much overall debt you pay each month compared to your pre-tax earnings.
The Positive Impact of Timely Mortgage Payments on Credit
Now let’s get into the positive effects that buying a home can have on your credit score. The first impact is that your credit mix becomes more varied.
This category actually accounts for 10% of your credit score. Therefore, having an installment loan like a mortgage helps more than just having revolving credit like a credit card. 10% may not seem like a lot, but it can help offset some damage caused by the negative side of purchasing a home.
The most important thing you can do to increase your credit score is to pay all of your bills on time. And having a mortgage is a great way to add positive history to your credit report. That’s because while most creditors report negative payments to the three major credit bureaus, many don’t actually report positive payments. So, you’re penalized for negative behavior, but sadly, not rewarded for good behavior.
Mortgage payments, on the other hand, are regularly reported to each of the three credit bureaus: Equifax, Experian, and TransUnion. And since 35% of your credit score is determined by your payment history, on-time payments each month can make a significant difference.
Strategies to Maintain a Strong Credit Score After Buying a Home
Even after you’ve purchased your home, it’s still essential to keep your credit scores in top shape. You never know when you’ll need credit again, and you’ll want to ensure you have access to the best rates. Even if you’re not planning to use new credit for a car loan or personal loan.
You may want to refinance your mortgage in a few years to get a better interest rate, cash out some equity, or take off your mortgage insurance. To do any of those things, you’ll continue to need a strong credit history. Follow these tips to ensure your credit score stays where you want it to be.
#1: Monitor your credit report annually.
You can get free copies of your credit reports each year from AnnualCreditReport.com. This is helpful in several ways. First, it allows you to check to make sure all of your personal and financial information is listed accurately.
More importantly, however, is that it allows you to detect whether someone has fraudulently opened up any type of credit account in your name. Identity theft is a growing concern. Staying on top of your credit history keeps your identity and your finances safe.
#2: Continue to make your payments on time.
It’s vital to your credit history to make timely payments. Even one 30-day late payment can stay on your credit report for years, causing a major drop in your credit score. And the consequences just get worse as the delinquency ages to 60 and 90 days.
It’s easy to get swept away by all the new excitement and responsibilities that come with a new house. Just be sure to keep up with your other financial obligations during that time.
#3: Keep your debt low.
Since you just added a large new mortgage to your credit report, it’s wise to keep your other debts as low as possible, particularly your credit card balances. Try not to exceed 30% of your available balance on any of your cards. If you do, your credit score is likely to fall. Instead, try to spread out your balances across cards while you work on paying them off.
Buying a house does indeed impact your credit score. However, the impact is not so dramatic that buying a house isn’t worth it. After all, the purpose of the credit score itself is to help prove your creditworthiness to lenders so you can borrow money when the need arises.
As long as you can afford your monthly payments, purchasing a house could very well be a wise investment. It allows you to put down roots while growing equity in your home.
Bottom Line
Purchasing a home is a significant financial milestone that can affect your credit in various ways. While it might initially lower your credit score due to inquiries and increased debt levels, it also offers an opportunity to build and improve your credit over time through regular mortgage payments.
The key is to manage your debt-to-income ratio effectively and to maintain good credit habits. This includes monitoring your credit report, keeping debt levels under control, and ensuring timely payments. By doing so, you can enjoy the benefits of homeownership while nurturing a strong financial standing.
In summary, buying a house is more than acquiring property; it’s a strategic step in building a secure financial future. With thoughtful management, the journey to homeownership can enhance your credit profile and open doors to future financial opportunities.
Your home is not just the cherished place you live. It is a valuable asset that can bring you opportunities for financial security and growth. Owning a home helps you build equity, and in turn, wealth, providing an option when you need to access funds. But there are other ways you can use your home as part of your financial strategy. Let’s explore how you can put your home to work for your financial benefit.
The Tangible Benefits of Homeownership
Owning a home can be a very rewarding experience. In addition to giving you a sense of pride and a connection to your community, homeownership provides tangible benefits that can improve your financial well-being. Two key benefits are equity and tax advantages.
Building Equity Over Time
As you make mortgage payments, you build equity in your home. Equity is the difference between the market value of your home and the amount you owe on your mortgage. Once you’ve accumulated enough home equity, you can tap into it for various needs like home renovations, debt consolidation or other expenses. You can typically obtain this cash through a second mortgage, such as a fixed-rate Home Equity Loan or a Home Equity Line of Credit (HELOC).
Tax Advantages
As a homeowner, you can deduct some of the interest you pay on your mortgage from your federal income taxes. This can save you a significant amount of money each year.*
Strategies to Unlock Your Home’s Financial Potential
Understanding the different ways you can take advantage of your home can help you unlock its full financial potential and move you closer to your goals.
1. Home Equity Loans
Having home equity can be a safeguard for managing large expenses. For example, if you need access to funds for home improvements, debt consolidation, school tuition, an emergency or any other significant expense, consider a Home Equity Loan.
A home equity loan allows you to borrow against your home’s equity and receive a one-time cash payment. Since this type of loan is a second mortgage, your primary mortgage, including your interest rate, remains unaffected. This can be a great advantage if you have a very low interest rate on your first mortgage and you want to access cash from your home equity without refinancing your entire loan balance — especially if rates are running on the higher end in the current market. You’ll also have the security of a fixed interest rate and payment on this type of loan, unlike a line of credit. The amount borrowed may even be tax deductible if the funds are used to renovate your home.*
2. Consolidate Debt
Your home equity can help you take charge of your debt. If you have a lot of high-interest debt from credit cards or personal loans, consider consolidating your debt with a home equity loan or cash-out refinance. A cash-out refinance replaces an existing mortgage with a new loan with a higher balance, sometimes with more favorable terms than the current loan. The difference between these two loans is distributed to the homeowner as cash.
Credit card and personal loan interest rates are typically much higher than home loan interest rates, so a cash-out refinance or home equity loan could potentially save you a lot of money on interest payments.
Paying down debt can also boost your credit score. But don’t treat a cash-out refinance or home equity loan like an ATM. Have a plan in place to avoid further debt.
3. Home Improvements
Certain improvements to your property can substantially enhance your home’s worth. Upgrading areas like the kitchen and bathrooms or incorporating energy-efficient elements can greatly appeal to future potential buyers if you choose to put the house on the market. Even if you’re not planning on selling anytime soon, this kind of investment often yields long-term financial benefits. Any increase in market value also contributes to an increase in your home equity.
