Mortgage FAQs

Below, we are going to take a look at some of the most frequently asked questions about mortgages and mortgage refinance.

How are mortgage refinancing advisors able to provide no closing costs?

There are a number of different ways that mortgage advisors are able to provide no closing costs. For some, it is because they roll these costs into the cost of the loan, making it technically appear like there are no closing costs when you’re still really paying for them anyway!APR Vs. Interest Rate

However, the best mortgage advisors don’t do this. Instead, they will use their commission to cover the closing costs. So, doesn’t that mean they are losing money? Well, yes; they make less per each mortgage refinance deal. Nevertheless, they prefer to take this approach in the hope that they will satisfy their clients, earn a good reputation, and secure more deals through word-of-mouth referrals. It’s about having those small wins on a regular basis.

A good example of this is Brad Boden. This is the sort of structure he works with. He uses his commission from the loans he sells off in order to pay the closing costs. He prefers to hit those small margins and give more back to his clients, and then he will secure more business in the future because he is able to offer this. It’s always important that a Chicago mortgage broker is honest and transparent about how they work.

Additional Read: How To Score The Best Refinance Rate 

If you’d like to personally work with Brad so he can help you through the complicated loan process please visit BradBoden.com

Will rates stay low or will they increase in the near future?

The current state of the economy indicates that the mortgage rates are going to stay low. Of course, no one has a crystal ball, and so it is impossible to predict the future. Nevertheless, at the moment rates are extremely low, and the last thing the government is going to want is for mortgage rates to increase during a recession period.

Because of this, there really is no better time to purchase a property or to refinance your current mortgage deal than now. Once the dust settles, if you are in a position to do this, it would certainly be a wise decision on your part.

Additional Read: An Update To The Rate Market For You

What is pre-approval?

Before you start looking for your dream property, it is important to make sure you call up and get a pre-approval on a home mortgage. Don’t do things in the reverse order.

A pre-approval will help you to understand the costs, payments, and rates. You will be able to figure out your price range. After all, there is nothing worse than falling in love with a property, only to discover that it’s really not something you’re going to be able to comfortably afford. A lot of people underestimate the costs associated with real estate.

By getting your pre-approval, you will know your price range and you will be able to inform your realtor of this so that you don’t end up looking at properties that simply aren’t right for your monetary situation.

If you’d like to personally work with Brad so he can help you through the complicated loan process please visit BradBoden.com

What is a pre-approval contingency?

You may have heard the term “pre-approval contingency” and you may be wondering what this means and whether or not it is relevant to you. This is a phrase that applies when you already own a property, and you are looking to purchase another one.

In a lot of cases, people cannot afford to buy a second home unless they sell the first one. There are also cases whereby people could afford to carry both mortgages, i.e. the mortgage on their current property and a new mortgage on the property they are going to purchase, however, they don’t want to do that.

Therefore, pre-approval contingency refers to you being offered pre-approval on the basis (contingency) that the other house is sold. Effectively, you will get a mortgage approved for the second property so long as you have sold the first property.

If you have a pre-approval contingency, it is really important to let the seller know. After all, this impacts the buying process because it can slow the chain down. They will want to know when you are selling your home, or if anyone has made an offer yet. Being transparent is critical; there is no point in trying to cover-up the truth.

If you’d like to personally work with Brad so he can help you through the complicated loan process please visit BradBoden.com. He will be more than happy to answer any further questions that you may have regarding mortgages and mortgage refinance deals.

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Mortgage Loan Limits Get a Boost in 2020: New Limits for Conventional and VA Loans

Loan limits for each major mortgage type—including conventional and VA—have received a significant boost for 2020 over last year’s limits. In some counties, the new loan limits are up to 40% higher than they were last year, giving buyers across the board access to more potential buying power. Although there is a significant degree of variation across individual county limits, the steep jumps are due to the swelling home prices that are tied to historically low-interest rates. 

Mortgage loan

The Housing and Recovery Act of 2008 (HERA) stipulates that mortgage providers must provide limits that are 115% of the median home value. Consequently, several of the wealthiest zip codes in cities such as San Francisco, New York City, and Washington, D.C. saw large jumps in their limits to keep step with the increased housing costs. On the other hand, less desirable areas with falling demand saw precipitous declines—up to a 49% decrease in county loan limits.

Overall, the new, higher loan limits set by the Federal Housing Finance Agency (FHFA) afford more opportunities to potential buyers in an increasingly competitive market. These loan limits also extend to those who are already homeowners as they can take more cash out of their home’s equity, too, as reverse mortgage limits follow suit. 

Conventional Loan Limit

Conventional loans are traditional mortgages awarded to creditworthy individuals by private lenders. They must adhere to the loan limits set by the FHFA and follow the credit score and down payment guidelines that have been set by the government-sponsored Fannie Mae and Freddie Mac. The 2020 limits for conventional mortgages increased by an average of almost 5.4%, keeping pace with rising housing costs across the country. 

This year, conforming conventional loan limits are capped at $510,400 in low-cost areas, up quite a bit from $484,350 in 2019 in most counties in the U.S. In high-cost areas, this year’s single-unit loan limit soars to $765,000. These properties make up a small number of notable exceptions in the highest-priced neighborhoods, mainly in California and Hawaii. Since limits for conforming mortgages vary considerably based upon location, check your local FHFA county limit to get an idea of what you will be able to borrow in 2020. 

Conforming loan limits for Cook county in 2020 are:

  1. Single units: $510,400
  2. Duplexes: $653,550
  3. Triplexes: $789,950
  4. Four-family: $981,700

 

As private lenders usually have more stringent lender requirements for their borrowers, they are free to set their own limits for nonconforming conventional loans (which do not need to adhere to FHFA loan limits), including jumbo loans. Depending on the buyer’s financial situation, jumbo loans will generally be capped around $1-$2 million dollars, and they are subject to a different set of lending requirements. Often, securing a jumbo loan will require a large down payment (10%) and a hefty amount of reserves to ensure that the buyer will not default on the loan for between 6-18 months.

FHA Loan Limit

The Federal Housing Administration offers mortgages for low-to-moderate-income borrowers who can qualify with lower down payments and credit scores. The FHA’s loan limits vary according to the type of property—whether it’s a single-family unit, duplex, triplex, or four-family dwelling. Also, note that FHA loans can only be used for primary residences. These loans are not available for additional or investment properties. 

As with conventional loans, these limits also vary by county with higher limits assigned to pricier zip codes. Limits in 2020 were increased to keep pace with the housing market. In 2019, for example, the FHA loan limit for a single unit was $314,827. This year’s figures for a comparable property are set nearly $17,000 higher. 

For 2020, the 2020 FHA loan limits for Cook county in low-cost areas are as follows:

 

  1. 1-unit: $368,000
  2. 2-unit: $471,100
  3. 3-unit: $569,450
  4. 4-unit: $707,700

Still, the FHA’s floor limits only rise to 65% of their equivalent conforming-loan counterparts. FHA maximum limits, however, rise to meet the FHFA conforming loan ceiling in 2020—as high as $765,600 for a single-unit dwelling in higher-cost areas. 

