Building a Home: Should You Lock-In Your Mortgage Rate?

Building a Home-Should You Lock-In Your Mortgage Rate- 150x150New homes sales have rose significantly in the past few months, but it looks like the numbers are based on signed contracts instead of closings. This means that some of these homes that are recorded as sold may have not even been built yet, and may never be. Contracts were signed with interest rates at record lows, buyers were unable to lock in the interest rates, and are now watching interest rates increase. This will probably result in a significant number of cancellations.

Why Lock-In Your Mortgage Rate

When locking-in interest rates, most home buyers try to find the best time to do it so they get the best deal. While interest rates cannot be accurately predicted, there are trends that you can keep your eye on in order to better approximate which way the rates are going.

If you decide against locking in your interest rate, and would like to wait, there is a chance that the rate might go down, but there’s also a chance that it might go up. Interest rates don’t normally increase significantly over a short period of time, but a lot can happen until closing, and you could end up with a much higher rate on your mortgage loan. Also, depending on your financial situation, even that really small increase in interest can make it much harder to keep up with mortgage payments over time.

Locking-in your mortgage interest rate will guarantee that the interest rate you and your lender agreed upon will be applied to your mortgage loan, regardless of the changes in mortgage rates that will happen until closing. What many borrowers don’t realize is that they are not tied to that particular lender if they lock-in their interest rate. If rates decrease before closing, the borrower can go to a different lender. The threat of losing a customer might even determine your current lender to renegotiate a lower interest rate.

If you are satisfied with the current mortgage rates today, you should lock it in. This will protect you against any future interest rate increases and give you more peace of mind than if you would choose to risk and not lock-in your mortgage rate.

Locking in the Mortgage Rate When Building a Home

On regular mortgage loans, the interest rate can be locked right after the application is approved. The closing will usually be one or two months later, so there won’t be any major changes in interest rates, unless something extreme happens with the United States or global economy.

Locking-in an interest rate on a home that is not built yet or currently being built is much harder because the lender will not know precisely when construction will end. Borrowers apply for a mortgage, but are only able to lock in their mortgage several months later. Interest rates can fluctuate significantly in several months, putting borrowers at a great risk of paying significantly more on their mortgages. In order to lock-in interest rates, you will most likely have to pay points on the mortgage, which can add up to thousands of dollars.

The conclusion is that you should lock-in your mortgage rate when building a home if you are satisfied with the interest rate that is offered to you. You might not be able to lock-in the rate unless you pay mortgage points, so you have to decide if you want to spend that money to lock-in the rate or invest it somewhere else. Locking-in the mortgage rate when building a home will give you peace of mind, but you should always look at all the factors before deciding whether you should do it or not.

Do You Live in a Rural Area? If Yes, a USDA Home Loan is for You!

Do You Live in a Rural Area-If Yes a USDA Home Loan is for You- 150x150In an effort to increase home ownership in rural areas, the United States Department of Agriculture started offering USDA backed loans back in 1991. By using a USDA loan, you can purchase, refinance, repair, or relocate a home, as long as the home is located in a rural area. This type of loan is designed to help only certain individuals, but it is very similar to other government backed mortgage loans, such as FHA (Federal Housing Administration) and VA (Department of Veterans Affairs) loans.

This type of loan was initially designed to help people living in rural areas become home owners, but it can also be used to finance multiple types of properties and even businesses. For those who qualify, the USDA offers 100 percent financing with low interest rates, and loan terms from 30 to 38 years.

Advantages to Choosing a USDA Home Loan

USDA home loans are designed to help people, so they will have more advantages when compared to other types of mortgage loans. Here are the most important benefits, which should help you decide if a USDA home loan is the right choice for you:

  • The biggest benefit of the USDA home loan is that you receive 100 percent financing, which means that you won’t have to make a down payment. Down payments on conventional loans are usually 20 percent of the loan value, and one of the main reasons some people can’t afford to buy a home through a conventional mortgage loan. The only other loan that offers 100 percent financing is the VA loan, which is designed for current military members or veterans.
  • Another benefit is the possibility of financing the closing costs into the loan. This is also a large advantage, because closing costs can sometimes be fairly high, and very hard to come up with, especially when moving into a new home. Most conventional loans will require you to pay the closing costs before being granted the loan, which makes it harder to qualify for those who can’t afford to pay these costs.
  • Buying a home with less than perfect credit score will attract higher interest rates, or even make it impossible for you to qualify for a mortgage loan. With the USDA loan, the credit requirements are less strict, giving people, who otherwise couldn’t qualify for a mortgage loan, the possibility of becoming home owners.
  • USDA home loans also come with lower interest rates. This means that not only you will be paying less monthly, but the overall value of your loan will be lower than if you were getting a conventional loan. Even if interest rates on conventional loans are lower at the moment, you will still get a better deal on your rate by choosing a USDA home loan.

Applying for a USDA Home Loan

Whether you are purchasing a home, refinancing, improving your home, or just taking advantage of the cheap land prices, doing it through a USDA home loan will bring you great benefits. However, to qualify for this type of loan, you need to meet a few criteria and be aware of the process. Here are the steps to applying for a USDA home loan:

  • Select one of the two loan options that the United States Department of Agriculture offers. If your income is at or under 115 percent of the median income in the area, then you could qualify for the Guaranteed Housing Loan. If your income is very low or moderate, usually below 50 percent of the median income, you will be able to apply for a Direct Loan, or a Section 502 Loan. The home that you are planning to buy with a USDA home loan must be your primary residence and located in a rural area.
  • Maintain your credit score at a decent level. You won’t need to have a perfect credit score in order to be granted a USDA home loan, but you will encounter problems if your credit score is very low. Foreclosure or bankruptcy on your credit report can even make it impossible for you to qualify for a USDA home loan. Also keep a low debt-to-income ratio or your lender will consider you a bigger default risk and refuse to give you the loan.
  • Make sure that the home that you consider buying is located in an eligible area. Because they are designed to increase home ownership in rural areas, USDA home loans will only be approved for those who purchase homes in certain areas.

Applying for a USDA home loan is no different than applying for a conventional mortgage loan. The big difference is that this type of loan comes with greater advantages, the biggest one being the cost. The downside is that you can only use the USDA home loan to purchase a home in a rural area but, depending on each individual’s plans and situation, this might not be a downside at all.

Can You Get a Lower Mortgage Rate without Refinancing? The Answer May Surprise You

Can You Get a Lower Mortgage Rate without Refinancing- The Answer May Surprise You-150x150Over the past few years, interest rates have kept falling, reaching record lows. More than likely, you know people who have refinanced and now have much lower interest rates than you do on your mortgage. Refinancing is one way of lowering it, and it can be beneficial in most cases, especially when rates are this low. But you did your homework and came to the conclusion that refinancing will lower your monthly payment, but not enough to make up for the high closing costs. Another reason why you are not refinancing can be that you simply can’t afford it. Fortunately, there is another way in which you can lower your mortgage, without paying thousands in closing costs.

Most people are refinancing as soon as the rates fall, without taking the high closing cost and the fact that they are basically resetting their mortgage into consideration. For some, lowering their mortgage interest rate is the only way they can get some peace of mind, so current mortgage rates today seem very attractive. If you are someone who reached the conclusion that refinancing doesn’t make sense for you, but would still like to lower your mortgage rate, then you should know that there are alternatives.

Lowering Your Mortgage Rate without Refinancing

If you can’t afford to refinance because of the high closing costs, or you simply don’t want to refinance but can afford to make a larger monthly payment, then you can talk to your lender about lowering your interest rate by prepaying the mortgage principal. By making additional payments towards your principal each month, you can even save as much as you would by refinancing.

Restarting a mortgage through refinancing is time consuming and expensive, but if your monthly budget allows you to spend a little extra on your mortgage each month, then this is a great alternatives. Of course, this alternative will increase your monthly mortgage payments, but prepaying your mortgage will save you money in the long run.

Another way in which you could make paying your mortgage easier is by convincing your lender to give you a better rate. You can start by contacting your lender and explaining that you would like a better interest rate, but can’t afford to refinance, or simply choose not to because it wouldn’t make sense financially. If you have a good relationship with your lender, they might agree without giving you too much trouble.

