Real Estate Information Archive

Blog

Displaying blog entries 1-10 of 12

Should I Get a Loan with Mortgage Insurance?

by Karen Picarello

            When you buy a home, there is typically an amount of money paid as a “down payment.” This amount is part of the purchase price of the home that you pay immediately out-of-pocket instead of increasing the amount of a loan. You can pay as much as you want in a down payment including up to the purchase price of the home, but the typical amount paid is 20 percent. If you pay more, you won’t have to get as large of a loan, and you won’t spend as much in interest over the life of the loan.

            In many cases, private lenders will require a down payment in order for them to approve a loan. The bigger the down payment, the less risk to the bank because there is less money they’d have to recover if you defaulted on the loan. Those who foreclose on their loans cause lenders to try to recoup the loan amounts through foreclosure sales, and these homes often sell significantly under market value. Therefore, a higher down payment equals less risk to the bank.

            A first-time home buyer may not have the funds available to put down a significant down payment. In this case, a bank or lender may reduce their risk by requiring mortgage insurance. Mortgage insurance covers the lender for a portion of the principal balance on a loan in case the borrower cannot make payments.

FHA Loans

Federal Housing Administration (FHA) loans are a typical type of loan for first-time home buyers, and they may only make a person pay a down payment of 3.5%. They will also accept lower credit ratings. The Mortgage Insurance Premium (MIP) is a requirement for this loan type, it will be 1.75% of the loan amount. You pay this monthly for the life of the loan or up to 11 years if you put down a larger down payment.

Conventional Loans

Private mortgage insurance may be available for conventional loans when a person only has to put down 3% for a down payment. This can be cancelled after 20% of the home value has built up in equity.

USDA Loans

The U.S. Department of Agriculture offers loans with no down payment, but you have to pay an upfront fee of 1% of the loan amount and an annual fee of 0.35% of the balance of the loan. Similar to all other mortgage insurances, it reduces the risk to the lender.

Should You Get a Loan with Mortgage Insurance?

Sure. If it is the only way you are going to get a loan. The better option is to wait for better financial circumstances or save money for a down payment, but some realities don’t produce this as an option. It does not hurt your credit to have mortgage insurance, but it does hurt your pocketbook. Discuss your options with your lender and a financial adviser, and make sure you make the responsible decision.

Mortgage Rates Continue to Fall Amid China Scare

by Karen Picarello

The mortgage giant Freddie Mac just released new numbers showing continued decreasing rates for home loans. Its 30-year fixed rate is down to 4.1%, and its 15-year fixed rate is down to 3.57%. While this is not great economic news, it is great news for those who are looking for a home loan.

Rates continue to fall because of trade tensions between China and the U.S. Trumps tariffs and continued threats to increase tariffs have created an uncertain stock market. Not even strong employment numbers can strengthen predictions about the future, and weakened relations between China and the U.S. could keep mortgage rates low.

What Does this Mean for Prospective Home Buyers?

If you are thinking of purchasing a home with a mortgage anytime soon, you should get ready. Nobody knows how long rates will stay this low. A 4.1% rate is a lot less money to spend over the course of a loan, and if you can swing the 15-year fixed rate, you’ll be debt-free in less than 2 decades.

If your credit isn’t quite up to par, and you don’t think you’ll qualify for a 4.1% rate, you should work on improving it. It is quite possible that the rates will stay low for a while with this administration, but it won’t stay this way forever. You might be able to afford a home quicker than you think.

What Does this Mean for Current Homeowners?

For current homeowners, this means two things. The first thing is that you may want to look into a re-fi. Lower interest rates can take hundreds off of your monthly payment and reduce the overall amount of money you spend on interest over the term of the loan. Re-financing to a 15-year loan will improve the amount of money that is applied to your principle balance each month.

The second thing this means for homeowners is that there may be more people seeking mortgages, and this might be a good time to sell your home. It is a seller’s market, and home values have been increasing. Not only will you be able to get a higher offer for your home, but you will have more people who can successfully get loans out looking. This amounts to more successful closings, and overall, happier home sellers and buyers.