VA Loan Limit

Private lenders issue VA Loans, and a portion is guaranteed by the U.S. Office of Veteran’s affairs. As of January 1, 2020, due to a bill signed by President Donald Trump on June 25 of last year, VA loans are no longer capped by conventional loan limits. 

Conventional conforming loan limits will still apply to veterans with more than one existing VA loan or who have previously defaulted on a loan, allowing veterans to borrow up to $510,400 for single-family homes through much of the US, with a maximum of $765,600 in more expensive neighborhoods. 

Apart from those scenarios, VA loans are just subject to the private lender’s approval. Even though there is no limit if this is your first VA loan and you have not previously defaulted on a loan, your lender will only approve an amount that can be supported by your income and credit history.

Further, while the loan limit has been removed, the VA funding fee has also increased slightly. Veterans can still anticipate more favorable interest rates as one of the perks of their service. 

Finally, they do not have to provide a down payment.

Credit Score Requirements For All

Conventional Loan: Private lenders require borrowers to have good credit and to be able to afford a reasonable down payment. To qualify for a conventional loan, you’ll need to have a score of at least 620-640. The better your score, the more favorable your interest rates will be. Lower interest rates translate to lower monthly payments. With a conventional loan, expect to provide a down payment of at least 3%, possibly more for buyers who have lower credit scores. 

FHA Loan: Since the FHA is in place to make homeownership more accessible to lower and moderate-income families, the credit score requirements for FHA loans are generally more lenient than those of private lenders offering conventional mortgages. 

Borrowers applying to government-sponsored FHA programs for an FHA loan should expect to have a FICO score of at least 500-579 and be able to provide a 10% minimum down payment. If you plan to put as little as 3.5% down, you’ll need a score of at least 580 in addition to verifiable employment history and income. 

VA Loan: The VA does not set a minimum credit score. As private lenders are responsible for underwriting VA loans, they generally follow conventional mortgage requirements. Expect to have a 620-640 credit score to secure a VA loan, as you would need for a traditional mortgage from the same private lender.  

How Do These Limits Affect Homebuyers?

The FHFA raised loan limits in response to increases in the price of homes for sale. Thanks to historically low-interest rates throughout last year, it is a great time to buy a home. As HERA calls for loan limits to allow for up to 115% of the median home price, the increases in 2020 limits reflect the upward pricing trends for homes in the third quarter of 2019. 

Low-interest rates continue to make home-buying attractive, and with the increase in loan limits, buyers have increased purchasing power. This increase gives them access to larger amounts of capital, which affords them even more opportunities to purchase a home. Fundamentally, it now costs even less to finance a larger amount of money. 

Navigating The New Mortgage Loan Limits 

This opportunity and flexibility make it a great time to consider buying a house. The other side of this coin is that competition for the housing market is heating up. While this is great news for sellers as the number of houses on the market will struggle to keep up with the demand, it will cause housing prices to continue to escalate if the trend increases. 

Recent uncertainty within the market will unfold in the coming weeks, so these trends will likely shift. Still, unseasonably low-interest rates meant to stimulate the economy mean low monthly payments, and the 2020 loan limit increases allow you to secure larger, more valuable properties than were previously accessible with lower loan limits.

Instead of the $484,350 loan limit for low-cost areas in 2019, homebuyers can access up to $510,400 through a conforming conventional loan from a private lender. FHA loans provide 65% of the conforming loan limit or $331,760 for low-cost areas. For single-unit dwellings in high-cost markets, that limit increases to $765,600. Though the imposed limits are in place for conventional and FHA buyers, recent legislation removed the cap for some VA loans. The ceiling in those cases, then, is subject to the amount the lender approves. Conventional loans above these thresholds, like jumbo loans, adhere to a different set of standards entirely. 

For help with navigating conventional, FHA, or VA loans, feel free to reach out to A & N Mortgage. We’re happy to help you answer any more questions about the mortgage selection process to help you determine your best options for home buying in the Chicago area.

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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What Do Rates Mean to Me?

Not all interest rates mean the same to everyone. When looking at rates it’s important to view them from more than one perspective. First historically: Are rates higher than they were 15 days ago? At the moment, yes. Second: Are rates much lower than they were 15 months ago? Most certainly. More importantly, you should view them as they relate strictly to you: What is my current rate? What are my long-term plans? And, more to the point: what does the math tell us?

ratesRates can often be an emotional trigger for many people, which is the opposite of what they should be. It’s just a number. What that number tells us is the important thing. A rate of 3.5% is more valuable to someone who is currently at 5.0% than it is to someone who is at 3.625%. People always want a lower rate, but it doesn’t always make sense. Are you paying costs to refinance? Are you already a few years into your amortization schedule? It’s all one big math equation and an expert can help you figure out what makes the most sense for you.

While most people are battling to get the lowest overall short-term payment, some people are winning the long-term war by using their mortgage as part of their holistic approach to their financial planning. A mortgage is merely one part of your interconnected and life-long financial plan. What you do with your retirement funds, or for those planning for a child’s education, should be taken into consideration when deciding what to do with your mortgage. On a more real-estate-focused thought, what your long term plans are for the property need to be considered as well.

Examining shorter loan terms as opposed to a 30-year fixed is the perfect example. Let’s say a 15-year fixed rate is 3.0% while the 30-year fixed rate is 3.5%. There are obvious savings going from one to the other, one is short-term and the other is long-term. On a $300,000 loan using these interest rates, a person will save $112,054 over the life of the loan by taking the 15-year fixed. By investing that money, you can fund part of your retirement or pay for part or all of a child’s college education. These are significant and necessary funds.

That said, the extra $725 per month, is no small price to pay for saving all that money. One other option to consider is this: what if I can afford the extra $725 per month but I’d rather borrow the money at all-time low rates and invest it in the market where I can make more than 3.5%? After all, the people who have mastered this particular game have names like JP Morgan Chase and Bank of America so it’s not a horrible idea.

If you’re going to be in the loan for 5-7 years, then maybe that 15-year loan doesn’t make sense. Most of the savings you will reap, as compared to the 30-year fixed, will be from living in the home rent-free during the years 16-30. In the same way that equity isn’t real until you sell the home for a profit, savings also aren’t real until you compare one thing to another. That’s the reason why rates and loan terms can’t just stand on their own. They are a comparative math problem. Sometimes the solution is to do nothing. But sometimes the solution is to look at things a different way and discover that there may be an opportunity that you don’t want to miss.

Things to consider:

  • Is the payment (approximately 40-45% higher) on the 15-year loan going to be too costly on a monthly basis? Or is it no skin off my back?
  • Is there something else I should be investing this money in if I’m never going to pay off the loan?
  • How long am I going to be in the loan?
  • What if I can’t sell the home when I plan to move out and it makes sense to rent it at that point?
  • Am I willing or wanting to be a landlord?
  • What are my other plans for child education and/or retirement?

