The Best Times to Buy, Sell and Refinance

buy sell refinanceIf you’re at all interested in what’s going on in the housing market, then you’ll likely be considering when to either buy, sell or refinance an existing mortgage. Depending on where mortgage rates are heading, it could either be a good time to buy, sell or refinance.

When to Refinance

The best time to refinance is either when rates are remaining the same or when they are dropping. Depending on when you purchased your home, the interest rate on your mortgage may be higher than the historic lows of the past several years. If that is the case, then there are many strong incentives to refinance.

The general rule of thumb is that if you can shave off at least 1 percentage point on your interest rate with a refinance, then it’s worth it to refinance. Interest rates have been just above 4% on 30-year fixed rate mortgages for a good amount of time.

What’s important to keep in mind also is where rates are likely to be heading. Most mortgage experts expect rates to climb in the second half of the year. The Federal Reserve’s decision to tapper its bond buying program has a lot to with this. This means that in some sense the window of time for many homeowners to refinance is closing.

Another important factor in determining when to refinance is the nature of the interest rate that you have on your loan. Variable interest rates can change with market conditions and therefore can be risky. You should ask yourself whether you will be able to continue making mortgage payments if your rate were to go up significantly. It may be worth your time to switch to a low 30-year fixed interest rate so that even if rates go up in the future your payments won’t be affected.

When to Buy or Sell Your Home

Falling or stagnant interest rates also indicate a good time to sell or buy a new home. A borrower’s buying power has been historically strong at times when rates either remain the same or are dropping. However, this assumes that you have good credit and are therefore able to qualify for a low interest loan.

If, for example, you want to buy a house for $300,000 with a conventional loan at 20% down on a 30-year fixed interest rate at 4% this would cost you %1,145.00 per month. Should you wait for an extended period of time when rates are hovering around 6% then your monthly payments would go up nearly $300. Over the course of one year alone, that’s nearly an extra $3,600.

What you should also consider is where home prices are heading. If you own a home in a large metropolitan area, then chances are you’re in luck if you want to sell. Home prices have been on the rise in many areas of the country. But there are some less densely populated cities where home prices have actually fallen. If you want to know approximately what your home is worth, try to find similar homes where you live and see what they are selling for.

Home Prices up 7.5% for the Year

home prices rising againAccording to a price index by CoreLogic, homes prices are up 7.5% in 2014 for the month ending in June.

However, this is actually a decrease from where prices where one year ago. Last year at this time home prices were at a 7 year high and had advanced 11.4% on a year-over-year basis. The slowdown in home prices is partially due to the sale of homes that are in foreclosure.

Foreclosed homes typically sell for less and thus reduce the average selling price of other homes in a given area. For example, when the sale of distressed properties rose sharply in 2009, home prices fell dramatically.

Good News for Buyers

The slowdown in home prices is good news for news for new buyers looking to enter the market. Last year buyers witness a sharply increase in home prices as well as mortgage rates. This came at the same time that wages remained stagnant for many workers. Paychecks for the average worker rose about 2% per year since the recession ended. This is about the same rate as inflation.
So, if you were one of the millions of people who was priced out last year because home sales were too high, now is an excellent time to reconsider buying a home. If you’re selling your home it may be worth holding onto it for a while longer.

Even if you’ve already purchased your home years ago, the drop in mortgage interest rates can still work in your favor. Refinancing to a new low rate can end up saving you thousands of dollars in interest payments over the life of your loan. Whether you’ve taken out a VA loan, FHA loan or conventional loan, there is likely a way for you to cut down your mortgage interest rate.
Closing costs remain low at many mortgage banks and there are still a number of places that are quoting interest rates in the 3% range. If it’s been a while since you’ve refinanced or you shave off at least 1% point from your interest rate, then it’s absolutely worth looking into a refinance loan.

The good news is that the qualifications for refinancing have gotten lower and lower over the years. If you’re unable to get traditional refinancing currently because the value of your home has declined, then you may be eligible to refinance through programs like the Home Affordable Refinancing Program (HARP).

Of course, if you’re looking to buy a home, not all areas of the country have been affected equally by the general decline in home prices. Some areas have seen the values of the homes actually rise. Areas in the southern part of California have seen an increase in home prices. If you find yourself in this situation, then you may be eligible for more conventional forms of refinancing.
Check with your local mortgage lender to find out how much you could possibly save by refinancing. You may very well lower your payment amount, shorten the duration of your home loan or potentially do both at the same time.  

