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Tag: real estate mortgage

Lower your mortgage rate – it’s possible

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Last week the big news was the escalation of mortgage rates and the prediction by the mortgage “experts” that we’re not seeing them being lowered anytime soon. This week we’ll touch on ways to maybe achieve a lower rate and help buyers get their foot in the door. There are a few strategies that could help buyers secure a lower mortgage rate now and revisit the loan down the road, but it may not be for everyone.

The first one is a temporary buydown in which a seller, or more frequently a builder, pays an upfront fee to reduce a buyer’s mortgage rate for a specified period of time. It can give a buyer, especially first-time buyers, time to ease into higher payments if they expect their personal incomes will rise in the future or if traditional mortgage rates decline. There are lenders that offer it, but typically builders use it as an incentive for home buyers instead of reducing their price.

There are a variety of temporary buydowns out there with terms that involve number of years and percentage of rate drops. However, all of the temporary buydown arrangements are based on the buyer qualifying for a mortgage based on the current mortgage rate as well as having a high credit score. If you qualify, it’s still worth it, especially in the early years of home ownership, which are always the most expensive.

Another strategy is buying discount points. Essentially what you’re doing is buying the prepaid interest at closing to reduce the size of the mortgage in return for a lower rate. The lower rate is for the life of the mortgage, which can be a substantial savings if you’re planning on living in the home for a long time.

The difficult part of buying discount points and the additional fees that are assessed is that you will require a large down payment. If you have the cash to do this, you need to determine the break-even point, which is the level you save more money than you spend. If this makes financial sense, it could be a good option.

Finally, assumable mortgages can help keep rates down if you can find one. This loan allows a seller to transfer his or her mortgage to a buyer who in turn picks up the remaining loan balance, the repayment period and other terms of the seller’s existing mortgage. All of this sounds great if the seller’s rate is considerably lower than what the buyer can secure at this time. Buyers still need quite a bit of cash to cover the difference between the loan balance and the selling price and they also need to qualify for the loan just like any other mortgage product.

There certainly are a lot of assumable mortgages out there, however, they are generally not conventional mortgages. Most if not all of these loans are government-backed or insured loans by the FHA or VA. It’s also not a simple process for either the buyer or seller and may require some legal advice for the novice.

Getting a lower mortgage interest rate in this financial environment is difficult, but if you have the means, the nerve and a little bit of luck, it could happen. In the meantime, sit tight and see what develops between now and the end of the year. The country is going through many changes and so are the mortgage markets.

Castles in the Sand

Property owners with equity may tend to overpay

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Feeling pretty flush, are you? Most of us who have owned property for several years are pretty happy with the equity we have accumulated. But if you are selling and purchasing another property, be careful. That equity can slip through your fingers at lightning speed.

A recent study by UCLA Anderson School of Management discovered that for every dollar of equity gain that a seller receives, he or she overpays by 7.9 cents on the next home purchase.

There are a few theories about why this is happening, one of which is that with higher equity comes lower capital constraints, allowing buyers to consider larger homes they are willing to pay more for. Also, a buyer with a nice equity cushion can offer more and sometimes will pay more to avoid a time-consuming search for a new home or to place themselves at an advantage above other buyers. Either way, these actions are driving offers higher than they should be.

Naturally, overpaying contributes to escalating housing costs, compounding the effect of fewer homes on the market and pushing up selling prices. This is more bad news for buyers who are competing with high equity buyers who are cornering the market with a lot of equity and cash bidding up prices.

Buyers who overpay for a property are risking that the property values will stay high when the time comes to resell. If a buyer is in the property for the long haul, it might be a smart risk to take for a property you want. However, if a buyer is looking at a short-term purchase they could get caught in an unexpected downturn of the market.

With residential mortgage interest rates approaching 7.5%, not only are buyers caught in the vice, but banks are also starting to see their profit margin caught in the same vice. Applications for home purchase mortgages dropped to their lowest levels since 1995 a few weeks ago, according to the Mortgage Bankers Association. Buyers aren’t buying because of low inventory and high rates and potential sellers aren’t selling and giving up their ultra-low mortgages – a perfect storm in a not-so-perfect real estate market.

But there are still high-end buyers who are jumping into the real estate market. The only difference is the jumbo loans these buyers typically are looking for are not as available as they once were. A jumbo loan is a non-conforming loan that exceeds the conventional loan limit set by the government housing authorities. The limit is currently set at $726,200 or higher in some high-cost areas in the country. For instance, Hawaii would be considered a high-cost area. These loans typically were considered low-risk loans the banks kept on their books that attracted wealthy customers, many of whom used the same bank for additional business transactions.

These loans usually carried lower rates than regular mortgages. However, the lower preferential rates for jumbo loans have reversed in recent months and now the jumbos are also approaching 7.5%, forcing home buyers to reconsider their financial options or even whether it’s a good time to buy. Since we’re living in an area with many high-end properties for sale, these higher rates could influence our market.

Whether you’re buying a car or a pair of shoes, it’s the same. If you have more, you pay more and if you pay more, you borrow more. Americans love the best of the best. Be careful that the money doesn’t slip through your fingers.