4. Exterior Improvements
Exterior improvements like landscaping, a new wood deck or a wrap-around porch not only boost curb appeal but may also boost your home’s market value. When your market value increases, so does your home equity. Plus, when you’re ready to sell, potential homebuyers may be willing to pay more, often making these types of upgrades good long-term investments.
5. Investment
If you have good credit, liquid reserves and other qualifications, the equity in your home could be used to purchase an investment property.
A single-family home, townhouse or multi-family unit can be a long-term asset, offering additional tenant income. A vacation home can provide a reliable getaway that appreciates over time — and you can buy one with as little as 10% down.
6. Higher Education
As the equity in your home grows, so does the amount of accessible funds you have available to pay for a child’s education or your own tuition expenses. Just be sure to compare the interest rates of a home equity option vs. taking out a student loan. And do the math to ensure your existing budget can manage the increased or additional loan payments you’ll be responsible for.
7. Renting Out Spare Rooms or Basement
If you have extra space, you may be able to generate additional income by renting out a spare bedroom, guest house, casita or basement. A bedroom, guest house or casita could be rented to a tenant, and a spacious basement or garage could be leased to someone who needs storage space. Do your due diligence before renting out a room to ensure you understand the laws involved, any HOA restrictions, insurance, permits and safety requirements and tax implications.
8. Listing Your Space for Short-Term Rentals
Earn money by listing your guest house, casita or extra room as a short-term rental on a peer-to-peer exchange service such as Airbnb. Hosting out-of-town visitors can be very profitable, especially if you live in a tourist spot, business or transportation hub or near a university. Again, you’ll need to comply with your area’s legal, zoning, insurance, tax rules and other regulations.
9. Rent Out Your Pool or Backyard
Have a pool or backyard that often goes unused? Rent it out and bring in some extra cash. Apps like Swimply and Peerspace allow you to list your pool or yard and connect with individuals looking to swim, host a party, conduct photoshoots and even film commercials. That said, before you get started on using your property for this type of business venture, be sure to check with your homeowners insurance provider on any additional protections needed.
10. Home Equity Line of Credit (HELOC)
A HELOC allows you to access your home equity by providing a line of credit, which behaves similarly to a credit card. Borrow the amount you need when you need it, up to your approved limit. Keep in mind that HELOCs use variable rates, so the interest rate will fluctuate based on certain benchmark rates and the current market.
Want to leverage your home equity? Check out our home value estimator to help give you an idea of your home equity, then explore our home equity loan options or contact a Pennymac Loan Expert today.
*Consult a tax adviser for further information regarding the deductibility of mortgage interest and charges.
A typical 20% down payment on a home in a U.S. metropolitan area costs $80,250, based on the median price of a single-family home of $402,600 in the second quarter of 2023. However, for many first-time homebuyers, the hurdle of making a substantial down payment can seem insurmountable and many can only put down 3-5%, or $12,078 – $20,130.
This is where down payment assistance programs can come into play, offering a lifeline to those aspiring to become homeowners. But, what are they exactly and how can we help our clients utilize them?
What are down payment assistance programs?
Down payment assistance programs (DPAs) are initiatives designed to help first-time homebuyers bridge the gap between their savings and the down payment required to purchase a home. These programs are typically offered by government agencies, nonprofit organizations and occasionally private entities. DPAs can take various forms, such as grants, loans or second mortgages, and they are typically tailored to meet the specific needs of the target demographic.
There are four main types of down payment assistance:
Grants: Gifted money that never has to be repaid.
Loans: Second mortgages that are paid monthly along with your primary mortgage.
Deferred loans: Second mortgages with deferred payments that only have to be paid when you move, sell or refinance.
Forgivable loans: Second mortgages that are forgiven over a set number of years (often five, but maybe up to 15 or 20). These only need to be repaid if you move, sell or refinance too early.
Examples of down payment assistance programs
The FHA offers low down payment loans to first-time homebuyers. With an FHA loan, borrowers can put down as little as 3.5% of the home’s purchase price. This low barrier to entry makes homeownership more achievable for those with limited savings.
Many states in the U.S. also offer their own DPA programs to assist local homebuyers. These programs can provide grants, low-interest loans or second mortgages to cover a portion of the down payment and closing costs. The specific details vary from state to state, but they generally aim to make homeownership more accessible.
Some local housing authorities and city governments provide down payment assistance to residents. For instance, the city of Denver has its “metroDPA” assistance program, which is currently helping people throughout the Front Range become homeowners. If you make up to $188,250 a year and have a credit score above 640, metroDPA can help with a home loan and down payment assistance to help you buy a home.
Nonprofit organizations like Habitat for Humanity have been instrumental in promoting homeownership among low-income individuals and families. They offer sweat equity programs and interest-free loans to help prospective homeowners achieve their dreams.
We all know that one of the most significant barriers to homeownership for first-time buyers is the initial down payment. Many people are eager to learn ways they can afford it but feel lost as they try to navigate the landscape of what to do next.
This is where we as Realtors are ready to educate our buyers with information and help clients find the right path(s) to alleviate financial burdens by providing funds to cover a portion of the down payment.
Remind clients about demographics for DPAs
First, we educate clients that DPAs often target specific demographics, such as low-income families, veterans or those living in high-cost housing markets. By doing so, these programs broaden the pool of eligible homebuyers and ensure that homeownership is not solely reserved for the well-off. As a result, we should also set expectations for clients so they don’t assume they’ll have DPAs to rely on.
Explain the different assistance programs available
Another factor to guide clients on is that DPA programs provide assistance in the form of grants or forgivable loans, though these are harder to lock in. These funds do not need to be repaid if the homeowner stays in the property for a specified period, typically several years. This helps lower the overall cost of homeownership, making monthly mortgage payments more manageable. Be realistic with clients on whether this is a viable option for them and their current financial situation.
Suggest credit counseling services
Educate clients on where to turn to for credit consulting. For so many, one medical bill or missed payment can take a hammer on credit scores. Clue clients in on places they can turn to in order to help improve their credit scores.
Find a housing counselor
Housing counselors throughout the country can provide advice on buying a home, renting, defaults, forbearances, foreclosures and credit issues. The counseling agencies on this list are approved by the U.S. Department of Housing and Urban Development (HUD) and they can offer independent advice, often at little or no cost to the client.
Over time, homeowners build equity as they pay down their mortgages and as property values appreciate. DPAs set first-time homebuyers on the path to wealth accumulation, enabling them to build a financial foundation for the future.