You’d be hard-pressed to find a lot of people who think the tension between China and the U.S. is great, but there has been one good result for the housing market, and that is continued decreasing interest rates.

Pre-approval Equals Seller Confidence

by Karen Picarello

With the Fed keeping interest rates stagnate, there could be more buyers in the market while interest rates remain low. However, predictions vary in whether or not the current seller’s market will continue. Many believe there is a shift on the horizon, but it is too soon to tell. For home buyers who are not cash buyers in any market, you can get the ball rolling by getting your loan pre-approved and increasing the seller’s confidence in you.

Why does a seller need confidence?

Cash buyers are a sure thing, and the mortgage process is not going to hinder the sale. On the other hand, if a buyer is going to use a mortgage to purchase the home, there are a number of things that can stall the sale. Proving income from self-employment, unknown liens against a property, and debt problems can stall or stop the mortgage process. Additionally, you must figure out how much you can afford and how much banks are willing to dole out. This is a complex process that may take a week or many months. Sellers want to know that you are ready to start the buying process, so they don’t have to wait for their house to close. Many home sellers are picking up a new mortgage, so they may not want to wait until you are pre-approved to sell their home.

How do you get pre-approved?

1. Check your credit:

If you need help getting your credit score increased, start with the basics. Make sure you are making payments on time, and make sure you don’t have too much debt compared to your assets. If you have debt problems, speak to creditors about your options. They may be able to lower your interest rates or give you a lower pay-off amount provided you pay in full.

2. Choose a lender:

There are many lenders from which to choose. Once you know you have your credit rating up to par, and you are ready to look for a lender, make sure you check out a few. Compare their rates and read their contracts, and choose a lender who you feel you can trust. You may want to refer to the advice of friends and family.

3. Provide the information needed:

You’ll have to give your potential lender your financial information in order for them to pre-approve. This means income information, debt information, credit scores, etc. The lender will go over everything and evaluate you as a financial risk. Then, they will pre-approve you for a certain amount. This is not the amount you must spend on a house, but it is the amount they feel that you can afford and the amount they are willing to provide.

Once you are pre-approved, you will still have more work involved in securing the mortgage, but your seller will know that you’ve already covered the basics, and it is likely that they will be paid in a timely manner.

Economic Worries May be Good for the Housing Market

by Karen Picarello

The economy is globally unstable, and with a lagging housing market, the Federal Reserve has decreased mortgage rates to the lowest amount in a year. New numbers are expected to be announced Wednesday, and experts are predicting that the Fed will not be raising rates any time soon. We won’t know until Wednesday, but it seems that economic worries are good for the housing market.

Wavering Stock Market = Incentives

The Federal Deserve increases and lowers interest rates in an attempt to keep all markets stable. Right now, the stock market is unstable due to global economic unrest. The trade war with China across one ocean and Brexit failures across the other ocean don’t have anyone feeling secure in volatile investments. They are seeking out secure investments like long-term bonds.

When the consumer is unsure like this, the Fed steps in and lowers interest rates to incentivize people to buy because they won’t lose as much money in interest. Last week, the rate went as low as 4.31 percent.

Insignificant Job Growth but Increased Wages

One of the other things on many economist minds is when Millennials are going to start buying homes. It’s not like there aren’t any who own homes currently, but they aren’t the major consumer demographic. They should be. Instead, Millennials are living with friends or family instead of taking on more debt. This is caused both by high rates of student loan but also by the inability to save enough for a healthy down payment.

Although job growth has been slower than expected, wages have gone up. This gives Millennials more disposable income and savings potential. It could be enough to make them feel confident in buying a home as a sound financial decision. They’ve seen the debt-ridden generations of the past and are reluctant to travel down the same path.

