The question that I have heard most over the last year echoes in my mind, “Is now a good time to buy a home?” My unequivocal answer is yes, but let me explain why I believe now to be a great time to buy.
The first and foremost reason is low interest rates. Borrowers can maximize their buying potential today, unlike any other time in modern history. Rates today are in the 4.0%-4.375% range for a 30 year fixed rate mortgage. At 4%, as opposed to 6%, on a $200,000 loan you will save $88,000 in interest over the life of your loan. That does not even take into consideration using the monthly savings (about 20%) to pay additional towards your mortgage each month to pay off your home early.
If you look at the difference in buying power, you can look at over a $250,000 house today for the same payment that a $200,000 house will cost you monthly; when rates rise back to 6%.
Secondly, home prices are very attractive. Many studies seem to indicate that we have reached the floor in home values. Some studies point to average home sale prices being comparable to 2003 values; this reflects a 30% drop in home values since June of 2006. While home prices vary from state to state, buyers are still able to find great deals and many foreclosed properties are still on the market.
While foreclosed properties appear very attractive based on their price, buyers should avail themselves of qualified professionals to evaluate the property. Many foreclosures suffer from deferred maintenance and may have problems that are far worse than they appear. Speak with a licensed contractor and obtain estimates on repairs during your evaluation process. While the price may seem attractive, repairs often push the property above the average sales price of similar properties on the market.
First Time Buyers and those currently renting benefit most of all from the current conditions, because they don’t have a property to dispose of at present. Many current homeowners’ have shown reluctance to take advantage of historically low rates, because of fear of selling their current home. This is a conversation to have with a Licensed Realtor. They can do a CMA (Comparative Market Analysis) of your home to determine a reasonable list price.
All in all, now is a great time to look at increasing your buying power in the real estate market. Low interest rates, coupled with low home prices, maximize your buying potential, allowing you to consider the home of your dreams.
© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Showing posts with label rates. Show all posts
Showing posts with label rates. Show all posts
Friday, September 2, 2011
Friday, June 10, 2011
Adjustable Rate Mortgages (ARM's) Still Have a Purpose
Recently, I recommended one of my customers close on an Adjustable Rate Mortgage (ARM) and they will save approximately $30,000 over a similar fixed rate loan. I don’t recommend ARM loans for most borrowers, but there are still instances where it saves customer’s money and may be their best option.
In this particular situation, the borrower had not listed their current home for sale, but wanted to take advantage of an excellent deal they found on a new home. Because of carrying both mortgages, their ratios were too high on a fixed rate product to allow them to qualify. Since their intent is to sell the other home, the 7 year ARM (fixed for the first 7 years of the loan) gave them a lower payment on the purchase and got their ratios in line. Once their other home is sold, they will more than qualify for a either a fixed 30 year loan, or the 15 year that they prefer.
During the 7 year period before the loan adjusts, they are saving approximately $32,000 over what another bank had offered them on a fixed rate. That savings will allow them to refinance to a 15 year loan with an even lower monthly payment, because of increased equity they have built up in the property.
In the past, many lenders have used ARM’s to allow borrowers on fixed incomes to buy too much house. The adjustment periods were for one to three year periods that really did not allow the borrower to build equity in their home. In many of those instances, the borrower may not have even understood the terms and conditions under which the loan would adjust. With the right borrower, and their understanding of the product, ARM’s still have a purpose and can help you build equity in your property.
© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
In this particular situation, the borrower had not listed their current home for sale, but wanted to take advantage of an excellent deal they found on a new home. Because of carrying both mortgages, their ratios were too high on a fixed rate product to allow them to qualify. Since their intent is to sell the other home, the 7 year ARM (fixed for the first 7 years of the loan) gave them a lower payment on the purchase and got their ratios in line. Once their other home is sold, they will more than qualify for a either a fixed 30 year loan, or the 15 year that they prefer.
