Rising Rates Means More Rejections – 8 Ways to Make Sure Your Credit is Up to Par

Fix Credit to Meet Rising RatesThe interest rate that you will qualify for, when taking out a mortgage loan, has a large impact on how much money you will be spending on your mortgage over the life of the loan. Interest rates used to be at near record lows until not long ago, but it looks like those times are over. The economy is recovering and, with it, so are the interest rates. Mortgage rates have been steadily increasing lately, causing more people to apply for mortgages. Getting a mortgage loan while the interest rates are still relatively low has determined many people who were considering the purchase of a home act now, before rates climb to an even higher level (Read: 4 Things Home Buyers Should Look Out for With Mortgage Rates On the Rise).

The difference between all-time low interest rates and current interest rates may not seem like much. One or two percent sound like a very small difference, but if you consider the fact that it is one or two percent of several hundreds of thousands of dollars yearly, you might not think one or two percent is negligible anymore. That small difference can mean tens or even hundreds of thousands of dollars over time.

Unfortunately, the increase in interest rates has also resulted in an increase in the number of people whose applications were rejected. You can learn more about this if you click here. Because people were applying for a mortgage on a short notice, in order to still take advantage of the low interest rates, many didn’t have time to make sure that they can actually qualify for the mortgage. One of the most important requirements when applying for a mortgage loan is that you have a good credit score. Buying a home with a low credit score will attract a higher down payment requirement, a higher interest rate, and, many times, rejection.

The good news is that your credit score is one aspect of your financial life that you can improve by just making a few changes and taking a few precautions. Having a good credit score will not only allow you to qualify much easier and quicker for a mortgage loan, but also qualify you for lower interest rates, meaning that you will be paying much less on your mortgage each month (Read: Boost Your Credit Quickly With These Simple Tips).

8 Ways to Make Sure You Have a Good Credit Score

A good credit score is something that you can be proud of, because it means that you are a responsible person that knows how to manage his or her finances. Unfortunately, life doesn’t always go as planned and certain events, over which you have little power, can quickly ruin your credit score, making the purchase of a home very difficult or even impossible. Avoiding putting yourself in a situation where your credit score could be damaged is ideal and should be a top priority, but sometimes things that are out of your control happen, and the only way in which you can recover is by rebuilding your credit score.

Here are 8 ways in which you can make sure your credit is up to par when applying for a mortgage loan.

  1. Get a copy of your credit report. You have the right to a free copy of your credit report per year. Knowing what your credit report contains is very important when trying to make sure that you can qualify for a mortgage loan. By looking over your credit report you can get a clear understanding of what your credit score is, what problems you have, and how you can start improving (Read: The Top 10 Components for Maintaining a Good Credit Score).
  2. Find errors on your credit report and dispute them. Errors on a credit report are not very common, but they do happen. The best way to find them is to carefully read your credit report and look for any inaccuracies or misinformation. These errors could have a large impact on your credit score, so finding them and disputing them as soon as possible is very important (Read: How Your Credit Score is Calculated).
  3. Pay your bills on time. The easiest way in which you can make sure your credit score is in a good range, and actually improving over time, is to not miss any payments and pay your bills on time each month. Being late for even a month can have a large negative impact on your credit score, and jeopardize your chance of getting approved for a mortgage loan.
  4. Avoid having too much debt. Especially before buying a home, having too much debt can seriously lower your chances of being approved for a mortgage loan. Large debt will also lower your credit score, making it even harder to qualify for a mortgage. Waiting until after you have bought a home to make any other large purchases using credit is recommended.
  5. Don’t take out too many credit cards. Credit card applications will appear on your credit report, and will affect your credit score. Lenders will also see you as someone who takes out too much credit, and will be reticent when deciding if they should approve your mortgage application or not.
  6. Keep using your current credit cards. Just having a credit card is not enough to keep your credit score in a good range. Using your cards, even for small purchases will be reported and actually increase your credit score by establishing credit history. Simply closing credit card accounts that you are not using will decrease your credit score. Click here to read more.
  7. Pay off some of your debt. Paying off debt will increase your credit score quicker than anything else. Your debt-to-income ratio will also improve, increasing your chances of receiving a mortgage loan without much difficulty. Having an unfavorable debt-to-income ratio will usually result in a mortgage loan application rejection.
  8. Extend your credit limit. Extending your credit limit will decrease the percentage of credit that you are using compared to how much credit you can use. Lenders will be more likely to extend the credit limit for a good customer, so choose a credit card with which you have had a long and clean history. Unfortunately, the credit limit extension means a new credit report check, so your credit score may decrease a little, but should recover quickly.

