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.

What is the Difference Between a VA Loan and a FHA Loan?

fha and va loans-150x150Buying a home involves a long term financial commitment, so it is important to know the difference between a Veteran Affairs mortgage loan and a Federal Housing Administration mortgage loan. Both types of loans are insured by the government, and have a few similarities, but knowing the differences can save you a lot of money and headaches. While both types of loans follow guidelines written by government agencies, the final lending decision will still be made by lenders, such as banks and credit unions. Their requirements could be a lot stricter than the ones made by the government agency.

One of the similarities between a VA loan and an FHA loan is that they both are designed to provide people with lower incomes the opportunity to become home owners. Because VA and FHA loans are insured by the government, they will pay in the event of a default. Another factor that makes these two types of loans similar is the low credit score requirement. Compared to conventional loans where an almost perfect credit score is required, these loans are much more lenient. Statistically, most people that choose a VA or an FHA loan would not be approved for a conventional loan.

Differences between VA Loans and FHA Loans

While VA loans and FHA loans have a couple of similarities, there are some differences that you should be aware of before deciding which type of mortgage loan to go with. Here is what you should keep in mind before deciding between a VA loan and an FHA loan:

  • Eligibility. In order to qualify for a VA loan, you will have to be a veteran, an active-duty military member, or the surviving spouse, in some cases. Some requirements regarding time served in the military also apply. Also, if the retirement was dishonorable, you will have to pass a review before being eligible for a VA loan. FHA loans do not carry these types of restrictions.
  • Income. Because FHA loans are designed to help people with low or moderate incomes, there are only a few restrictions regarding your income. VA loans do not have such restrictions.
  • Down payment. FHA loans require a minimum of 3.5 percent as a down payment, while VA loans do not have a minimum down payment requirement.
  • Loan limits. Both VA and FHA loans have limits. Based on the cost of living in a certain area, the FHA limit can exceed $700,000. Limits are also determined by the type of home that you are buying. VA loans don’t have limits on the home value, but they are determined by eligibility criteria.
  • Fees and closing costs. While both types of loans feature lower fees and closing costs than conventional loans, FHA loans come with specific closing costs, and VA loans with more flexible closing costs and fees.
  • Mortgage insurance. Mortgage insurance must be paid for a minimum of 5 years on an FHA loan. This can drive the overall cost of the loan up by a large amount. VA loans are not required to have insurance.

VA loans and FHA loans are designed to make buying a home more affordable, but there are some big differences between them. If you qualify for both types of loans, you should take into consideration all these differences, whether they regard the qualification requirements or each program’s advantages.

VA Loans

Veteran Administration Loans (VA Loans)
VA loanIf you are a veteran you have a great advantage to getting a home loan. The VA is a government funded program specifically created for veterans. You must have a Certificate of Eligibility which is the proof of veteran status. If you do not have your certificate of eligibility your lender can order one for you. However, it does take a little time.

A VA loan can not only help a veteran, but also a surviving spouse of a deceased veteran as well. The VA administration will not allow certain fees to be charged to the home-buyer and they protect you from being taken advantage of y ensuring your mortgage rate is in line. VA loans are so specific and detailed that they do not allow any room for over charging or the raising of fees by the lender. They are guaranteed and must be for personal owner occupancy only. There is a limit to the loan amount for a VA loan, usually $240,000.

Basic entitlement for a veteran is $36,000, but it can be up to $60,000 for certain loans over $144,000.

Advantages to getting a VA loan:

  • No down payment required
  • Negotiable mortgage rates
  • Reduced and protected fees
  • Lower closing cost
  • No mortgage insurance premiums
  • Mortgage may be assumed
  • Can prepay without penalty
  • VA specific appraisers required for extra protection for home-buyer

If you’re a veteran be sure to take advantage of a VA Loan.