New Report by Freddie Mac Shows Promise for Mortgage Refinance

new harp opportunitiesA new report by Freddie Mac showed that borrowers will save more than $1 billion over the coming year.

These borrowers were able to save money and often shorten their payment terms. In fact, of the borrowers who refinanced during the second quarter, 40% of them of them were able to shorten the duration of their loans. Now is an excellent time to consider saving money on a home loan and potentially shorten the duration of your loan at the same time.

Frank Nothaft, Freddie Mac VP and chief economist, had this to say. “The housing market realized a significant shift in the second quarter of this year as refinance activity fell below 50 percent marking the onset of the first purchase-dominated market the industry has seen since 2000 and an end to the refinance boom that started in late 2008. In this time we saw fixed mortgage rates hit all-time lows, with the 30-year fixed-rate mortgage falling well below 4 percent. We also estimate over 25 million American borrowers refinanced their loans to the tune of over $70 billion in total interest payment savings.”

What People Are Doing With Their Home Mortgages

A substantial portion of the refinancing from these mortgages came from cash out refinancing. It has been estimated that around $7.8 billion dollars in home equity was cashed out during the second quarter of 2014.

One of the reasons that this is happening is that people are building more and more equity in the homes as the economy and housing market improve. Overall, the United States economy grew by 4.1 trillion over the last two years.

How People Are Saving Through Refinancing

On average homeowners have been getting their interest rate reduced by 1.4% points. Over time this translates into roughly a 24% savings in interest payments over the life of a loan. Those who choose to refinance through HARP were able to save on average 1.6% off of their current loan. For the average borrower this translates into a savings of about 3,200 in interest payments during the first year.

If you took out a home loan before 2008 then there is a very good chance that you could potentially save quite a bit of money through strategic refinancing. Of course, in order to benefit from refinancing programs like HARP you must first be eligible for them. According to the official HARP website, you need to meet all of the following criteria in order to be able to refinance:

– The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.

– The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009

– The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.

– The current loan-to-value (LTV) ratio must be greater than 80%.

– The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.

How to Get the Lowest Rate on Your Home Loan

lowest rate howThe interest rate you get for your home loan will determine how much you pay in interest over the entire life of your loan.

Even small fractions of a percentage can add up thousands of extra dollars in interest payments. Whether you’re applying for an FHA loan, a VA loan or a conventional loan there are steps you can take to get your lender to offer you a lower rate.

One Quick Trick to Get a Better Rate

FHA guidelines require borrowers to have credit scores of at least 500. Mortgage applicants with a credit score of less than 500 will be unable to get an FHA backed mortgage. However, even if you qualify for an FHA loan, a VA loan or a conventional loan backed by Fannie Mae and Freddie Mac this doesn’t mean you’re guaranteed the best rate.

For example, a mortgage applicant looking for an FHA loan whose credit score is 680 will get a much better rate than an applicant with a credit score of 580. In many cases such an applicant could get a rate ½ percentage point lower than the borrower with a lower credit score.

According to the Federal Trade Commission, one out of every four credit reports has errors which may negatively affect the mortgage rate offer they’ve received from a lender. Consequently, millions of borrowers are needlessly paying a higher interest rate than what they deserve.

To get the rate that you deserve it is essential to obtain a copy of credit report and check it for errors. Correcting a mistake on a credit report can raise your credit score by as much as 100 points or more. In fact, many lenders will give you free access to your credit report as part of their rate quoting process.

Getting a Lower Rate with Conventional Loans and VA Loans

It is possible to pay less interest with conventional loans simply by making a larger down payment. For example, if you’re buying a condominium you can gain access to lower mortgage rates simply by paying 25% down instead of the 20% that many buyers put up. This could possibly be an attractive option if you’re able to afford the extra money down.

VA loans are unique in that the rates offered don’t change with high or low credit scores. Veterans are able to save money on their VA loan through VA streamline loans. These are no verification refinance loans which can give the borrower access to better mortgage rates.

With this type of loan the VA wives the typical documentation requirements that most lenders look for when they’re refinancing a home loan. This includes W-2s and bank statements as well as the need for a home appraisal. The only thing that VA requires for getting access to the loan is that it has a tangible benefit for the borrower.

No matter what type of loan you have, there is likely a way that you can save money on your loan by getting a better rate. It’s often simply a matter of finding the right lender who is willing to work with you.