Making sure your credit is up to par when applying for a mortgage loan is one of the best ways of increasing your chances of approval. Interest rates are increasing, so you might think that this is your last chance of getting a fairly good rate. The truth is that it is a good idea to get a mortgage before rates climb even higher, but applying for a mortgage with a sub-par credit score will only result in a waste of time and money (Read: What Credit Score Do I Need to Qualify for a Mortgage?).

Go Big or Go Home – 7 Reasons Why Jumbo Mortgages are Currently Your Best Option

Jumbo Mortgages Current Best OptionIntroduced in the 70’s, jumbo mortgages are available for home buyers who need a larger-than-average mortgage. Jumbo loans, or jumbo mortgages, allow people to take out mortgage loans for larger amounts than the traditional conforming limits. Jumbo loans were very popular before the recent economic crisis because prices were very high in some areas even for modest homes (Read: Everything You Need to Know About Jumbo Mortgage Loans).

Mortgage loans have conforming limits that are set by Fannie Mae and Freddie Mac. These limits represent the maximum amount that these two government backed organizations are willing to pay in order to buy the loan from a lender. If Fannie Mae and Freddie Mac do not cover the full amount, the mortgage loan is considered a jumbo loan. Not being backed by these two organizations means that jumbo loans will have higher interest rates than conventional mortgage loans. Also, giving out a jumbo loan is considered high risk by lenders, so the qualification requirements will be stricter than for a conventional mortgage.

Conforming limits vary from one area to another and are usually higher in expensive housing markets. Once you start looking for a home, you may be surprised that you may have to take out a jumbo loan in order to buy a $500,000 home in some areas, while you can buy a house with the same value by taking out a conventional loan in other areas.

Who is a Jumbo Mortgage Designed For?

Jumbo mortgages are designed for people who can afford a more expensive home that can’t be bought with a regular mortgage. Right now, the borrower is not necessarily the one who decides that he or she needs a jumbo mortgage. After the housing market crashed recently, many lenders found themselves having large financial issues due to giving out jumbo loans too easily, so now they are the ones who decide if you need a jumbo loan. If a borrower can’t pay off the jumbo loan quickly, the interest charges will add up to a small fortune over time.

Jumbo mortgages are considered very high-risk by lenders, so they won’t give them out to anyone. In order to qualify for a jumbo mortgage loan, borrowers must have an excellent credit score, typically over 720 (Read: What Credit Score Do I Need to Qualify for a Mortgage?). Their debt-to-income ratio must also satisfy the lender’s requirements. To minimize risk, the lender will probably ask for a larger down payment, usually 30 percent of the total loan amount.

Reasons Why You Should Get a Jumbo Mortgage

Jumbo mortgages may be more expensive than traditional mortgages, but can also be very advantageous to those who need such a mortgage. Here are the top reasons why you should get a jumbo mortgage.

  1. You need the extra money that a jumbo mortgage provides. The largest reason why you should get this type of loan is that you need more money to buy a larger home or a home situated in an expensive area. A jumbo loan will also help you avoid spending all your savings in order to buy a home (Read: Need Help Keeping Up With Mortgage Payments?).
  2. You avoid taking out two or more mortgages. Sometimes, purchasing a home requires taking out two, or even more, mortgage loans. Taking out and paying off two loans instead of one can be overwhelming and more expensive. Jumbo mortgages simplify the process of buying a home by allowing you to make the purchase with a single mortgage loan.
  3. Jumbo loans come in several shapes and sizes. Like traditional mortgages, jumbo loans come with various terms and options, depending on what you look for. You can choose to take out a short-term or a long-term jumbo mortgage, with an adjustable or fixed interest rate. The type of jumbo loan that you can get depends on what your qualifications and requirements are.
  4. Interest rates on jumbo mortgages have started decreasing. The government introduced a stimulus package back in 2009 in an effort to stimulate home sales and the growth of the economy. Interest rates on jumbo loans are actually lower than the rates on conventional loans in many cases, and they have dropped to record lows as a result of the government’s involvement. Read more about their low interest rates here.
  5. Applying for a jumbo mortgage has become easier. Applying for this type of loan is still more difficult than applying for a traditional mortgage loan, but recent developments in the housing industry have made it easier than before. The main reason is the competition between lenders, who have lessened their requirements in order to attract more home buyers.
  6. Refinancing a jumbo mortgage can yield bigger savings than refinancing a traditional mortgage. Refinancing a traditional mortgage at the right time can bring thousands in savings (Read: Quick Tips on Mortgage Refinancing). Because jumbo mortgages are much larger, refinancing them can bring even larger savings, which can be used for a number of other things, like paying off other debt or living expenses.
  7. Jumbo mortgage offers are more attractive than ever. In order to attract those who qualify, most lenders are offering special offers for taking out a jumbo loan. These offers include reduced closing costs and fees, faster processing and many others. Lenders can afford to reduce or even waive some fees, because jumbo loans yield more profit for them than conventional mortgage loans since they have higher interest rate. To read about the bank’s latest interest in jumbo mortgages click here.

