With the busy summer months coming, prospective homebuyers are deciding whether to buy now, or wait in hopes of prices dropping even further. So how do you decide which option to take? This video addresses both sides of the issue. For more information about the mortgage market, or for any other mortgage questions, visit my website at www.AlissaAlvarez.com
In the current market, many homeowners have an adjustable rate mortgage (ARM) which are going to begin adjusting this year. Presently, one of the most common reasons for a refinance is to switch the ARM to a more stable fixed rate. A refinance is one option in which you can take control of your mortgage rate, and monthly mortgage payment. If you have an ARM, and are considering a refinance, here are a few things you will want to consider.
1. How much will the new adjusted rate raise my monthly payment? You will need to do a little bit of research to figure this out, either by calling your lender, or reviewing your loan papers. If your rate is going to go up a few percentage points, this can raise your monthly payment substantially. For example, consider to following scenario:
$300,000 loan amount @ 3.75% = $1390 monthly payment
After 5 years, the ARM will adjust by 1.5%
$300,000 loan amount @ 5.25% = $1655 monthly payment
Difference of $265 more a month
In this scenario, if $265 raise in the monthly payment is too much for the homeowner, a refinance might be in order. The amount an ARM will adjust is unknown, which can be an unsettling when trying to budget for the monthly payment. Many homeowners look to a refinance to secure the fixed rate, and fixed monthly mortgage payment.
2. What if I can’t cover the cost of a refinance? If you are worried about closing costs, negotiate with your loan officer, and often times we can work something out to get those lowered. Often times lenders will offer a rebate on a rate, which is a percentage of the loan amount, and can be credited towards your closing costs. For example:
$300,000 loan amount, 30 year fixed rate of 5% with a rebate of (.875%)
Closing costs estimated at $3,000
.875% rebate = $2,625
New closing costs after rebate credit = $375
As you can see, by negotiating with the lender, it might be possible to save yourself hundreds of dollars on closing costs. But remember, rates/rebates change everyday, so please be sure to verify if this is an option for you.
As always, when considering an important decision like a refinance, be sure to consult your mortgage professional and review your options. If you are interested in more information, check back in all this week as I will be posting various topics relating to a refinance.
With interest rates as low as they are, you might be thinking about refinancing your home to take advantage of the lower rates. In many cases, a homeowner can refinance into a much lower rate, which in turn can save them a significant amount on their monthly mortgage payment. But a refinance won’t make sense for everyone, and it’s important to discuss with your loan officer the details of your specific situation.
When considering a refinance, the following are a few things you want to consider:
1. How much lower will my interest rate be if I refinance? Generally speaking, it only makes sense to refinance your loan if your new interest rate is at least 1% below your current rate. With a 1% lower interest rate, you should see your monthly payment drop by at least $100. For example, if your current loan amount is $300,000, with a 30 year fixed interest rate at 6.25%, your monthly P & I payment is around $1850. If you refinanced with a lower interest rate of 5.25%, your monthly P & I payment is now only about $1650, saving you $200 a month!
2. How long will I be in my home? Remember, since a refinance is starting up a new loan, there will be closing costs involved. It’s a good rule of thumb to say that closing cost will equate to 1-3% of the loan amount. For example, if you consider the same loan amount of $300,000, you can expect closing costs of at least $3,000. When you take into account the cost of a refinance, it is important to determine whether or not you will be in the home long enough to benefit from the monthly savings. Again, let’s take a look at the example above in which we lowered the interest from 6.25% to 5.25%. In order to determine how long it will take for the monthly savings to equal the cost of refinancing, we will use the following equation:
closing costs / monthly savings = number of months till you break even
$3000 / $200 = 15 months
In this example, you will need to be in your home at least 15 months to have accumulated enough monthly savings to break even with the refinancing costs. If you do not plan on staying in your home long enough realize these savings, it wouldn’t make financial sense to refinance.
Your home is your most important investment, and a key component to the health of your financial future. Before you refinance, ask yourself the above two questions, and discuss your options with your mortgage professional. Throughout this week, I’ll be going over more details of the refinancing process. Feel free to contact me at anytime at (562) 972-0351 with any of your questions. For more information on refinancing your mortgage, including mortgage calculators and a checklist, visit my website at www.AlissaAlvarez.com
One of the first steps to purchasing a home is getting preapproved for a loan. Often, most borrowers get prequalified for a loan, which is a good start. However, in order to establish yourself to Realtors as a serious and able buyer, you will need a preapproval letter from a lender.
