interest rates

So, You’re A 1st Time Home Buyer

Top Tips for First Time Home Buyers

You’re on the hunt for your first home. It is an exciting milestone in your life. Not to mention one of the largest financial decisions you may ever make. Don’t fall into the “rookie” home-buyer category. Our advice? The more you know about the process, the easier (and less daunting) it is going to be.

We are here to help. These are some of our “top tips” for you to remember when buying a home.

 

The (sometimes) forgotten credit score

The credit score. Your mortgage company, of course, will pull that score, but it is still a good number know before starting the home-buying process. If there are any mistakes or issues with your score, it is easier to remedy those before you have found that perfect home. Additionally, knowing your score in advance will allow you the opportunity to repair any minor blemishes. One more good thing to know- your mortgage banker (and us!) can sometimes provide tips on how to deal with those flaws.

 

Pre-approval letters are an absolute must

So, what is a pre-approval letter? It’s a letter from your mortgage lender stating what loan amount the borrower (you) is qualified for. So, yes, stating how large of a loan you are able to take out.

Now, why they are important? First and foremost, it allows you to look for homes that are in your price-range. It will save you a lot of time (and potentially a lot of stress) knowing what you can afford and searching accordingly. Then, when you do find a home you want to put an offer on, having that pre-approval letter puts you ahead of the game. While not a guarantee, sellers may take your offer more seriously since you have already been pre-approved for a loan. Not to mention, they may be more willing to lower the asking price, cover closing costs or make other allowances.

 

Down payments made easy

Whether you are a first time home-buyer or are looking to buy again, you have probably been thinking about that “down payment.” The larger down payment you make, the smaller mortgage you have. And, subsequently, the less you have to pay back over the course of the loan.

Is there such thing as “too big” of a down payment? Actually, yes! A 20% down payment is typically viewed as “ideal” by lenders. When you put 20% down, you don’t have to pay private mortgage insurance (PMI) which provides insurance to your lender, in the chance you default on your mortgage. Additionally, it can qualify you for a lower interest rate than someone who makes a smaller down payment.

Realistically, however, 20% is a significant sum of money, especially depending on the house you are looking at. A lower down payment does allow you to become a homeowner faster because you won’t have to save up as much money before buying.

Whether you have the 20% readily available or not, there is one important fact to remember- making a down payment is never a bad investment. Putting money into your home is lower risk than, let’s say, investing it in the stock market. It is a good idea for any homebuyer because it ultimately reduces your risk and allows for immediate home equity. If you have questions or wonder what size down payment is best for you, we recommend discussing your particular situation with your lender. They can provide insight into your unique situation.

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Life happens- be prepared!

You’ve found the house. You’ve been approved for a loan. You’re good to go, right? One thing we always recommend is reserving cash for emergencies. Because, life happens! The last thing you want is to move into your new home and find yourself in dire need of money (and fast!). So, plan accordingly when making your down payment and considering your loan options. It’s better to be prepared!

 

Consider the resale

It’s your first home, you’re excited! You may not be planning to sell in the foreseeable future, but it is important to think about selling your home. If (or when) the time to sell your home comes, will it be easy or difficult to do so? Thinking about the preferences of the “average” homebuyer and keeping those preferences in mind while finding your own home will make reselling the home that much easier.

One huge factor is the school district. Maybe you don’t have children in your home right now, so you’re not thinking about schools. But finding a home in a desirable school district, or even one with a school of choice nearby, could be an added benefit for the resale of your home.

 

Full disclosure and home inspections

While most states do require sellers to disclose any potential problems with the home or the property, they may not always be aware of existing structural issues. Although most purchase agreements are dependent upon a home inspection, you should 100% demand one. Spending the money to hire a licensed professional to inspect your potential new home is the only way to guarantee there are no major structural issues with the home.

What will a comprehensive inspection include? Heating and cooling systems, plumbing and electrical systems, structural integrity of walls, floors, ceilings, foundation and roof. The condition of gutters, insulation, ventilation, major appliances, garage… Finding an issue with any of these things can be extremely costly, so discovering them before signing any paperwork is a huge money saver.

You should also be present for the inspection. Ask questions as you go through the house. Sure, houses need repairs, but there may be a chance the problems with the house will be so expensive it is no longer a home you are interested in. It may seem like a lot of money now to pay for a home inspection, but you could ultimately be saving yourself thousands in the future if the house does have major issues.