Determining your budget and knowing exactly what kind of mortgage loan you are looking for is very important when deciding to get a jumbo mortgage. While jumbo mortgages are more attractive than ever right now, you should also remember that they are more difficult to get, and come with higher interest rates than traditional mortgage loans. Jumbo mortgages are a great option for those who need larger mortgages and want to avoid having to take out two or more mortgage loans in order to become home owners.

5 Important Reasons Why You Should Pay Off Your Mortgage Sooner Than Later

Pay Off Mortgage EarlyPaying off a mortgage loan takes a very long time, especially if it’s a 30 year or longer loan, so you might want to pay it off earlier than that. While paying off a mortgage sooner than its term has its disadvantages, like being left without savings or not being able to invest the money instead, it can also be very beneficial for most borrowers. The peace of mind and savings in interest that paying off your loan sooner bring can far outweigh the negatives (Read: Should You Pay for You Home In Cash Upfront?).

A mortgage payment is most people’s highest monthly bill, so getting rid of it will free up a significant amount of money each month. That money can make your life a lot easier. You can afford to pay off other debt, take out another loan, or use it to live better. Unfortunately, in order to pay off a mortgage earlier, you will have to come up with a large sum of money if you want to pay everything all at once, or more money each month if you decide to pay it off by making extra mortgage payments. Unless you have significant savings, inherit a large sum of money, or receive a pay increase from work, you are facing some difficult financial times until the debt is paid.

Ways to Pay Off Your Mortgage Early

There are several ways in which you can take care of a mortgage loan earlier than its term. Some methods are quicker than others, or require a larger sacrifice, but all of them will help you get rid of your mortgage quicker than the loan’s original term. Here are the most popular ways of paying off your mortgage early.

  • Pay more each month or make extra payments. You can add an extra amount to each monthly payment each month in order to pay off the loan early. Alternatively, you can choose to make a mortgage payment every two weeks instead of each month, which will result in 26 mortgage payments made each year, instead of only 12.
  • Pay a large part or your entire mortgage at once. You can use money from your savings, investments, bonuses or an inheritance to pay off a portion of your mortgage or even all of it.
  • Refinance into a shorter term. Refinancing your mortgage loan into a loan with a shorter term will make your monthly payments larger, but, if you can afford it, it will help you save significantly in interest (Read: Things to Remember Before Refinancing a Mortgage).

Reasons Why Paying off a Mortgage Sooner is Beneficial

Depending on several factors, paying off your mortgage sooner than later can be to your advantage (read more here). Generally, the benefits outweigh the downsides, but taking this step is not something that many home owners can afford to do. Unless your interest rate is really low, you should do your best to try and pay off your mortgage loan early. Here are some of the reasons why this is a good choice.

  1. Peace of mind. Like most people, you probably have a lot on your mind. Taking care of your largest monthly bill will surely relieve a significant amount of stress, and make your life and your family’s life much easier. Truly owning a home is a great feeling, and you shouldn’t wait until you are old to experience it (Read: Are You a Twenty-Something Wanting to Buy a Home? Here’s What to Know). Not having to pay a mortgage anymore also means that you have other possibilities of investing and you are more in charge of your financial life.
  2. Savings in interest. With a 30-year mortgage loan you pay almost as much on interest as you do on the principal. Paying the principal early means that you will save tens of thousands in interest. Making just an extra mortgage payment per year can save you thousands of dollars.
  3. Improve your credit score. As long as you have a large debt, you are considered a large risk, and your credit score will reflect that. Once you get rid of your mortgage, your credit score improves, and you will be able to qualify for more credit. You can get new loans, for buying a car or even a new home, because your cash flow will be larger (Read: Top 10 Components for Maintaining a Good Credit Score).
  4. Avoid the risk of losing the home. Investing money while you still have a mortgage is riskier because, if something goes wrong with your investments, you risk losing your home as well. Also, losing a job or having large medical bills will increase the risk of losing your home. If your mortgage is paid off, the home is yours and you don’t risk losing it to foreclosure anymore.
  5. Most times it makes sense financially. Some people will argue that you lose the tax break, or you could earn more if you invest the money. That may be true is some cases, but the tax deduction argument is often exaggerated, and you are probably saving more in interest than you would make on an investment. To read more click here.

