What do falling mortgage rates mean for you?

At the start of February, mortgage interest rates dropped to their lowest since 2016.1 Most people know this is good news, but not everyone understands exactly how it may affect them. Here’s a short explanation of the two big ways you may be able to benefit from falling mortgage rates.

Benefit 1: you may qualify for lower payments on a new mortgage

Whether you’re buying a new home or refinancing a current one, the lower your interest rate, the lower your monthly mortgage payment (all other factors equal).

For example, on a mortgage for $200,000, an interest rate of 4.5% (4.643% APR2) would equal a monthly principal and interest payment of $1,013, while a lower interest rate of 3.5% (3.635% APR2) would equal a lower payment of $898.

That’s a savings of $115 a month – or $41,400 over 30 years! The bigger the loan amount and the bigger the difference in rates, the bigger the potential savings.

Benefit 2: you may be able to afford a bigger loan and more home

The lower the interest rate on a new mortgage, the larger the loan you can afford (all other factors equal, once again). For example, a $200,000 mortgage with a rate of 4.5% (4.643% APR2) would have a monthly principal and interest payment that is about the same as a $225,000 mortgage with a rate of 3.5% (3.620% APR2).

Therefore, falling mortgage rates may allow you to buy a bigger home without increasing your monthly payment. The more rates drop, the bigger this benefit may be.

What this means for homebuying

If you’re planning to buy a new home, you picked a very fortunate time to do so. To ensure you can take advantage of today’s low rates, you need to lock in a rate with your lender in case rates increase later. At Draper and Kramer Mortgage Corp., we can lock your rate up to 90 days before your closing if you’re shopping for a home and up to 360 days before closing if you’ve already picked a specific property.

What this means for home refinancing

If you’re planning to stay in your home, it may be worthwhile to refinance your current mortgage. This may allow you to lower your interest rate and monthly payment and take advantage of other benefits such as removing mortgage insurance, getting out of an adjustable-rate loan or taking cash out for college, renovations or other expenses. However, you should weigh these benefits against the closing costs that come with refinancing your loan.

Your next steps

If you’re interested in learning what rate, loan amount and monthly payment you qualify for, get in touch to schedule a free mortgage consultation.

When refinancing an existing loan, total finance charges may be higher over the life of the new loan.

1 Based on the 30-year fixed-rate mortgage average as of February 6, 2020. Source: https://fred.stlouisfed.org/graph/?g=NUh

2 Annual Percentage Rate

Mortgage Rates Remain at Historic Lows

The latest report from Freddie Mac shows that the 30-year fixed-rate mortgage averaged 3.61% last week, slightly down from the week before (3.66%), and nearly 20 points lower than a year ago (3.80%).

This is great news for homebuyers who are dealing with rising prices due to a low inventory of homes for sale in many areas of the country. Freddie Mac expressed their optimism for the rates to remain low throughout the spring in a recent blog post:

“We expect mortgage interest rates to stay well under 4% as we head into the heart of the spring homebuying season. We’re predicting it to be the best one in 10 years, which should provide even greater opportunities for first-time homebuyers.”

Below is a chart of the weekly average rates in 2016, according to Freddie Mac.

Mortgage Rates Remain at Historic Lows | Simplifying The Market

Rates have again fallen to historic lows yet many experts still expect them to increase in 2016. One thing we know for sure is that, according to Freddie Mac, current rates are the best they have been since last April.

Sean Becketti, Chief Economist for Freddie Mac recently explained:

“Since the start of February, mortgage rates have varied within a narrow range providing an extended period for house hunters to take advantage of historically low rates.”

Bottom Line

If you are thinking of buying your first home or moving up to your ultimate dream home, now is a great time to get a sensational rate on your mortgage.

Financing Rental or Multi-Unit Properties

Do you want to have rental income? Do you see the benefit of collecting rental income or owning investment properties. Financing is a bit stringent for straight-up investment properties, but if you plan to live in the property there are some great options available to you!

Single Family Home with Accessory Apartment

This type of property can be financed the same as a Single Family Home with programs such as VHFA or Conventional Financing.  No additional bump in interest rate or in closing costs!  Typically you must live in the house in order to be able to rent out the additional unit as zoning laws can be quite strict.  At our house in Essex Junction, our rental income covers half of our mortgage payment!  What a great way to free up additional money in our budget for investing and saving while having almost the same about of privacy as a single family home.

