Monthly Archives: August 2014
A common question that comes up among prospective homebuyers considering the financing process for the first time is: which is better, a fixed rate mortgage or an adjustable rate loan? Each of these vehicles has its pros and cons. The best decision for you will be determined by your specific financial history, the current market conditions, and your home ownership goals. Here’s a closer look at the difference between fixed and adjustable rate mortgage.
What’s the background on interest rates?
When you finance a home, the bank lends you a certain amount of money equal to the value of the home and the purchase price minus any down payment you’ve made. In exchange for lending you tens or hundreds of thousands of dollars, the bank charges you a monthly fee that you know as interest rates. Interest rates are set by the Federal Reserve, and individual buyers qualify for different rates based on their credit history. The worse your credit, the higher the interest rate you’re expected to pay over and above the rates set by the Federal Reserve.
What’s the different between fixed and adjustable rate mortgages?
Loans are made for a period of time. Mortgages are often either fifteen, twenty or thirty year loans. With a fixed interest rate product, you’ll be locked into a specific interest rate for the life of your loan. Even if interest rates increase, your payment stays the same. From a budgeting perspective, it’s easy to plan because your payment stays the same each month.
With an adjustable rate mortgage, buyers are offered a fixed rate for a period of a month to up to ten years. The longer the loan is held, the higher the interest rate goes. Payments start lower, and increase over time. In some cases, an adjustable rate mortgage may also have a variable component, meaning that if market interest rates increase your interest rate does as well. The benefits of adjustable products lie in the ability to take out a larger loan and to potentially benefit from drops in interest rates.
Which product is right for you?
Fixed term loans tend to be favored by buyers, because it gives you the ability to plan for the future. However, in some cases, buyers know that their situations will change. For example, buyers may be a young family that expects regular raises and bonuses to improve their income over time and thus enable them to meet higher payments. In other cases, buyers choose an adjustable rate mortgage with plans to refinance if interest rates are expected to drop.
Finding the right mortgage solution for your next Las Vegas home purchase starts with talking to an experienced loan officer about your financial history and future plans. Contact Sydnee Johnson today to arrange for a personalized consultation and get preapproved for the purchase of your dream property.
One of the most important factors to guide both your home search and your mortgage application process is answering the question, “How much house can you really afford?” The number is partially based on hard financial analysis conducted by potential lenders, and partially based on more subjective factors such as lifestyle decisions and your level of comfort with debt. Answering this question and understanding lenders’ perspectives before you dive into the home buying process can help you find a property you love and make a successful financing application. Here are some factors that lenders consider when deciding how much you can afford.
Monthly Income Influences Your Mortgage Payments
The conventional wisdom says that no more than 30% of your monthly income should be spent on housing. Some experts – and by extension, lenders – look at the 30% ratio for your total debt payments each month. This means that they will look for other debts and take those into account when determining how much you can afford. Do you have outstanding debts such as student loans, auto payments, or credit card debt? It’s important to evaluate whether or not it’s reasonable to pay these off before you apply for a home.
The Big Picture of Your Mortgage Also Matters
The amount of the loan you’re asking for is relevant vis-à-vis the value of the home. What does the home appraise at, versus what are you offering? How much equity can you secure through a down payment? What does your credit score and credit report mean for your interest rate? Each of these factors has a dramatic impact on your total monthly payment and cost of home ownership.
Don’t Forget the Additional Home Ownership Costs
It’s also important to factor in home ownership costs that you’re free of when you’re renting a home. One of the most obvious is taxes, which occur on a quarterly or other regular basis. There’s also home owners’ insurance, and other forms of insurance depending on where you live and what coverage you choose to carry. Additionally, you have to cover utilities that you possibly didn’t pay as a tenant such as heating, water, and sewerage expenses. You’ll also want to have a repair fund available, for unexpected repairs and improvements. Each of these will need to factor into your calculations.
Even if your income isn’t as high as you’d like, your dreams of home ownership in Las Vegas aren’t out of reach. It’s important to know what you can afford. To take the first step, contact Sydnee Johnson Las Vegas Home Loans today to arrange for a personalized consultation.