Even though there are reasons why paying off a mortgage early is not recommended, most of the times the benefits of doing it are far greater than the alternative. Sure, having cash on hand for emergencies and making other investments makes sense, but so does avoiding paying tens of thousands in interest. But probably the biggest advantage of paying off your debt sooner is the peace of mind that it gives you. Living with the knowledge that you can lose your home if you come across financial problems is very stressful, so paying off your mortgage early not only saves you money, but also allows you to enjoy life better.

4 Things Home Buyers Should Look Out for With Mortgage Rates on the Rise

Mortgage Rates RisingBuying a home is something that most people hope to achieve in their lifetime. Owning the home that you and your family live in gives you a sense of security that you don’t normally get if you are renting or living with your parents. When you own a home, you can customize it based on your preferences, improve it, and more. Unfortunately, there are many factors to consider when buying a home, especially if it’s your first time. (Read: Current Interest Rates for Home Loans – Is it Time for You to Apply?)

Unless you have a perfect credit score and a very good income, qualifying for a mortgage will prove to be fairly difficult. There is always the chance that you will qualify for less than you need, or even be rejected because of your low credit score or for being unable to prove to your lender that you are not a high default risk. Once you get passed the approval process, you will find out that the initial cost of a mortgage is very high, and will probably require you to spend all your savings at once. Between the down payment and the closing costs, you are looking at tens of thousands that you will have to spend before you can even move into your new home.

The Mortgage Interest Rate

Besides the price of the home, there are other aspects of the mortgage which will determine how much money you will be spending. One of the most important aspects of a mortgage loan is the interest rate. Mortgage rates fluctuate frequently, and make a huge difference in how much money you will be spending on your mortgage loan.

Qualifying for the best interest rate requires you to have a perfect credit score, a large income, and make a large down payment. The interest rate will also be affected by how long the loan repayment period will be. With a longer term, your monthly mortgage payments are lower, but the interest rate will be higher. If you choose a shorter term and can afford to make much larger monthly mortgage payments, then your interest rate will be lower. By being a perfect borrower and choosing a short term, you can influence your mortgage interest rate (Read: Mortgage Rates Forecast Vs. Home Mortgage Rates Today).

But there are other factors, which are out of your control, which have a larger effect on interest rates. The biggest influence on mortgage rates is the national economy. A rapidly growing economy will cause inflation, which will cause the Federal Reserve to attempt raising interest rates in order to slow down the economy. When the economy is struggling, the Federal Reserve will usually reduce interest rates in order to stimulate the housing market. Also, when there is a large number of new mortgage loans being originated, investors tend to avoid purchasing these loans, so interest rates are increased.

What Buyers Should Keep in Mind When Interest Rates are Rising

Rising interest rates usually make home buyers think twice before buying a home, or even give up on buying a home. Higher interest rates make buying a home more expensive, so many home buyers might get discouraged. However, in this economic climate, there are some things that you should keep in mind when buying a home, even when interest rates are rising.

#1 – Demand for Houses Will Be Higher

Mortgage interest rates are rising because the economy is strengthening, so buying a home right now is not such a bad idea. Rising interest rates mean trouble when they are rising on their own, but, if they are doing it together with the strengthening of the economy, it means that the demand for homes will still be high. So buying a home before interest rates increase even more is actually a good idea. Follow this link to read more.

#2 – A Lower Inventory

Buying a home before interest rates increase more may be difficult because inventories are low. This may be a problem for many buyers who are looking to buy a home right now, before an even larger increase in mortgage rates. The economy is recovering, so there is a large demand for homes, but inventories are pretty low, so the chances of finding a home that will suit your needs are slim. Statistics show that most home buyers worry about not finding a home that they like more than they worry about the rising mortgage interest rates. To read more about the effect of this on the housing market click here.

#3 – Looser Qualification Requirements

Qualification requirements are still fairly strict. Rising mortgage rates are a small problem if you are unable to take out a mortgage loan in the first place. Lenders are trying to protect themselves more than ever from giving out loans to borrowers who are a high default risk. Fortunately, because interest rates are increasing, refinancing will slow down, so lenders will, most likely, loosen their requirements for home purchase lending in order to attract more home buyers. Recently, when interest rates were near record lows, lenders were making most of their money from the large increase in refinances, but, with increasing mortgage rates, the number of refinances will start to decrease significantly.

