Jul 30

Understanding Low Rates Today Compared To Historical Mortgage Rates

Did you know historical mortgage rates fluctuated over time from a high of 18.45% in September, 1981 to a low of 3.35 at the end of last year? In fact, the rates we are seeing right now are so abnormally low for such an abnormal amount of time that some younger buyers believe these are traditional mortgage rates. However, the truth is that we are seeing an end to this rate paradise. Now, we must use our understanding of the

How To Understand The Importance of Historical Mortgage Rates On Buying Your Home Now

The oft repeated line that those who ignore the past are doomed to repeat it, should take heed at how to approach the current real estate market. To do help you do this, let’s review three important items.

First, do not panic. While rates are going up, the chances of seeing sky high rates like there were 30 years ago, or even rates as high as 6 or 7%, which were common around the time of the real estate crash in 2009 are probably not coming back immediately.historical mortgage rates

This is important, because you do not have to rush to find a home. Yes, rates are an important factor in buying a new home. However, you should not buy the first home that somewhat does it for you, because you are afraid of a rate change that might mean $50 per month on your payment. Make sure you are happy with the house before you talk numbers.

Second, do not focus exclusively on the low rates.

The more important factor to consider is your payment in comparison to your income. This rate is called Debt To Income(DTI). While there are a number of different requirements, Fannie Mae wants DTI rates to below 43% of your income. This means all credit cards, car payments, student loans, installment payments, and future housing payments (Principal, Interest, Taxes, and Insurance, or PITI) cannot be greater than 43% of your income.

Using our mortgage calculator, let’s break this down for you. Then we can show you how the new rates will affect your payments.

For example, take a married couple with a combined $6,000 monthly income. They have $500 in monthly credit card payments, and a car loan for $250 per month. They find a beautiful, foreclosed home in Evanston for $200,000. The property taxes are $5,000 per year. The big question is can they afford the payment?

With their banker they determine the monthly mortgage payment is $1,013.47 per month with a 4.5% interest rate. A good friend is an insurance agent, and tells them they can get insurance for $150 per month. Now we can determine their DTI

Expenses:

  • $500-Credit Cards
  • $250-car loan
  • $1,013.47-Principal and Interest
  • $150-insurance
  • $416.67-taxes

Total: $2330.14

Now, we divide $2330.14 by $6000=

38% Debt To Income Ratio

Why is this important? Because if the rate were 3.5% then the payment would be 898.09 per month. This is a savings of $115.36 per month.

However, their DTI at a 3.5% interest rate would be 37%. In other words, it will not significantly change their ability to buy a home. Looking at the historical mortgage rates, we can see how little the low rates affect buyers purchasing power.

Step 3: Third, if you are still concerned then speak with a professional mortgage broker. While you can do a lot of research online, you still need to have a professional help you with the mortgage. Connect with your banker, and find out what the next steps are. They will provide you with an in-depth look at how the rates today will really affect your purchase.

Putting Historical Mortgage Rates In Perspective

The rates today are just starting to trend upwards, so take your time and make an educated decision on buying your home. Understanding how rates affect your payments and lifestyle. However, make sure that purchasing your home is not all about the rate going from 3.5 to 4.5%. Instead, focus on purchasing the right home in your budget.

Let us know if you need help determining how a return to historical mortgage rates will affect your future purchase?

Jul 29

What To Expect At Your First House Closing

Few things in life compare with your first house closing. The nervous, excitement of sitting there in the title company’s meeting room as your attorney and real estate agent wrangle through the details of the transactions. Their every movement a chance for heart palpitations. Fear not! The process is not that complicated.

How To Beat The House Closing Jitters

Prior to Closing: Most closings today are smooth, because of all safeguards put in place over the past few years protecting home buyers from making rash decisions. Per the new HUD regulations, if the fees change more than 10% the buyer must have 24 hour notice with the new Good Faith Estimate before closing.

However, part of buying a home means you have your information correct. To do this connect with your mortgage broker to make sure you have all the right documentation to bring to closing. Here is a list of common documents you will most likely need:

  • Photo id
  • Property insurance
  • Certified or cashiers check (Federal law requires you be told the exact amount 24 hours prior to closing)
  • Purchase and sales contract to make sure that everything match up.
  • Original Good Faith Estimate from the bank

The final thing you need to do before closing is to do a final walk through of the house. Make sure everything is in place, and your new home is in good shape after the previous owners moved out.

Your Attorney Must Be Present: Let’s begin with a very important point. Your attorney will be with you at the closing. While mortgage brokers and real estate agents are known to sometimes skip the closing in lieu of getting more sales, an attorney makes his money making sure the closing goes as smoothly as possible for you.

This is important, because you are not alone at closing. Someone is on your sidhouse closinge who understands the laws and all the nuances of closing a real estate deal.

Impartial Closing Agent: Next, if having an attorney on your side is not enough, realize that the majority of the papers that pass through your hands on the day of the closing relate to two items: 1. the mortgage, and 2. the title of the property. That is because the title company’s sole responsibility is to make sure your property is yours. They check the county and local records to make sure the seller has the right to sell the property. Then they act as a middleman, making sure that the sale to you is legit.