It’s a Guessing Game

Nobody knows what will happen to interest rates, but it makes sense that rates would stay the same or lessen. The economy is simply not safe enough to get people to buy houses unless they can’t resist low rates. Sales fell 1.2 percent from December to January, but there was an increase in new construction. As long as there are a no economic catastrophes, mortgage rates will probably only remain low for a short while. Hopefully, it will be enough to stimulate the economy. Until then, it could really help the housing market.

Mortgage Rates 101

by Karen Picarello

If you are a new home buyer, mortgage rates may seem a bit confusing. You know you want a low rate, and you don’t want a subprime mortgage, but you aren’t really sure what subprime means or how to find a low rate. A good mortgage broker will be able to help you find a good loan for which you qualify, but you should be equipped with some basic knowledge and understanding of the creation of mortgage rates and loans.

3 Basic Types of Mortgage Loans

1. 30-year fixed: A 30-year fixed rate loan is the most common type of loan for a home buyer. The interest rate is fixed, and you can get this type of loan through FHA, VA, and other standard mortgage companies.

2. 15-year fixed: It is amazing how much faster you can pay off your home (and save money) with a 15-year fixed loan. You can get a lower interest rate and pay less over time because of the shortened term length. While this may seem like an easy decision (if you can afford the increase in payments), you must consider other investment opportunities. You could be investing the difference in payment amounts. A financial advisor can help you weigh the benefits of a 30-year versus a 15-year fixed loan.

3. Adjustable-rate loan: Adjustable rate loans take advantage of current interest rates, which can be much lower in the early part of the loan. If a person isn’t planning on living in a home for many years, it may actually save them a lot of money. However, it is risky. Interest rates can shift causing great changes in monthly payments. People who get adjustable-rate loans in order to get a bigger house than they can afford may not be able to keep-up with payments. This is, in part, what caused the last housing crisis.

3 Tips for Successful Mortgage Loans

1. Get a good mortgage broker:

A good mortgage broker can time your closing to get you the best interest rate possible. However, you want to make sure you go to one who you trust and who has the knowledge to get you the best loan. Talk to people about who they have hired, and look at online reviews. An informed decision is always best.

2. Get your budget put together:

You should have a reasonable idea of how much income you have available for a home purchase. This includes how much savings you have for a down payment. Be prepared with this information prior to going to your mortgage broker, so he or she can do their job.

3. Don’t bite off more than you can chew:

You may be able to eek out the payments on a big house for a little while, but don’t bit off more than you can chew. Foreclosures and short sales are a big hit to your credit score and can take away your opportunity for future home ownership for a certain amount of time. Be reasonable. You can always upgrade when finances are better. It isn’t worth the risk to get a loan that you cannot afford.

From Renting to Buying: The Home Plus Program

by Karen Picarello

If you are currently renting, the transition to buying a home can be financially impossible with closing costs and a down payment as a typical requirement. If you are a first-time home buyer with no military background, a federal FHA loan may be an appealing option. However, if you are buying in Arizona, the state has a Home Plus program that can help get a person over the financial hurdles of the home buying process.

Renting a home is a good short-term option for many people who are building credit or saving for a down payment, but it is not a good investment in the long term. That's why those who think finances are getting in the way of home ownership should look into assistance from federal and state programs. 

What is The Home Plus Program?

The Home Plus program is a state program created and given by the Arizona Industrial Development Authority, and it gives new home buyers a 30-year fixed loan for a home along with down payment assistance. The down payment assistance is given as a type of second mortgage, but don’t let that stress you. The loan is a three-year, no payment, no interest mortgage that is forgiven over the term of the lien. This loan can be used for a down payment or for closing costs.

What are the requirements?

There are some requirements for the Home Plus Program, and a minimum credit score is one of them. A range of down payment assistance percentages are available for home buyers with a minimum credit score of 640 to 680. If your credit is below this, you cannot qualify. However, these credit scores are not considered good, and you may be able to get your credit up to “average” quicker than you think.

Other requirements include a maximum income of $99,170, and the price of the home cannot be more than $396,680. A homebuyer education course must be completed by one borrower before closing, and the home must be a primary residence.