#4 – Renting is Still More Expensive

Don’t think that, because interest rates are rising, renting will be cheaper. Buying a home will be more and more expensive than before when interest rates are increasing, but renting will still remain the more expensive option, unless mortgage interest rates rise to over 10 percent (Read: Take Advantage of Today’s Historically Low Rates).

Rising mortgage rates will make home ownership unattainable for some people, but time can be a bigger enemy. Waiting for interest rates to decrease can be a big mistake, because it may never happen and you will be losing money by renting instead of buying. On the bright side, rising mortgage rates will strengthen the economy and allow more people to qualify for a mortgage.

3 Reasons It Is Going to Be Harder to Get a Reverse Mortgage

Tighter Reverse Mortgage RestrictionsReverse mortgages have been giving home owners over the age of 62 the chance of borrowing money against the equity in their homes. Seniors are usually on low fixed income, so reverse mortgages are very helpful for those who wish to pay off some debt, have unpaid medical bills, or simply need the money for living expenses. Not having the chance of finding a better job or investing money into something that will generate a profit can be really tough financially on seniors, especially when compared to younger people.

Reverse mortgages allow those who qualify to borrow money in the form of a lump sum, which allows them to take out the entire loan proceeds at once, receive the money as monthly payments, or receive as a line of credit. The money that you take out from a reverse mortgage can be used for virtually everything, from paying off your mortgage to paying for utilities and food (Read: You Can Borrow How Much With a Reverse Mortgage?). This is a great way for seniors to acquire some much needed money without having to worry about paying it back. The debt must be paid off if the home owner moves, sells the home, or dies. If the borrower dies, the remaining heirs will have to pay off the reverse mortgage if they want to keep the home. If the heirs decide to sell the home, they come into possession of any equity remaining after selling the home.

Unfortunately, it looks like taking out a reverse mortgage is going to become more difficult. People who were hoping to take out a reverse mortgage in order to resolve their financial problems will, most likely, have to look at other loan options as well. New rules will now impose stricter limits on how much someone can borrow with a reverse mortgage. The pricing of a reverse mortgage will change and the requirements will become much tighter. To read more about the tightening restrictions click here.

Why are There Changes Being Made?

After the economic crisis, more and more home owners took out reverse mortgages because they were having a difficult time making ends meet. Most of these borrowers took out the whole loan amount at once, putting a strain on the program’s funds. Lenders also recommended taking out the money as a lump sum because they were being paid more than when borrowers took out the money as monthly payments or lines of credit.

Lenders were unable to recuperate all the money that they gave out because home prices went down, so the reverse mortgages were not paid off in full. This has also hurt the reverse mortgage program, making these changes inevitable. Most reverse mortgages are backed by the Federal Housing Administration (FHA), who is implementing these changes in order to strengthen the program. The FHA is hoping that borrowers will start treating the equity in their home more carefully by tapping it slowly than before. Go here to read more.

What Will the Changes Be and How They Will Affect You?

Before these changes, almost anyone who met the basic qualifications could take out a reverse mortgage. Borrowers pretty much only had to be 62 or older and use the home as a primary residence. But things are about to change, so here are 3 reasons why getting a reverse mortgage will be harder.

Reason #1 – Reverse Mortgage Loan Limits

The amount that the borrowers can withdraw in the first year will be reduced by 40 percent. For example, if a borrower was eligible to withdraw $250,000 before the new rules, he or she will only be able to withdraw $150,000 once the new rule regarding the first year withdrawal is implemented. Borrowers whose existing mortgage and other debts exceed the 60 percent limit will be able to withdraw a little more. Home owners will have to pay off those debts, which are considered mandatory obligations, so they can withdraw enough to pay them, plus an extra 10 percent of the maximum amount that is allowed. Credit cards do not count as mandatory obligations, so borrowers cannot take out extra money to pay them off.

Also, the two types of reverse mortgages that are available now, the standard and the saver, will be pretty much eliminated and consolidated into one reverse mortgage. The amount that you can borrow will still be influenced by the youngest borrower’s age, the value of your home, and the interest rate. However, once the new reverse mortgage rules are implemented, most borrowers will have access to 15 percent less equity.

Reason #2 – Reverse Mortgage Pricing

The cost of taking out a reverse mortgage will be calculated based on the amount that is borrowed. Borrowers who take out more than 60 percent of the allowed amount in the first year will have to pay higher upfront costs. People who stay within the limit will pay .5 percent of the appraised property value as an upfront mortgage insurance premium, while those who go over the 60 percent limit in the first year will have to pay a 2.5 percent mortgage insurance premium. The annual mortgage insurance premium will remain 1.25 percent of the loan balance for both types of borrowers (Read: Want a Big Cash Payout? Don’t Look to Reverse Mortgages!).

