Don’t Make a $50,000 Home Decision Based on an Assumption

Some of the most expensive homeowner mistakes start with a sentence that sounds perfectly reasonable.

“I thought FHA loans were only for people with bad credit.”

“I figured I should refinance because I need some cash.”

“I assumed a better roof would automatically lower my insurance.”

“I thought solar would require $40,000 out of pocket.”

Those assumptions can send you toward the wrong loan, the wrong home improvement, or the wrong financial decision before anyone has even looked at the numbers.

When you’re dealing with your house, especially when tens of thousands of dollars are involved, don’t make the decision based on what you’ve heard, what somebody told you years ago, or what an Internet search spits back at you.

Find out how the option actually works for your situation.

Helping Your Kids Buy a House Doesn’t Mean Buying It for Them

I recently spoke with parents who wanted to help their daughter and son-in-law buy a house.

The younger couple had credit scores around 620 and didn’t have enough money to make the purchase comfortably on their own. The parents had excellent credit and were trying to decide whether to give them money, buy the house themselves and rent it back to them, or find another approach.

They were surprised when I brought up an FHA loan.

One of the parents assumed FHA financing wouldn’t be available because his credit was too good, his income was too high, and this obviously wasn’t his first home.

That’s not how FHA works.

FHA loans aren’t reserved exclusively for first-time buyers or people with bad credit.

Depending on the transaction and everyone’s qualifications, parents may be able to participate as non-occupying co-borrowers while the children purchase and live in the home.

That can create a very different path.

Instead of Mom and Dad becoming landlords, they may be able to help strengthen the loan application while the children establish ownership and begin building equity.

Later, if the children’s credit and finances improve and refinancing makes sense, the parents may be able to come off the loan.

That doesn’t mean this structure works for every family.

Everybody on the loan needs to understand the responsibility they’re taking on. If the payment isn’t made, the lender isn’t going to care that Mom and Dad were only trying to help.

But before parents start moving large amounts of money around or buying another property themselves, it’s worth finding out whether a simpler mortgage structure can accomplish the same goal.

Needing $8,000 Doesn’t Mean Refinancing $94,000

A newly retired homeowner called because she wanted some extra financial breathing room.

She owed approximately $94,000 on a home worth around $215,000 to $220,000. Her mortgage rate was 5.625%, she had about $8,000 in debt she wanted to address, and she was considering a cash-out refinance.

My first reaction was simple.

Don’t do anything yet.

If you need $8,000, refinancing the entire first mortgage may be a very expensive way to get it.

A cash-out refinance replaces the existing mortgage with a new, larger one. That means the homeowner needs to consider the new interest rate, closing costs, monthly payment, and the fact that the entire existing balance is being moved into the new loan.

A home equity line of credit can be a completely different tool.

With a HELOC, the homeowner may be able to leave the existing first mortgage alone and borrow only what is needed against the available equity.

That can make a lot more sense when the amount needed is relatively small compared with the first mortgage.

The important word there is “can.”

You still have to qualify. You still need to understand the HELOC rate, repayment terms, fees, and how the payment could change.

But this is exactly why I don’t like homeowners deciding in advance that they need a refinance, HELOC, reverse mortgage, or any other product.

Start with the problem.

Then find the financing that solves it with the least unnecessary cost and risk.

A Better Roof May Save Money, but Check With Your Insurance Company First

If you’re replacing a roof, it’s worth asking whether spending more for a higher impact-rated shingle could reduce your homeowners insurance premium.

There are roofing products with different hail, wind, and fire-resistance ratings.

Some insurers offer discounts for Class 3 or Class 4 impact-rated shingles, and one insurance agent who contacted us confirmed that his company offers discounts based on those ratings.

That doesn’t mean every insurance company does.

It also doesn’t mean the additional roofing cost automatically pays for itself.

The higher-rated material may cost more. The insurance discount varies by carrier, policy, product, and age of the roof.

So do the obvious thing before signing the roofing contract.

Call your insurance company.

Ask whether they offer a discount for impact-resistant roofing.

Ask which classifications qualify.

Ask how large the discount would be.

Ask how long it remains in effect.

Then compare that savings with the additional material cost.

Maybe upgrading from a Class 3 to a Class 4 shingle is absolutely worth it.

Maybe the extra protection is valuable even without a large insurance discount.

Or maybe the numbers don’t justify the upgrade for your particular house.

The point is to know before you spend the money.

Solar Savings Need to Be Shown, Not Just Promised

The same rule applies when homeowners consider solar.

One thing I liked hearing about a recent solar consultation was that the homeowner wasn’t simply shown a monthly payment and told, “Trust us, you’ll save money.”

He was given projections.

The proposal looked at his historical electricity usage, how much electricity the proposed solar system could produce, where the panels would be installed, and estimated savings over the agreement.

He could also ask for different scenarios.

What if electric utility rates rise more slowly?

What happens if you assume a 5% increase instead of something higher?

What if you change the size of the system?

That’s the kind of conversation homeowners should be having before entering a long-term agreement.

Solar proposals can involve very large projected savings over many years, but projected savings depend on assumptions.

If somebody tells you that you’ll save $40,000 over 15 years, ask how they got there.

What utility-rate increases are assumed?

How much of your historical electricity use is the system expected to offset?

What happens if your electricity consumption changes?

Is battery storage included?

Who maintains the equipment?

What happens when you sell the house?

And what exactly are you agreeing to pay over the full term?

A spreadsheet doesn’t guarantee the future.

It does give you something much better than a sales pitch: numbers you can examine and question.

The Product Should Fit the Problem

Homeowners have more financial options than they sometimes realize.

Parents helping children buy a house may not need to purchase the property themselves.

Someone who needs $8,000 may not need to refinance a $94,000 mortgage.

A more expensive roofing product may save money on insurance, but only if the insurance company actually rewards you for installing it.

Solar may reduce long-term electricity costs, but you need to understand the assumptions behind the projection.

The mistake is deciding what you need before anyone has analyzed the problem.

When someone calls me and says, “I need a cash-out refinance,” I usually want to know why.

When someone says, “I can’t use FHA,” I want to know who told them that.

When somebody says an upgrade will pay for itself, I want to see the math.

Your house is too valuable, and these decisions are too expensive, to operate on assumptions.

Ask the extra question.

Read the actual terms.

Compare the alternatives.

Then make the decision.

If you’re trying to figure out whether a refinance, HELOC, FHA loan, or another mortgage strategy makes sense for your situation, contact me through 56david.com. We can look at the numbers first and the product second.