February 23, 2017
Get a Great Mortgage in 2017
Are you thinking about buying a house this year? If so, you’ll be looking at mortgage rates that aren’t the rock bottom options we’ve seen lately, but are still lower than at most times is recorded history. How can you make sure that you get the best possible rate on your new mortgage? Use some of these suggestions and strategies to land a phenomenal rate! What Down payment? Most home buyers automatically assume they need a substantial down payment to secure a mortgage. However, depending on your personal situation and your lender, this may not be the case. While a 20% down payment is often noted as typical, the Department of Veterans Affairs offers zero-down VA mortgages for qualified borrowers including veterans, active-duty service members and certain members of the National Guard and Reserves. The U.S. Department of Agriculture guarantees zero-down mortgages as part of its Rural Development program. The loan guarantees are available in eligible areas -- mostly rural areas, though some are suburban. Navy Federal Credit Union offers zero-down mortgages for qualified members to buy primary residences, and the Federal Housing Administration insured mortgages allow down payments as small as 3.5 percent. You can also find commercial lenders offering conventional mortgages with down payments of as little as 3 percent with private mortgage insurance. An FHA Mortgage is Ideal for Less than Ideal Credit FHA loans are popular because they're a great resource for borrowers with imperfect credit. In 2016, the average credit score for an FHA home buyer was near 686, while the typical home buyer with a conventional loan had a credit score of 753. A credit score of 580 or greater is required for an FHA-insured mortgage with a down payment as low as 3.5%. If your credit rating falls into the 500 to 579 range, a down payment of at least 10% will get you an FHA mortgage if you can find a lender that would guarantee the loan. You can learn more about FHA loans here. Think About a No Closing Cost Mortgage Most buyers spend thousands of dollars in mortgage fees and other closing costs. If you pay those fees right off the top, you will often be offered the lowest possible interest rate. However, you may want to think about taking a higher interest rate in exchange for the lender covering all of the closing costs. For example, if you pay all the closing costs your interest rate would be 3.75%, while your rate may be 4.125% if the lender covers your closing costs. If you’re thinking of staying in your home for a shorter term, say 5 to 6 years, or making extra payments and closing out your loan early, this could end up saving you quite a bit over the course of your loan. Shop Within Your Means Many homebuyers make the mistake of “shopping near the top” of their budgetary limit. They assume that as time goes on, their income will rise, and it will become easier to make their house payments. However, our volatile economy no longer provides that security that our parents and grandparents usually had. It will be much easier to obtain a mortgage with a good rate if you’re working near the lower end of your financing spectrum. You can always “trade up” to a more expensive house in a few years if you find that your income rises substantially. Shop Around Don’t go with the first company that offers you a mortgage. Even if a home loan only varies by a fraction of a point, you could pay $10,000 or more in extra interest – depending on how much you borrow and the term of the loan. Rates can and do vary widely, so take your time and compare offers. Your best option may come from a non-traditional source, such as a credit union or a little known lender you can find by using the services of a mortgage broker. Stay Within a Two Week Shopping Period Your credit score is a fragile thing; it will begin to drop when you have repeated credit inquiries over time. A 14-day shopping period is ideal when you’re looking for a mortgage. If you go much past this point, you could see a drop in your credit score – the last thing you want when you’re looking for a good rate. Search carefully and compare all your options, condense your timeline to protect your credit rating. Good Faith is a Good Idea Lenders must provide a “good faith estimate” of the costs connected to your loan. This tool allows you to compare apples to apples with the loan terms you are considering. One lender may offer a rate that is .25% lower than another, but the costs associated with the loan are significantly higher. You may assume that the loan with a slightly lower rate is the better deal, but lower costs assessed by a different lender may make the higher rate a better bargain. Make sure you get your estimate and check it carefully to make sure that your low rate isn’t a wolf in sheep’s clothing. Make Sure You Have Some Left Over… Keeping a cash reserve will help you when it comes to securing a better mortgage rate. Many home buyers wipe out their liquid assets (checking or savings accounts, money market funds, certificates of deposit) when they’re collecting a down payment. However, lenders like to see cash reserves against a mortgage in order to deliver an optimum rate. They’re usually looking for two months – enough liquid cash after closing to cover your new mortgage payment (principal, interest, taxes, and insurance) for at least the next 60 days. If you have any questions on how you can negotiate the best mortgage, don’t hesitate to get in touch! At Ernest Signature Custom Homes, we want you to be as comfortable with the home financing process as possible. Drop us a line here or call us at (912) 756-4135. We’re here to help!