I provided an overview of second chance mortgages in my blog a couple of weeks ago. For many consumers with a low credit score or a history of bad debt, it’s important to understand what steps you can take prior to applying for a second change loan to increase your chances of success. Recently, I had the opportunity to work with some borrowers I met through Hali’s Angels – Keller Williams Realty group.
Despite being declined three times due to past financial hardships, we were able to work together to document their situation and present a cohesive story that ultimately got them approved for an FHA loan and close the transaction. It was an awesome experience for me to be able to help these people who had experienced so much hardship in their lives. Here are three lessons that I would share with any buyer in a similar situation.
Be crystal clear on your credit situation
If your credit situation is less than perfect, it’s important that you understand your current standing. Get a copy of your credit report from each of the three bureaus, and scour them for inaccuracies. Contact each of the credit bureaus to remove mistakes. Look for debts that you need to pay off, such as accounts that may be in collections. Can you do other things, such as reduce your debt ratio, to improve your score? Be objective when looking at your report and find simple ways to improve your score and overall picture.
Clearly document the source of your issues
In many cases, credit troubles start with a major precipitating event such as a job loss, divorce, or health crisis. Once the issue has been resolved or some time has passed, people get back on track. Other situations might revolve around poor spending habits that improved as you grew older. Whatever the situation is, work with your loan officer to determine the best documentation to show the cause of your issues. For example, problems that extend from a period of unemployment might include letters from past employers showing no fault and letters from your current employer underscoring the stability of your present position.
Focus on documenting your assets and growth
An important part of the package for a second chance loan is showing how you’ve turned things around. Have you managed to secure steady employment? Pay down debts or build up savings? Met all your obligations regularly for a period in time? Discuss options with your loan officer for showing your current stability. Examples might include letters from past creditors explaining that debts are resolved or copies of bank statements and 401ks.
If you’re a home buyer in the Las Vegas area that’s been rejected for a mortgage, don’t lose hope. Call me today at Sydnee Johnson Las Vegas Home Loans to discuss your situation and look at the options available to you.
If you’re a prospective homebuyer with great credit, you may be thinking you won’t need to look far to secure financing for your home purchase. It’s likely that you’re right in that you’ll easily find an institution that’s willing to give you a loan. But are you getting the best deal? Having great credit puts you in a unique position to access the lowest interest rates and the ability to pay down a mortgage quickly. Here’s a closer look at what you need to know about financing for consumers with excellent credit.
Ensure that you still have great credit: After the collapse of the housing market, lender perspectives have changed on credit ratings. Once, a score in the high 600s was considered good enough to qualify for a regular mortgage. Today, credit in the high 700s is what’s required to be considered for good credit deals. Take the time to look at your credit report, address any issues or inconsistencies, and find out where your current scores fall vis-à-vis the market.
Aggressively consider interest rates and other incentives: When comparing mortgage options, look at the loan’s big picture. What is the interest rate? Is the lender offering any incentives, such as reduced closing costs? Are there other costs, related to the closing or to private mortgage insurance (PMI), that vary? What is the lender’s reputation for working with you based on your loan officer’s recommendations and online customer reviews? Make sure that both the institution and the financing vehicle make sense for you.
Look beyond the traditional thirty year mortgage: With interest rates being relatively low and housing prices still in the buyer’s favor, it may be possible to pay off your mortgage faster than a traditional thirty-year, fixed -rate mortgage would allow. Look at the payment structures of shorter-term loans. Many buyers are surprised to learn that with good credit, it’s possible to afford a fifteen year mortgage instead.
Revisit how much house you can afford: Many prospective homebuyers with great credit are surprised by how low their monthly payments and total loan costs will be based on today’s interest rates. In some cases, they’re able to afford a slightly nicer property or more land than they originally envisioned.
Are you a homebuyer in the Las Vegas area that has great credit (or even not so great) and is considering options for a mortgage? Contact Sydnee Johnson Las Vegas Home Loans today to discuss your needs and options for financing your new home today.