Owner Occupied Multi Family

Two Unit Purchase with VHFA: If you are a 1st time home buyer (have not had an ownership interest in a property) in the following counties: Addison, Bennington, Chittenden, Grand Isle or Windsor (this requirement is waived in the rest of the state), you may qualify for 5% down payment on an owner occupied 2 unit home.  This program allows for reduced monthly private mortgage insurance and slightly reduced closing costs.   There are income limits on this program. Contact us today and we can confirm your eligibility.

2-4 Unit Purchase with FHA:  Looking to purchase a multi-unit to live in that is 2-4 units or don’t qualify for VHFA? FHA could be a good option for you.  FHA allows purchases of 2-4 unit properties with as little as 3.5% down payment.  A great option to get into a multi-family home with little money out of pocket.  The downside of this program is that you pay an upfront fee as well as a monthly fee.  The monthly costs (including the MI) tend to be a bit higher, but if you are able to get into a multifamily, you’ll have rental income to help pay for the additional cost.

Non-Owner Occupied Multifamily

Traditional financing programs (allows financing of property with up to 4 residential units) require 25% down payment on a non-owner occupied multifamily investment.  You can finance multifamily homes with a conventional loan which grants you the benefit of a long term fixed rate, but there is limit to the number of properties you can have financed with conventional loans.

An experience realtor can help you search for the perfect property to meet your rental income goals!  We’d be happy to connect you to an experienced Realtor!

Tips to plan for homeownership.

Have you been thinking of purchasing a home?  Has the task seemed daunting, not attainable or too scary? We are always here to help you when you need it!

Here are a few tips to help you prepare for this big financial and life move.

1)  Plan ahead.

Meet with a Mortgage Professional to find out where you stand compared to current lending guidelines.  We will check your credit standing, assets and overall affordability.  Our no cost ‘Homeownership Strategy and Coaching Session’ can help you on the road to purchasing a home.  Mortgage lending guidelines don’t always make logical sense, so it is very important to make sure you are on the right track before you find your perfect home!  If you don’t currently meet the guidelines, your Mortgage Advisor can help you make a step by step plan to get where you want to go.  Next all you have to do is execute!

2)  Be realistic.

Sit down and look at your cash inflows and outflows on a monthly basis.  Determine a comfortable monthly mortgage payment including taxes, insurance and any PMI (private mortgage insurance) and then proceed from there to find out what that means in terms of a purchase price.  Our job as mortgage advisors is to set you up for success, but real success comes from knowing what will work for you!

3)  Determine your priorities.

Qualifying for a mortgage can be difficult.  We take a close look at your current financial scenario to see where you might be able to make some changes.  If your debt to income ratio is too high, we will take a look at your current monthly debts and advise you as to what needs to be paid down to make the numbers work.

  • Can you reduce credit card spending and pay down your cards?
  • Do you have a high car loan payment that can be restructured or reduced via trade? 
  • Is your bank account balance too low?  Are you not sure where your money has gone?  Print out your last month of bank statements and add up the totals in the following categories: Housing, Food at home, Food out at restaurant, Entertainment, Gifts, Savings/Investments, Clothing/Accessories, Other spending.  Look at the totals from the last month and ask yourself if your spending aligns with your goals.  If not, make a budget and stick to it.  A great tool for this is Mint.com.  This completely free tool helps you make goals and budgets and stick to them!

4)  Ask.

If you need help ask for it.  We all need help at one time or another and many people are happy to help you out!

We believe homeownership is valuable for our community and economy.  We are here to help you make your next move.

Does 100% financing still exist?

Yes, it does! You can still get 100% financing with two great mortgage programs!

VA Financing
VA financing allows veterans to purchase a home with no down payment-you must have a VA Certificate to qualify.

Rural Development – VHFA or RD
Rural Development also offers a 100% financing option. There are specific property types and location requirements, but overall it is a great way to help borrowers buy a home with little or no money out of pocket. Rural Development allows the seller help to pay the closing costs and has a more flexible credit requirement than traditional mortgage products.

Don’t let cash savings stand between you and purchasing a home. Contact us today instead of waiting years to save up for a down payment.  Remember, in that time, rates and home values will likely rise as today’s record affordability slips away.

We offer a free, no-pressure, one-on-one Homeownership Strategy Session to learn more about these programs and to find out what you can afford. We will help you to create a concrete plan to finance your dream home.

You will leave our appointment with a copy of your credit report, a copy of the Homeownership Strategy and Coaching Session Worksheet detailing where you stand and your next steps and/or with a pre-qualification letter.  If you are looking now, or just starting to plan, when it comes to purchasing a home we can help!

We look forward to finding you the best mortgage product to meet your needs.

How Much Can The Seller Contribute?