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Tips For Today’s Changing Mortgage Rates

You may have noticed that things have been… kind of volatile in recent weeks. Huge segments of the country are going into lockdown. Many employees across all sorts of industries are working from home. Tragically, many have lost their jobs. Many more are left with no choice but to endanger their health by working outside of the home. All over the country, people are worried about how they’ll pay their mortgages, and banks and lenders are responding in kind. In this turbulent time of payment breaks, fluctuating (and plummeting) interest rates and general uncertainty realtors and clients alike are left wondering… “What do I do?”.

Tips For Today’s Changing Mortgage Rates

A worthy question that we’ll attempt to answer here.

Firstly, and most importantly, we hope that you’re all staying safe and remaining calm in these difficult times. Remember that stress wreaks havoc with your immune system. Secondly, while it may feel like the sky is falling, that doesn’t mean that there isn’t an opportunity, even in these perilous times, for the smart and the savvy. Let’s take a look at the current situation with interest rates, and how we’re not missing a beat to help our clients take advantage of them. 

If you’d like to personally work with Brad so he can help you through the complicated loan process please visit BradBoden.com

The Interest Rates Rollercoaster

Over the past weeks, we’ve seen interest rates dip and spike erratically. Well, that’s an understatement. Over my 15-year career, I’ve never seen such volatility! Just at the beginning of this week, rates started in the low 3%s. Then rates jumped all the way up into the fours before coming right back down again. While this has been worrying news, we have been advising our clients to ride out the storm and remain calm while rates stabilize. 

Now they’re back at advantageously low rates. 30-year rates are in the low-mid 3%s and 15-year rates are back in the high 2%. 

What Does This Mean For You?

These low rates are a gift in these unpredictable times for anyone who wants to increase their equity in their property and pay off their Chicago mortgage faster. Whether you’re buying a new residential property, an investment property or thinking of refinancing, the advice is the same. If you can afford to make slightly higher payments, now’s the time to capitalize on these great low rates. These will save you a small fortune in interest and ensure that you pay off your home loan faster. 

As we can see, even in a time of international crisis, this is a silver lining which will prove highly advantageous for many of our clients a few years down the line. 

If you’d like to personally work with Brad so he can help you through the complicated loan process please visit BradBoden.com

Rest Assured… For Us, It’s Business As Usual

If you need a Chicago Mortgage broker to help you capitalize on the current low rates we’re here for you. Whether you need a home loan or refinance your home, you can breathe a sigh of relief. It’s business as usual for us! We’re all set up to work from home. We’re still approving, locking and closing loans. We’re working with attorneys remotely while buyers stay at home. For refinances, we’ve been carrying out in-home closings with a notary.  

Please be assured that we’re doing everything we can to adapt to these challenging times and give our clients a sense of continuity during our precarious situation, while also ensuring that they don’t miss out on a golden opportunity.

Here For You In These Uncertain Times

Now more than ever, we understand the importance of the personal touch. Even though we’re not able to talk to you face-to-face, we want all of our clients to know that we’re still very much available to you to provide the personalized advice and support you deserve. We’re here to help you protect your investments, insulate yourself from risks and use the positive outcomes of this crisis to your advantage. 

If you have any questions at all about interest rates, investments, home loans or refinancing we’re still making ourselves available to you. In these uncertain times, we want you to know that you’re not alone. Pick up the phone or visit us online if you need advice or guidance. 

Until then, take care. And stay safe!

If you’d like to personally work with Brad so he can help you through the complicated loan process please visit BradBoden.com

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An Update To The Rate Market For You

rateRates continued to climb precipitously last week. At week’s end, and again over the weekend, the Federal Reserve stepped in to say that they would buy mortgage-backed securities, which allows investors to get some of these loans off their books, which in turn makes them want to keep doing more business. The bond market got a bit of a boost as well yesterday, which is good for mortgage rates. Rates came down decently on Monday (as compared to Friday). I saw improvements of anywhere from .25% to .75%, depending on the particular situation. They are not the very low lows we saw two weeks ago, but they are what I’d consider being low rates still.

Importance of Low-Interest Rates

There is very little margin in the rates right now. Margin is the difference in pricing from one rate to the next. In simple terms, 4.0% would be worth less than 4.25% because the lower interest rate generates less interest for an investor throughout the loan repayment period. So that investors will “pay” more for the higher rate. The amount they “pay” is called margin. Frankly, that is how I get paid or how I cover closing costs on a refinance. But there is less of that margin, or money, in the higher rates right now. That is important due to one reason: risk factors. Fannie Mae and Freddie Mac have risk factors built into their pricing of rates. This has to do with historical data that suggests whether or not a loan is more or less likely to go into foreclosure.

Example: if you have an 800 credit score and I have a 700 credit score, I’m more likely to go into foreclosure than you are because of my poorer credit history. So there is risk pricing that is built into my rate. That is typically absorbed by the margin difference between the rates. But there is not a lot of margin difference between those rates currently. So instead of your score securing a rate of 4.0% and my credit score secured a rate of 4.25%, my rate now might be more like 4.5% (these are not actual rates, but I’m making them up to illustrate the point). Likewise, something we all see a lot of in the city is condos. If you have less than 25% down, there is a risk factor that increases the cost and, hence, the rate. Typically that equates to .25% difference in rate. But now it might be more like .375%, again depending on each particular scenario. Other risk factors that you will commonly run into are investment properties, 2-4 unit buildings, escrow waivers (for banks that charge for them—we have options to do this at no cost to the buyers).

So while some buyers might be in much better shape than they were a few days ago, others might be in only slightly improved situations due to the lack of margin coming back into the market. We’ll have to see how this shakes out over the coming days/weeks. If you have any questions, please always feel free to reach out or have your clients do so if they have any questions or concerns.

Hang in there. We’re in a much better position than we were in 2008 when our economy was built on a house of cards (no pun intended). We will get through this.

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Mortgage Rates Reaching All-Time Lows Amid Coronavirus Fears

down rate

The novel coronavirus (COVID-19) pandemic is taking the stock market on a wild ride and causing industries like travel to bleed red ink. But the recent coronavirus-induced economic uncertainty benefits some groups of people, including present and prospective homeowners.

On March 4, Freddie Mac, the government-owned corporation that buys mortgages and packages them into mortgage-backed securities, reported that the average 30-year fixed-rate mortgage rate was 3.29%. That was a record low for the last 50 years and was down more than one percentage point from the same time the previous year. A week later, Freddie Mac reported that the 30-year fixed-rate had edged up slightly to 3.36%, but that’s still almost a percentage point below the rates from mid-March of 2019.

These historically low-interest rates benefit people who want to refinance, too. According to Mortgage Bankers Association data, refinance applications surged 78.6% in the week ending March 6 from the week prior. That’s a 479% increase over the same week in 2019.

Why Is The Coronavirus Affecting Your Mortgage Rates?

