The Basics of Home Equity

One of the benefits of owning a home is the ability to build equity and tap into that to pay for major expenses like remodels, debt or tuition. But what exactly is home equity and how can you use it? We break down the basics of home equity to help you understand why it is so valuable.

What is Home Equity?

Equity is the difference between what you owe on your mortgage and what your home is currently worth. For example, if you owe $150,000 and your home is worth $250,000, you have $100,000 of equity in your home. To determine your equity at any one time, you will need to have an accurate assessment of the value of your home. Only a real estate appraiser can give you an official evaluation of your home’s everchanging worth, but you can estimate the value based on comparable home sales in your area.

How Do You Build Home Equity?

There are numerous ways to build equity in your home.

  • Make a big down payment. The larger amount you put down in the beginning, the more equity you will start out with.
  • Focus on paying off your mortgage. Your minimum monthly mortgage payment covers interest, taxes and insurance, with some of it going towards your principal balance. Paying a little more than the minimum each month will allow you to lower your principal balance faster, growing the equity in your home.
  • Stay in your home for at least five years. If your home increases in value, you will grow your home equity. One way to do that is to stay in your home for at least five years to see its value jump.
  • Add value to your home by renovating. Updating your kitchen or bathrooms or even adding on an addition can make your home more appealing.

How Do You Use Home Equity?

You can use the equity in your home to help you financially in several ways, including as a tool to help buy a new home. The more equity you have inside your current home, the more you will profit from the sale. This allows you to make a larger down payment on the next home, lowering your mortgage on a comparable house or allowing you to purchase a more expensive one.

You can also borrow against your home with a home equity loan or home equity line of credit (HELOC). A home equity loan works like a second mortgage, allowing you to borrow a specified percentage of equity you have in your home in a lump sum you will then pay back monthly. A HELOC is more like a credit card, except the limit is tied to the equity in your home. You only have to pay back what you borrow.

How We Can Help

We can help you finance your next big project, help pay off other debt and dozens of other uses through a home equity loan or HELOC. Contact us today to learn more about our rates and be connected to a mortgage loan officer who can answer any of your questions.

8 Lessons to Teach Financial Literacy to Children

According to a study by the National Foundation for Credit Counseling, only 40 percent of adults have a budget and keep track of their finances. The lack of understanding and awareness of money could be rubbing off on the next generation, with more than half of 15-year-olds scoring on the low side of a test on spending and saving. It is important to teach financial literacy to children from an early age. Here are some tips to help.

Teach Your Kids About Money

April is National Financial Literacy Month, a great time to instill a lifelong understanding of good spending and saving habits.

  1. Discuss the difference between wants and needs. Explain that things like food, shelter, clothing, medicine, hygiene, transportation and other basics are needs. Many other things, such as televisions, video games and entertainment, are wants. Use your own budget to explain how you spend money on housing, car, bills, etc. before you can consider spending money on things you may want.
  2. Have children earn their own money. Having children do tasks around the house in exchange for money teaches them the value of hard work. If they do not complete their chores, they do not get paid. Children are more likely to save money when they earn it.
  3. Provide a place to save. For younger children, this could be a piggy bank but as they grow, consider opening a savings account. This allows them to see their progress, especially if they are saving for something specific.
  4. Track spending. Part of effectively saving money is understanding where the money you are spending is going. Having children write down their purchases and add them up at the end of a week or a month can be eye-opening.
  5. Act as their creditor. A good way to teach children early on about loans is to lend them money with a payback plan from their allowance with interest. This teaches them that if they had saved on their own and waited, the item would have cost less.
  6. Leave room for mistakes. Part of putting kids in control of their own finances is letting them make missteps. It can be tempting to steer them away from a costly mistake, but it will be far more memorable if they learn from their mistakes rather than receive a lecture from their parents.
  7. Talk about money. One study found 44 percent of parents said they had never talked to their children about long-term investing. Teaching your kids about money and saving should be an ongoing discussion that becomes more complex as they age and can better understand the process.
  8. Set a good example. Showing your children your good saving and spending habits is important and will rub off on them. Discuss your retirement savings plans, your emergency fund or how you save for family vacations.

How We Can Help

We are committed to helping children learn the value of money. You set up a checking or savings account in their name, allowing them to start learning the process with you by their side. Or join our Moola Kids’ Club, a program designed just for children.

We regularly hold events geared towards teaching children to navigate the financial world. To stay up to date on all of our financial literacy events, follow us on Facebook!