When to Consider Refinancing For a Second Time

second time refinanceAs mortgage rates for 30-year home loans slowly climb higher, now is a good time to stop and think and think about refinancing or re-refinancing that mortgage you’ve taken out.

Refinancing can not only save you money off your monthly payments, it may also shorten the duration of your home loan. In some cases, it may be possible to accomplish both of these goals at once.
Millions of people have already taken advantage of programs like (HARP) the Home Affordable Refinancing Program to save a lot of money off of their mortgage. Some may even be thinking about the refinancing a second time. It doesn’t always make financial sense to refinance a home loan two or even three times, but it can if you know what to look for.

The Best Time to Refinance Once More

To state the obvious, refinancing only makes sense if it’s going to save you money or put you in a better financial situation. You only save money through refinancing if the rate at which you’re refinancing too is lower than the rate you currently have. For example, refinancing from 6% to 4.5% is going to make a huge difference in how much you pay in the long term.

Of course, some refinancing options may shorten the duration of a home loan and make monthly payments larger. In this situation, however, the homeowner would still be saving money in the long run because they would be paying less money over time in interest.

So, even if you’ve refinancing only a year ago, it will most likely to make sense to refinance again and lock in a low rate if interest rates are falling. For the time being, that simply isn’t happening though. Interest rates are at best remaining stable or slowly going up. This means that most people who have refinanced in the last 2 years will likely have lower rates on their home loan than is currently being offered on the market.

When Refinancing May Not Make Sense

Refinancing isn’t free so being strategic about when to refinance is always important. There is a certain point at which it no longer makes sense to refinance because you will actually be spending more on closing costs and other fees than you will be saving.

The general rule of thumb is that refinancing only makes sense if you can drop the interest rate on your home loan by at least 1%. But there are sever other factors that you may want to consider. Among these factors is how long you plan on staying in the home that you’re refinancing for.

Here is one way for you to determine whether refinancing will make sense. First, find the difference between your old mortgage costs and what you’ll be paying after refinancing. If you pay $1000 now and will pay $900 after refinancing then this number will be $100. Second, divide the closing costs of your new loan by the monthly savings. This will give you an idea of how long it will take before you break even. If you only plan on being in a house for another 3 years, but it will take you 4 years to break even, then refinancing obviously wouldn’t make sense.

When to Use a Home Equity Line of Credit

when helocWith more Americans slowly building up equity in their homes, home equity lines of credit are beginning to look more appealing as a loan option.

Home equity lines of credit (HELOCs) work much like a credit card. The borrower is allowed to take out a certain amount and as the principal of the loan is paid back that amount of credit becomes available for use once more. Suppose, for example, that you take out a HELOC for $5000.00. If you take out $3000 and pay back $2000 then you still have an available $4000 worth of credit.

What You Should Use a HELOC For

HELOCs are like any other type of loan in that they will eventually have to be paid back. The interest rate on the loan is usually variable meaning that it can fluctuate with market conditions. Keep in mind that there is no way to predict when the interest rate on the loan may go up.

Accordingly, the most financially beneficial way to use a HELOC is to take money out and then immediately pay it back before an interest charge can be incurred. This will not only build up your credit over time, it will save you from potentially paying thousands of dollars in interest cost.

Ideally, the majority of the purchases that you make with money from a HELOC should improve your financial standing. In other words, you can ask yourself whether a certain purchase is likely to make you better or worse off financially. Items such as work tools or cars are often necessary to get by and do one’s job. These sorts of things will eventually need to bought one way or another and could thus broadly fall into a category we’ll call ‘necessary expenses.’

What You Probably Shouldn’t Use A HELOC For

Necessary expenses can improve your standing financially and help you get by in order to make even more money. Unnecessary expenses, by contrast, can eat away at your savings and make it more likely that you will not be able to pay back all of your debt. Using a HELOC to fund the downpayment on luxury cars or designer clothing can be problematic. Living above your means will eventually catch up with you.

There will be times in your life when you’ll need emergency funds in order to keep going. This might be medical bills or payments to fix a car that isn’t working. In one way or another, you’ll eventually need money to get through some sort of emergency. And the more debt that you take on the harder it will be to save in the long run.

In addition, using a HELOC to fund unnecessary items can be expensive. The interest rate on HELOC can vary and even making the minimum payments can get to be overwhelming on a sufficiently large HELOC. Not only will it likely be expensive to make these payments over time, it will also hurt your credit score. This affects your ability to get new loans and can make the entire process of borrowing more expensive in the future.