It used to be fairly safe to tell buyers that the maximum contribution that a seller could make toward the buyer’s closing costs was 3%. Unfortunately, this is no longer the case. Here’s where we currently stand:

  • FHA is 6% regardless of down payment.
  • Conventional is 3% if the down payment is less than 10%, 6% if the down payment is 10% or more but less than 25% and finally, 9% if the down payment is 25% or more
  • For jumbo loans, if the down payment is less than 20%, the maximum contribution is 3% and if the down payment is 20% or more, the max is 6%.
  • For VA loans, the seller can pay all non-recurring costs and up to 4% for anything else.
  • If you are purchasing investment property, the maximum amount that can be paid is simply 2%.

Many folks are not aware of the last bullet and, often, contracts are written up with excess contributions that need to be corrected prior to loan submission. Keep in mind that these contributions can only be for acceptable closing costs and pre-paid expenses. More on that later.

Financing Rental Properties

Are you thinking about becoming a landlord?   The number one question for prospective landlords is how to finance such a purchase. Typically, non-owner occupied one through four unit properties are considered ‘conventional’ loans by most Lenders, while five plus units are considered ‘commercial’.  Conventional one to four unit properties are often much easier to finance. However, due to the recent financial and credit ‘crunch’, one and two unit investment properties now require a minimum 20% down payment by most lenders.  Three- four unit properties typically require a 25% down payment. The Lender will determine the risk involved in acquiring rental property by looking at the buyer’s personal finances and the projected rental income.  However, if you don’t have landlord experience, many lenders will require you to qualify without using rental income. Finally, lenders will want to make sure that the borrower has sufficient reserves to handle contingencies, such as repairs, maintenance, and taxes and insurance.

Low Cash, High Expectations

If you are saving for a new home, you may feel that it will take you forever to come up with the cash necessary for the down payment and closing costs. Before you delay your purchase any longer, make sure you check into the latest low down and no down mortgage products. You may find that your dream is much closer to a reality than you imagined.

If you have acceptable credit and a steady job, you may not need a lot of cash to purchase a home. Some loan programs still allow you to put as little as 0 down if you are a veteran or are buying in an area designated as ‘rural’ by the USDA.  For example, in Vermont, the Vermont Housing Finance Agency (VHFA) still offers a 100% financing program when combined with Rural Development’s mortgage insurance.

If you are a veteran you can also obtain 100% financing through the VA’s loan program. If you don’t meet the above criteria you can purchase with as little as 3.5% down using Federal Housing Administration (FHA) financing and all of this money can even be a gift from family.

By doing a pre-purchase credit check you can verify if you qualify for any of these programs or if you need to work on resolving any credit problems before you begin your search for a home. Buyers who thought they were years away from the purchase of a home are often pleasantly surprised to find that they don’t have to wait to begin their search.

How to Maximize Your Credit Scores

Did you know that nearly 40% of all borrowers have a credit score that is too low to obtain traditional mortgage financing? The good news is that Mortgage Financial now has a system in place that allows borrowers to obtain a step-by-step outline on how to maximize their credit scores. This tool can be useful to bring a buyer into the range that is acceptable for financing or, as importantly, improve their score to where they can save on their rate and or costs (i.e. A 660 Fico score vs. 740 score can be .50% higher in rate or 5k in additional points). Although this system can be used to improve scores in as little as 1 week, ideally we would like to have 30-60 days.

If you would like to improve your scores before you buy or refinance, simply contact me for a free consultation. I will make sure you will receive the info you need to effectively maximize your scores.

Are You Confused By Credit Scores?

Credit scores still confuse and frustrate many consumers, according to a study by the Consumer Federation of America.

“Despite all the news coverage about credit scores over the past year or so, many consumers still do not understand important facts about these increasingly influential numbers,” said Stephen Brobeck, CFA’s executive director.

To provide consumers with basic information about credit scores, CFA and Fair Isaac Corporation (developer of the FICO credit score) have prepared a brochure that is being distributed by the Federal Citizen Information Center.  The brochure contains the most important information about the score most mortgage lenders and other businesses use, including what factors influence its rise and fall and how consumers can get their own scores.

To obtain a copy of the brochure, titled “Your Credit Scores,” contact the Federal Citizen Information Center at 1-888-878-3256 or online at: www.pueblo.gsa.gov.

Another great source of info is www.myfico.com. This site is loaded with consumer information and tools to help you better understand, and improve, your credit scores.  Accessing your personal score and learning how to improve it can put you in a much stronger position to obtain the best possible mortgage.