Since the beginning of the year, mortgage rates have nosedived in response to coronavirus-triggered market movements. As a rule, U.S. mortgage rates fluctuate based on long-term bond rates, especially 10-year Treasury notes. In early March, 10-year Treasury notes dropped below 1% for the first time ever after the Federal Reserve announced a cut in its benchmark interest rate.

The Federal Reserve cut was sparked by—you guessed it—concerns about the coronavirus’ economic fallout. The stock market was also influenced by coronavirus aftereffects and has dealt with investor’s crippling blows. To escape from the wayward stock market, investors poured money into Treasury notes, causing the yield on 10-year notes to tumble.

As things stand now, the 10-year Treasury note is continuing its downward drift, suggesting that mortgage rates also have some room to move lower. Says Rick Sharga, CEO of financial-services consulting firm CJ Patrick Company: “I wouldn’t be surprised to see 30-year loans with 3.0% rates before things settle back down.”

The Impact On Potential Homebuyers

Mortgage rates have trended downward in 2020 and will probably continue on this path through the near future. Explains Zillow economist Matthew Speakman: “Much remains unknown with this virus and its potential impact on human life and economic activity. COVID-19 is here, and it will continue to be the main driver of mortgage rate movements in the coming weeks.”

Even though the coronavirus crisis is driving down daily interest rates, other factors are also at play. For one, the inventory of homes on the market has hit an all-time low while demand for those houses—thanks in part to coronavirus-induced low rates—is high.

The low inventory is mostly due to the recession-driven drop in home construction in recent years. Investors snapped up low-cost properties to convert to rentals, which further tightened supply. Despite an increase in home-building activity since last summer, it’s still not enough to satisfy pent-up demand.

Additional Read: 10 Tips For Potential Homebuyers

Another factor to consider is that mortgage bankers can’t keep the lights on if they lend money at low rock-bottom rates indefinitely. It is highly unusual for banks to loan 30-year mortgages at 2.99%. It’s also important to remember that lenders know the demand for mortgages is strong without having to drop interest rates. Lenders are so swamped with applications for new and refinanced mortgages that they’re already starting to raise interest rates slightly. Don’t worry just yet, though—rates are still low overall.

Overall, you’ll get a good deal on a mortgage right now. But you need to find a house you like and can afford, and your credit score and other considerations have to be up to par.

Also, are you anxious about your financial security in the light of coronavirus? If so, you may need to leave potential savings on the table.

How Will Coronavirus Affect A Homeowner’s Mortgage Rate?

If you already own a house, the decline in interest rates spurred on by COVID-19 presents an enticing opportunity. Along with millions of homeowners across the US, you stand to save thousands of dollars in interest by refinancing. According to real-estate data firm Black Knight, 44.7 million homeowners have $6.2 trillion in home equity. They could unlock this equity through a cash-out refinance at today’s historically low rates.

corona

If you want to cash out of your house by moving, now might be a good time to explore your options. Roanoke, Virginia Realtor Katy Cookston says, “You’re going to get multiple offers if [your house is] priced right.” She adds, “It’s a phenomenal time to sell; as long as [your house is] priced appropriately, [it’s] going to move off the shelf pretty quickly.”

Refinances are booming, as is the demand for homes. Supply isn’t keeping up with the demand, though. So lenders don’t need to cut rates to prod Americans into applying for new home loans or refinancing old ones.

If you’re thinking about refinancing, decide how long you plan to remain in your current home and run the numbers. Then, if the numbers work out in your favor, lock in your rates now. You should apply for refinancing as soon as possible because, coronavirus notwithstanding, there may be a slight uptick in interest rates.

You see, lenders let go of employees in 2018-2019 because they expected higher rates, which in turn would cause lower demand for loans. Therefore, lenders entered 2020 with decreased capacity. Since lenders don’t have enough staff to handle the onslaught of applications, it’s taking a while to close loans. To give themselves a chance to work through the applications they’ve already received, major lenders are turning to the primary weapon at their disposal: rate increases.

But if you haven’t locked in your refinance rate yet, don’t get alarmed. The Mortgage Bankers Association forecasts $1.2 trillion in refinances this year, double its previous estimate. This would be the largest volume of refinances since 2012. So refinancing interest rates will probably remain low for the near future.

Does Coronavirus Affect Home Equity Loans?

Although mortgage rates have plummeted because of the COVID-19 economic malaise, they’ve crept up a bit because of other market forces. One exception to this trend, however, could be home equity lines of credit, otherwise known as HELOCs. These adjustable-rate loans are based on the prime rate. Therefore, HELOCs are set to see a drop in interest rates since the prime rate virtually mirrors the Federal Reserve’s benchmark federal funds rate.

The Federal Reserve dropped its benchmark funds rate in response to coronavirus. Therefore, lower HELOC rates are also directly tied to the coronavirus impact.

“HELOCs have been slowly falling in popularity, and over time the amount of HELOC debt has been gradually falling as people pay down their debts, and fewer people take up the slack by borrowing them,” comments Holden Lewis, mortgage and real estate expert at NerdWallet. “This seems time for that trend to possibly reverse. The rates on HELOCs are going to be tempting, especially for people who want to fix up their homes.”

Are These Mortgage-Rate Changes Long-Term?

There’s no telling how long COVID-19-influenced low-interest rates will last. Those who have been considering taking out new mortgage loans or refinancing shouldn’t be tardy to the party since lower rates in the days ahead aren’t guaranteed.

The coronavirus pandemic is causing worldwide pandemonium. It’s also unlocking lower mortgage rates for present and future homeowners, though.

Seek An Expert Opinion

So is now a good time to buy a house and take on a new mortgage? All things being equal if you find a home you like and can afford, seriously consider it. Interest rates are rock-bottom, and there’s no guarantee they’ll stay there.

What about refinancing your house—is now a good time for that? Again, as long as the monetary bottom line works out for you, get that done sooner rather than later. Rates on home equity lines of credit (HELOCs) are also decreasing, so you may want to consider those, too.

Sparked by coronavirus fears, mortgage interest rates have plummeted to historic lows. If you latch onto the savings and opportunities low mortgage rates present, your financial health will benefit.

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Is It Beneficial To Turn HELOC Into A Fixed Rate Loan?

heloc

Over the past few years, real estate market prices have been steadily rising, subsequently raising the amount of equity available for your home. For those you who don’t already know, home equity is the interest a homeowner earns from their property free of any financial liabilities.

Simply put, it’s the difference between any outstanding financial obligations of a property and its fair market value. It’s indirectly proportional to mortgage payments.

That is, paying off your mortgage loan subsequently improves your home equity. Home equity lines of credit or HELOCs allow you, as a homeowner, to get financing against a portion of your home equity.

Traditionally, you only had two options to procure financing, you could either seek a loan against your home equity at a fixed rate or borrow against a HELOC with variable interest rates.

Today, there’s a third option; a fixed interest rate HELOC. That said, is it beneficial to turn a HELOC into a fixed-rate loan? Before we can answer that, here’s a brief overview of HELOCs.

What Is a Home Equity Line of Credit?