Reason #3 – Reverse Mortgage Qualifications

The new reverse mortgage rules require lenders to make sure that their borrowers are able to afford paying property taxes and insurance during the life of the loan. Lenders will have to analyze the borrower’s income and credit history before giving out a reverse mortgage.

Lenders will also need to factor in the borrower’s living expenses, such as utilities and property related costs, and determine if the borrower has enough money left to pay for insurance and taxes. If your lender comes to the conclusion that you are unable to pay your taxes and insurance after all the other expenses, you will be asked to set money aside or it will be deducted from your reverse mortgage payments (Read: Reverse Mortgages – Not the Smart Investment You Thought They Were).

Conclusion

All these new rules and requirements have the potential of disqualifying many borrowers that would have easily qualified for a reverse mortgage in the past, but should not be a big problem if you take the time to work on your budget a little bit. Taking out a reverse mortgage is becoming harder, so it would be wise to look into other types of loans, as well. Reverse mortgages are designed for seniors, but that doesn’t mean you won’t be able to take out another loan, if it suits you better.

Everything You Need to Know About Jumbo Mortgage Loans

Jumbo Mortgage LoansA mortgage loan is a very important product because it gives the majority of Americans access to home ownership. It would be quite difficult for most people to purchase a home without the help of a mortgage loan. Mortgages come in various shapes and sizes and are designed to accommodate the needs of most people, whether they are first time home buyers or real estate investors. Mortgages have several characteristics that differ based on the borrower’s needs and qualifications (Read: Are You Applying for a Mortgage? These Things Might Ruin Your Chances of Approval!) . One of these characteristics is the size of the mortgage loan.

Regular mortgage loans usually require a 10 to 20 percent down payment, certain debt-to-income ratios, and a good credit score. Depending on these factors, your interest rate might be higher or lower, and you may be able to borrow more or less. In some areas you won’t be able to buy a home valued at over $400,000 with a regular mortgage, while in others you can buy homes that cost over $700,000 by using a regular mortgage. That amount is more than enough for most people and families, but not enough for others. If you have the means to keep a large mortgage, you may want to borrow more than the maximum limit of regular mortgage. In that case, you should take a look at jumbo mortgages.

What is a Jumbo Mortgage Loans

A jumbo mortgage loan is nothing more than a regular mortgage loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. The limit varies from one area to another, so you can expect to have to take out a jumbo loan for a home that is worth a lot less than other homes in better areas. Generally, the maximum limit is significantly higher in more expensive housing markets.

Lenders take a larger risk when giving out jumbo loans, so they will be more careful when giving out this type of mortgage loan. A default on a jumbo loan would hurt the lender financially much harder than a regular loan. Jumbo loans typically require a 20 percent down payment, which means that the borrowers have a larger investment in their homes, making them less of a default risk. Lenders require a very high credit score, which means that the borrower has a good history of repaying his or her debt, giving the lender more peace of mind (Read: How to Get a Great First Mortgage).

The Advantages and Disadvantages of Jumbo Mortgage Loans

Jumbo mortgages are a perfect choice for those who need larger mortgages, but they also have other advantages. Here are the most important advantages of a jumbo mortgage loan:

  • Just One Loan. By taking out a jumbo loan you won’t have to take out two or more different loans. Jumbo loans provide the money that you need to make a home purchase, and allow you to avoid having to take out multiple loans, which can be pretty complicated (Read: Taking Out a Third Mortgage – Is That Possible?).
  • Low Rates. Interest rates on jumbo loans are low. Interest rates on jumbo loans have started to decrease in 2009 when the federal stimulus package was introduced.
  • Big Savings. Refinancing a jumbo loan can bring large savings. Refinancing any mortgage loan will usually bring savings, so refinancing a loan that is larger than usual can bring even greater savings.

Jumbo mortgage loans bring great advantages, but also have a few downsides. Here’s what you need to keep in mind when taking out a jumbo loan:

  • Higher Rates in Comparison. The larger the risk the lender is taking, the larger the interest rate will be. While interest rates on jumbo loans are lower than ever, they are still high when compared to interest rates on conventional loans (Read: Jumbo Loan Rates vs. Conventional Home Loan Interest Rates).
  • Less Approval. Qualifying for a jumbo mortgage loan is more difficult. You must have a great credit score and a large income to qualify for a jumbo mortgage loan. While you can get away with having a less than perfect credit score when applying for a regular mortgage loan, jumbo loans require a prefect or near perfect credit score (Read: Boost Your Credit Quickly With These Simple Tips).