 

The hidden costs

Buying a home can feel like a whirlwind. But while you are thinking about a down payment, an affordable monthly mortgage payment and even realator costs, there are a few “hidden” costs that many first time home buyers forget about. Homeowners insurance, property taxes, appraisal fees, moving costs, escrow costs, tax service fee, credit report fee… Just to name a few.

Ask questions. Make sure you are aware of any and all fees, taxes and additional costs you may need to pay before the “buying” process is complete. And, finally, be prepared for just about anything. When it comes to owning your own home, there’s nothing wrong with being a little “over-prepared.”

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By Natasha Mason

So, You’re A 1st Time Home Buyer2020-09-28T15:14:21+00:00

Higher Interest Rates & Home Buying

…what you need to know with increased rates right around the corner

Maybe you’ve been keeping up on economic news. Maybe you haven’t. Either way, one of the most discussed financial news stories this fall is about the Federal Reserve Bank (or the Fed) raising their interest rates.

 

Let’s start with the basics

The Fed sets a benchmark interest rate that, essentially, establishes how much it costs banks and other lenders to loan money. After the economic crash in the early 2000’s, the Fed lowered their benchmark rate to infuse more money into the economy. A lower rate means it is easier to lend, and subsequently borrow, money.

The result? A higher availability of “cash” in the hands of consumers and business owners. The lower the Fed’s benchmark rate, the lower your interest rate, as a consumer, will be.

So, the purpose of lowering the benchmark rate is to, ideally, stimulate the economy. The low rate set by the Fed nearly 7 years ago has assisted in the resurgence of the housing market, as well as the U.S. economy in general.

In December of last year, the Fed did raise their rate for the first time in 7 years to 0.50% with the intention to raise rates multiple times throughout 2016. The economy, however, has not been growing at the rate Fed officials initially anticipated. Consequently, the Fed has not raised their rates at all this past year, keeping their benchmark rate at 0.50%.

Why is this important to discuss right now, then? Well, the Fed will be raising that rate again, and soon. Fed officials will be meeting again, this month, to discuss raising their rate. Even if it does not happen in December, it is fairly certain they will be raising their rate in early 2017.

 

Now what does that mean for you?

You may be thinking- a 0.50% to 1% increase in the Fed’s benchmark interest rate isn’t that much. And, to some extent, you are correct. But how that number translates to your interest rates is much different.

Currently, the average interest rate for a 30-year fixed mortgage is at approximately 4% with the Fed’s benchmark rate is at 0.50%. When the Fed raises their rate, even by just 0.50%, the translation to your “real” interest rate is much more dramatic.

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So, let’s talk implications

For simplicity’s sake, let’s say the Fed increases their benchmark rate and, as a result, the average interest rate for a 30-year fixed mortgage jumps from 4% to 5%.

*these numbers were chosen to provide a concrete example of how increased interest rates can affect your overall mortgage payment

Now, let’s say you are looking at a $100,000 mortgage, with a monthly payment of $500. At a 4% interest rate, you are looking at paying approximately $2,000 in interest per year- totaling at $72,000 after 30 years. At a 5% interest rate, with the exact same mortgage and monthly payment, you are looking at paying approximately $3,120 in interest per year- totaling at $93,000 after 30 years.

That’s a difference of $30,000. Even though interest rates may have only increased by 1%, you are paying significantly more over the life of your mortgage.

 

You can still buy a house

…You just need to be aware of how a higher interest rate will affect your situation. The $100,000 home you were initially looking at may be a little too much “house” for you to afford. If your paying an additional $30,000 in interest over the life of your loan, it may take that house out of your price range.

On the other hand, if you can still afford the $100,000 home, it is essential to recognize that you will be paying more over the life of your mortgage with an increased interest rate.

If you are planning on buying in 2017, factor an increased interest rate into your plans and your budget. The last thing you need is a surprise (especially one of that magnitude) as you are trying to finalize a purchase.

 

Considering refinancing?

Now is the time! Talk to your lender, get your paperwork in and secure a lower interest rate immediately. For refinancing options, you should contact your lender so they can provide specific details for your situation.

 

 

by Natasha Mason

Higher Interest Rates & Home Buying2020-09-28T15:14:21+00:00
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