Are you thinking about buying a home? If so, you need to know the costs of buying a home. Knowing what the lenders will require on your end will allow you to be prepared when the time comes. Many people know about down payments. But, there are other costs involved. Here are some tips to help you get ready for your home purchase.
Conventional VS ARM
Choosing between a conventional loan and an adjustable-rate mortgage (ARM) will affect the costs involved with owning your home. Typically, fixed-rate mortgages are offered for 15-years of 30-years. ARMs are another option that is the best choice for certain buyers in certain situations. When deciding between the two, the first thing you want to ask yourself is how long you intend to own the home.
If you’re buying your dream home which intends to keep for many years or a home you’re planning to live out your retirement years in, a fixed-rate mortgage is best for you. Whether you choose a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage, you’ll want the stability that comes with these loans. With these mortgage loans, your interest rate is fixed throughout the life of the loan. That means that if you buy now, while interest rates are under 4%, your mortgage interest rate will remain this low until you’ve paid off your home loan.
However, if you’re purchasing a stepping stone and plan to sell your home within about two years, an ARM just may be a better choice for you. When you first buy your home, you will get the lowest interest rate possible, allowing your monthly mortgage payments to be very low. However, in time, your rate will increase, making your payments go up probably around the time that you sell the home. These loans are also great for buyers with credit issues that they intend to fix within the next year or two. By the time the interest rate increases, your FICO score is now high enough to qualify for a low-interest fixed-rate loan.
Mortgage Interest Rates
In the US, mortgage interest rates are currently at very affordable, low rates. Whether you’re looking to buy a high-end beachfront home, an urban fixer-upper, or lucrative multi-family housing, you can get some of the lowest interest rates you can imagine. The interest rate your lender offers you will also be based on your financial stability, time on the job, the amount of your down payment, your mid-FICO score, and your debt-to-income ratio. Typically, they will offer you a lower interest rate on a 15-year fixed loan than a 30-year fixed loan because you’re offering to pay off the loan in half the amount of time.
According to bankrate.com, these are the current mortgage interest rates in the US:
- 30-year fixed-rate: 3.54%
- 15-year fixed-rate: 2.89%
- 5/1 ARM: 2.86%
- 30-year fixed-rate refinance: 3.60%
If you’re interested in buying a home now while home prices and mortgage interest rates are still low, contact a real estate expert for assistance.
Mortgage Rates and the Factors Which Decide the Same
Owning a house is a dream followed by all in today’s world. There are ample reasons for the same. However, all would agree to the point that it is one of the safest investment options available in the current economic scenario which offers multiple benefits including tax benefits on the repayments made.
However, getting loans is one of the major tasks and it requires one to do extensive research and study to get the best terms and affordable rates. Moreover, mortgages or home loan decisions are long-term decisions and even a small difference in the interest rates can mean a lot of savings for the borrowers. Getting a lower interest rate, flexible repayment terms, and a reputed and reliable lender is not an easy task. So here are some of the tips which will help you through one of the toughest and the most valued decisions of your life.
Get hold of your credit score-
In the current times when the property rates seem to be sky high and still rising one has to settle for a mortgage loan to achieve their dream house.
Before you approach a lender, you must be aware of the things they require, the questions they might ask, the kind of documents they might ask you to submit, and above all your credit score and report. Going prepared for the lenders will always help.
As a first step contact any or all the three bureaus for a copy of your credit score and the credit records. With a little research, you can get an understanding of the way it works and how to check the correctness of the data and entries in your credit report. Scan the report for any discrepancies and if you find any contact our credit bureau with a written request for the removal of the same. Remember, wrong entries often pull your credit score down.
Once you have fixed the issues with the credit rating, it is suggested that you attach a copy of your credit score wherever you apply for a loan. This would prevent the lenders from making a hard pull on your credit score.
Since lenders take a look at the current score and not the old ones, get the recent one once you are out in the market applying for the loans for bad credit. An individual is entitled to free access to their credit reports from all the bureaus once in a year.
Even lenders respect the borrowers who come prepared with all the necessary documentation and the details. It expedites the lending and the approval process.
Down payment and your interest rate on the loan
Loan to value ratio or the LTV ratio as is popularly known decides the amount required by the borrower to pay as a down payment. In the majority of the cases, the down payment required is 20% of the value of the property which often comes out to be a large chunk of the money given the value of the houses in the current times.
However, there are a lot of borrowers who plan their mortgages in a way that they are successful in paying a higher down payment than the minimum threshold required. In such cases, the value of the loans decreases and this means the lower lending risk for the borrowers and hence they agree to a lower interest rate on lending.