Jumbo mortgage loans, like any other loan, are designed for borrowers with certain needs, and will not be a great choice for everyone. Knowing what type of mortgage you need is very helpful when buying a home. It can make the difference between a great purchase and one that will give you nothing but trouble along the way.

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.

When Should You Lock-In Mortgage Interest Rates?

House Lock KeyAfter spending weeks or even months shopping for a mortgage loan, you have finally found something that suits you: a mortgage loan with a great interest rate and low upfront costs. Fast forward a few weeks and right before closing on the loan, the interest rate increases all of a sudden. This isn’t the lender trying to scam you; it’s just the way things work. The latest mortgage rates can fluctuate, sometimes significantly, from one day to another. This can be avoided by locking in your mortgage interest rate.

What is a Mortgage Interest Rate Lock?

By locking in your interest rate, you are guaranteed the interest rate that your lender has quoted you when you applied for the mortgage loan. Even if your loan application is still being processed, by locking in the interest rate, you will make sure that you won’t be caught by surprise if the rate increases in the near future. Of course, the interest rate can also decrease, which means that you will be missing out on a lower rate if you lock-in early.

The lender will lock in the interest rate for a specified period of time if you ask him. Typically, the interest rate can be locked for periods between 15 and 60 days. The shorter the lock period, the less risk there will be for the lender, meaning that you will receive a better interest rate.

Steps to Locking-In a Mortgage Interest Rate

A mortgage interest rate lock-in can prove to be very beneficial in case the interest rates increase while your loan is being processed, but it can also be a disadvantage to you if the rates decrease. No matter when you decide to lock-in the interest rate, you should always know how this is done. Here are the steps to locking-in your mortgage interest rate:

  1. Make sure you understand what the difference between an interest rate quote and a rate lock is. The interest rate quote is the estimate given by your lender of what your rate will be. The rate quote will be affected by any changes in interest rates that happen on the market. Your income and credit score can have an influence on the rate that you were quoted, meaning that the interest that you will be paying on your mortgage will most likely be different than the percent that your lender has quoted. If you lock-in your interest rate, the rate won’t change during the lock-in period, no matter what happens in the market. 
  2. The loan process can take a fairly long time, so having all of the necessary documents ready is very important when locking-in your interest rate. Rates can be locked for 2 months or even more, but if the loan is not closed during that period, the interest rate lock expires and the rate that was agreed upon is no longer valid. By doing a little research, you can find out how long processing a loan typically takes in a certain area and plan accordingly.
  3. The interest lock-in must be in writing. In the written agreement, all important information much be enclosed, such as your name, your lender’s name, the loan amount, the interest rate that is being locked-in, and the lock-in terms and fees. Make sure you read and understand everything that is written in this document, including the fine print.
  4. Some lenders provide an option that helps you get a lower interest rate if it becomes available during the lock-in period. If your lender has this option available, you should take it, but be aware that you will most likely have to pay a fee, and you will only be able to use this option once. This option may also force you to take a higher interest rate if the rates increase.

When to Lock-In the Interest Rate

You can lock-in your mortgage interest rate as soon as your loan is approved for the first time, but most people will wait until they find a home. There could be a few weeks between the time you get approved for a loan and the time when you actually find a home that you are willing to buy, so locking in only after that will reduce the chances of the lock-in expiring before the loan is closed. Also, a larger interest rate lock costs more, with 60 days locks costing around 1 percent of the total loan amount.

Because interest rates can increase or decrease at any time, there is no perfect time when you should lock-in the interest rate. The only way you can predict an interest rate increase or decrease is by researching forecasts, but interest rate forecasts are not always accurate.

Locking-in early is generally the better choice, if you are happy with the interest rate that your lender has quoted you, especially for those whose budgets can be severely affected by even a slight increase in interest rates. What is most important when locking-in an interest rate is that you work with your lender to determine if your loan will be able to close before the interest rate lock-in period expires.

Deciding when to lock-in the mortgage interest rate is not an easy choice to make and can end up causing you a lot of headaches and stress. Locking-in before the interest rates increase is great, but they might also decrease, in which case you won’t get to secure the lower interest rate. On the other hand, not locking-in before the interest rates increase will cause you to lose money, and can even cause you to not qualify for the loan anymore. No one can know when the ideal time to lock-in your interest rate is, so if you are satisfied with the interest rate that you receive initially, it is better to lock-in early, rather than take the risk of rates going up in the future.

Mortgage Rates in 2013: Will They Go Up, Down, or Hold Steady?