The resurgence of down payment assistance programs represents a ray of hope for first-time homebuyers, particularly those facing financial constraints. These programs play a pivotal role in reviving the dream of homeownership by reducing the initial financial barrier and making it more attainable for a diverse range of individuals and families.
By offering assistance in various forms, from government-backed loans to nonprofit grants, DPAs allow first-time homebuyers to step onto the property ladder. This not only benefits the homeowners themselves but also strengthens communities and fosters financial stability.
As the popularity of DPAs continues to grow, they hold the promise of expanding homeownership opportunities for countless individuals, ensuring that the American dream remains within reach for all those who aspire to call a house their home and ultimately build generation wealth.
Jessica Reinhardt is the 2022-2023 chair of the Denver Metro Association of Realtors.
When architect Simon Storey’s clients took him to a steep lot of undeveloped land for sale in Silver Lake, he advised them to pass. Storey’s firm, Anonymous Architects, is used to building on difficult sites, but he knew this particular lot would be especially challenging.
“It’s more difficult and more time-consuming,” says Storey.
The lot lingered on the market for a few years and then the asking price dropped. That’s when Storey and his wife, Jen Holmes, decided they were willing to take on the difficult ground-up construction.
Sloped lots typically require excavation and complicated and costly foundations, and have issues ranging from erosion to drainage to landscaping. It’s not for the faint of heart.
“It’s such a huge pain. But I proved myself right: It wasn’t easy,” he says.
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Storey and Holmes bought the 2,900-square-foot lot in 2017 for $92,000 and started to plan their home. The land was not just steep — a grade of 33% — but also long and narrow. (For comparison, the steepest street in Los Angeles, Eldred Street in Highland Park, has the same slope.) The couple bought the land from entrepreneur Judd Schoenholtz, who bought the lot in a trust sale. Ironically, Schoenholtz was considering how to build on it and had looked at some of Storey’s other houses for inspiration. “Simon is probably the only one who could figure it out,” he says with a laugh.
Working within the constraints of a narrow lot was familiar to Storey, who had previously built his own home in Echo Park, a compact but elegant structure whose 960 square feet exceeded the 780-foot-lot it was built on.
Storey’s previous home, dubbed Eel’s Nest after the slender homes typical of dense neighborhoods in Japan, was a study in efficient urban living. He found ways to enlarge the space, just 15 feet wide, through the clever use of windows and skylights, high ceilings and a floating staircase that did double duty as a light well.
Storey and Holmes wanted to take the best parts of Eel’s Nest and the lessons learned from living in that space for more than a decade and apply them to this new project, which they called the Box. Once again the constraints of the lot dictated the design. “We had no choice but to go right up to maximum width and stick with it for the entire building,” explains Storey.
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The result is a long building that spans just 18 feet across and 100 feet long. Yet adding just three more feet than their previous house makes a dramatic difference. “Every inch makes an outsize difference. I don’t think of it as being a narrow building,” says Storey.
Storey wanted the house to be as utilitarian as possible. He chose a corrugated cement panel typically used for farming and industrial buildings in Europe as a siding material above the two-story concrete base.
With the structure built three feet from the property line, the couple were constrained by city code in the amount of windows allowed on the side of the building. As a result, the windows are arranged in a horizontal expanse, providing panoramic views of the hills in Silver Lake and Echo Park.
The entrance to the house is set back another five feet, allowing double-height windows that span two stories, bringing in more light. The floating staircase from Eel’s Nest makes another appearance in the Box, across from the entrance. A narrow walkway on the top floor connects the front and back of the house but allows light to filter in on both sides to the floor below. The skylight in Eel’s Nest also reappears in the Box, bringing more light into the shower in the primary bathroom.
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With a workshop sitting between the ground-floor garage and the two main stories of the house, Storey and Holmes were able to construct all of the cabinetry, millwork and even features like their stair treads on-site. “Anything made of wood we built ourselves,” says Storey.
Holmes, who works in development at LACMA but was an art student in college, found her sculpting skills came in handy. “I knew how to weld but didn’t do it for 20 years,” explains Holmes, who took a half-day welding class at Gearhead Workshops in Torrance to brush up on her skills.
In fact, much of the construction they did themselves, as a budgetary consideration but also to ensure the level of detail met their standards. Weekends, holidays and vacation days for nearly three years were spent working on the house.
The couple estimate they spent 5,500 hours working on the house, not including the hours spent on planning, designing and general contracting, and saved about $520,000 in construction costs based on pricing from comparable projects Storey has worked on.
“I’d take naps on a furniture blanket on the floor or in the car,” says Holmes, who became a regular at the nearby Whole Foods to pick up meals before they had a working kitchen. “Everyone [who works] there knows me and I know all of them.”
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Other expenses included $300,000 for the foundation, more than three times what it would have cost for a similarly sized project on a flat lot, and about $20,500 for geology consultants to survey the slope. All together the project came in at roughly $1.3 million. However, the average homeowner shouldn’t expect such a deal. Acting as his own architect, general contractor and builder helped Storey and Holmes save considerably. Additionally, every hillside lot presents its own hidden expenses — and what a house costs to build is often very different than its market value in competitive L.A.
Before they started on the cabinets, the pair worked on sealing the envelope of the house to ensure better air quality and circulation. They meticulously identified every gap in the framing stage, foaming and caulking the gaps to improve efficiency.
Once that was complete, they set about building their own window frames and cabinetry. The two handpicked all of their own lumber from Bohnhoff Lumber Co. in Vernon, a decision Storey says is key to guaranteeing high quality. “It was a cost issue but also a quality issue. There is a shocking level of inconsistency when you don’t pick it yourself.” The natural wood provides a calming contrast to the industrial materials used on the exterior.
Most of the casework is a mix of red and white oak. With construction of the house happening during the pandemic, the cost of white oak saw a precipitous rise. Storey and Holmes began to introduce red oak as an accent material, though the effect is still monochromatic. “I don’t want to live somewhere austere, but I like things that are minimal,” says Holmes.
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All of the cabinetry and woodwork is custom, designed to suit the couple’s needs. Separating the kitchen and living room is a multipurpose room-within-a-room that includes a custom pantry on one side and cabinetry to house their record collection and stereo on the other.