Talk to your lender about your financial trouble, so that they can make sure that you deserve to have your loan modified. The lender could modify the loan, or he could help you go through the government’s Home Affordable Modification Program, which is designed to help home owners who are facing financial difficulties keep their homes.

In many cases, refinancing is the best choice when looking to reduce your mortgage payments. Unfortunately, being an expensive process with plenty of drawbacks, it is not for everyone. So, if you do the proper research and find out that refinancing is not an option for you, then you are better off trying to get a lower mortgage rate without refinancing, through one of the alternatives described in this article.

How Do Changes in Interest Rates Affect the Housing Market?

How Do Changes in Interest Rates Affect the Housing Market- 150x150Most people have to take out a mortgage loan in order to become home owners. Whether the mortgage loan has a fixed or adjustable rate, a long or short term, you will have to pay interest. How much interest you will be paying on your mortgage loan depends on many factors, such as the loan type, the repayment duration, or how big your down payment is. These are the factors that will influence the interest rate that is advertised by the lender. Interest rates are also affected by factors which can’t be controlled by the borrower or the lender, such as the actions of the Federal Reserve or the state of the economy. Because most people and families buy homes through a mortgage loan, the housing market is deeply affected by changes in current interest rates.

What Are Interest Rates and How Do They Work?

An interest rate is the rate at which someone can borrow money from a lender for a predetermined period of time. The interest rate will normally be a percent of the total amount borrowed, and will be paid each month, depending on the type of loan. For example, some loans require a larger payment towards the interest in the beginning, while the payment towards the principal is very low.

Interest rates on a mortgage loan can be of two kinds: fixed and adjustable. After being determined before the closing of the loan, fixed interest rates remain the same for the duration of the repayment period. Adjustable interest rates are normally fixed for a short period of time, after which they can increase or decrease, depending on many factors, such as the health of the economy.

How Do Interest Rates Affect the Housing Market?

Normally, low mortgage interest rates attract more home buyers. Paying less interest means that the overall mortgage loan value will be lower, so people will be saving money. When rates are low, home sales rise because more people can afford to take out low-cost loans. Home owners can refinance their mortgage, and try to take out a lower interest rate mortgage to pay for their home. Low interest rates result in a large demand for homes, so the home construction industry is also stimulated.

When interest rates are high, the demand for homes decreases because mortgage loans become more expensive, and most people can’t afford them anymore, don’t qualify, or simply choose to rent until interest rates go down again. High interest rates also affect home builders, as the demand for new homes also decreases.

Interest rates have fluctuated significantly throughout history, influenced by changes in local and global economy, wars, recessions and many other factors. The housing market will always have to gain or suffer from these fluctuations. Also, understanding how these fluctuations in interest rate affect the housing market can help investors make better decisions. Choosing between a fixed-rate or an adjustable-rate mortgage, and knowing when to refinance can make a huge difference in how much it will cost you to become a home owner, or how much profit you will make if you invest in real estate.

Balloon Loans: Are They Worth It?

Balloon Loans- Are They Worth It- 150x150Balloon loans are a great choice for home buyers who wish to pay a fixed low interest rate on their loans. With a shorter term than the typical mortgage loan, balloon loans must be repaid in five to seven years. Payments for a balloon loan are calculated in the same way that payments for normal loans are calculated but, because the term is only 5 to 7 years, the borrower will have to make a large payment at the end of the term.

This characteristic makes balloon loans an ideal choice for borrowers who are expecting to come in possession of a large amount of money or a higher salary in the near future. This type of mortgage loan also benefits people who move a lot, and do not intend to keep a home for longer than a few years.

There are basically two types of balloon mortgage loans: regular mortgage loans that have a balloon clause, and actual balloon loans, where the borrower has to make a large payment at the end of the term, after making normal monthly payments for five to seven years.

