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Rising interest rates are great if you are renewing a certificate of deposit but not so much when you’re borrowing money. With interest rates on the rise as well as home prices, housing affordability is a concern for would-be homeowners.
A rough rule of thumb is that a person’s or family’s housing should not exceed 28% of their monthly gross income. While rental rates and home prices have been consistently increasing, mortgage rates have been soaring in the past month. In one week, according to the Freddie Mac Primary Mortgage Market Survey, they jumped by .5%.
This means that people have to pay a larger percentage of their income for housing unless their incomes have been increasing at an equal pace. A $200,000 mortgage would be over $100 more per month if closed in July compared to closing at the interest rates available in January of 2013.
If rates increase by .5% by the time you close on the same size mortgage, payments would increase by almost $60 per month. In order to keep the payments the same, a borrower would have to put an additional $11,000 down to lower the mortgage amount.
Check out how your payment would be affected if interest rates continue to rise.
The National Association of REALTORS® suggests that housing is more affordable now than one year ago. However, with all of the variables in play including inflation that was not addressed in this piece, it is unclear how long conditions will remain “affordable”.
We're constantly bombarded by lenders to refinance our mortgage under a variety of programs. The volume of offers can almost make you numb to the rational consideration.
There are common rules of thumbs that homeowners and agents use such as not refinancing more often than every two years or there must be at least 2% savings from your previous mortgage rate may not always be accurate.
The reality is that if you can refinance for a lower rate and you'll be in the home long enough to recapture the cost of refinancing, it should be considered. The costs of previous refinancing that haven't been recaptured by monthly savings may need to be added to the costs of the new refinance.
Take a look at the chart that shows the average rates according to Freddie Mac for 2012. They are lower today than they were in January of 2012 and for the ten years before that.
Refinancing may save you a substantial amount of money, especially if you're going to be in your home for a long time. It is definitely worth investigating. To get a quick idea of what your savings could be, use this refinancing calculator.
“I would buy a home and I would finance it with a 30 year mortgage. It’s a terrific deal. “
Warren Buffett, CNBC, February 27, 2012
Let me know if I can help you follow Warren Buffett’s advice.
Millions of homeowners fell behind on their mortgage payments last year, and then proceeded to fall further behind every month.
These are tough times and there are no easy answers.
The fact is, major lenders, the federal government, and local agencies across the country have stepped up their efforts to stem the tide of foreclosures. More help is available than ever before.
As a real estate professional who has earned the Certified Distressed Property Expert (CDPE) designation, I am knowledgeable and adept at navigating among the full range of solutions for helping financially distressed homeowners to make a fresh start.
Looking to learn more? Check out my free report: "Tipping the Scales Toward Foreclosure? Resolve to Shed the Weight of an Unmanageable Mortgage in 2012."
And if you, or someone you care about is looking to tip the scales back into financial solvency, contact me today for a confidential consultation!
No one wants to pay more than its value regardless of the product. When you buy bananas for 49 cents a pound at one store and see them for 39 cents a pound at another store, it's not the ten cent difference as much as it is about overpaying.
It seems like the natural way to start the negotiation process is to offer less than the asking price for the home. However, instead of the price, a buyer could negotiate condition, timing or terms. A few thousand dollars off the price may not make much difference in the monthly payments but it might make a big difference if it was negotiated in one of the other areas.
A buyer who only has enough available funds for down payment and closing costs will have to live in a home exactly the way it is for some time. They may not be able to make the changes that would really make it feel like home until they've saved more money.
Let's say you found a home that needed $5,000 worth of improvements and the seller would lower the price by that amount. Financing those improvements with a separate bank loan will result in higher payments due to a higher interest rate and shorter term than your mortgage.
Offering full price and asking the seller to make the improvements will result in lower monthly payments based on today's low mortgage rates and 30 year term. Another alternative is to negotiate with the seller to pay your closing costs so you'd have the cash to make the improvements.
Paying full price may cause the seller to consider concessions regarding condition or terms which can be balanced to affect the value of the property. Buyers can and should negotiate to acquire the home that meets their needs at the lowest possible cost of housing.
It all seems perfectly reasonable: one person is not satisfied with what he can earn currently in the market and another wants to find the most attractive mortgage to purchase their home. It can be a good match but the IRS has specific rules that govern the transaction.
The loan must be done in a business-like manner with a written note specifying the loan amount, interest rate, term and collateral. IRS requires that the mortgage be a recorded lien in order to allow the interest deduction.
Sometimes, these friends and family situations have a less than normal interest rate on the mortgage. However, the rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS according to current Treasury securities. For October 2011, the rate is 2.95% for terms over nine years.
The seller must report the interest paid to them along with the name, address and Social Security number on schedule B when the buyer uses the property as their principal residence.
A mortgage between family and friends can be good for both parties. It may allow the borrower a slightly lower rate without the expenses of a traditional lender while giving the note holder a higher rate than they can earn in available investments. Your tax professional can guide the transaction whether you're a buyer or seller and your real estate professional can help arrange to have the documents drawn and filed.
Do you remember going to the State Fair or Six Flags as a child? There was a terrific ride your older siblings were going on but there, at the entrance gate, was a sign that read "You must be this tall to ride."
After standing in line and thinking you had just about made it, you found out that you weren't tall enough. Not only was it disappointing, it was slightly embarrassing. You never want to go through that again.
It's remarkably similar when buying a home. You can go through the entire property search process to find the right home and negotiate the contract only to find out that you don't measure up "financially." It's something that no one wants to go through if they have a choice.
Regardless of what you think you know, if you're buying a home, you need to physically visit with a trusted mortgage professional before you get serious. You'll find out your credit score which will directly affect the mortgage rate you'll pay. You'll discover possible blemishes on your credit that may be able to be corrected. You'll even get a pre-approval letter that you can submit with an offer which could dramatically affect your negotiations.
Remember how some rides didn't turn out to be as good as you thought they were going to be? You certainly don't want that disappointment with a lender involving one of the biggest decisions of your life. Contact me for a list of trusted mortgage professionals.
If you had a 3.5% mortgage on your current home and were buying another home, transferring your low interest rate mortgage would be ideal. Unfortunately, lenders don't allow that. When buying a home today, it would be smart to think about selling it in the future. To have a good home with unique features makes it marketable. To have attractive financing that could be assumed would add to the salability. Consider getting a FHA or VA loan to purchase your home. The present advantages are that these loans are priced competitively and a little easier to qualify for than conventional loans. The future advantage is that FHA and VA loans are assumable at the original note rate for qualifying buyers. There's more to sell than the home itself when you have an assumable loan. The mortgage payment could lower the cost of housing significantly. A buyer may easily be willing to pay more for the home due to the attractive financing, especially if it helps their equity grow faster.
If you had a 3.5% mortgage on your current home and were buying another home, transferring your low interest rate mortgage would be ideal. Unfortunately, lenders don't allow that.
When buying a home today, it would be smart to think about selling it in the future. To have a good home with unique features makes it marketable. To have attractive financing that could be assumed would add to the salability.
Consider getting a FHA or VA loan to purchase your home. The present advantages are that these loans are priced competitively and a little easier to qualify for than conventional loans. The future advantage is that FHA and VA loans are assumable at the original note rate for qualifying buyers.
There's more to sell than the home itself when you have an assumable loan. The mortgage payment could lower the cost of housing significantly. A buyer may easily be willing to pay more for the home due to the attractive financing, especially if it helps their equity grow faster.