“Every element of the house has a function,” says Storey. The focus on utilitarian design is a carryover from Eel’s Nest. “We are squeezing as much utility into the building as possible.” Appliances, primarily Fisher & Paykel, are hidden behind custom wood panels, as are closets and bathrooms.
With four bedrooms and three bathrooms, the house was designed to be flexible enough to adapt to changing needs. Planned prior to the pandemic, Storey’s design called for his office to occupy the back of the house, with living spaces in the front. However, the office can easily be converted into a guest suite for relatives or visitors that includes a kitchenette and a private entry.
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As a passionate cook, Holmes programmed the layout of the kitchen to her specifications. The sink is placed in a central island, facing the views. “Every party I go to, people end up in the kitchen,” says Holmes. “I wanted it to be comfortable to cook in but also a place to entertain. We can have four or eight or 20 people here and it doesn’t feel too big or too small.”
While Holmes wanted the kitchen to be as functional as possible, Storey wanted the kitchen to not look like a kitchen at all. “The fridge and freezer vanish. Nothing screams ‘kitchen.’ We had competing objectives but managed to merge into a perfect solution,” he says, adding, “It’s a good allegory for marriage.”
A roof over your head is a great blessing. However, homeownership has its ups and downs. One of those low points might be shelling out thousands of dollars to replace the roof that has protected you from the elements for years.
At some point, every roof will need to be replaced. It’s one of the many joys of homeownership. But, according to Angi, the average roof replacement cost ranges from $4,900 to $14,100. With a wide range of costs, you may be wondering how you can land the best deal.
The wide range of roof replacement costs is due to various factors such as style, location, the size of your roof, and the professional you hire.
Let’s take a closer look at how you can lower your overall costs and get ready for this significant undertaking.
Factors Affecting Roof Replacement Cost
The cost of replacing your roof can vary significantly based on several key factors. Understanding these factors is crucial for managing your budget effectively. Here are the primary elements that influence roof replacement costs:
Roofing material: The type of material you choose for your new roof can have a substantial impact on the overall cost. Materials like asphalt shingles are generally more affordable, while options such as metal or slate can be considerably more expensive.
Location: Your geographical location plays a role in cost variations. Areas prone to extreme weather conditions or high wind zones may require more durable and costly roofing materials.
Roof size and complexity: Larger roofs with multiple peaks and angles, as well as varying roof pitch, will require more materials and labor, leading to higher costs.
Professional you hire: The choice of roofing contractor can affect costs. Highly experienced professionals may charge more for their expertise.
Additional accessories: Roofing accessories such as flashing, underlayment, and ventilation systems can add to the overall expense.
Types of Roofing Materials and Their Costs
When it comes to replacing your roof, one of the critical decisions you’ll face is choosing the right roofing material. The choice of material not only affects the aesthetics of your home but also significantly impacts the overall cost of the project. Let’s delve deeper into some common roofing materials, their characteristics, and how they influence the cost of roof replacement.
Asphalt Shingles
Cost: Basic asphalt shingles are often the most budget-friendly option, with prices ranging from $1.20 to $4 per square foot.
Durability: They offer reasonable durability and come in various styles and colors to match your home’s design.
Energy efficiency: Standard asphalt shingles are less energy-efficient compared to some other materials.
Metal Roofing
Cost: Metal roofing tends to be more expensive, typically starting at around $5 per square foot.
Durability: Metal roofs are known for their longevity and resistance to harsh weather conditions.
Energy efficiency: They are highly reflective and can help reduce energy costs.
Slate Tiles
Cost: Slate tiles are among the costliest roofing materials, often exceeding $10 per square foot.
Durability: They are incredibly durable and can last for a century or more if properly maintained.
Energy efficiency: Slate tiles provide excellent insulation, contributing to energy efficiency.
Wood Shingles
Cost: Wood shingles fall in the mid-range of roofing material costs, typically starting at $5 per square foot.
Durability: They offer a charming, rustic look but may require more maintenance.
Energy efficiency: Wood shingles provide decent insulation but may not be as energy-efficient as some other options.
Solar Panels
Cost: Solar roofing can be expensive, considering both the cost of the panels and installation.
Durability: Solar panels have a long lifespan and generate renewable energy.
Energy efficiency: Solar panels are highly energy-efficient, potentially reducing your utility bills.
Clay Tiles
Cost: Clay tiles are often on the higher end of the cost spectrum, starting at around $10 per square foot.
Durability: They are incredibly durable and can withstand severe weather conditions.
Energy efficiency: Clay tiles provide good insulation, contributing to energy efficiency.
It’s important to note that the roofing costs mentioned here are approximate and can vary based on factors such as your location, the complexity of the project, and the specific product you choose. When selecting a roofing material, consider not only the initial cost but also its longevity and energy efficiency, as these factors can impact your long-term savings and the value of your home.
By understanding the characteristics and costs associated with different roofing materials, you can make an informed decision that aligns with your budget and aesthetic preferences. Keep in mind that the choice of material is a significant factor in determining the overall cost of your roof replacement project.
When Should You Replace Your Roof
The first thing you need to do is determine whether you really need a new roof. A visible hole in your ceiling is not the sign you should be waiting for. If you get your roof replaced before it reaches the final stop of its useful life, then you could be avoiding potentially bigger problems down the road.
A few signs that your roof is ready to be replaced include:
Water leaking into the house
Cracked shingles
Missing shingles
Shingles that are curling on the edges.
“Bald spots” on your roof where granules are missing.
Overall signs of age on your roof.
Another tip is to be mindful of your neighbors. If your homes were built in the same time period, then you may notice many new roofs in the area. It could be a sign that the inevitable demise is coming to your roof soon.
As soon as you spot any of these signs, you should start considering a new roof. The longer you wait, the more damage might be done to the value of your home.
If you are considering selling your home, do not assume that you can pass along the failing roof to the new owner. Many buyers will shy away from aging roofs because it is an added cost that they can easily avoid by choosing another home to buy.
Make sure to regularly take a closer look at what is happening on your roof. You can help prolong the life of your roof by taking care of it. For example, removing moss and algae growing in your shingles can prevent damage to the shingles can help prevent damage to your roof’s shingles.
How much does a roof replacement cost?
As with all things in life, you have choices for your roof replacement. The total roof replacement cost will vary considerably based on your choices.
The costs stem from the materials, labor, and disposal of your old roofing material.
In terms of material, you’ll need to choose between numerous shingles such as wood, clay, asphalt, solar, slate tiles, metal, and more. The material you choose may be based on cosmetic preference or necessary toughness to combat the elements of different locales. For example, in high wind areas of hurricane-prone Florida, homeowners are required to upgrade their roofing materials in hopes of withstanding potential hurricanes.