When you’re house-rich but cash-poor, HELOCs or home equity line of credits provide a convenient and affordable way of getting financing for debt-consolidation, improvement, and other high ticket projects.

HELOCs are second mortgages that let you borrow money against your property. They work a lot like credit cards, i.e., they allow you to make a withdrawal against your HELOC and pay back some or the entire amount every month.

Also similar to credit cards, HELOCs allow you to make as many withdrawals as you like so long as the withdrawals don’t exceed your assigned credit limit. That being said, it’s worth noting that some lenders impose a minimum withdrawal amount, and unlike credit cards, your home is the security.

One of the main reasons HELOCs are so attractive is that they offer homeowners considerably low introductory interest rates that generally last anywhere between one and four years. However, once the initial offer times out, interest rates tend to fluctuate based on prevailing market conditions.

How Does A HELOC Work?

As mentioned above, whenever you take out a HELOC, you’re borrowing a loan from the bank using your home as collateral. A home equity line of credit is distinctively different from other home loans because you’re not taking out a lump sum of money to pay back over a specified term. Instead, HELOCs provide homeowners access to a monetary fund that they can dip into on an as-needed basis.

A home equity line of credit is a revolving loan. In other words, it allows you to draw any amount of money within your credit score, pay back some or all of it, and draw more money as needed. That is to say, your loan can increase or decrease in size to suit your needs.

However, HELOCs come with a timeframe, which means you’ll only be able to draw money for a defined draw period—typically anywhere from 5 years to a decade, where you’ll only be paying the accrued interest. After this, the principal amount becomes due, usually within a specified time frame, but sometimes it can be immediately after the draw period.

Reasons To Avoid a Floating Home Equity Line Of Credit

While HELOCs are considered to be a cheaper debt alternative compared to credit cards, they’re a valuable and convenient resource for homeowners that shouldn’t be used capriciously.

It’s easy for homeowners to squander it all away and end up with bad debt, especially when you pay for things that are otherwise outside your reach as far as your savings or income is concerned.

To avoid trapping yourself in an equity crunch if the real estate market goes belly up, here are some reasons to avoid a floating home equity line of credit.

  • You don’t have a stable income: Taking out a HELOC increases your exposure to risk, specifically foreclosure if you’re unable to pay back the loan. This risk is especially elevated if you don’t have a stable or reliable source of income that you can count on to meet the monthly premiums.
  • Purchasing a vehicle: For a long time, HELOC rates were considerably lower compared to automotive loans, which made them appear like a much cheaper option for buying a car. However, things have changed, and today, taking out a HELCO to buy a car comes with a lot more risk. For starters, when borrowing an auto loan, the vehicle is usually the collateral, so if you fall back on your monthly payments, you only risk losing the car. However, with home equity lines of credit, the house is the collateral, so you risk foreclosure if you’re unable to keep up with the monthly payments. Secondly, HELOCs don’t require homeowners to pay back the principal within the draw period, unlike auto loans, where each payment goes towards repaying the principal amount. That means that it’s highly likely that you might end up repaying the loan on your vehicle for a much more extended period than the vehicle’s lifespan.
  • Paying for tuition: “rational” choice for people looking to pay for their children’s college tuition. However, by doing this, the risk of lenders foreclosing on your home increases significantly, especially when your financial situation takes a turn for the worse. What’s more, the risk of you carrying the extra mortgage to retirement also increases, especially if you take out a considerable amount and are unable to pay within the specified time limit.

What Are The Alternatives To a Home Equity Loan?

If a large percentage of your wealth is tied to your home and are strapped for cash for your basement renovation project, then a HELOC provides a cost-effective and convenient way of getting money by making use of your home equity.

That said, a home equity line of credit isn’t the only way of getting cash. You’ve got at least two more options for securing financing using your property: cash-out refinancing and home equity loans.

  1. Cash-out refinancing: this allows you to refinance your property loan for an amount higher than your outstanding loan balance and cashing out the difference, that being the extra amount. It simply means replacing your old mortgage loan with a new loan that usually provides much better terms. With cash-out refinancing, you typically get much better rates, reduce your monthly payments, years, etc.
  2. Home equity loans: compared to HELOCs, this is a much simpler loan option. Home equity loans let you borrow a lump sum of money and pay it back over a specified repayment period. They also come with a fixed interest rate, so you pay a fixed amount of money every month. What’s more, you’ll also be able to get tax deductions on interest paid and don’t have to pay any loan closing costs.

How Do Fixed Interest Rates Work?

The main benefit of taking out a loan with a fixed interest rate is that it simplifies the entire budgeting process because the interest rate and monthly payments will never change. So you’ll know exactly how much money you’re making every month since your loan will not be affected by market fluctuations.

Fixed interest rates are particularly attractive to people who manage their finances using a ‘set and forget’ strategy since there are no surprises. Fixed-rate interest loans are a great financing option, especially should the need to refinance arise in a bearish real estate market.

Benefits Of Fixed-Rate Home Loan

One of the main perks of taking out a fixed-rate mortgage loan is that it protects you from unexpected and potentially significant hikes in monthly payments should interest rates rise.

What’s more, because the interest rates and monthly mortgage payment remain the same, it provides some level of certainty and predictability, which makes budgeting much more straightforward.

While the total loan amount (interest plus principal) varies with each subsequent payment, the total payable amount stays the same. Additionally, because you typically pay a percentage of the principal every month, you automatically increase the equity of your home.

Finally, because a majority of fixed-rate home loans don’t come with prepayment penalties, you’ll be able to make additional payments outside the schedule of your monthly payments to pay off the principal amount earlier.

Choose Wisely Between HELOC and Fixed Loan

The equity your home earns over time is one of the most valuable resources a homeowner can have, and it’s worth protecting. That said, emergencies tend to occur at the most inopportune moments, and sometimes you’ll need to tap into your home equity to pay for renovations or other unexpected expenses.

A home equity line of credit provides an affordable and convenient way of tapping into your home equity and allows you to draw on an as-needed basis. However, because the interest rate on a HELOC can be unpredictable, you may want to consider turning it into a fixed-rate loan.

Rock That Tax Return!

While a traditional home equity loan might seem like a great option because it allows you to swap out your old mortgage for a new one, it may not necessarily be the best option.

That’s because you have to start making payment immediately after taking it out compared to a HELOC, which lets you draw and repay on an as-needed basis during the draw period.

How A and N Mortgage Helps You Decide

If you can’t choose between getting a fixed-rate home loan or variable rate, taking out a lump sum now vs. accessing a pool of cash that you can dip into on an as-needed basis, then you’ve come to the right place.

Here at A and N Mortgage, we help homeowners like yourself make the most of their home equity by providing a variety of loan programs to best suit your individual needs and circumstances.

We have a team of experienced mortgage professionals who are eager to help you find the right loan product and secure funding with the best terms.
So are you ready to take charge of your mortgage?

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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Your Guide To Conventional Mortgage Loans

As you consider applying for a mortgage, it can be equally comforting and daunting to know that there are so many options available as you look to finance the purchase of your home. 