FHA Streamline Refinances Can Lower Your Monthly Mortgage Payment

fha refinance streamlinedThe FHA has made it easy to reduce your mortgage interest rate and lower your monthly mortgage payment using an FHA Streamline Refinance program. This loan program is designed for homeowners with an existing FHA mortgage loan that is in good standing. Since the FHA already owns the mortgage loan, the process is simple and faster than a traditional refinance.

Call an FHA approved mortgage lender to get started. Only certain mortgage bankers are able to issue FHA loans so ask this question first, before completing the application. During the application process, they will ask the standard questions like how long you have lived in your home, where you work, how much money you make, and what assets you have. This information is all documented on the loan application but since it is a streamline refinance, the information is rarely verified. This makes it possible for people to lower their interest rate without worrying about employment or income verification. As an added benefit, credit is also not a factor in whether or not you can obtain the refinance. The underwriter will look to see if you are making your mortgage payments on time and use that as a determining factor as to whether or not you are likely to continue making payments on time in the future.

The FHA Streamline Refinance loan program is essentially a no credit, no asset, no income, and no employment loan because these aspects are not verified. If you have an existing FHA loan and have been making payments on time, the FHA believes that you will increase your ability to make on time mortgage payments by reducing the interest rate. This is a logical approach to making homeownership affordable. If you or your spouse has had their hours cut back at work or you recently had a credit issue, this is the best option for lowering your mortgage interest rate.
Many homeowners are still concerned about the value of their home and how it will turn out in an appraisal. Home values have been increasing over the past two years, but not enough to give everyone positive equity again. The FHA Streamline Refinance does not require an appraisal, so it doesn’t matter if you are upside down in your home. This is a straight interest rate reduction loan, so the value of the home doesn’t impact the process. Not obtaining an appraisal also saves homeowner’s time and money throughout the refinance process.

In order to use this program, you must be interested in simply lowering your interest rate or switching from an adjustable rate mortgage (ARM) to a fixed rate loan. The FHA needs to see that there is a clear benefit to refinancing. If you are looking to obtain cash out, you will not qualify for a streamline refinance. You can, however, refinance your existing FHA mortgage then apply for a home equity loan or line of credit at a later date. To find out exactly how much you can save, contact your mortgage banker today.

How to Get a Low Mortgage Rate on Your Home Loan

home loan low rateIf you are shopping for a low mortgage rate, there are ways to make sure that you get the best deal possible. It starts by understanding how lenders determine interest rates and making sure that you are in the ideal position to receive a low one. Aside from market conditions, which are beyond any one person or lenders control, there are things you can do to get the best interest rate possible.

Here are specific things that will make your mortgage interest rate either go up or go down.

Credit Score

If you have excellent credit that is over a 740 FICO score, you may qualify for a rate discount because you are perceived as a lower risk than someone with average or poor credit. If your credit is 680 or higher you are typically considered having good enough credit to qualify for the advertised interest rate. As your credit score drops below 680 you may be hit with additional rate bumps for every 20 points you lose to your credit score. Each lender is different, but this is a general rule of thumb. By improving your credit score to above 680, you will have the best chance of securing the mortgage loan you want at the interest rate you want.

Occupancy Status

When you get a home loan on an owner occupied property, you will get a better interest rate than if it is for a rental property. This is because mortgage lenders view rental properties as being a greater risk. For example, if you were to face financial difficulties it is more likely that you would pay the mortgage where you live over a rental property. If you want a low interest rate buy the property and live there for a while before you turn it into a rental.

Loan to Value

Your loan to value is the difference between how much your mortgage is and the value of the property. For example, if you owe $160,000 on a home that is valued at $200,000 your loan to value would be 80 percent. There are financial advantages to owing 80 percent or less on your home in that you don’t have to pay private mortgage insurance. You will also qualify for a low mortgage rate. Many lenders will give you an interest rate discount the lower your loan to value is. This is an incentive to pay down your mortgage balance when refinancing or give a larger down payment on your home purchase.

Loan Amount

A conforming loan is anything under $417,000. If you buy a home and need a jumbo mortgage to finance it, there will be a rate increase. If you have excellent credit and have a decent down payment, the rate increase may not be significant. If you are debating on the size of the house to get you should speak with your mortgage lender about the differences between jumbo mortgage rates and conventional mortgage rates and how it will impact your payment.

To learn more about how you can secure a low mortgage rate call your local mortgage lender today.