I Want To Buy A Home, Where Do I Start?

If you are interested in beginning your home search, but you are either a first time home buyer, or someone who hasn’t bought a home in a while we want to shed some light on first steps and provide you with insight into the process. The very first step is to find a lender to work with. We have a couple of recommendations here.

Once you select a lender you will likely begin by filling out a loan application in order for your lender to be better able to understand your financial situation. You will answer a number of personal financial questions. The process might feel a little uncomfortable, but rest assured it is confidential and will stay between you and your lender. When complete your lender will be able to tell you how much you can spend on a home. It is always up to you to choose to spend less, but you cannot spend more.  This is because this number is tied to your debt to income ratio. This is the amount you earn vs the amount you owe on other liabilities like car payments.

Your lender might also need to do some credit repair in order to boost your credit score. They can tell you exactly which things should be paid off in which order and which accounts you might be better off closing for good. Once you begin this process do not buy a car, or close accounts without first discussing it with your home lender. This can completely derail the process and set you back to square one. For more information on what not to do, see our blog post 6 Don’ts When Applying for a Mortgage.

As soon as you have your number from your lender they can provide you with a lender letter that is required with any offer you submit. This letter acts as the proof that you can afford the home you want to buy. When you have this letter in hand you and your real estate agent, ideally us, can begin to look at homes and figure out what specifically you want and need. We can narrow it down together until we find the home you want to buy, and that is how you begin the home buying process.

How To Use Your Current Home to Buy a Second Home

It’s called a cash our refinance and it could help you afford to turn your current home into an rental, or purchase a new income property. Here is how it works. Let’s say that you have owned your current property for several years. Chances are the market has pushed your home value higher and even though you can’t do anything with it, that added value belongs to you and this is where the cash out refinance comes into play. Right now millions of people are refinancing their homes because of historically low interest rates just to have a lower monthly payment. You can also refinance your home and pull out it’s increased value in return for the bank taking a larger ownership share in your home. Let’s say that you bought your home for $300,000 and now you believe it is worth $400,000. That is $100,000 in equity that is just sitting there. You could complete a cash out refinance and end up with a lower interest rate.

Many others may also be doing a cash out refinance as well, but they might only use that money to buy new cars or pay down other debt. Instead you could take that money and use it to secure an income property that you manage as a landlord and that results in the equivalent of a paycheck every month. With real estate values remaining strong investing in real estate represents some potential stability in your portfolio while stocks and other more traditional investment infrastructure like stocks seeing increased volatility. Contact us today to find out how to reinvest your homes equity and to receive in depth coaching on becoming a landlord. We would be happy to help you out.

Why Do Mortgage Rates Matter?

In real estate we are always talking about mortgage rates but you may be wondering why do incremental changes in a percentage really matter. We wanted to break down mortgage rates for you in order to better explain how capitalizing on a lower rate can help you afford a higher priced home. Let’s use a few example numbers to demonstrate. For instance, you may be shopping for a home around $400,000 and want to put 20% down. Our example interest rate to start will be 3.5%. For the sake of ease let’s assume there is a 1% property tax rate, which costs $4,000 per year and that your homeowners insurance will cost you $1,200 per year. With these numbers you would end up putting down $80,000 at closing with a monthly payment of $1910. This amount includes your homeowners insurance at $140 per month, taxes at $333 per month and your principal and interest at $1,437 per month.

Now let’s change only one variable, your interest rate. Let’s drop it to 3% and see what changes. Doing so drops your monthly payment $1,822 with principal and interest accounting for $1,349 (remember nothing else changed). Now let’s say that you were limited to a monthly payment of $1,910 from our original example. If the interest rate drops from 3.5% to 3% you go from being able to afford a home at $400,000 to $426,000. That is quite a large jump without having to increase your income or the amount of your monthly payment, and that is why mortgage rates matter. They have some of the largest impact on your purchasing power as a home buyer. Interest rates right now are at historic lows, which as demonstrated above means that you can afford more house now than you could have last year. Contact us today and find out how you can take advantage of this once in a lifetime opportunity.

Should I Refinance My Home

This is a question that I am frequently asked.  How do you decide if you should?  There are several questions that you should asked yourself to help you decide if the time is right for you.

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  1.  The first question is what is the current interest rate on your loan? There is a general rule of thumb that says if interest rates are more than a point lower than what you have it might make sense to refinance.  For example, if the interest rate on your loan is 4 and rates are at 2.75.  You should consider.  You will find your interest rate on your monthly statement.
  2. You find out that interest rates are at least a point less than where you are.  Then what?  I feel you need to asked yourself some more questions.  How long do you intend to own the property? It costs money to refinance.  On average it costs in the range of $2,200 to $3,000.  That number can be higher. With that number in mind, how many months would it take to break even with the money you would save at the lower interest rate?  You certainly want to be able to enjoy the money that you are saving.  Know that most lenders will tack the refinance cost, on to the loan.  So that means that you will owe more on your property once you refinance.
  3. Do you have plans or needs for the money that you will be saving each month?  You might be saving a couple of hundred dollars if you interest rate is more than two percentage points higher than where interest rates are now.  What would you do with that money? 
  4. Another thing to asked yourself is could I shorten the life of my loan?  Could you take your current thirty year, mortgage that you still have 25 years on down to a 20 year or a 15 year loan?  If that is the case it may truly be a good idea to refinance.  Know that your monthly payment will more than likely be higher, but you may be in a better financial situation than you were when you took out your mortgage and that extra amount may not be as significant as it was when you took out your loan originally. IF you cannot, know that you will be starting over with a new thirty year loan.   

After reading this post you may still have questions.  I would like to recommend that you speak with a lender that I trust, Dave Armstrong.  He is with Elevations Credit Union.  He offers great rates and low fees.  He can be reached at dave.armstrong@elevationscu.com or 970-388-3903.