Basically, if you don’t own a home, and your financial situation seems to be prohibiting home ownership because of closing costs and a down payment, the Home Plus program may be the solution.

Let’s face it. Your rent payments are simply being thrown away into the abyss of monthly bills and payments made in order to have basic survival needs met like shelter and electricity. That money could be invested into property ownership, and financially, it is not impossible. Ask your mortgage broker or lender about the Home Plus program. It could be the help you need to get the homeownership process up and going.

How to buy when mortgage rates are rising

by Karen Picarello

If you are looking for a home, you’ve likely heard that mortgage rates are rising. This can be a major problem for potential homeowners who can have hundreds of dollars added to their mortgage payment. Additionally, home values have gone up, so one could say it’s a seller’s market. That does not mean you are out of luck when it comes to purchasing a home.

Markets can sway back and forth very quickly, but they can also take time to recover, so waiting to purchase a home may not be the best option when it comes to living a healthy, stable lifestyle with a comfortable home. That is why we have created a list of ways to protect yourself from the instability of the market and get a good price and mortgage rate even when the market is tough.

3 Ways to get a good deal when mortgage rates are high:

1. Improve your credit score

After the housing crash of 2008, subprime loans were taken off the table for people with little to no credit and no tangible way to make a house payment. However, there are now “nonprime” loans available for people with credit scores as low as 500. Think they are getting good mortgage rates? Think again.

Mortgage companies are in it for the money, and it is a risk-reward game. Low credit means higher risk, which means you are only getting a loan if the mortgage company is going to make more money.

Reduce your rate to the minimum by keeping a healthy FICO credit score. This may mean waiting a little while to prove good payment histories or paying down some debt, but it is the primary way to get a good mortgage rate.

2. Consider a 15-year

A 30-year fixed rate loan is standard, but cutting that time in half does not cost nearly as much monthly as one would think. It may only cost an extra few hundred dollars a month, and it greatly reduces the amount that you’d end up paying in interest regardless of the rate.

Here is a link to a 15-year mortgage calculator.

3. Lock in your rate

Once your loan is approved, your mortgage broker can lock in your rate. If you are buying in a market where interest rates are increasing, this can save you a lot of money, as mortgage rates can be locked in for months. Get a mortgage broker who is market savvy, and he or she will lock in the rate when the time is right.

Rising mortgage rates can be discouraging to the potential home buyer, but they don’t have to be. A good credit score, shorter pay-off period, and a locked in rate can create a condition that minimizes the effect of the market on the purchase.

Budgeting for Home Ownership

by Karen Picarello

 

Home ownership can be an exciting time, particularly when it is your first. However, one thing that prospective homeowners sometimes underestimate is the financial burden a home can be. While owning a home is still a great investment usually, it will require considerable amounts of money to be spent upkeeping the property. This cost can increase drastically based on a few factors, so make sure you have a good idea of what you will be spending annually to keep your home valuable and safe.

  1. Taxes and Fees. Property taxes can be incredibly expensive. While you will need to investigate the expenses for owning property in your area, forgetting about them can be financial suicide. Sometimes, these will be bundled into your mortgage payments. Either way, make sure that you have a good idea of what you will be paying in property tax. Additionally, there may be things like homeowners association fees which eat into your budget.
  2. Upkeep. One of the major things new property owners tend to be surprised by is how much money needs to be spent on a house to keep it in good condition. Not only will you need to do things like keep the grounds clean, but you will periodically need electrical work, plumbing, roofing, and all appliances will need replacing and repair from time to time. A decent rule of thumb is to keep 2% of the value of the home as the expected yearly maintenance cost. However, if your home is older, or has other mitigating factors, this cost could be higher. A pool, or a large footprint could both increase cost.
  3. Finally, there will need to be expensive repairs which fall outside of normal upkeep which will need to happen periodically. A new roof, or kitchen is a good example. Sometimes, you will need to spend 10-20000 dollars or more at once to make a major repair. It is recommended that you put away a decent chunk of change so that when these large bills come due, you are able to pay them off immediately. A mortgage is generally a fairly reasonable loan, but if you are forced to put repairs on something like a credit card, you will quickly be racking up a lot of interest.