5 Tips for Great Mortgage Rates

There are a variety of ways you can capitalize on the best mortgage rates on the market. It’s best to acquire good mortgage rates when you purchase your home, rather than having to rely on refinancing. Here, we’ll go over a few tips that can help you get the best mortgage rates possible.

pay off debts1. Pay off your debts. The majority of homeowners will focus heavily on saving money for their down payment. While this is a good notion, it’s important to remember that it’s actually more important to pay off credit card debts than it is to pay a large down payment. Why is this? First of all, credit card debt is hugely expensive. The national average interest for credit cards is currently at around 13%. This is more than double the 5.21% domestic average for a 30 year mortgage with a fixed rate. Secondly, large credit card debt will prevent you from being able to borrow money. Creditors just simply won’t permit your total monthly debt to exceed 40% of your gross income.

2. Consider a piggybacked loan. Many first time homeowners can’t afford to make a large down payment on their home. If you purchase a home with a low down payment, you could be hit with costly things such as private mortgage insurance and a higher interest rate. A piggybacked loan is when you take out two mortgages to prevent skyrocketing interest rates.

3. Consolidate your finances so that you can make a significant down payment. A difficult economy can bewilder many home-buyers. It’s often difficult to commit to making a large down payment, especially when you have a lot of other expenses. But you’ll find that maximizing your down payment will save you money in the long run.

4. Calculate just how much you can afford. You need to analyze two factors when calculating this. The first factor is how much you can borrow. The second factor is how much you can raise to pay your down payment. One great rule of thumb is to make sure that your homeowner’s insurance, taxes, and annual mortgage payment doesn’t surpass 25% of your gross income. Use this number to figure out how much liquid cash you can spend on your down payment. Be sure to remember that you’ll need to pay closing costs. These closing costs can cost as much as 5% of the value of your home.

5. Perform a home inspection before you buy. It’s crucial that you completely assess the plumbing, heating, Buyers-Verification-Inspection-The-Home-Inspectionelectrics, air conditioning, roof, and other home structures before you buy the home. There are specialized people out there who work as home inspectors. Hire a home inspector and do some sleuthing yourself. You’ll save yourself a lot of time and money if you make sure everything is working properly before you purchase the home.

Remember, you should always shop around when you’re looking for mortgage rates. Utilize good attributes such as strong credit or a large down payment. There are a lot of ways to find great mortgage rates. It’s important to be diligent and meticulous when you are analyzing loans. After all, your home will very likely become your biggest investment.

Take Advantage of Today’s Historically Low Rates

mortgage-ratesToday’s mortgage rates continue to hover at all time record lows and this along with government incentives has made a refinance mortgage more financially attractive than any other time in history. Currently the interest rate on a 30 yr fixed mortgage is 4.28%. Generally, anywhere around the 4% interest mark is a great deal. Not every one should be refinancing for this reason alone however there are several factors that make refinancing at today’s mortgage rates a prudent financial decision for many homeowners.

How do you know if now’s the time to pull the trigger on a refinance mortgage? Start by finding out what your current loan balance is, relative to the value of your home. If it’s 80 percent or less, you have lots of options. If it’s between 80 percent and 105 percent, you’ll have to see if you qualify for a Home Affordable Refinance Program which was recently passed by our government in an attempt to help people better manage their loans. If it’s more than 105 percent, you’d have to pay down your mortgage balance with cash to refinance. That may not be a bad idea, depending on your financial situation-but talk with a mortgage loan adviser before proceeding.

is refinance mortgage a wise financial decisionThe next thing to determine is how long you plan on staying in your existing home. Because refinance mortgages come with closing costs, you don’t start saving money on that lower payment until you’ve repaid the upfront costs of the loan. Also, when estimating closing costs, remember to account for any prepayment penalties on your existing mortgage. A mortgage loan officer will analyze your current mortgage and give you a cost benefit analysis so you are able to fully evaluate whether a refinance mortgage is a wise financial decision.

If you want to take advantage of the lowest mortgage rates in history and refinance your mortgage then it would behoove you to get several quotes from various lenders so you are able to compare lenders and go with the one you feel most comfortable with. The most efficient way to receive multiple quotes is to fill out an online application through a website that is affiliated with several top lenders. This requires filling out only one application and you are then matched with 3-4 lenders who are licensed in your area. The mortgage professionals will then help you further explore whether or not refinancing at today’s mortgage rates is a wise financial decision for your situation.