This means you do not have to wake up in the middle of the night, and be afraid of a random stranger kicking you out of your new home. You have a legal right to your property, secured by the title company.

Take Your Time: Finally, make sure you budget the entire day for the closing. While most are done in less than two hours, you do not want to be rushed. I was once in a closing where the fire alarm for the entire building went off halfway through the closing, which delayed the signing the final documents by 45 minutes. Freak accident, but you get the point. Make sure you budget your time, so you can thoroughly review all the documents put in front of you.

Enjoy The House Closing Process, Because This Is YOUR New Home

Make sure you are methodical about the closing. Since you will be surrounded by professionals trust the advice of your attorney and closing agent. At the same time read everything, so you understand all the documents. Do not be afraid to ask questions. After all, this is your home. You need to make sure everything is right. Let us know how your house closing went?

Jul 28

Five Steps To Buying A House

buying a houseFew things in life compare with buying a house. For most Americans this is the single largest transaction of their life. Therefore, most home buyers want to get it right the first time. To help you do that we have five steps you should take to purchase a home.

Five Steps To Buying A House

Step 1: Research what you want long before you ever talk to a professional real estate agent or developer. Sit down and determine not only what type of new house you want, but also why do you want to buy a home?

This is important, because you need to have a clear idea of what type of house you want, and why it is important for you to live in this home.

Step 2: Start researching bankers and real estate agents. Make sure they have the experience to get the job done. Even more important, make sure they listen to what you need. The best way to do this is to ask them questions about their experience. Sometimes it might even make sense to find a good real estate agent or mortgage broker, then ask them who their favorite banker or realtor is. This way you will have a united team effort, because the broker and banker know how to work with each other to get the job done.

Step 3: Next, before you even start looking at your first home you need to get a pre-approval letter from the lender. Most realtors today will not even take you out until you have some type of finance letter. This letter simply informs realtors that you have the financial ability to buy a home.

Step 4: Go through the listings with your agent to find the right house for your needs. While you should have some clear ideas of what you want, consider the real estate agents advice as well. They are trained to look at how to buy a real estate property, which means they might catch that the boiler looks old. Something you might not pick up if you have never bought a home.

Step 5: Weed down the undesirable homes. A good real estate agent will ask you questions about what you liked and did not like about each property. That way, they can eliminate properties that do not fit your needs, and visit more of the properties you like.

Once you have a good home, this is where you put down a contract.

Important!

For those who have never bid on a home, be aware the seller usually will not accept the first offer. This is normal. A back and forth negotiation will start, until both sides come to an agreement.

Make Sure You Take Educated Steps to Buying A House You Like

In the end, the steps we mention above are a guideline for you to buy your new home. They help you navigate through a process that can sometimes be confusing even for experience home buyers. This is why having the right team is important in selecting the right house.

If you have additional questions about the five steps to buying a house comment leave a comment below.

Jul 27

How To Buy A Hud Home

hud homeDid you know that the government has a stock of homes for sale at all times? Whenever a homeowner defaults on a federally backed loan, they repay the lender the amount lost and then sell the home at market, and sometimes below market prices.  They are called HUD Homes.

HUD stands for the Department of Housing & Urban Development. These homes are amazing investments for first time home buyers, because the government wants to sell these properties as quickly as possible. This means you can get significant discounts. Plus, HUD will sometimes help homeowners by providing up to 3% of closing costs.

Three Steps To Buy A HUD Home

Step 1: Start off by researching HUD homes on the HUD Home Store website. Just like you search for different books on Amazon, you easily navigate the site to find homes in your area. Then you filter out homes that do not meet your requirements. Do you need homes priced under $100,000 for a three bedroom, two-bath property in Illinois? Then put in $100,000 for a 3/2 property in the search. Not only can you find great discounts, but HUD has a number of homes on their list at any given time.

This is important, because you should explore what type of properties HUD has available. While you are not allowed to purchase directly off the site, unless you are a real estate broker, you need to have a good idea of what type of property you want to buy.

Step 2: Then contact your mortgage broker to make sure you can afford the property. Show the broker some of the properties on the HUD site you were thinking about purchasing to give them an idea of what type of home you want. This will help you to get a pre-approval from the lender.

If you do not do this, then your real estate broker will not work with you. They need to make sure that you are qualified to get the financing for your property.

Step 3: The last step is contact your real estate agent about any potential properties you are interested in purchasing. Show them the pre-approval letter from your mortgage broker. They will use this pre-approval letter when they submit the offer on the HUD home you want to buy.  At this point, your broker will start negotiating with HUD on your behalf. Because this is the government, they will negotiate a little on price, but then stick to their guns. The government will not be rushed into selling, so do not expect a large bargain on the price.

Once you have completed these steps, then you go through the normal buying process.

Buying The Right HUD Home

Buying the right HUD home takes patience. You need to be able to work with the government rules and regulations to find the right home for your needs. However, following the steps listed above will make this process more palatable. Keep your real estate broker and lenders information close, because they will can be a fountain of knowledge throughout the entire process. Let us know if you have any additional questions about how to buy a HUD home?