Before you purchase a home, make sure that you take into account more than just the sticker price when budgeting. If you do not have a strong consistent source of income, you may come to regret your purchase.

Fees, Taxes, and Unexpected Costs

by Karen Picarello

One of the most frustrating things a homebuyer or seller might experience when attempting to make a real estate transaction are all of the small costs which you will incur during the duration of the process.  Unexpected or larger than expected financial burdens can end up making the entire process much more expensive than you had originally planned for. Thankfully, there are a few things you can do to make sure that you don’t end up going far over budget.

The first thing you will need to do is consult the experts. Experienced realtors, legal professionals, and financiers will all have gone through this process many times before, and can be a great source of knowledge about what to expect. Working closely with your realtor can help you to get a list of potential expenses which you can budget for. Additionally, making sure all paperwork and payments are done promptly and correctly can help you to avoid unexpected fees. Employing experts who have experience and will get things right the first time will not only save you time, but area also likely to save you money in the long run. Penalties, taxes, and fees can be levied if certain items are not handled correctly and professionally. You could even end up losing a buyer if you fail to fulfill your parts of the transaction expeditiously.

While gathering this type of general information can be very useful, you will also need to make sure that you gather the information relevant to your specific situation. For example, if you are selling a home, make sure that you conduct a reasonably thorough home inspection fairly early on. Knowing the condition and marketability of things like the roof, the electrical system, and the plumbing can help you estimate how much money you will need to spend in order to make the property marketable.

Buying or selling a house can be a stressful time, and you will certainly want to make sure that it is done correctly the first time. When it comes to budgeting expensive properly and avoiding unnecessary delays or payments, your number one priority should be consulting experienced professionals who will be capable and motivated to move things through as quickly and prudently as possible. Second, you should be making sure that once you have a good idea of what expenses there will be, that you are prepared for them and have money put aside.

Financial Planning for Real Estate Purchases

by Karen Picarello

If looking to make a real estate purchase (whether as a residence or an investment), you should make the effort to be fully aware of all the costs that might be incurred during and after your purchase. Too many prospective homeowners look only at the price tag, and end up seriously under budgeting for their purchase. While you might be able to afford the base price, purchasing a home will force you to incur many other additional costs, and you will certainly want to anticipate and plan for them. Here are a few areas that many people fail to budget for.

  1. Maintenance. If you are purchasing a property, you will need to upkeep it. This is particularly important if you are going to be renting it out, but could also be important when it comes to insurance. You might find yourself on the hook for expensive repair bills before an insurance company will insure you. These might be things like electric system overhauls, roofing, or plumbing. Depending on the condition of the house and the local building codes and regulations, your initial and recurring costs will vary, but make sure you make an effort to anticipate them.
  2. Taxes and Fees. Not only will you be facing property taxes, but you also will need to pay various fees and potentially taxes associated with the sale. Brokers fees, as well as fees for inspectors, certifications, and legal documents are all potential costs you will need to be prepared to pay. With these costs though, the best way to save money is to do them correctly the first time, as there are often penalties associated with failure to properly take care of your legal obligations.
  3. Finally, your financial history can drastically affect the financing that you get. If you have good credit and a strong financial history, you will likely be able to get a better rate on your loan, with less money down. Conversely, if you have poor credit, you may end up paying a lot more, both in the long run, and as a down payment.

In short, if you are looking to purchase a home, take the time to plan out all of the costs associated with the purchase. Consulting real estate and financial experts can help you get a good idea how much cash you should have in your specific situation and location before looking to make a purchase. 

Displaying blog entries 1-10 of 12

Contact Information

Photo of TeamPicarello Real Estate
TeamPicarello
RE/MAX Fine Properties North Scottsdale
21000 N. Pima Road, Suite 100
Scottsdale AZ 85255
Office: (480)860-8733
888-548-8713
Fax: (480)860-8755