8 Ways to Build and Maintain Your Credit Score

Do you know your credit score? If you are applying for a loan or credit card, your score is important. A credit score ranges between 300 and 850 and the higher the number the better. Potential creditors use the number to estimate whether a borrower will pay back a loan, determining whether to let the person borrow and with what stipulations. The higher the score, the easier it is to buy a house, a car, rent an apartment and even land a job. We have eight ways to build and maintain your credit score in honor of National Credit Education Month.

How to Build Credit

  1. Get a secured credit card. If you are building credit from scratch, this is a good first option. A secured card is backed by a cash deposit you make upfront, which is usually the same as your credit limit. It functions like any other credit card and you will receive your deposit back when you close the account. This is an option to help build credit, but these cards are not meant to be used long-term.
  2. Get a credit-builder loan. With these loans, the money you borrow is held by the lender in an account and not released to you until the loan is repaid. Essentially a forced savings plan, these repayments are reported to credit bureaus and can help build your score.
  3. Use a co-signer. It is possible to get a loan or credit card if someone with a solid credit score co-signs with you. This requires a lot of trust because if you don’t pay back the loan, the person who co-signed with you is on the hook for what you owe.
  4. Become an authorized user. A family member or significant other could add you as an authorized user to their credit card. This adds the card’s payment history to your credit files, so be sure it is an account in good standing.

Maintain your Credit Score

  1. Make payments on time. This is the most important thing you can do to maintain your credit score. Try to pay at least the minimum payment, and if you can pay more than the minimum, it will be helpful for your score. Setting up automatic payments through our online banking and bill pay makes this simple.
  2. Keep credit card utilization low. A good rule of thumb is to keep your card usage under 30 percent when possible and avoid charging anything you don’t have the money to pay for when the bill arrives.
  3. Avoid applying for multiple credit accounts close together. With each application comes a small, temporary drop in your score. Multiple applications in a short time can cause more significant damage. Try to space them out by at least six months if you can.
  4. Keep credit accounts open. Unless you have a compelling reason to close an account, like a high annual fee or poor customer service, consider keeping it open. Closing one can reduce your average account age, which can have a big impact on your score.

If you are ready to apply for a loan to finance your next big life event, like buying a car or a home, we are here to help with personal loans, auto loans, mortgages and more. Contact us today.

Ways to Alleviate Today’s Financial Stress

With the new year no longer brand new, it may feel like the prime time to set new goals has passed, but it is never too late to better manage your finances. There is a multitude of ways to alleviate today’s financial stress. Just like you should make it a priority to see your doctor at least once a year, you should also check in on your financial health at least once a year.

Steps to Evaluate Financial Health

There are several steps you can take to reduce your financial stress and improve the health of your finances.

  1. Determine your net worth. This will help you see where you stand financially. Calculate this by taking the value of all your assets and subtracting your liabilities. Assets include your savings, car, home, investments, etc. Your debt is your mortgage, loans or credit card balance. This tells you what you currently have versus what you owe. Don’t worry if your net worth is negative, especially if you are nowhere close to paying off your mortgage. Focus on paying off debt and working to increase your net worth by five to ten percent each year.
  2. Calculate your debt-to-income ratio. Your debt-to-income ratio is calculated by taking the total amount you pay in debt payments and dividing it by your monthly gross income. You want your ratio to be below 30 percent. This is crucial when it comes to lending and is the primary factor in your credit score. If your ratio is higher, you want to work to lower your expenses.
  3. Evaluate the cost of your housing. One of your biggest monthly costs is likely your housing, whether that is rent or a mortgage. Aim to spend no more than 30 to 40 percent of your monthly income on housing. If you’re paying more, it may be time to reevaluate your situation.
  4. Categorize where your money is going. Track where your money has been going over the past few months and put it into categories such as housing (rent or mortgage), transportation (car payment, public transport or gas), food (groceries and take-out), etc. This lets you know if you are spending too much in one category so you can take steps to cut back.
  5. Assess your investment strategy. Even if the amount is small to start, invest in a 401(k), Roth IRA or a similar retirement savings plan. A savings account is not a retirement account. If you need help establishing an account or selecting the best option for your situation, and many people do, talk to a financial advisor for help.
  6. Automate payments and savings. Life can get hectic, so having your bills automatically deducted can help you avoid costly penalties for missed payments and a negative impact on your credit score. You should still look at your billing statements to ensure prices have not increased or you are not being overcharged. Also, set up your direct deposit so a certain amount goes into your savings each month.

We Can Help

When it comes to getting your finances in order, there is no shame in asking for help. Having a trusted advisor or financial planner can be a key asset in keeping your finances healthy. That’s where we can help. Our trusted staff can help steer you in the right direction when it comes to saving money, buying a home, investing and much more. Contact us to learn how we can help.