Advantages of Balloon Loans

Balloon loans are not for everyone, but there are several key advantages to using this type of loan. Here are the most important ones:

  • Low down payment. One of the main advantages that a balloon loan has is the low down payment requirement, which allows a larger number of borrowers to qualify. If you are not doing very well financially, but are expecting to receive a large sum of money in the near future, then balloon loans might be a great choice.
  • Low interest rate. Considered by most lenders to be a low risk loan, a balloon loan has the same or an even smaller interest rate than a conventional loan.
  • The large payment can be refinanced. If a borrower is unable to pay the large amount due at the end of the balloon loan term, he can refinance, but he will most likely have to pay higher interest rates than usual.

Disadvantages of Balloon Loans

Every type of loan also has a few disadvantages. When shopping around for loans you must take both advantages and disadvantages into consideration. Balloon loans have the following disadvantages:

  • Large payment at the end of the term. When the loan matures, normally in 5 to 7 years, the borrower is required to pay the remaining sum. Because the term is so short, the remaining amount will be quite large, and can create difficulties for borrowers who didn’t plan accordingly. Borrowers must have access to a large sum of money in order to make this last payment, if they decide to go with a balloon payment.
  • Bigger risk of losing your home. You will risk losing your home with any type of loan, due to poor planning or unforeseen events, but the risk is much greater with a balloon loan. Not only will you need a large sum of money to make the last payment, but being unable to qualify for a refinance will increase your risk of foreclosure.

Balloon loans are obviously risky and not recommended to most home buyers, but they can be the correct choice for those who don’t plan on keeping a home for long, and for those who are expecting to receive a large amount of money in the next few years, or receive a large pay increase.

Investment Property Mortgage Rates- Is it Time to Invest?

Investment Property Mortgage Rates- Is it Time to Invest- 150x150The housing bubble burst that happened a few years ago resulted in a lot of investors losing their money, and made real estate investing seem like a scary thing to put your money in. Fortunately, low prices and near record low interest rates make this the best time to invest in real estate. Not only that, but the economy seems to be on the right track to recovery, which means that prices and interest rates have already started to increase, and do not seem like they are about to stop their growing trend.

Why Invest in Real Estate?

The recent economic crisis created many opportunities for those who have the means to invest in real estate. The high volume of recent foreclosures has created a larger pool of renters, which means that rental properties are a better investment than ever. Finding people to rent your properties should be easier now with more and more people finding jobs, and selling properties for a profit should be getting easier as well.

Mortgage rates are still at near record lows, which means that investing in properties is even more profitable. However, rates have already started to climb, so there isn’t too much time to take advantage of them. Add to this the fact that real estate prices are currently very low, and you have higher chances of making a lot of money by investing in this current market.

Investing in short sales is also a great opportunity right now, as more people prefer this option to foreclosure. Buying a short sale is a much better option than buying a foreclosed property, because there are bigger chances of a property being vandalized since it was foreclosed.

No matter what happens in the future, investing in real estate is still a good long-term investment. Current real estate prices are higher than they were thirty years ago, and having tenants makes the investment even more profitable.

The Future of Investment Property Mortgage Rates

Recent forecasts predict that mortgage rates will continue to increase over the next couple of years, but not significantly. Of course, even a 1 percent increase in interest rates will cost the investor a relatively large amount of money, but the increase will most likely come slowly without taking anyone by surprise.

At only 2 percent per year, the economic growth is slower than anticipated, which means that mortgage rates will also slowly increase over time. The only thing that would stop the economic growth and rates increase would be a new war or a new economic crisis in Europe. Currently, the job market is also experiencing a steady growth, meaning that more people will be relocating and looking for new homes or rentals, to the advantage of the investor.

Even if mortgage rates go over 4.5 percent in 2014, they will still be lower than before the economic crisis, keeping real estate investing still more affordable than ever.

Low mortgage rates are creating the perfect opportunity for investors to make a nice profit, but 2013 may as well be the last chance you will get to take advantage of rates this low. The good news is that any increase in mortgage rates comes slowly, so real estate investors can still make a profit in the near future. While rates are, indeed, increasing, so is the number of people who are looking for a home or a rental, so, even if the profits won’t be so great as the rates increase, the number of opportunities to make a profit will be greater in the years to come.