Asphalt shingles will most likely be your least expensive choice. An asphalt shingle roof costs about $1.20 to $4 per square foot to remove and replace an entire roof. Other materials, such as metal roofing, will generally cost at least twice as much per square foot. However, a new metal roof will likely save you money on homeowners insurance.
The cost to install 30-year architectural shingles is typically around $350 to $500 per square foot. And 50-year architectural shingles are even more expensive. Of course, they are stronger and last longer.
For labor, the size and construct of your roof will be a significant factor. If you have many peaks and ledges, expect your labor costs to be higher.
Assessing the Condition of the Current Roof
Before diving into a roof replacement project, it’s essential to assess the condition of your existing roof thoroughly. This step can significantly impact your overall cost and project planning. Here’s how to evaluate your roof’s condition:
Look for signs of damage: Check for water leaks, cracked or missing shingles, curling edges, bald spots, and any visible signs of aging.
Neighborhood trends: Pay attention to neighboring homes; if many have recently replaced their roofs, it might be a sign that your roof is due for replacement soon.
Preventive maintenance: Regular maintenance, such as removing moss and algae, can extend your roof’s lifespan and help you avoid costly roof repairs.
When evaluating the condition of your current roof, you might find that not all areas require a full roof replacement. In some cases, a partial roof replacement can be a viable option. This approach is typically chosen when the damage is localized to specific sections of the roof or when budget constraints are a concern.
Estimating the Size and Complexity of the Project
Understanding the size and complexity of your roof replacement project is vital for accurate cost estimation. Here’s how to estimate the scope of your project:
Measure your roof: Determine the square footage of your roof to calculate the amount of materials needed.
Consider roof design: Roofs with many peaks and angles may require more labor and materials, leading to higher costs.
Roofing layers: If your existing roof has multiple layers, removal and disposal costs will increase.
Roof features: Any additional features like chimneys, skylights, or roof vents can affect the complexity of the project.
Labor and Installation Costs
The cost of labor and installation is a significant part of your roof replacement budget. Several factors influence these costs:
Roof size: Larger roofs require more labor hours, leading to higher installation costs.
Roof complexity: Roofs with unique designs or many angles may demand more skilled labor, increasing costs.
Contractor expertise: Experienced contractors may charge higher labor fees, but their quality of work can be worth the investment.
Location: Labor costs can vary by region due to local labor rates and demand.
Additional Costs for Roofing Accessories
In addition to the primary roofing material and labor, there are other accessories and components that can impact your roof replacement cost. These include:
Flashing: Necessary for sealing roof joints and preventing leaks.
Underlayment: Provides an extra layer of protection beneath the roofing material.
Ventilation systems: Ensures proper airflow in the attic, which can affect the longevity of your roof.
Gutters and downspouts: Proper drainage is essential to protect your home’s foundation.
Removal and Disposal of the Old Roofing Materials
Before installing a new roof, the old roof must be removed and properly disposed of. This is a necessary step in the replacement process and can add to your project cost. Key points to consider:
The number of existing layers: Removing multiple layers of old roofing can be more labor-intensive and costly.
Disposal fees: Depending on your location, there may be fees associated with disposing of old roofing materials.
Potential Hidden Costs and Unexpected Expenses
While you plan your roof replacement budget, it’s essential to be prepared for potential hidden costs and unexpected expenses that may arise during the project. Some factors to be aware of include:
Structural damage: If hidden structural issues are discovered during the replacement, repairs can be costly.
Unforeseen leaks: Roofing projects can reveal additional leaks that were not visible before, requiring immediate attention.
Weather delays: Adverse weather conditions can cause project delays, potentially leading to increased labor costs.
Comparing Quotes from Different Contractors
To make an informed decision, it’s crucial to obtain multiple quotes from different roofing contractors. Here’s how to effectively compare these quotes:
Ensure each quote includes warranty information for both materials and installation.
Beware of significantly low bids, as they may indicate lower quality work.
Check online reviews to gauge the reputation of the roofing company.
Verify that the contractor is licensed by contacting your state consumer protection office.
How to Reduce Your Roof Replacement Costs
You should expect to pay thousands of dollars for your roof repair. However, there are methods to lower your overall roof replacement cost.
1. Hire a Professional Roof Inspector
If you’ve noticed that your roof is looking a bit worse for wear, then you should call in an inspector. Although it can cost a few hundred dollars to hire an inspector, it might be well worth the cost.
An inspector will be able to tell you whether you really need a new roof. They might recommend a patch or suggest that you wait a few years before replacing the whole roof. Either way, it will give you a better understanding of the problem at hand.
2. Replace or Repair?
After receiving the inspection report recommendations, you’ll need to decide whether you will replace or repair the roof. It is a good idea to go with the guidance of the inspector. However, as the owner, you have the final say in this decision.
3. Check the Home Warranty
When was your roof last replaced? If the answer is recently, then the replacement might be under warranty.
If you recently bought the home, you should check through the closing paperwork. Home warranty information is often available in that fine print. If you can’t find the information, consider contacting the previous owners to see if they can provide you with that paperwork.
The home warranty may cover your replacement costs, so it is an option you should look into.
4. Decide What You Want
Before talking to a roofing contractor or salesman, make sure you know exactly what you want on your new roof. Take the time to research the different materials and options and choose the one that will work well for your area and your budget.
Build an understanding of the features of your roof. Is it huge? Does it have many peaks and ridges that will increase labor costs?
With this level of research, you’ll be able to discuss the details of contractor bids coherently. Doing this homework helps ensure that you are not being taken advantage of. You might not need the latest and greatest product that the salesman attempts to sell you.
5. Compare Bids
Once you have a good understanding of what you need, then it is time to call in the contractors. Obtain estimates from various roofing contractors. Each bid should include roof warranty information on both the materials and the installation.
Do not automatically jump for the lowest bid. If the bid is significantly lower, do more research before accepting that bid. Sometimes very low bids translate into lower quality work. Online reviews of a roofing company may help you find out if the company is worth doing business with.
Make sure to confirm that the bid is from a licensed contractor. You can contact your state consumer protection office to confirm this.
Trust your instincts when choosing a roofer. You want a roof that will last for years to come at an affordable price. Cutting corners now will only cause more problems down the line.