During the 7 year period before the loan adjusts, they are saving approximately $32,000 over what another bank had offered them on a fixed rate. That savings will allow them to refinance to a 15 year loan with an even lower monthly payment, because of increased equity they have built up in the property.
In the past, many lenders have used ARM’s to allow borrowers on fixed incomes to buy too much house. The adjustment periods were for one to three year periods that really did not allow the borrower to build equity in their home. In many of those instances, the borrower may not have even understood the terms and conditions under which the loan would adjust. With the right borrower, and their understanding of the product, ARM’s still have a purpose and can help you build equity in your property.
© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Friday, May 13, 2011
30 Year Loans As Low As 3.375% - Are They Real?
Customers call me all the time and say: “Hey, I saw a 30 year loan advertised by another lender for 3.375% on TV, are your rates that low?” The fine print at the bottom of the screen tells you it is an Adjustable Rate Mortgage (ARM), and yes we have rates that low.
ARM’s have a place for qualified buyers who understand the risk and can afford the adjustment; when it comes. Conventional ARM’s come in 3, 5, 7, and 10 year options and vary in rate. Right now, those products can be a very attractive alternative to a fixed rate and they are amortized over the 30 year life of the loan. Fixed rates today are about 4.625%, while a 5 year ARM is 3.375% and a 7 Year is 3.75%, almost a full point savings to the interest rate.
ARM’s are not products designed for borrowers in fixed income positions, or jobs with little opportunity for advancement or pay increases, because the rate will go up and if you cannot refinance you are stuck with a payment you may not be able to afford. Borrowers with reserves in the bank and with increased earning potential may want to look at an ARM as a way to maximize their home investment.
By making extra payments to the principal amount of the loan during the fixed period of your ARM, you reduce the amount that you will need to refinance when your rate increases. Remember that rates at the current time are at historically low levels and if you cannot afford a fixed rate today, you may have difficulty making your payment when that rate adjusts in the future.
A borrower who locks in to the lower adjustable rate now, but makes payments based on the fixed rate monthly amount, could reduce their principal balance and save $20,000-$30,000 in 5-7 years. Then when the rate is schedule to adjust, they can refinance a lower balance amount and still have a lower monthly payment because of the over payment for the last 5-7 years.
Your lender should be having these candid conversations with you at the time of your application, but if it doesn’t make sense to you, it probably isn’t the right loan to consider. If your lender is “pushing” an ARM because it will help you buy more house or have a lower payment, they may not be doing you a favor. Always deal with a reputable lender that is working for your best interest and not just to get “the deal.”
© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
ARM’s have a place for qualified buyers who understand the risk and can afford the adjustment; when it comes. Conventional ARM’s come in 3, 5, 7, and 10 year options and vary in rate. Right now, those products can be a very attractive alternative to a fixed rate and they are amortized over the 30 year life of the loan. Fixed rates today are about 4.625%, while a 5 year ARM is 3.375% and a 7 Year is 3.75%, almost a full point savings to the interest rate.
ARM’s are not products designed for borrowers in fixed income positions, or jobs with little opportunity for advancement or pay increases, because the rate will go up and if you cannot refinance you are stuck with a payment you may not be able to afford. Borrowers with reserves in the bank and with increased earning potential may want to look at an ARM as a way to maximize their home investment.
By making extra payments to the principal amount of the loan during the fixed period of your ARM, you reduce the amount that you will need to refinance when your rate increases. Remember that rates at the current time are at historically low levels and if you cannot afford a fixed rate today, you may have difficulty making your payment when that rate adjusts in the future.
A borrower who locks in to the lower adjustable rate now, but makes payments based on the fixed rate monthly amount, could reduce their principal balance and save $20,000-$30,000 in 5-7 years. Then when the rate is schedule to adjust, they can refinance a lower balance amount and still have a lower monthly payment because of the over payment for the last 5-7 years.
