When looking for a home, one of the biggest concerns you will have as a buyer is your mortgage. How large will your mortgage be? What’s the monthly rate? This is not something any home buyer should take lightly. You’ll be paying this rate for 30 years (Unless you decide to move well before then). You should research lenders to find one that works best for you.
In the meantime, let’s talk about the current rates and how they affect you now and in the future.
The most recent rates have changed little over the past year. As of July 19, the 30-year fixed mortgage stood at 4.08%, while the 15-year fixed sat at 3.48%. The adjustable rate mortgage stayed still at 3.92%.
So, what does all this mean to you, the homebuyer?
It means that right now is a great time to buy a home. Mortgage rates change as regularly as a heartbeat, but they are low. For those of you who bought a home before the Great Recession, you remember those rates. They were high. Those of you who bought homes decades ago, in the 80s and earlier, remember those sky-high rates.
They sat up there looking down at homeowners, almost punishing them for having the temerity to purchase a home.
However, those days are long gone. They are not even a speck on the rearview mirror. The rates today and those in the near future, as they stay around those numbers, make it a smart decision to purchase a home.
But what if you are one of those looking for a luxury home?
Your options are slightly smaller. This is due to limits on the conventional loan amount you can receive through a lender thanks to regulations (usually the limits are proscribed by Fannie May and Freddie Mac, whom we’ll discuss later).
To be able to purchase a home that is worth more than $417,000 (Most of America) or more than $625,500 (The more robust markets of LA, New York, and San Francisco. Hawaii also has its only limits), you need to apply for a jumbo mortgage.
The jumbo mortgage differs from a regular mortgage because the lenders are taking a great risk. It’s also for these reasons that the requirements to qualify for a jumbo mortgage are stricter. The buyer must pay a higher down payment than conventional loans, up to 30% of the home’s value. The buyer must also have a great credit score (Higher than 700), strong debt-to-income ratio (This means the amount of debt you have versus the amount of income you make. In this case, it can be no greater than 43%). The buyer also needs to have up to a year of reserves in the bank to ensure that they can keep paying for the house should something catastrophic happen, like the loss of a job.
Finally, the home needs two appraisals instead of just the one as needed by conventional loans. Jumbo mortgages are harder to get, but doubt you’ll mind considering your new luxury home.
So, what is the next step? How do you find the right mortgage for you?
There are several options to choose from. Fannie May or Freddie Mac. Just about every bank. Mortgage lenders. The VA. Even an online mortgage company. You have more options than you ever thought possible. But you need to research each of those options to find the best one.
Fannie May/Freddie Mac allow you to pay a smaller down payment (Typically around 5%) for you to be able to snag a mortgage. The banks need a higher down payment, usually 20% of the house’s value. Mortgage lenders and online companies have their own requirements for people they are willing to lend to. The VA allows you to put next to nothing down in order to get the loan. However, you need to be a veteran of the U.S. military.
Depending on your preferences and your current finances, you should shop around for the best terms. Don’t just go to the first place and say, ‘I’d like a mortgage, please.’ Unless you have a long-standing relationship with a bank who will give you preferential treatment, it pays to check out several banks, mortgage lenders, Fannie and Freddie, and so forth to determine the best option for you now and in the future. It also helps to ask about how you can refinance your mortgage in the future as many homeowners refinance their mortgages at some point to take advantage of better rates.
If you are not sure where to start, ask your real estate agent. They have relationships with a variety of mortgage lenders and we can help you set up informational meetings to discover your best option. They are your ally in both buying a home and finding financing for your new home. It’ll pay to ask, sometimes literally.
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