The Difference Between APR and Interest Rates

When you’re shopping for a home loan, you should know the difference between APR and interest rates to assess if you are really getting the best deal. Scott Auen, senior vice president, retail lending, answers some common questions to you make the most informed decision.

What Is the Difference between APR and Mortgage Interest Rates?

The interest rate on a mortgage loan is what it will cost you to borrow the money; it’s the percentage charged by the lender on the amount you borrow. The APR, or annual percentage rate, is the interest rate plus the finance charges and fees that are incurred over the life of the loan. The APR usually, but not always, ends up being higher than the interest rate. It gives you a better idea of the total cost of your mortgage, assuming you keep it for the entire term.

How Do Banks Calculate the APR for a Mortgage Loan?

The APR for a mortgage loan is the interest rate plus the finance charges and fees over the life of the loan. However, all lending institutions don’t include the same fees in their APR calculation. By law, every APR must include mortgage insurance, broker fee, interest, points and loan origination fee. Third-party fees that legally can’t be included are notary, home appraisal and attorney costs. And there are other fees that some lenders include, and others don’t. That’s why you should ask specifically what is included so you can make an accurate assessment when comparing offers.

And How Is the Interest Rate Determined?

Overall mortgage rates are determined by external market forces such as the state of the economy, inflation rates, job growth and other economic indicators. Then, individual lenders set their interest rates based on factors such as the level of risk they are willing to incur, how competitive they want to be in the market and other considerations. Finally, internal factors—such as your credit score, the amount of the loan you are seeking and the loan-to-value ratio for your purchase—also play a major role in determining the interest rate the lender will offer you.

Which Should I Pay More Attention to?

This is not a simple answer. Basically, the interest rate will let you know your monthly mortgage payment, while the APR will give you a bigger picture of what the total cost is over the life of the loan. Which is more relevant to you depends on a number of factors.

For example, if you are buying a small home with plans to move within five (or even 10) years as your family grows, it makes more sense to pay attention to interest rates to keep your monthly payments lower. The same is true if you are likely to refinance. There are a lot of factors to consider, including the type of mortgage, however, so it’s best to talk to a mortgage loan officer who can guide you through your options.

How Can I Find the Best Mortgage for Me?

In general, take a look at both the interest rate and APR from lenders to make sure they aren’t compensating for a low-interest rate with higher fees. There are online calculators you can use that will help you calculate costs based on several factors, but for your best assessment before deciding, consult with a professional.

It’s important to compare apples with apples. The type of mortgage you are looking to get—such as fixed-rate or adjustable-rate—is also a key factor. Comparing the interest and APR rates against two different types of loans will not give you an accurate assessment.

We can help you find the best mortgage that works for you. Our loan officers are highly trained and ready to answer any questions you may have. Contact us today for more information.

What Should First-Time Homebuyers Know About Closing Costs?

Buying a home is an exciting time in a person’s life, but it can also be stressful and overwhelming. There are many costs associated with buying a home in addition to the price of the house, and a lot of that can come with the closing costs. So, what should first-time homebuyers know about closing costs? We have put together a guide to help you prepare to buy a home, especially if it’s your first. Plus, we offer a special discount on closing costs for first-time homebuyers!

What Are Closing Costs?

Closing costs are the fees and expenses that allow you to finalize a home purchase. This can include mortgage-related fees, property title insurance, inspections, taxes and more. You will receive an estimate for your closing costs within three days of filing your mortgage application. As you approach your closing date, your lender will alert you to any anticipated changes to the costs quoted. Then, a few days before closing, you will receive what’s called a closing disclosure; this will confirm the final fees that will be due at the closing. Closing costs will vary based on the size of the home, down payment, type of loan you chose and any negotiations you make with the seller. Typically, closing costs range from 2% to 5% of the price of your home.

Closing Costs: Breaking It Down

You know closing costs are necessary to the purchase process, but you may be wondering: What exactly am I paying for? Here, we explain the specifics of this homebuying expense. Note that most closing costs are due on your closing date, but some may be due sooner.

Costs before Closing Date

  • Earnest money: This is not technically a closing cost, but buyers are asked to provide what is known as earnest money as a show of faith toward the seller when they sign the offer to purchase and the home purchase contract. This could be as much as 1% to 5% of the purchase price. This cost can then be used towards closing costs or your down payment at the time of closing.
  • Appraisal: An appraisal is required to make sure the home price is justified. This is usually about $500 to $690 but could be more for a larger home.
  • Home inspection: A home inspection is necessary before closing to make sure the home has no major structural issues before purchasing. This cost could be about $500 or higher depending on the size of the home.