With a preapproval letter in hand, a buyer is now in position to do the following:
1. Save time by looking at the right properties. A preapproval letter will set your price range, thereby saving you from wasting time looking at homes out of your price range. Nothing is more disappointing than finding a home you fall in love with, going to a lender to apply for a loan only to find that you qualify for less than what you hoped for. Now, not only is the house out of reach, but homes in the lower price range can seem disappointing in comparison.
2. Increase your negotiating power. A seller’s highest priority is selling their home fast. Homes are like bread, the longer they stay on the shelf, the less desirable they become. Nobody likes stale bread! A buyer that is preapproved is more of a sure bet to close the transaction. Preapproved buyers will always have priority over prequalified buyers!
3. Faster closing period. If you are preapproved, the transaction will not be tied up while the application is being processed. Appraisals can be ordered, and the ball can get moving right away, which can decrease a closing period from 30 days to a couple of weeks! Again, this might be even more advantageous if a seller is in a bind, and needs to close quickly.
Completing a loan application is usually the most time consuming part of the transaction. If you have already taken care of this step, you are only positioning yourself ahead of the pack! If you would like to see how much you are pre-approved for, feel free to call me at (562) 972-0351, or visit my website at www.AlissaAlvarez.com
Sad but true, in the finance world, we are all just numbers. Perhaps the most important number of them all is our credit score. As such, we should always be aware of what our exact scores are, and how we can improve them. Here is a quick rundown of what credit scores are all about, and how you can get the most out of yours.
What are the main factors that affect your credit score?
– First and foremost, your payment history. The main thing a lender wants to know is how good, or bad, your history is on paying your debts in full, and on time. Your most recent history is what matters, and this will determine the majority of your credit score.
– Second in importance is your outstanding debt. If your credit cards are maxed out, or the balance is high, your credit score will be negatively affected. Keep your balances low, and watch your credit scores go up.
– The length of time you’ve had credit. The longer your credit history, the better your score will be. This is why it is important to not close any old accounts…even if the company made you mad!
– Lastly, the number of inquiries on your credit report. It can often be viewed by lenders that too many inquiries can mean that you are in debt trouble. However, if you are looking to purchase a home or refinance, credit agencies do allow a cushion period for multiple credit runs since they know you are in the market.
How can you improve your credit?
– Know your score. If you don’t know your score, you won’t know how to improve it.
– Pay your bills on time. A good idea would be to set up an automated pay plan through your bank. Paying your bills automatically will eliminate the possibility of you forgetting a due date.
– Pay down credit card debt. While it is always good to pay off your installment loans (mortgage, car, student), you will see a greater boost in your score by paying down credit card debt. Lenders like to see your balances below 30% of the credit limit. Also, keep in mind that generally credit card debts are set at higher interest rates than installment loans, and are therefore, costing you more money.
– Check your limits. Often times, the credit card company will report a lower limit to the agencies than you actually have. Call the credit card companies, and make sure they correct the mistake.
– Start using your old cards. Often times, I hear clients closing their oldest credit card accounts. Whether it was because they finally paid it off, or because the credit card company mistreated them, and in retaliation the client closed the account. If you’ve had a credit card for a long time, don’t close it or stop using it. Remember, the length of your credit history matters. If you stop using the old card, the agencies will stop reporting the accounts. While the accounts will still appear, they will not hold as much weight due to the inactivity.
– Dispute collections. If you had a dispute with a company recently, and it was settled but is still showing up on your report, get it fixed! Dispute the account with the credit agencies, and often times if the balance is small enough, the account will be dropped. However, make sure you only dispute the most recent collections.
Here is a little more info on disputing collections:
– Negotiate a payment plan with the collection companies. Be tough, and persistent!!
– Correct any mistakes! Often a mistake can be as simple as a misspelling of your name. Look for mistakes in credit limits, late payments, charge offs, and unpaid accounts.
– Get rewarded for being a good customer. If you’ve been a good customer, you can often call the companies and get that one late payment erased from your credit history. Also, you can ask for an older troubled account to be “re-aged.” If the account is still active, the lender might forgive old lates if you’ve paid on time over the last 12 months or so.
Your credit score is crucial to your financial future. With a little effort, you can help save yourself thousands of dollars in the long run. If you need any help reviewing your credit report, contact me at (562) 972-0351 to set up an appointment, and we can review it together. Also, feel free to check out my website at www.AlissaAlvarez.com for more information.
Whether you are a homeowner, or would like to become a homeowner, this blog is your place to find a collection of helpful tips, strategies, and tools that will keep you informed, and in control of your financial future. I’ve created this blog to be used in conjuntion my weekly YouTube videos. Every Wednesday, the videos will introduce a general topic, and this blog will continue the dialogue by providing supplemental details on that week’s topic.
The market is constantly changing, and it’s our job as the industry professionals to keep you in the loop.