6. Go the DIY Route
In the world of homeownership, there is always the option to fix the problem yourself. Although the roof is a high stake home repair, you may be able to do part of it yourself for a fraction of the cost.
The labor costs of a DIY roof replacement can account for the bulk of the expense. Sometimes, a contractor will allow you to remove the old roofing material yourself to cut the total cost. However, you should only pursue this option if you have the proper tools and knowledge.
7. Check Your Insurance Policy
If you are like most Americans, you carry a homeowner’s insurance policy on your home. In that case, the policy might cover roof damages.
Most insurance policies will help cover some or all of your roof replacement. However, if the need for replacement is due to neglect, then it is unlikely they will assist you. Call your insurance provider to find out how much they might be willing to cover.
8. Ask for a Discount
Most roofers are at the whim of seasonal work. In the winter, work can dry up in some places. Whereas in the summer, they can’t work through the jobs fast enough.
If you are willing to wait for a convenient time for the roofing company, then ask if they will give you an off-season discount. For example, you could request a 10% discount to wait until they have a slow month for your roof repair.
It never hurts to ask; the worst thing they can say is ‘no.’
Financing Options for Roof Replacements
Replacing a roof can be a significant financial undertaking. If you’re concerned about the upfront cost, consider these financing options:
Home improvement loans: Home improvement loans are tailored for renovation projects like roof replacement. They typically offer competitive interest rates and flexible terms, available from banks or online lenders.
Home equity loans or lines of credit: Leverage your home’s equity to finance your roof replacement. Home equity loans provide a lump sum upfront, while home equity lines of credit (HELOCs) offer flexibility in accessing funds.
Insurance coverage: Review your homeowner’s insurance policy to check if it covers roof replacement, especially for damage caused by specific covered perils like severe storms or hail.
Contractor financing: Many roofing companies offer financing options to help you manage the cost of roof replacement. When considering this option, inquire about terms, interest rates, and the company’s reputation to ensure transparency and fairness in their financing offerings.
Bottom Line
Understanding the cost of roof replacement is a crucial step for homeowners. It’s not merely an expense but an investment in the protection and value of your home. By taking the time to assess your roof’s condition, research materials, budget wisely, and seek multiple quotes, you can make informed decisions that align with your financial situation.
Roof replacement can be a substantial undertaking, but with careful planning and consideration, you can ensure the longevity and safety of your home. Remember that each roof is unique, and roofing costs can vary based on several factors. Whether you’re facing an imminent replacement or planning for the future, being well-informed is the key to making cost-effective choices for your roofing needs.
Frequently Asked Questions
How much does a roof cost?
The cost of a roof varies widely based on factors like size, materials, and geographic location. For standard materials like asphalt shingles, prices can range from $7,000 to $12,000 for an average-sized home. More premium materials like metal, slate, or tile can significantly increase the cost. Additional factors like roof design complexity, labor rates, and regional costs also play a crucial role in determining the final price.
What is the average cost of replacing a roof?
The average cost of replacing a roof in the United States is around $10,000, but pricing can vary widely depending on factors like the size of the roof, materials used, and geographic location. High-end materials or complex roof designs can push costs significantly higher.
How do different types of roofs affect the replacement cost?
The type of roof has a major impact on replacement costs. Asphalt shingles are generally the most affordable, while materials like metal, tile, or slate are more expensive. The complexity of the roof design, such as the presence of skylights or multiple levels, also affects the cost.
Are there any additional expenses associated with roof replacement?
Yes, there can be additional expenses beyond the basic cost of materials and labor. These might include costs for permits, structural repairs, gutter replacement, or disposal of the old roofing materials. These costs should be considered when budgeting for a roof replacement.
Does the size of the roof influence the cost?
Absolutely. The larger the roof, the more materials and labor will be needed, which increases the overall cost. Roofing costs are often calculated by the square foot, so a larger roof area will result in a higher total cost.
What factors can affect the overall cost of a roof replacement?
Several factors can affect the total cost, including the type of roofing material, the complexity of the roof’s design, the need for structural repairs, local labor rates, and whether the old roof needs to be removed first. Weather conditions and seasonal demand can also play a role.
Is roof removal included in the replacement cost?
In many cases, the cost of removing the old roof is included in the roof replacement quote. However, this is not always the case, so it’s important to clarify this with the contractor. The cost of removal can vary depending on the size and material of the existing roof.
Do I need permits for a roof replacement?
Yes, most local governments require permits for a roof replacement. The cost and requirements for these permits vary by location. It’s important to factor in these costs and ensure that your contractor handles the permit process.
Are there any financing options available for roof replacement costs?
Many roofing contractors offer financing options to help manage the cost of roof replacement. Additionally, some banks and credit unions offer home improvement loans. It’s advisable to compare rates and terms to find the best financing solution.
What are some signs that indicate a need for a roof replacement?
Signs that you may need a roof replacement include missing or damaged shingles, frequent leaks, sagging, and daylight visible through the roof boards. If the roof is more than 20 years old, it might also be time to consider replacement.
How long does a typical roof replacement take?
The time required for a roof replacement can vary, but most projects are completed within a few days to a week. Factors that influence the timeline include the size of the roof, weather conditions, and the complexity of the job. More complex projects or unforeseen issues can extend this timeline.
How much can I save by replacing my roof myself?
DIY roof replacement can lead to significant savings, primarily by eliminating professional labor costs. You may also reduce expenses by sourcing materials and handling waste disposal yourself.
However, while DIY can cut initial costs, it’s crucial to consider the value of professional workmanship, which often ensures quality and adherence to safety standards. Inexperienced DIY attempts might lead to costly future repairs, potentially offsetting the initial savings.
Speaking at the Independent Community Bankers of America Annual Convention in Orlando, Florida today, Fed chief Ben Bernanke called on mortgage lenders to ramp up their loss mitigation efforts.
He noted that repayment plans and mortgage rate adjustments stem from the old school of thought, but that the current mortgage crisis demands more.
“Lenders and servicers historically have relied on repayment plans as their preferred loss-mitigation technique,” said Bernanke. “Under these plans, borrowers typically repay the mortgage arrears over a few months in addition to making their regularly scheduled mortgage payments.”
“These plans are most appropriate if the borrower has suffered a potentially reversible setback, such as a job loss or illness. However, anecdotal evidence suggests that even in the best-case scenarios, borrowers given repayment plans re-default at a high rate, especially when the arrears are large.”