Your lender should be having these candid conversations with you at the time of your application, but if it doesn’t make sense to you, it probably isn’t the right loan to consider. If your lender is “pushing” an ARM because it will help you buy more house or have a lower payment, they may not be doing you a favor. Always deal with a reputable lender that is working for your best interest and not just to get “the deal.”
© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Friday, June 18, 2010
When Should I Refinance?
A friend asked me the other day, “When should I refinance?” That is a question that I hear quite frequently and as a lender it really is not a simple answer. The best answer that I can give is know your lender and talk thoroughly about your situation.
There are several questions to ask yourself; the first one being “How long do I/we plan to be in this house?” If you intend to move, and sell your home, in 2-3 years then refinancing is not a good idea. If you intend to move, but want to keep this property as an investment and convert it to a rental property then you should still consider refinancing.
The second question is does it make sense financially? Many people tell me that it doesn’t make sense to refinance because they can’t lower their rate by 2%. You aren’t looking at how much you drop your rate, but how quickly you can recover the investment. About two years is the amount of time is should take to recover the cost of a refinance by what you save each month. If it takes longer than that, then ask yourself honestly, “How long will I be in my home?” If you intend to live there until you die, a refinance makes much more sense.
Are you currently paying mortgage insurance? Mortgage Insurance (PMI) occurs whenever you borrower more than 80% of the value of your home. If you bought a home for $200,000 and put $20,000 down, then you started with a 90% loan to value ratio. Once you pay down the principal balance to 78-80% of the original sales price (or appraised value whichever is lower) the Mortgage Insurance will automatically be removed from your payment. Let’s assume that your current balance is about $168,000 that would put you at an 84% loan to value. Even in today’s economy, it may be possible for you to get an appraisal on your home of $210,000. That would mean that if you refinanced and paid your closing costs, you could eliminate the PMI. Eliminating the PMI may make it worthwhile; even at the same rate. Appraisals are a huge part of the refinance transaction in today’s market. Most homes (at least in Knoxville) are worth more today than what someone paid for them 5 years ago. How much more depends on the neighborhood and the condition of the home.
What is the rate that makes sense for your situation? Available rates cover a wide range based on cost and credit score. For instance, Conventional 30 year rates are available today from 4.25% to 6%. Trust me, no one comes into my office and says, “I want the 6% rate.” The truth of the matter is that it costs money to borrow money and the lower your rate, the more you pay in fees. If it costs you .005% to drop your rate .125% it probably is not worth it unless you intend to stay in the property for over five years. On a $100,000 loan, dropping your rate from 4.75% to 4.625% saves you $7.50 per month. If it costs you half a point (.005%) to get the lower rate that is $500 in fees. If you divide $500 by $7.50 per month savings, it takes you over 5 years (66 months) to recover the cost of the lower rate. If you move in 5 years, you actually lost money.
When should I refinance is a personal question that deals with many options and decisions that you as an individual (or family) need to sit and discuss with your lender. Your lender should take the time to show you options and discuss whether or not it makes sense to you to refinance. My door is always open if I can help you work through your questions.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
There are several questions to ask yourself; the first one being “How long do I/we plan to be in this house?” If you intend to move, and sell your home, in 2-3 years then refinancing is not a good idea. If you intend to move, but want to keep this property as an investment and convert it to a rental property then you should still consider refinancing.
The second question is does it make sense financially? Many people tell me that it doesn’t make sense to refinance because they can’t lower their rate by 2%. You aren’t looking at how much you drop your rate, but how quickly you can recover the investment. About two years is the amount of time is should take to recover the cost of a refinance by what you save each month. If it takes longer than that, then ask yourself honestly, “How long will I be in my home?” If you intend to live there until you die, a refinance makes much more sense.