Costs at Closing

  • Points: If you choose to, or have to, pay points as part of your loan, they are charged as a percentage of the loan. By paying a point at closing, you can get a lower interest rate.
  • Credit report: The lender will charge you to check your credit, which is usually about $50 to $75. Make sure to unfreeze your credit reports before applying so a lender can pull your credit report.
  • Flood determination: A lender must determine if the property is in a flood zone. This is usually only about $15.
  • Tax monitoring services: This is to ensure property taxes have been paid through the life of the home. This could cost $50 to $100.
  • Title-related costs: The lender will conduct a title search and take out title insurance to make sure there are no complications. The search fee is usually around $350, and the insurance is usually a half percent of the home value.
  • Homeowner association fees: Not everyone will have this fee but if you are joining a homeowner’s association, those fees will be due at the closing.
  • Document and processing fees: These are often called “origination fees” and can include underwriting, application processing and other administrative tasks. These costs will vary by institution.
  • Attorney fees: A buyer may want representation throughout the process and at the closing. This cost will vary depending on the attorney’s fee structure.
  • Home insurance: Whether the insurance payment is in escrow or not, lenders usually require the buyer to pay the first year at closing.
  • Property taxes: At closing, you will likely pay taxes for the rest of the year, or at least for the next six months. This cost varies depending on where you live.

How Can Homebuyers Reduce Closing Costs?

Negotiating with the seller is one way to minimalize costs for the homebuyer. Sometimes if the house needs some work, the seller will pick up the closing costs to help “cover” some of the work the buyer needs to do right away. Or the seller may lower the asking price, which could then allow the buyer to use some of their planned down payment for closing costs.

If you use Cornerstone as your lender, we offer $750 off your mortgage closing costs if you are a first-time homebuyer,* in addition to our competitive rates on all lending products. We want to help make your dream home a reality. When it comes to what first-time homebuyers should know about closing costs, we can help every step of the way. Contact us to get started today!

*Only valid on first-time homebuyer applications approved and closed with Cornerstone Bank. Other fees may apply. Validated coupon must be received no later than ten (10) days prior to closing or the offer is null and void. Valid only for residential owner-occupied mortgage applications received by Cornerstone Bank. At least one applicant must be considered a first-time homebuyer. Valid for applications dated on or after July 1, 2021, through September 30, 2021, with a closing date on or before November 01, 2021. Speak with a Mortgage Loan Officer for details. Cannot be combined with any other offer. Only one (1) coupon per mortgage application allowed.

Why You Should Refinance Your Home in the New Year

What is your New Year’s Resolution? If you are a homeowner, and your resolution has to do with saving money, we can help. Low-interest rates and the option to change the terms of your loan are great reasons why you should refinance your home in the new year.

Reasons to Refinance

Refinancing your mortgage is essentially taking out a new loan to replace your old mortgage. We can help you make this process quick and efficient. It may seem intimidating, time-consuming and costly to refinance, but it is a fairly simple process and moves much faster than your original mortgage application. For most people, the cost-saving benefits in the end far outweigh any upfront costs and we can help to make sure when you refinance, it is the most affordable option for you. Here are some reasons to refinance:

  • Pay off your loan quicker with a shorter term. If you had a 30-year mortgage at the start but want to shorten to 20, you will be able to do this when refinancing. Although this option will raise the amount of your monthly payments, the loan will accrue less interest over time and therefore save you money in the long run.
  • Get a lower interest rate. Current interest rates are at historic lows and very well may be lower than the one you have now. By refinancing, you are able to pay less interest each month, saving you money.
  • Switch between loan types. When refinancing, you can change your loan from a fixed-rate to an adjustable-rate mortgage or vice-versa. There are benefits to both depending on your current situation and how long you plan to stay in the home.
  • You have gained enough equity in your home to refinance into a loan without mortgage insurance. This is another way to save you money, without having to also pay the mortgage insurance every month on top of the mortgage payments.
  • You are looking to tap a bit of your home equity with a cash-out refinance, which gets you some cash in hand for whatever you may need. This is essentially a loan that is more than the amount remaining on your current mortgage and is a great way to pay down existing debt that is at a higher interest rate.
  • Your credit score has increased. Another great reason to refinance is if your credit score has improved. Having a higher credit score ensures you a better rate than when you originally borrowed, and you may be able to get better terms as well as you are now a more trustworthy borrower.

It is best to come up with a goal when deciding to refinance to be sure it is really in your best interest. Our experts will be able to help you through the entire refinancing process from deciding what is best for you, to signing the final papers. Contact us today to get started.