Bernanke essentially echoed sentiment by many consumer advocacy groups who feel the loan modification plans being carried out are simply delaying the inevitable, but at the same time, added that not all could be saved.
“Of course, not all delinquent subprime loans can be successfully worked out; for example, borrowers who purchased homes as speculative investments may not be interested in retaining the home, and some borrowers may not be able to sustain even a reduced stream of payments.”
Currently, roughly a third of recent homebuyers are experiencing negative equity, according to a report by Zillow.
“But the current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions,” said Bernanke.
“With low or negative equity, as I have mentioned, a stressed borrower has less ability (because there is no home equity to tap) and less financial incentive to try to remain in the home. In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.”
The Fed chief recommended principal reductions as a means to keep more borrowers in their homes, noting the high cost of foreclosure proceedings and the low level of success with modifications.
He added that servicers who agree to write down a portion of the mortgage balance could actually promote the chances of borrowers being able to refinance into a stable loan.
“For example, servicers could accept a principal writedown by an amount at least sufficient to allow the borrower to refinance into a new loan from another source.”
“A writedown that is sufficient to make borrowers eligible for a new loan would remove the downside risk to investors of additional writedowns or a re-default.”
In closing, Bernanke said more could be done to promote economic stability, and added that modernization of the FHA along with GSE participation and congressional action would be needed to address the current crisis.
With home values on the rise, Australians priced out of the markets where they currently live may have to consider a change of scenery if they want to buy.
Home prices are rising to record levels
The latest CoreLogic Home Value Index (HVI) reveals that Australian dwelling values have hit a record high, just narrowly cracking April 2022’s peak by 0.03% on 22 November 2023.
It’s been described as a ‘V-shaped recovery’ by CoreLogic’s executive research director, Tim Lawless, who said it took about 9 months from April 2022 for the index to bottom out in January 2023, and a further 10 months for the new record high to come about last week.
“The ‘V’ shaped recovery may seem counterintuitive, given high interest rates, deeply pessimistic levels of consumer sentiment and high cost of living pressures, however, the recovery can be explained by an imbalance between supply and demand,” Lawless said.
If the shape of the line looks less like a ‘V’ and more like someone forcing themselves to smile, you might be a prospective homeowner who’s watching house prices and interest rates rise with rapidly deflating enthusiasm.
However, this whirlwind recovery is, for the most part, isolated to only five capital cities and four of the states’ regional areas – it’s in the others where there could be an opportunity for those who wouldn’t mind a change of scenery.
The cities and regions where prices are stable or dropping
Capital cities:
Hobart (-1.5%)
Darwin (-0.8%)
ACT/Canberra (+0.5%).
According to CoreLogic, year-on-year (YOY) home values in Hobart (-1.5%) and Darwin (-0.8%) have gone down, with the ACT (Canberra) only experiencing a +0.5% increase in dwelling values, according to CoreLogic.
These three cities are all trending down compared to their record highs, with Hobart posting a -11.8% decrease since its most recent high in March 2022.
Darwin is also down -3.3% since its record high in September 2022 and the ACT (Canberra), despite its slight increase in YOY values, has slipped -6.4% since May 2022.
It’s a similar story in the nation’s regions, although with less pronounced YOY declines.
Regional areas:
Regional Victoria (-2%)
Regional Tasmania (-0.3%)
Regional Northern Territory (-0.4%).
Regional Victoria, Tasmania, and the Northern Territory all experienced small decreases in dwelling values, the largest of which was regional Victoria, with a -2% decline.
Regional Tasmania and the Northern Territory stayed reasonably flat at -0.3% and -0.4% respectively.
These regional areas have all experienced a significant drop in value since their record highs, with regional Victoria showing a drop of -7% since May 2022.
Home values in regional Tasmania have dropped -5.4% since May 2022, while regional Northern Territory values decreased -3.4% since April 2023.
Resident Mozo finance expert, Peter Marshall, recently made the decision to leave Sydney for more affordable interstate shores and shared some practical tips for those considering the move.
As a renter in Sydney for over three decades, Marshall says that buying in Australia’s most expensive housing market was “never on the table as an option.”
“The home price thing was an enormous part of why I left Sydney,” he said. “It’s possible I would’ve stayed, I don’t know. But given the choice between renting in Sydney and buying somewhere else, it becomes much easier.”
Marshall did his due diligence before putting the wheels of his move into motion, helping to make sure there weren’t any surprises on the cost front.
His biggest tip?
“Budget more than you think you need for everything.”
Marshall recommends budgeting for a small amount above every quote that you get, whether it’s for conveyancing fees, or building and pest inspections.
“That means when you get around to having to pay for things, you find that some things end up costing a little bit more, you’ve got room in your budget to deal with that – and it’s not going to be the end of the world.”
Aside from giving yourself some budgetary wriggle room, Marshall also recommends sorting out your conveyancer and inspectors before you lock into making an offer on a home, as once the ball starts rolling, things can move quite quickly.
“You spend months and months looking for a place to buy and, all of a sudden, you need to have all these things at your fingertips. So have those things at your fingertips before you need them because when you do, you won’t be wanting to do that research,” he said.
The same ethos applies to your home loan financing. You’ll want to have a lender on hand, ready to go well before signing the deed, so you know exactly how much money you can borrow to buy your new home.
That also means you’ll need to compare home loan interest rates to see which lenders currently offer competitive rates and the home loan features you want. Get started with some of the featured products below.
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[1/2]A man walks past houses ‘For Sale’ in a residential street in London, Britain, September 27, 2022. REUTERS/Hannah McKay Acquire Licensing Rights
LONDON, July 11 (Reuters) – A key British mortgage rate hit a 15-year high on Tuesday when it rose above the levels reached in the aftermath of September’s “mini-budget” crisis, adding to strains on the country’s slowing housing market as the Bank of England battles stubborn inflation.
The average two-year fixed residential mortgage rate climbed to 6.66%, narrowly exceeding the 6.65% touched on Oct. 20 and the highest since August 2008 when it stood at 6.94%, according to data provider Moneyfacts.
Britain’s housing market activity staged a recovery in early 2023 from the turmoil triggered by the unfunded tax-cutting plans of former Prime Minister Liz Truss. But homeowners and buyers have faced renewed mortgage pain in recent months.
Fixed mortgage deal rates have risen rapidly in recent weeks as stickier-than-expected consumer price inflation, which held at 8.7% in May, pushed up bond yields and increased market bets on the BoE’s benchmark rate peaking at 6.5%, up from 5% now.