Conventional loans, sought by over 60% of all mortgage applicants, are what typically come to mind when you mention a mortgage. Conventional mortgage loans, also called conforming loans, are granted by private lenders who adhere to standards set by the federal programs of Fannie Mae and Freddie Mac. FHA loans, insured by the Federal Housing Administration, offer a commonly sought-after alternative to conventional loans. Here we discuss what it takes to qualify for each type of loan, as well as the benefits and pitfalls of each so that you can see which type of home loan might best suit your needs. 

What Is A Conventional Loan?

  • A conventional loan is used to finance the purchase of either your primary residence, secondary residence, or a rental property.
  • Requires a 3% minimum down payment, can be as high as 10-20%, depending on what your lender requires.
  • Fixed interest rate or adjustable-rate (ARMs) terms.
  • Various term lengths, ranging from 10-30 years.

What Are Conventional Loan Requirements?

Conventional loan requirements are pretty stringent—especially when compared to government-backed mortgages. Private lenders want to make sure that you can afford the property that you are buying and that you will repay the loan. To assess your credit risk, they’ll make sure that you meet these minimums: 

Credit Score: Most conventional loans require a minimum score of 620-640 but are better suited for applicants with credit scores above 680. The better your credit score, the better your interest rates, terms, and overall costs will be as you are considered a lower credit risk.credit score

For those below this threshold, other loan options may have less favorable terms to account for the increased credit risk. If a conventional loan is in your future, pay attention to your score.  

Debt-to-income (DTI) ratio: This measures your monthly debt obligations against your income. Lenders like to see numbers around 36% (the lower, the better your chances of approval), but maybe willing to consider you with a higher DTI depending on the circumstances. A high down payment (over 20%), an excellent credit score (700+), unusually large cash reserves, very high income, or stable, long-term job position (5 years or more at the same job) can all influence what DTI ratio your lender will allow.

Down Payment: Your down payment can vary widely, but expect to put down anywhere from 5-20% of your mortgage value down. The Conventional 97 program, for example, lets you put down as little as 3%, but some lenders require 10-20% or more for larger loans. 

Income and Asset Documentation: Your lender will thoroughly verify your income and assets. Prepare to hand over the following when you apply for a conventional loan: 

  • 60 days of bank statements
  • 30 days of pay stubs
  • Two years of tax returns if you’re self-employed, own rental properties or receive non-salary income (like retirement or a pension)
  • Two years of W2s
  • Proof of social security, retirement or pension awards and two years of 1099’s
  • Rental agreements for any investment properties that you own

Property Requirements: This year, the conventional loan limit is $510,400 for a single-family home. Higher-cost areas, like Seattle, Washington or Los Angeles, California, are eligible for larger maximum loans. For 2020, Fannie Mae and Freddie Mac have set conventional loan limits for Seattle at $592,250 and LA at $636,150. If you’re planning to finance multi-unit properties, those limits increase to accommodate the cost of additional units.

home buying tips

Conventional loans apply to many types of properties, including single-family homes, Planned Unit Developments (detached homes within a homeowner’s association), condos, multi-unit dwellings, co-op properties, and on occasion, manufactured homes.

You can also use conventional loans to finance the purchase of a second home or a rental property. In those cases, interest-rates and down payments are usually higher since the property is not your primary dwelling and, as such, is deemed higher risk by lenders.

What’s The Difference Between An FHA And A Conventional Loan?

FHA loans are home loans insured by the Federal Housing Agency. FHA loans have different qualifications and offer various benefits and drawbacks when compared to a conventional loan. These programs put homeownership within the grasp of many, employing less stringent qualification requirements. Depending on your circumstances, you might decide to choose one over the other.

There are a few fundamental differences between FHA and conventional loans.

  • Interest rates: Comparable to or lower than conventional loan rates.
  • Lower acceptable credit score: FHA loans are available to those with credit scores as low as 580. Even buyers with credit scores as low as 500 can obtain an FHA loan with a 10% or higher down payment. Conventional mortgages require a credit score of at least 620, and the lower the score, the higher the interest rate.
  • Higher acceptable debt-to-income ratio: DTI for an FHA loan should be 50% or less, with approval more likely below 43%. This allowance is slightly more generous than the 36% DTI that lenders like to see for conventional home applicants.
  • Employment History: Must be currently employed with a two-year income history.
  • Down Payment: FHA loans can be established with as little as a 3.5% down payment.
  • Duration: 15 or 30 years
  • Loan Limits: This year, the FHA loan limit is $331,760 in low-cost areas (significantly lower than the conventional loan limit) and $765,600 in more expensive markets. These limits vary by county.
  • Property restrictions: FHA loans are only for your primary residence. You must live in the home. You cannot purchase a second home or investment property or homes sold within 90 days of the previous sale using an FHA loan. FHA property appraisals are more stringent than conventional loan property appraisals. The property must be satisfactorily appraised for value, safety, construction, and compliance with local codes before you can take out an FHA loan.
  • FHA streamline refinance: Once you have an FHA mortgage that is in good standing and at least six months old, you can easily refinance your loan with potentially more preferable terms.
  • FHA Lenders: FHA-approved lenders are held to pretty high standards thanks to government involvement. Consequently, closing costs are generally limited to make homeownership more accessible.
  • FHA loans are assumable. If a buyer qualifies for the existing terms of an FHA mortgage, they can assume the loan and continue paying the existing loan and its original interest rate.

Private Mortgage Insurance

One of the most significant differences between the costs of conventional and FHA loans is private mortgage insurance (PMI). PMI protects the lender in case of default and features prominently in the costs associated with each mortgage.

A conventional loan:

  • Does not require PMI if you put at least a 20% down payment.
  • If you put down less than 20% down, once your loan-to-value ratio reaches 78%, your PMI automatically cancels.
  • Your PMI premium is correlated to your credit risk and the amount of your down payment. Lower premiums are for buyers with better credit.

FHA Loan:

  • Private mortgage insurance is required for the life of the loan.
  • The upfront mortgage insurance premium of 1.75% of your base loan amount is due either in cash or financed into it. After that, FHA loans are subject to annual mortgage insurance premiums.
  • The PMI on FHA loans is generally higher than for conventional loans.
  • You can only eliminate the PMI by refinancing to a conventional loan, or after 11 years if you put more than 10% down.

Which Mortgage Is Right For You?

Over 60% of mortgage applicants seek a conventional loan, and the FHA loan is the second most widely secured home loan product. Based on the differences outlined above, they each have their merits. While a big part of the decision lies in what you can qualify for based on your current financial circumstances, there are cases where the best choice may not be so cut-and-dry.

common mortgage myths

First, you should consider the property type. You can’t use FHA loans for vacation homes, rental/investment properties, or for homes that don’t pass stringent safety and value appraisals. Beyond that, consider your credit risk. Evaluate the options that provide you with the best bottom line. If you are well-qualified, with a 720 or higher credit score, a conventional loan may cost less per month even though FHA loans may have lower interest rates, thanks to the required PMI coverage. For both FHA and conventional loans, compare lenders carefully. Consider the terms and conditions of your offers and do not hesitate to shop around to find the best deal. 