Mortgage Rates in 2013-Will They Go Up, Down, or Hold Steady-150x150The home-buying season has arrived and the 2013 real estate market seems to be moving a little faster, while mortgage rates are still lower than ever. You might be wondering if mortgage rates are going to hold steady, increase, or decrease, considering the fact that they have gone up since the historic lows recorded last year.

While the economic growth seemed to slow down considerably at the end of 2012, it looks like it came back on the right track at the beginning of this year. In an economy that is fueled by consumer spending, people keeping their job is of the utmost importance, so the recent layoffs decrease has helped significantly as well. The real estate market has contributed to the economic recovery also. Existing home sales have gone up as well as new home construction, but the inventories are fairly low because the construction industry is also in recovery.

What Influences Mortgage Rates?

Back in November of 2012, mortgage rates were 3.31% for a 30-year fixed-rate mortgage and have increased to 3.51% by February 2013. Even with the slight increase, mortgage rates are still close to record lows, and actually lower than they were at this time last year.

One of the main factors that influence mortgage rates is the housing market recovery, which has suffered significantly due to the economic crisis of 2008. Home sales are rising, but the inventories are getting lower, which will drive home prices up. Builders are also slowly recovering, so more and more new homes will become available.  All of these contribute to the appreciation of the housing market.

The United States economy, which is seeing slow recovery, has the most influence on the housing market. After the recent recession, economists expected a 3 to 5 percent growth in Gross Domestic Product (GDP), but the United States is only experiencing a 2 percent growth. The recovery is slow but steady and will lead to a stronger housing market.

Will Mortgage Rates Go Up or Down in 2013?

Excluding another major crisis, a new war, or the further deterioration of the European economy, it is safe to say that the mortgage rates will slowly rise in 2013. The economic increase will lead to an increase in corporate profits, which will positively influence confidence among consumers and potential home buyers. As a result, the demand for stocks will increase, the demand for bonds will decrease, and mortgage rates will go up.

The mortgage rates will most likely remain under 4 percent for 2013, but gain up to 0.5 percent by the end of the year. If the economy continues to grow, you should expect higher mortgage rates in the future, but if there is a new financial or political crisis, the rates will go down to what they were in 2012, and possibly even lower.

Do You Recognize the Early Warning Signs for Increasing Home Interest Rates?

Do You Recognize the Early Warning Signs of Increasing Home Interest Rates- 150x150Home interest rates are near historic lows at the moment, but have started to slowly increase since last year when they were at an all-time low.  For the past few months, interest rates have been steadily rising and, while a huge increase is very unlikely, so are further decreases.

Mortgage rates today for a 30-year fixed-rate mortgage are around the 3.5 percent mark, an increase over the November 2012 rate of 3.31 percent. Rates for a 10-year fixed-rate mortgage are hovering around 2.60 percent, staying near the historic lows reached last year.

Rates are expected to go over 3.75 percent by the end of 2013, and maybe even reach 4 percent. This increase will affect homeowners who wish to refinance more than they will affect people who are looking to buy a home. This rise in mortgage interest rates will make buying a home more expensive, but it isn’t expected to slow down the housing market recovery.

Factors Contributing to Increasing Home Interest Rates

During the past few years, the Federal Reserve has purchased bonds for hundreds of millions of dollars, which keeps the mortgage interest rates low, in order to attract more consumers and investors. The result was an increase in refinances, but it hasn’t generated as many home purchases as it was expected.

The main factor that will contribute to increasing home interest rates is the economic growth. Along with economic growth, there will be a decrease in unemployment rates, an increase in new construction and home prices, which will stimulate the housing market to grow, and mortgage interest rates will rise.

At the end of last year, a 7.8 percent unemployment rate was recorded, the lowest since 2009. As more and more people get jobs, many of them will want or need to relocate, so the real estate market will see more buying activity.

Builders are also recovering from the economic recession and are starting to build more new homes, as the demand increases monthly. It is expected that new homes construction for single families will see a 20 percent increase compared to 2012, and multi-family homes a 15 percent increase over last year.

The steady increase in home prices helps the economic growth, therefore being a contributing factor to the rise in mortgage interest rates. Statistics show that home prices have seen a 10 percent increase between 2011 and 2012. Mortgage loan requirements are still pretty strict, but it is still expected that there will be more home sales in 2013 than there were in 2012.

The economy is expected to only grow by 2 percent this year, so the mortgage interest rates increase won’t be so extreme. The economic growth should be a warning sign for all those who wish to buy a home while taking advantage of the near record low interest rates. Unless an unforeseen event that will affect the economy occurs, such as a new economic collapse or war, the economy will continue to grow and even pick up the pace, so looking at the warning signs and being ready to buy will help you save a significant amount of money.