Dear Homeowners and Potential Home Buyers,
I want to let you know of a great opportunity. Interest rates!!!
Interest rates are at record lows. We have been hearing that for a few years and our government plans to keep it way for a few more. With that said mortgage interest rates do fluctuate daily.
Many people think loans are difficult to get. That is a misnomer. Just prove you can afford the payments and you get the loan. The bank might ask lots of questions and request lots of papers but they are willing to offer you a loan and guarantee to hold the same price for the next 30 years. Do you know of another product or service that guarantees the price for the next 30 years?
30 year fixed rates today are 4.25-4.5%. For your knowledge a 1% increase will affect a $500,000 loan by about $300. A 10% price adjustment will affect your payment by about $250.000. I am trying to show the influence of interest rate on your monthly payment.
Many people believe you need 20% down payment or equity for refinancers to get a loan. Another misnomer, that is not correct. With all that has happened in our banking system it is unbelievable but you can still obtain a loan with only 3.5% down payment or equity. For homeowners considering refinancing you can get a $500,000 loan if your home is valued at $520,000 or more. For home buyers with $20,000 saved up you can possibly purchase a home valued at $520,000. Not bad. Let me give you some of the caveats. Any loan with less than 20% equity or down payment the lender will require Mortgage Insurance (MI). I have been talking about equity and I want to make sure we all know what equity is. It is the difference between the value of your home less what your loan balance is. Back to Mortgage Insurance; it goes away after you have built up 20% equity. Depending on the loan this 20% equity can be accomplished from upgrades, appreciation or paying down the loan. This is very important to ask your lender. I neglected to mention that mortgage insurance is tax deductible. Depending on your loan specifics Mortgage Insurance is about 1%. Some loans will have an upfront premium as well. Mortgage Insurance and the premium are deductible. Some people have told me they would prefer to save the 20% rather than pay mortgage insurance. I do not believe in that thought. Not many are good savers. Not many have income to support savings of $20,000 or more a year. Please keep in mind, owning a home is saving because with every monthly payment you are paying down the loan. I call it Forced Savings. Also if you buy now and you can still put your savings toward the loan balance to get the mortgage insurance terminated earlier. I am afraid for those people saving for that “20%” that home values will increase and they will need even more savings. Also while you are saving you are throwing out money by paying rent. Rents will continue to increase and you can get your home purchase costs fixed for the next 30 years. In fact it will go do down when the mortgage insurance is terminated. I understand this gets a little complicated. You might get information from someone that purchased 10 years ago and just like cell phones and technology loans have changed substantially. If you think this is something you might be interested or just want more information in I suggest you run and not walk because the 3.5% down loan is a Government backed and there is talk of changes. Call your favorite Realtor or your lender to get the facts on your specific situation.
I do want to bring to your attention a super opportunity for some people. The adjustable rate loan. In a recent Zillow survey 57% of the people questioned did not know how adjustable loans work. You can get a loan in the mid to high two’s fixed for 5 years or so. These are not teaser rates like we had back when things were out of control. These are not negative amortization loans like we had back when. These are loans for people willing to take on some risk in exchange for a low rate. You speak with people who have an adjustable loan for a while and they are thrilled. Their rates go down annually. Today’s adjustable rate loans are really hybrid. They are fixed for a limited time, often 5 or 7 years and then adjust annually. They all have a maximum rate they can increase to and a maximum annual increase. Commonly it is 5% above the start rate. Today the adjustable rate is about 1.5% or more, less than the 30 year fixed. This can be a great loan if you know your income will be increasing, you will be getting an inheritance; you will be relocating or just are comfortable with risk. Not only will your payments be substantially less with this type of loan you can be approved for your “Dream Home”, because some lenders will use the current rate to approve you. This can also be a good option someone refinancing a small balance. A suggestion from a lender I work with is to put the money you are saving on this loan vs. a 30 year loan towards the principal. When the loan adjusts it will be based on the remaining balance. I don’t think many people are aware of the savings with this type of loan.
One more type of loan I want to bring to your attention is the 15 or 20 year fixed loan amortized over the same time. With this loan your payments will be more than the 30 year loan but you will be paying for half the time; saving you in the long run about 30%. This is great for people considering retiring soon. Last quarter Lending Tree notes that 34% of refinancers used this loan. Keith Gumbinger of HSH Associates, a mortgage research company says because rates on 15-year mortgages are so low, some borrowers may be able to refinance to a shorter term without increasing monthly payments
And one more came to my mind. There is an energy efficient loan. With this loan you can have energy efficient improvements (windows, furnace, and insulation) financed for the term of your loan on top of the standard loan. No extra down payment, no qualifying ratio, no appraisal, no extra time and little to no extra costs. Similar to that is the 203K Home Improvement Loan. This is used when the home really needs work and possibly a bank would not even loan on it in its current condition. With this loan your home is appraised and your loan amount is determined as if the improvements are complete. You get the contractor quotes and the contractor gets paid through escrow as the work is completed. I have not been involved with this type of loan yet, but am been very intrigued by it. This does need some extra time and maybe some extra closing costs.
Loans are being offered to people with credit scores in the mid 600’s. The best rates are for loans with 20% down and under $417,000. The rate inches up a bit on loans to $625,500, and then a bit more above that. No matter what your situation is, rates are excellent. Talk to your lender about the different choices. In the Zillow survey 44% of people questioned said they did not have confidence in the mortgage knowledge. Ask Questions please. The guidelines and procedures have changed since the last time you purchased or the person advising you. I think too often people are geared towards the 30 year fixed with 20% down when there are many other and possibly better options. For investors and condominium owners the guidelines are slightly different.
I personally do not do loans. I work with several very qualified, knowledgeable and efficient lenders. Please do not hesitate to contact me or your favorite Realtor for their info or any real estate related concerns.
Here are links I found interesting on loans:
http://tinyurl.com/3jwahf3
http://tinyurl.com/3o8mcs2
http://tinyurl.com/3sdvowx
I would love to hear from you concerning your loan option choice.
Homeowner Special:
San Mateo County is offering to double energy efficient rebates
http://tinyurl.com/3wk4xzm
And now San Bruno is also offering its residents a direct match for the Energy Upgrade rebates, essentially tripling the incentives.
http://tinyurl.com/3c8saas
"It is Better to Own Real Estate and Wait than to Wait to Own Real Estate."
www.leesellsmore.com
Lee Ginsburg
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