Governor Andrew Bailey said last month there were signs of more persistent underlying inflation pressures after the BoE unexpectedly raised its Bank Rate to 5% in an effort to tame the highest inflation rate among the world’s big rich economies.
Swap rates, a key measure lenders use to determine the cost of mortgage borrowing, have also soared. Two-year swaps jumped by 0.89 percentage points over the course of June.
The surge has prompted major mortgage lenders to repeatedly reprice home loan offerings.
Lenders including Nationwide, Lloyds Bank and Santander on Tuesday told lawmakers on the Treasury Committee in Britain’s parliament that mortgage payment arrears had increased slightly but remained below pre-pandemic levels.
“Undoubtedly, households and customers are feeling the effect of not just mortgage rates increasing but the wider cost of living crisis … but arrears remain very low in a historical context, and still below what we’d have seen pre-COVID,” Andrew Asaam, homes director at Lloyds Banking Group told lawmakers.
However, most households have yet to face the impact of higher borrowing costs as they are still locked in to previous deals.
British homebuyers typically take out mortgages with an interest rate that is fixed for two or five years, and then remortgage on to a new fixed rate or accept a variable rate.
Trade body UK Finance estimates 800,000 Britons will need to refinance loans in the second half of this year, and a further 1.6 million in 2024 of a total of nearly 7 million fixed-rate mortgages that are outstanding.
Analysis from the Resolution Foundation, a think tank, shows the average homeowner who refinances a home loan in 2024 will have to pay an extra 2,900 pounds ($3,732.88) a year.
House prices have also shown the hit to the market. Mortgage lender Halifax reported a 2.6% annual fall in house prices in June, the largest decline since 2011, while Nationwide reported a 3.5% drop year-on-year last month, the biggest since 2009.
($1 = 0.7769 pounds)
Reporting by Suban Adbulla and Sachin Ravikumar; Editing by William Schomberg, Kate Holton and Andy Bruce
Our Standards: The Thomson Reuters Trust Principles.
The percentage of equity Americans have in their homes crept further below 50 percent in the fourth quarter, the Federal Reserve revealed today in its latest U.S. Flow of Funds Accounts report.
Homeowners’ percentage of equity fell to 47.9 percent in the fourth quarter of 2007, compared to equity of 50.5 percent in the fourth quarter a year ago.
In the second quarter of 2007, homeowner’s equity was lowered to a revised 49.6 percent, and fell to 48.6 percent in the third quarter.
Home equity has not risen since the first quarter of 2005, and is due to get worse as weak down payments coupled with falling home prices exacerbate matters.
The total value of equity slipped to $9.65 trillion, the third straight quarterly decline, down from $9.93 trillion in the third quarter and $10 trillion a year earlier.
But it’s not just slipping equity that’s an issue, but rather those who have no equity at all or even negative equity.
Recently, leading economists have noted that the rising problem of negative equity, where the mortgage balance exceeds the value of the home, could lead to an epidemic of homeowners walking away.
That would drive home prices lower and lengthen the expected time until a housing recovery.
A recent report by Zillow found that nearly a third of recent homebuyers have negative equity, largely because home values continue to slide and down payments keep getting smaller.
The report also found that the growth of home mortgage debt decreased to a rate of 5 percent during the quarter, the slowest quarterly pace since 1997.
And for the all of 2007, household debt increased just 6.75 percent, roughly 3.5 percent less than in 2006, largely due to slower growth in home mortgage lending.
The Department of Veterans Affairs announced that it is pausing foreclosures on VA-backed loans and extending pandemic protections for veterans facing difficulties paying their mortgages.
Officials said Friday that the department will contact mortgage services to pause VA foreclosures and extend the COVID-19 Refund Modification program through May 31, 2024, to ensure that veterans are able to stay in their homes.
The move follows a report Nov. 11 by National Public Radio that found veterans who used the mortgage forbearance program authorized by Congress early in the pandemic were at risk of losing their homes after the VA ended a Partial Claim Payment program that would have allowed them to defer their missed payments to the back of their loan period.
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Instead, when the program ended, they received bills from their mortgage companies for the total payments missed, meaning they faced paying large sums to keep their existing low-interest mortgages or refinancing under today’s rates, which are double what they were in January 2022.
According to the NPR report, roughly 6,000 VA homeowners are in the foreclosure process. Another 34,000 are delinquent.
The VA has called for mortgage services to pause foreclosures and will “work with servicers on workable home retention solutions for veterans,” according to a department statement.
The extension of the COVID-19 Refund Modification program will allow veterans to obtain zero-interest, deferred-payment loans from the VA to cover missed payments and modify their existing VA-guaranteed loans to create an affordable monthly payment structure.
VA officials said they are establishing a VA Servicing Purchase program that will allow the department to purchase defaulted VA loans from mortgage companies, modify them, and then put them in the VA’s direct loan portfolio.
“This will empower us to work with veterans experiencing severe financial hardship to adjust their loans — and their monthly payments — so they can keep their homes,” VA officials said in the statement.
The majority of loans described as “VA home loans” are actually VA-backed loans, in which the department guarantees a portion of the loan, ensuring that if a veteran homeowner goes into foreclosure, the lender will recoup some or all of its losses.
The benefits for veterans include better loan terms, such as a more favorable interest rate or smaller to no down payment. According to the department, nearly 90% of all VA-backed home loans are made without a down payment.
Following the NPR report, Senate Democrats Sherrod Brown of Ohio, Tim Kaine of Virginia, Jack Reed of Rhode Island, and Jon Tester of Montana wrote to VA Secretary Denis McDonough calling for a pause and urging him to extend the COVID-era refund program.
“With each additional day that passes, risks mount for borrowers who are facing foreclosure while they wait for a solution from VA. Without this pause, thousands of veterans and service members could needlessly lose their homes,” the senators wrote. “This was never the intent of Congress.”
Tester, who serves as chairman of the Senate Veterans Affairs Committee, released a statement Monday praising the VA for its fast response.
“I’m encouraged to see VA answering my call to quickly address this crisis facing our men and women who risked their lives serving this country and were facing foreclosure through no fault of their own,” Tester wrote in a statement. “This pause will help ensure our veterans, service members, and their families can remain in their homes and get their payments back on track while VA works on a long-term solution.”
VA officials said any veteran struggling with making their mortgage payments should check out the department’s housing assistance website or call 877-827-3702.