Yet another factor which decides the interest rate is the kind of mortgage you are taking. Whether you are taking a new loan or a refinance will affect the kind of interest you get on the mortgages.
In the case of the first time buyers, if you have a good credit score and have enough savings to pay a higher down payment, you can save on the interest rates.
For those who are looking to refinance their home and hold higher equity; lower interest rates and flexible interest rates are easily available for them.
FHA loan options – These loans are government-backed loans offered by the Federally approved lenders. It is best suited for those who are the first time borrowers of the mortgage loans, are looking for fewer complications and better interest rates. In addition to this one has to pay a lower down payment too.
Decide on the loan tenure- Whatever the kind of loan, try and apply for a loan tenure which offers you an affordable monthly payment. One should account for the interest rate fluctuations too. These can be drastic and at times may see your monthly EMIs double on account of an interest rate rise. The use of EMI calculators can be a great help. Longer tenure means lower EMIs but one has to pay a bigger amount towards the interesting part too.
Clarify the applicable fees – One should research online and find out the fee charged by different lenders. There are several fine points associated with the lending agreement in which one often overlooks being lost in the hoopla of the lower interest rates advertised by the lenders. At times it may so happen that the interest rates charged by the lenders may not prove to be really attractive when compared with the applicable fees around.
Get pre-approved for the loans– When you are sure of a budget for the house you want to purchase, it is better to get your loan pre-approved. It requires less documentation and a day or two to get approval. One will find it really helpful because once you have a loan budget you know the amount for which you can buy the house taking the down payment and the other associated charges with the mortgage loan into consideration.
Saving Money By Comparing Mortgage Rates
Most people understand about price comparison and that by looking at how much things cost across different sellers, they can save money. However, a recent report has shown that with mortgages half of Canadians only get one quote before deciding here to get theirs from.
Most people will go to their own bank and ask for help there. This is not surprising, as we do tend to have brand loyalty, but it is important to realize that this could cost a lot more.
A mortgage is usually a very long term loan. It could last for up to thirty years and it is therefore important to make the right choice. A difference of 1% on a mortgage rate could seem small but if you consider the effect of that on a full mortgage term that could be huge in terms of cost. Imagine you have a $100,000 mortgage for 30 years. If you have 3% APR your interest is around $250 a month, if you pay 4% then it is $333 a month. If you add that up over the 30 years that is a $29,000 difference between the two rates. Pretty significant!
Comparing mortgage rates is therefore extremely significant and these days, quite simple. It used to take a lot of time to visit all of the companies and find out their rates or telephone around them all. Or you had to pay a mortgage advisor to do it for you and you may not find someone you trust enough to do that.
These days it is so much simpler though. You can use a comparison website such as RateSupermarket.ca. All you have to do is to put in the amount you would like to borrow and how long for. Select whether you want a fixed or variable rate and select mortgage type and you can find out which companies are offering mortgages and how much they are charging for them.
If you are not sure which options are the best, then you can compare them. This can save you a lot of money and does not take very much time. You may decide to negotiate with your bank and see if they can offer you something more in line with what you find online or you may just decide that one of the online deals looks too good to miss and you click the link and get through to an advisor from that company. It is very simple to do and could save a significant chunk of money.
It can feel right to stay loyal to a company, but you need to look after yourself these days. Money is tight everywhere and if you can shave money off your mortgage, then it could make a huge difference in the future. The longer the term and the more money you are borrowing, the more significant changes in the rate are. So take some time to use a comparison website and find out what other lenders are offering and you will see whether your bank has such a good rate.
San Diego Mortgage Rate Prediction
It is quite a challenge for predicting San Diego mortgage rates due to the messing systems in financial markets which consist of institutions that fix mortgage interest rates. Actually, they aren’t chaotic in the typical usage of the term, which means something without any order to it; they’re chaotic in sense of mathematical, where the formulas used to calculate mortgage interest rates, that are the formulas used to predict mortgage rates with self-referential factors.
Predict in mortgage interest rates is just like doing weather forecasts since it can never be accurately specific with estimating mortgage interest rates. Many have tried this but end up the more in advance they making mortgage interest rates prediction, they suffered a higher margin of error. In contrast, you can actually predict chaotic systems in broad terms.
When you want to make weather forecasting, you possibly will not get to forecast the most notable temperature for any given day in September. However, you could relatively positive it will likely be within a certain range. For example, in case you are living in Washington, the temperature should be between 75 and 90 degrees F; and if you stay in Berlin, between 18 and 24 degrees C.
In the same way, whether provides a broad indicator of top temperatures in summer, the condition of economic provides a broad indicator of mortgage interest rates. And the major factor that caused the rise of mortgage rates will be inflation.