Are you currently paying mortgage insurance? Mortgage Insurance (PMI) occurs whenever you borrower more than 80% of the value of your home. If you bought a home for $200,000 and put $20,000 down, then you started with a 90% loan to value ratio. Once you pay down the principal balance to 78-80% of the original sales price (or appraised value whichever is lower) the Mortgage Insurance will automatically be removed from your payment. Let’s assume that your current balance is about $168,000 that would put you at an 84% loan to value. Even in today’s economy, it may be possible for you to get an appraisal on your home of $210,000. That would mean that if you refinanced and paid your closing costs, you could eliminate the PMI. Eliminating the PMI may make it worthwhile; even at the same rate. Appraisals are a huge part of the refinance transaction in today’s market. Most homes (at least in Knoxville) are worth more today than what someone paid for them 5 years ago. How much more depends on the neighborhood and the condition of the home.
What is the rate that makes sense for your situation? Available rates cover a wide range based on cost and credit score. For instance, Conventional 30 year rates are available today from 4.25% to 6%. Trust me, no one comes into my office and says, “I want the 6% rate.” The truth of the matter is that it costs money to borrow money and the lower your rate, the more you pay in fees. If it costs you .005% to drop your rate .125% it probably is not worth it unless you intend to stay in the property for over five years. On a $100,000 loan, dropping your rate from 4.75% to 4.625% saves you $7.50 per month. If it costs you half a point (.005%) to get the lower rate that is $500 in fees. If you divide $500 by $7.50 per month savings, it takes you over 5 years (66 months) to recover the cost of the lower rate. If you move in 5 years, you actually lost money.
When should I refinance is a personal question that deals with many options and decisions that you as an individual (or family) need to sit and discuss with your lender. Your lender should take the time to show you options and discuss whether or not it makes sense to you to refinance. My door is always open if I can help you work through your questions.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Saturday, May 22, 2010
What About Second Homes?
I want to buy a second home in a couple of years; what can I expect about financing? Several customers lately have talked to me about buying a second home. Now may be the best time to take the plunge.
The housing market for second homes is wide open and rates are fantastic. Markets at the beach and in the mountains (Gatlinburg, TN) have great opportunities for buyers to get into the market at a reduced price. Over the last several years, marginal buyers have been encouraged to enter the second home market in resort areas; being promised by real estate management firms that these properties would cash flow themselves. This may not have been unrealistic when buyers bought into the market, but during the summer of 2008 we saw gas prices at $4.50 per gallon.
This rise in travel costs had the affect of creating an oversupply of rental properties in resort areas. Marginal buyers, those who had to have the rental income to afford the payments, couldn’t survive a slight downturn in the market. As high gas prices turned into a “downturn” in the economy these marginal buyers could not afford to keep up with the payments. This accounts for high foreclosure rates in these resort areas. That high foreclosure rate creates opportunities for new buyers in the marketplace.
For the moment, second home financing is being treated like a primary residence for the most part. Rates are still very attractive and borrowers can get into the market with low down payments. So if you, or someone you know, have thought about getting a second home, now is the time to discuss it with your lender.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
The housing market for second homes is wide open and rates are fantastic. Markets at the beach and in the mountains (Gatlinburg, TN) have great opportunities for buyers to get into the market at a reduced price. Over the last several years, marginal buyers have been encouraged to enter the second home market in resort areas; being promised by real estate management firms that these properties would cash flow themselves. This may not have been unrealistic when buyers bought into the market, but during the summer of 2008 we saw gas prices at $4.50 per gallon.
This rise in travel costs had the affect of creating an oversupply of rental properties in resort areas. Marginal buyers, those who had to have the rental income to afford the payments, couldn’t survive a slight downturn in the market. As high gas prices turned into a “downturn” in the economy these marginal buyers could not afford to keep up with the payments. This accounts for high foreclosure rates in these resort areas. That high foreclosure rate creates opportunities for new buyers in the marketplace.
For the moment, second home financing is being treated like a primary residence for the most part. Rates are still very attractive and borrowers can get into the market with low down payments. So if you, or someone you know, have thought about getting a second home, now is the time to discuss it with your lender.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
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