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Should You Use Home Equity to Finance Repairs or Wait and Save up the Money?

Aug 28, 2019 by

If your home needs repairs and you don’t have enough money in your bank account, it can be tempting to use your home equity. Doing so might be your best option in some cases, but it can be risky.

When and How to Tap Into Home Equity for Repairs
The decision on how to finance home repairs will depend on whether they are urgent. A leaky roof needs to be fixed now, before it gets worse and you wind up with major damage, both inside and outside the house. Any issue that could put your family at risk or make your home uninhabitable, such as a broken furnace in the middle of winter, needs to be addressed immediately. In that case, you might have no choice but to access your home equity.

With a home equity loan, you can receive money in a lump sum and repay it at a fixed interest rate. Home equity loans typically have higher interest rates than first or second mortgages. You’ll have to make monthly payments until the amount borrowed has been repaid.

With a home equity line of credit (HELOC), you can draw money as you need it, similar to the way a credit card works. Your monthly payments will be based on the amount of money you’ve used. HELOCs have adjustable rates, which means your payments may rise and fall.

When to Wait and Save
Optional projects, such as remodeling a bathroom or upgrading kitchen appliances, can wait until you’ve saved up enough cash. Saving the money ahead of time can help you avoid having to repay a home equity loan or HELOC with interest. In the meantime, you can look for other ways to make your home more comfortable, such as making smaller changes or tackling just one piece of a larger project.

Is Using Home Equity a Good Option for Home Repairs?
Some home repairs can’t wait. In such a situation, you might have to access your home equity through a loan or line of credit. Before you choose either, make sure you understand how it works and the risks involved. If you take out a home equity loan or HELOC and don’t make the payments on time, you can lose your home.

You shouldn’t get in the habit of borrowing against your home equity, but rather should focus on saving and prioritizing and use home equity only when absolutely necessary. If you can wait to make repairs, saving the money first is a safer move.

This article is intended for informational purposes only and should not be construed as professional or legal advice.

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A Vision for Housing Finance Reform

Mar 10, 2019 by

On Sept. 7, 2008, as a substantial breakdown in the American housing market left Fannie Mae and Freddie Mac (the Government-Sponsored Enterprises, or GSEs) in financial trouble, the Federal Housing Finance Agency moved to place the GSEs into conservatorship. Today, more than a decade later, the financial crisis is long over, but the GSEs remain in conservatorship.

The GSEs of today are not the GSEs of 2005. They have undergone significant reforms and play a key role in the secondary mortgage market, which is crucial to providing capital for homeownership. The GSEs buy mortgages, package them into securities, and sell them to investors with a guarantee of timely payment, but their role in the market is much more. Fannie and Freddie set, monitor and enforce standards subject to their regulator for origination, credit, servicing and prepayment for the $ 5 trillion conventional mortgage market. They also provide the large infrastructure and scale required in the investment markets for interest rate and credit risk, facilitating more competition than would exist without them.

Because of their public mission, the GSEs are tasked with providing affordable mortgage funding to all creditworthy borrowers. Furthermore, during the financial collapse, private capital withdrew from the mortgage market. Without the federal government’s support of the GSEs, borrowers would have faced a private market where mortgage rates were nearly 5 percentage points higher. Simply put, the Great Recession would likely have become a Great Depression.

A Model for the Future
At an event in Washington on Feb. 7, the National Association of REALTORS®(NAR), in collaboration with Susan Wachter, the Albert Sussman Professor of Real Estate Finance at The Wharton School of the University of Pennsylvania, and Richard Cooperstein, head of Risk Management at Andrew Davison and Company, proposed a new system that would leverage reforms made since the crisis with a durable model that protects taxpayers and supports the public mission.

To achieve these goals, the GSEs would be replaced by government-chartered, private utilities that are subject to strong regulation and appropriate capital standards. The new entities will be tasked with a mission to provide stable mortgage funding to all creditworthy borrowers in all markets and in all economic conditions, while retaining a responsibility to underserved borrowers and markets.

To maintain efficiencies and provide capital, the utilities will have stockholders who receive a regulated return that varies based on the quality of their infrastructure investments. The utilities will curate the market for private capital that sits ahead of taxpayers, shifting between debt and equity sources. Thus, private capital would manage the entities’ costs and take losses ahead of taxpayers, while their board would be empowered to advance their mission ahead of profits.

To balance profit-seeking motivations, the utilities would be supervised by a strong regulator, regularly report to Congress on the state of their business and ability to meet their mission, and would be restricted from lobbying on their own behalf. What’s more, they would be required to publish data on various aspects of their business and counterparties. Transparency and an effective regulator will curb risk-taking and inefficiencies.

This vision of a reformed secondary market for housing finance first recognizes the critical role the GSEs play in housing finance—the same need that led to their initial creation. The proposal codifies a structure that is effective, resilient and fair, balancing the tension of private operating companies with the public mission while supporting the availability of long-term, fixed-rate mortgage products (i.e., 30-year fixed-rate mortgage). It builds on what works today and creates a system that will serve Middle America and the nation for decades to come.

For more on NAR’s vision for housing finance reform, please visit www.nar.realtor/fannie-mae-freddie-mac-gses.   

Ken Fears is the senior policy representative for Conventional Financing and Lending for the National Association of REALTORS®. This column is brought to you by the NAR Real Estate Services group.

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What Trump Did Not Say About Finance Reform

Jun 19, 2017 by

Now speculators are trying to figure out what Trump wants to do based on what he did not say about finance reform.  That’s an interesting way to figure out what someone wants to do.   https://www.wellsfargo.com/private-foundations/search-results#searchtab

The post What Trump Did Not Say About Finance Reform appeared first on National Real Estate Post.

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What Trump Did Not Say About Finance Reform

Jun 19, 2017 by

Now speculators are trying to figure out what Trump wants to do based on what he did not say about finance reform.  That’s an interesting way to figure out what someone wants to do.   https://www.wellsfargo.com/private-foundations/search-results#searchtab

The post What Trump Did Not Say About Finance Reform appeared first on National Real Estate Post.

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