The interest rates that get affected by the demand and supply in the financial market are expected to keep fluctuating. If you want to change from the “real interest rate” to the “nominal interest rate”, which is the interest rate that your financial institutions going to impose on your mortgage, you just increase the annualized percentage rate of inflation.
Factors That Caused The Rise of Mortgage Rates In San Diego: Credit Availability Is Reducing
We know that the world financial markets are run with the invisible hand of demand and supply. When supply for certain items is limited, the price that you need to pay for that particular item will go up. The demand and supply theory is of no difference when comes to a mortgage. When predicting the mortgage rates, the estimation on an increase or decrease of money is going to take under consideration as well as the trend for the money demand and supply.
Factors That Caused Which Caused The Rise of Mortgage Rates Predictions: When Risk in Financial Market is Increased
In addition to the fundamental interest rate predicted by the current economic situation, the inflation rate, as well as the supply of capital readily available for mortgage offers, there exists one more factor that is needed in any financial commitment which is the risk. The up and down of mortgage rates si typically rely on the entire risk within the property market.
If the values of the house are falling in general, which happens from time to time, then you would expect the risk for all the banks to immediately accelerate, meaning that they’ll be going to impose higher mortgage interest rates. The mortgage interest rate predictions are considering this increased pressure.
Factors That Caused The Fall of Mortgage Rates Predictions: Intervention of Government
The government of the United States is a giant monster in the financial markets. Just by giving Treasury bonds at completely different rates of interest, the federal government is going to influence the entire financial market, which in return affects the “real” rate of interest.
The estimation of mortgage interest rates depend on economic situations may well reveal that mortgage interest rates are set to increase, but as the political pressure is running high, and in a political election year, you will expect the government to do everything to drive the interest rate goes up until after the elections. Mortgage rates predictions will need to take this kind of political distortion of the financial markets into account.
How is Adjustable Mortgage Rate Works?
Many mortgage loan companies wish to get more business to tend to provide very attractive interest rates that going to change after a while. Some mortgage companies may even provide an absurdly low starting rate to lure in consumers. And a lot of applicants can qualify for these types of mortgages. Since the interest rates, as well as monthly installments, are very low, the applicants could afford to apply for a much higher mortgage with their monthly disposable income. For inexperienced first-time home buyers, they may be neglected what is going to happen once the interest rate of their mortgage is changed by searching for houses that are way above their budget.
Know More About Adjustable Mortgage Rate
For those who would want to know more about the adjustable mortgage rate, here is how the change of interest rate works in an adjustable mortgage. Let’s say the loan company announces to provide one year very low rate to attract the consumers to apply. After ended that one-year very low rate period, the interest rates are now adjusted by the mortgage company’s set criteria. Different mortgage companies make use of different calculations, nevertheless, the actual principle is the same. The mortgage company decides a base rate to adjust the rates. Whether it’s a complex formula or perhaps an uncomplicated one.
To simplify the point, we just make the assumption in which the base rate is LIBOR. For those who have no idea about LIBOR, it is actually known as the London Interbank Offered Rate Index which is a popular index were to base ARM(Adjustable Mortgage Rate) rates. The mortgage company takes this interest rate and adds their margin on it. The margin is actually the % the loan companies need to have above the base rate. For example, in case the LIBOR is 3% and the mortgage company adds a 2% margin, the rate for the mortgage is going to be 5% at the time the initial discount is ended.
Base Rate For Adjustable Mortgage Rate
No matter what the base rate could be, the bottom line is that the rate tie with the adjustable mortgage rate is going to move up and down together with the determined base rate. Therefore, there is nobody who can actually tell what the interest rates will be in 2 years not to mention 5 years. The buyer is required to investigate the loan documents to determine the way the interest rate is going to be calculated for the mortgage that they intend to apply.
This is actually the truth of adjustable mortgage rates. Needless to say, the adjustable mortgage rate may serve wonderfully in several instances. This short article focuses on the way the interest rate may adjust and the way it could affect the naive customer. Being aware of what might happen makes it possible for the average consumer to get ready for the worst situation. The general interest rates may also reduce in a few years and the consumer could decide to refinance the mortgage and shift to a fixed-rate mortgage at a more affordable rate. Those who apply for a mortgage have to educate themselves so that they can always know what is happening in the mortgage industry and opt for the mortgage that best suits them.
Low Interest Rate Assumable Mortgage
When market interest rates climb, escape from those higher rates. Shop for a property that’s already financed with a lower-interest-rate assumable loan. Imagine it’s three years into the future and you want to invest in a home or rental property. Market interest rates are fluctuating between 8.0 and 9.0 percent. You recall those bygone days when 30-year fixed-rate loans were at 5.5 to 6.0 percent. If you could only step into a time machine and return to the past.