A Qualified Mortgage Banker Or Mortgage Broker Can Help You Decide

For additional guidance, feel free to enlist the help of a qualified mortgage banker or mortgage broker. They can help you weigh your options and determine the best loan for you and your family. If you have any questions about the conventional loan or FHA home loan process, please reach out to A and N Mortgage – we’re happy to help. 

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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10 Commandments For Home Buyers

So you’ve decided to buy a house. Congratulations! Buying a new home and securing a mortgage can seem intimidating, but this handy overview will assure you of your decision and how to proceed.

New Home

The key to skillfully navigating the process of buying a home is proper preparation. These Ten Commandments will help first-time homebuyers prepare to take on this challenge. Finding a house and applying for a mortgage will take some time and attention. Buying a house is a large purchase, so don’t rush it.

Pay special attention to each of these commandments to avoid some of the most common missteps that befall first-time homebuyers. If you need assistance, be sure to consult with your real estate agent or mortgage representative. 

1. Be Committed To Purchasing A House

Get your figurative house in order before you start searching for your literal house. Make sure that you can answer these questions:

  • Can I afford to buy a house? Consider what’s available in your area and look at what you can safely spend on housing. Remember that you’ll be responsible for repairs, taxes, and homeowner fees.
  • Am I ready to maintain a home? Homeownership comes with plenty of perks, but it’s also a lot of work. Are you willing to mow the lawn? Replace the roof?
  • Am I ready to settle down in one area? Buying and selling a house costs money and you can protect your investment by staying in your home. Homes appreciate over time, so you might lose money if you need to move around.

If your answers to any of these questions is a no or weak, yes, you’re probably not ready to buy a home. It may be better for you to consider renting until you find yourself in a more secure, permanent situation. 

But if your answers are a resounding yes, you’re ready to take the plunge into homeownership. Keep reading to learn how to pick the right house and secure the best mortgage. 

2. Verify Your Financial Plan

Decide housing expenses budget. The widely-accepted view is that your housing expenses should account for roughly 30% of your income. Take the time to consider how buying a home will affect your finances and make room for it in your budget.

Budget accordingly. When you buy a new house, you’ll also take on several additional expenses, like repairs, property taxes, homeowner’s insurance, etc. in addition to the mortgage. On the other hand, you’ll also be looking at some tax benefits. Do the math to make sure that these numbers work for you. 

Plan for your down payment. There are programs that let you put down as little as 3% of your home loan value, but a 20% down payment is highly recommended. Determine how much you need to put down, and then set that amount aside. You don’t want to scramble to conjure up a down payment at the last moment.

Get your insurance in order. In an ideal world, you’ll also want to make sure that your health, disability, and life insurance are in good order. Covering these expenses makes sure that you’re protected from any catastrophic situations that could cause you to lose your new home.

Prepare your paperwork. Since mortgage loan officers are going to need copies of your bank statements, pay stubs, and two years of W-2s and tax returns (at least), now is an excellent time to put them together so that they’re readily accessible.

3. Have At Least One Earning Family Member

Especially since the mortgage crisis of 2008, mortgage lenders are looking closely to make sure that applicants can handle the monthly payment on their mortgage. Make sure that you have at least one steady source of income to make that consistent monthly payment.

4. Check Your Credit Score Before Applying For A Mortgage

Loan officers will check your credit score to determine your individual credit risk. This information will dictate what mortgage terms and rates a lender can offer you. 

Tricks To Saving On Your Mortgage

The higher your score, the more favorable your terms and monthly mortgage payments will be. By checking your credit score beforehand, you’ll be able to dispute erroneous items and potentially raise your score. 

5. Understand What You’re Qualified For

Get pre-approved. Pre-approval means you have conditional approval from a mortgage underwriter, pending a property selection. Pre-qualified means that a loan officer has reviewed your information, so having pre-approval means that you are in a better position to secure your housing.

mortgage rates going up and down

When you’re pre-approved for a mortgage, you’ll likely have a few options to consider. The interest rates, APRs, and associated costs may vary slightly from lender to lender. Thanks to the Truth in Lending Act, everything will be presented in a straightforward fashion.

It’s helpful to reflect on all the information that you’ve gathered in this process so far. Make sure that you can safely handle this mortgage payment for as long as you’ll have one. 

6. Make A List Of What You’re Looking For In A House

How many bedrooms, floors, or bathrooms do you want in your new home? Is a backyard optional or requisite? How many square feet of living space do you need?

Get as specific as you’d like to about your needs and wants in a home. Decide what you can and can’t live without to save time once you and your realtor are looking at houses.  

7. Avoid Large Bank Transactions

You’ve already learned how important it is to go into the mortgage qualification process with the highest score that you can.  Avoid doing anything—especially making any large purchases—that might affect your credit score. While it may be tempting to buy new furniture or appliances for your new home after you’ve selected a mortgage offer, resist. 

Most mortgages take an average of 30 days to process. Right before you close, your loan officer will pull your credit score again. If there’s any significant deviation from the original score, you may lose your mortgage offer at the last moment. 

8. Maintain Your Emergency Funds

If you don’t have an emergency fund, you’re not ready for a mortgage. As a homeowner, you’ll need a rainy-day fund more than ever. After all, you never know when you’ll need to spend money for the necessary upkeep of your house.

Fund

Don’t deplete your emergency funds to fund a down payment. Doing so would be a recipe for disaster and puts you at a severe disadvantage straight out of the gate. Take your time to prepare for this large purchase. Especially in the early stages of a mortgage, expenses like unemployment or a medical emergency can snowball quickly, so don’t take on this process unless you’re sure that you can handle it.

9. Research The Market And Neighborhood

Research the neighborhoods and local school districts you’re considering to familiarize yourself with what’s available. You can use real estate websites like Redfin or Zillow to get an idea of the local demographics even before you choose a real estate agent. 

As you comb through available listings, check the price-rent ratios of potential neighborhoods for signs of a market bubble. Every new home buyer wants their property to appreciate. 

10. Avoid Spending The Money You’ve Saved For Your Down Payment

A 20% down payment is highly recommended. Statistically, this amount down provides the most secure footing. While you may qualify for a smaller down payment, beware that these mortgages suffer from a slightly higher rate of default than if you were to put down the full 20%.

If you’re ready for a mortgage, don’t touch the money that you’ve set aside for your down payment. Just don’t do it! You do not want to get to the end of this process and wonder how you will raise the money for your down payment at the last moment. 

Conclusion

Buying a house is most likely one of the most significant purchases that you’ll ever make, so be confident that you’re ready to give this process the time and energy that it deserves. Surround yourself with a realtor and mortgage broker whom you trust to walk you through the mortgage process. 