Applying for an Assumable Mortgage Loan
When you assume a mortgage, you roll back the clock and take over the mortgage of the seller at the same interest rate the seller is paying—even when that rate sits below the current market. Years ago, nearly all sellers could transfer their low-rate mortgages to their buyers. By the early 1980s, however, many lenders had changed their mortgage contracts to include the notorious “due on sale” clause. This clause gives the lender the right to call a loan due if the borrower sells (or lease-options) the property to a new buyer.
Many people erroneously believe that all assumption possibilities have died. In fact, loan reps rarely tell borrowers about assumptions because assumptions take place between sellers and buyers. You cannot walk into a lender’s office and say, “I’d like one of those low-rate, assumable mortgages that are going to save me tens of thousands of dollars.” Before you can assume a real estate loan, you must locate a seller who has one.
What Sellers Can Offer Assumable Mortgage Financing?
Generally, sellers who finance their properties with FHA, VA, or some types of adjustable-rate mortgages can offer an assumption to their buyers.
Realtor Roger Rodell described his experience with assumable during a past period of high mortgage rates.
Roger said, “I promote low-interest assumable FHA/VA mortgages.
Buyers need to qualify to assume these loans. And some lenders I deal with aren’t eager to push through loan assumptions for a few hundred dollars in transfer fees (compared to the several thousand dollars they earn for new loan originations). But the lower rates and monthly payments make qualifying easier, and the cash savings for buyers are tremendous. If a fairly priced home with a low-interest rate assumable hits the market, I tell my buyers to go for it. Don’t try to pull the sellers down. When there’s a pile of thousand dollar bills sitting in front of you, don’t get greedy and demand an even better deal.
“I’ve worked out the numbers,” Roger continued. “Over a period of five years on a $100,000 loan, as compared to a 9 percent new mortgage, a 7 percent assumable will save you $8,400 in interest. Over 10 years, the savings are nearly $17,000; over 25 years, you’ll keep an extra $42,000.
And those numbers don’t include the $2,000 to $4,000 that an assumable might save you in points, origination fees, appraisal, and closing costs.
“Or here’s another way to figure it,” explained Roger. “Let’s say your low-interest assumable saves you $135 a month over the amount you’d pay with new financing. If you bank those savings every month in an IRA or 401(k) plan that earns a return of just 6 percent a year, after 25 years your accumulated savings with interest will amount to $93,200. Now you can see why I refer to a good low-interest assumable as a pile of thousand dollar bills.”
Short-Term Strategies Toward Assumable Mortgage Loan
In some situations, you might gain by assuming a mortgage that carries a higher-than-market interest rate. Say, current rates hover around 6.5 percent and you’re negotiating with a seller whose assumable mortgage shows a rate of 7.5 percent. Not worth assuming? Don’t jump to that conclusion. Assumptions usually cost less in terms of time, effort, and cash-to-close than new mortgage originations; therefore, this higher rate, 7.5 percent assumption could prove profitable under short-term strategies such as the following:
– You plan to own the property for only a year or two.
– Inflation has dropped and interest rates seem sure to fall further. You want to time your new mortgage to coincide with the market bottom that you foresee.
– You plan to improve the property to increase its value. Then, you’d like to get a new loan based on this higher improved value.
– Your borrower profile displays some warts. New financing at the lowest rates available could prove iffy. To qualify for the assumption probably won’t require the same exacting standards. One or two years of perfect payments could set you up to then qualify for a refinance as an “A” borrower.
How to Find Assumable Mortgage Loans
Millions of outstanding FHA/VA loans (fixed-rate and adjustable) permit assumptions. Also, most conventional (Fannie/Freddie) and portfolio lenders will allow sellers to transfer their adjustable-rate loans to buyers. Also, many investor mortgages on larger apartment, office, and retail properties permit assumptions by buyers. To find assumable loans requires you to ask and investigate. Sellers (or their realty agents) may not know or publicize this fact. On the other hand, when interest rates shoot up, the search for assumable becomes intense. Savvy sellers and agents then tout their assumable to favorably distinguish their properties from others that require buyers to obtain costly new loans.
Lower Rate Assumable ARMs
Nearly all adjustable-rate mortgages include lifetime rate caps. No matter how high market interest rates climb, ARM borrowers know that their loan rate will max out at, say, 8, 9, 10, or 12 percent. Consequently, in periods of extraordinarily high rates, you can find ARMs that are maxed out—or close to maxed out—yet still sit below the going rates for new 30-year, fixed-rate mortgages. In that case, your (assumable) ARM rate can’t go up much, but it can go down.