One of the recurring themes in these ten commandments is financial discipline. Hopefully, if you’re on the verge of buying a home, this is something that you’ve worked on. That foundation will make the home buying process go more smoothly. If you haven’t practiced much financial discipline up until this point, start now so that you can take ownership of this process. 

This list encourages you to take proactive measures at every stage in this cycle so that you come out ahead, with the best home and the best deal for you. If you have any more questions about home buying or the mortgage process in the Chicago area, please reach out to A and N Mortgage. 

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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How To Score The Best Refinance Rate

Refinancing your home can save you thousands of dollars if you take your time and do your homework. Interest rates are currently very low, meaning that refinancing your mortgage to the lower rates available now can be easily worth your while.

 Here, we’ll discuss the basic game plan for getting the best deal. The refinancing process is much like securing your original mortgage, so you’ll want to present the best case to your lending officer by making sure that your finances are in great shape. Secondly, you’ll want to compare the terms of the mortgage products available to you to select the best option. There are plenty of refinancing products out there that can save you quite a bit of money when you find the right fit. Knowing what to look out for will help to direct your search. 

Why Should I Refinance Now?

Interest rates set by the Federal Open Market Committee (FOMC) are historically low, meaning that it’s an excellent time to borrow money. To help the economy bounce back from the global recession of 2008, rates have remained low, falling steadily throughout last year. Mortgage rates typically follow these trends, and some predict that they will hold steady for the first half of 2020. 

Consequently, smart refinancing choices can easily save you thousands of dollars over your original repayment. When you combine this market environment with the equity that you’ve hopefully built up as you’ve consistently repaid your mortgage loan, refinancing can be well worth the effort. 

Refinance rates on popular mortgage products are at some of the lowest levels in the past decade and continue to fall. These numbers shown are the average refinance rates for several different conforming, government, and jumbo loans as of today. Interest rates on most refinance products continue to fall over last week’s average. Fixed rates and ARMs (adjustable rate mortgages) all follow that trend. 

How Do I Secure The Best Refinance Rate?

Now that you’ve decided to refinance your home loan, you’ll begin the refinancing process, which is similar to applying for your original mortgage. Having excellent credit, lots of income, little debt and plenty of equity in your home can save you thousands.

To secure the best rate, you’ll want to prepare your finances to make the best case to your lender. Proving that you will continue to be a reasonable credit risk for the lender will get you the best rate.

1. Get your credit score in good shape. Lenders will review your credit score to assess how well you manage your money and how consistently you repay your bills. Just like with a conventional mortgage, the higher your score, the lower your interest rate. If there are errors, dispute them.credit score Continue to pay your bills on time and keep an eye on your credit utilization rate. Ideally, you want to keep your balances low, using about 25% or less of the credit that you have available. Making small purchases using consumer credit regularly will help to show that you manage your money effectively, too.

2. Minimize your debt. Lenders consider your debt-to-income ratio, so pay down loan balances, like auto or personal loans, if you have them. This ratio shows lenders that you have sufficient income to repay your mortgage. The lower your debt-to-income ratio, the lower your interest rates tend to be.

3. Maximize your home equity. Your lender views the equity that you’ve built as your investment in your home. It provides added comfort for your lender that you have a stake in this transaction. The more equity that you have in your home, the less risky it is for your lender to refinance for you, and the lower your rates tend to be. Depending on how long you’ve been in your home, and how much cash you have on hand, it may be worthwhile to boost your equity. If, for example, you’ve almost achieved 20% equity, and you can afford to pay your loan down to that level, you can avoid paying PMI (private mortgage insurance) premiums on your loan, which will save a pretty penny. 

If you find yourself in a situation where you have poor credit or little equity in your home, it is still possible to save money by refinancing with a government loan, like an FHA or VA loan, if you qualify. Depending on the terms of your original mortgage, those rates may be low enough right now to justify refinancing.

Choose The Best Loan

Once you’ve got your affairs in order, choosing the best loan can make all of the difference. Consider what your goals are and select the best mortgage product to fit that bill. Understanding what drives each of the terms of your loan can help you find the best deal. 

Consider the loan duration. Mortgages are usually issued for 10, 20, or 30-year terms. When you refinance, better interest rates are available for shorter-term loans because the lender is exposed to risk for a shorter time. Make sure that you can handle the monthly payment—it may be more than what you paid on a 30-year loan, but know that the shorter repayment period combined with these lower interest rates can quickly save you thousands, depending on your loan amount and other factors.

Consider how long you plan to stay in your home. This answer will have a significant impact on how you approach refinancing. Whether you plan to live in your house for the rest of your life or plan to relocate and sell within a few years can make a difference when you look for the best rate.

For a couple planning to sell their home within five years, for example, it might be prudent to consider an adjustable-rate mortgage. An ARM will generally begin with an attractive initial interest rate. The 5/1 ARM, for example, will guarantee your interest rate for the first five years of your mortgage. Every year after that, the interest rate may go up or down, depending on what the market dictates. If you only plan to keep your home for just a few years, taking the risk on an ARM will give you the benefit of a lower rate. If you plan to sell before the rate changes, you will protect yourself from future fluctuations and take advantage of a great rate.

On the other hand, if you plan to stay in your home for a long time, it makes sense to consider a few options that may save you money over the longer term, like buying discount points. Buying discount points is essentially paying upfront to lower your interest payments over the life of your loan. Under certain circumstances, this can be cost-effective. 

Additionally, the longer you plan to keep your loan, the more sense it makes to pay for your closing costs out-of-pocket if you can. Otherwise, you’ll pay the interest on these new closing costs for the duration of the loan.

Research Rates

Make sure to get multiple quotes from several different sources. It’s a good idea to start with your existing lender, but compare that loan estimate to ones from your local bank or credit union against ones from independent loan originators. The rates and terms can vary significantly, so pay attention. 

When you find a loan that suits your needs, request a mortgage rate lock to prevent your rates from rising while your loan is being processed, which can take a few weeks.

Just like with mortgages, pay attention to the APR, which includes the interest rate and all of your fees, like loan origination costs and closing costs, etc. The APR gives you a more comprehensive picture of how much refinancing will cost. 

Conclusion

Thanks to historically low-interest rates, it is a great time to consider refinancing your mortgage. Refinancing your home loan now can translate into thousands of dollars in savings over the life of your loan. 

To maximize your potential savings, pay attention to your finances. You want to show your lender that ultimately, you’ll pay back the loan on time. The best way to make this case is by showing that you’re financially responsible. A higher credit score, low debt-to-income ratio, and a large amount of equity all serve to increase your lender’s comfort and result in lower interest rates.

Once you’ve been approved for refinancing, consider which loan terms will serve you best. If you plan to move soon, consider an ARM so that you can capitalize on those favourable introductory rates. If this is your forever home, think about paying down points so that you pay less interest over time. If the numbers make sense, you might choose a shorter-term loan to take advantage of tremendous savings in interest payments, too. 

Regardless of what you decide works best for your situation, we at A and N Mortgage can help you secure some of the best mortgage rates in Chicago as you consider your refinancing options. 

 

 

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

 

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