Tag Archive for: closing costs

Get a Lower Mortgage Rate with an Adjustable Rate Mortgage (ARM)

September 14, 2022
mortgage blog, adjustable rate mortgage, preferred rate

If one of your goals for 2022 is buying a home, you’re in the right place. Mortgage rates continue to rise as the Fed attempts to slow down inflation, but the housing market is also growing less competitive which is great news for new homebuyers. As a result, one of the biggest questions we hear from homebuyers is whether or not to apply for a fixed-rate mortgage or an adjustable-rate mortgage. 

This article can help you decide which mortgage better fits your financial goals.

One of the best actions you can take is to connect with a local mortgage advisor. A local advisor can guide you through your best options and even put together a custom home loan. Homeownership is one of the fastest paths to building financial stability.

RELATED: Uncover the Real Value of a Local Mortgage Advisor

Fixed-rate mortgages are the most popular type of home loan (when rates are low).

Fixed-rate home loans are typically offered for a 30-year term or 15-year term. While fixed-rate home loans offer slightly higher mortgage rates than adjustable-rate mortgages, fixed-rate loans have stable terms for the life of the loan.

The upshot is your mortgage payment stays the same for the entire 30 years (or 15), and your rate stays the same.

A fixed-rate mortgage keeps monthly mortgage payments reliable, predictable, and easy on your budget. So no matter how the mortgage market changes, you can rest secure and know that your mortgage payment won’t change.

But is it smart to lock in a 30-year loan when mortgage rates are high? All things considered, rates are still relatively low compared to past decades that were driven by inflation.

Adjustable-Rate Mortgages

Adjustable-rate mortgages often offer the lowest mortgage rates available.

ARM interest rates are set for an initial loan period (called an adjustment period), and then they shift according to the market. This is why the loan is called “adjustable.” Essentially, the mortgage rate adjusts along with market trends, after the initial period ends.

Adjustable-rate mortgages typically offer an initial adjustment period for 5 to 7 years, during which the mortgage rate does not change. When applying for a mortgage with an adjustable-rate mortgage, the first loan period (called an adjustment period) will be a lower interest rate and a lower mortgage payment compared to a fixed-rate mortgage.

This is ideal if you plan to stay in the home for less than the initial adjustment period for the loan. For example, if you expect to move for work within 5-7 years, or plan to sell the home for other reasons, an ARM could save you money in the short term.

Use this mortgage calculator to find out how much you can afford right now

An adjustable-rate mortgage is also ideal for buyers who want to purchase a home while mortgage rates are higher than usual. ARM loans can help homebuyers get into the housing market at a lower rate.

However, adjustable-rate mortgages often include complex changes after the initial adjustment period. For this reason, it’s important to discuss the full terms of your loan with a trusted mortgage advisor.  

Related: When to Stop Renting and Become a Homeowner

Benefits of an Adjustable-Rate Mortgage

  • ARM’s provide new homeowners with a lower mortgage payment and a lower mortgage rate. Compared to a fixed-rate mortgage, ARM’s often translate to lower rates and a smaller mortgage payment, which can help new homeowners save money.

  • You could become a homeowner sooner with an ARM. Lower interest rates translate to a lower initial mortgage payment and a lower DTI (debt-to-income) ratio. As a result, you could qualify for a new home loan sooner than you think.

  • ARM’s offer homeowners more buying power. Since ARM’s offer a lower interest rate, you could qualify for a higher purchase price and a bigger home.

  • When the market shifts downward, your mortgage rate decreases (after the adjustment period). This means you could have a lower mortgage payment or the option to refinance at a lower interest rate.

  • Invest your extra cash elsewhere during low-interest periods of your ARM home loan, and build your wealth.

Drawbacks of an Adjustable-Rate Mortgage

  • The market is ultimately unpredictable, and you may end up with an unexpectedly high monthly mortgage payment. This is one of the main reasons it’s wise to connect with a mortgage advisor. A qualified advisor in your area can explain the process and recommend the best options customized for you.

  • Initial loan caps might make the first readjustment period costly. Ask your mortgage advisor how to plan ahead.

  • Mortgage lenders have more options when it comes to ARM home loans. As a result, some lenders introduce a number of complicated factors like high fees and caps, and various restrictions. This could put you in a mortgage contract that might work against your financial goals.

Related: Check out the best custom loan options for 2022

How to Decide Between a Fixed-Rate Mortgage vs. Adjustable-Rate Mortgage

1. Think about how long you expect to live in the home.

An adjustable-rate mortgage is ideal for homeowners looking to stay put for 5 to 7 years, which is the typical adjustment period for ARM home loans. The “initial adjustment period” is the length of time that your mortgage rate will stay the same. After this period is over, your rate will change with the market, which could increase or decrease your mortgage payment. 

If you expect to live in your new home for a longer period of time, a fixed-rate mortgage can bring stability. You won’t need to worry about mortgage rates or your mortgage payment changing with a fixed-rate mortgage.

You’ll always have the option to refinance, no matter which home loan you have initially.

Just be aware that you’ll be subject to current mortgage rates, closing costs, and one-time fees to secure your new home loan when you refinance. In addition, many ARMs have restrictions that result in pre-payment penalties and unexpected balloon payments.

Be sure to connect with a trusted mortgage advisor who can guide you through your best options.

2. Understand the ARM adjustment period for your home loan.

Most ARM home loans offer adjustment periods of 3 to 10 years (5-7 is the most common). Shorter adjustment periods offer lower rates, securing a low mortgage payment. However, your mortgage rate will fluctuate with the market once the adjustment period ends. Talk to your mortgage advisor about the detailed terms of your home loan including caps, added fees, and potential balloon payments.

A fixed-rate mortgage sets your mortgage payment (and your interest) for the entire loan term. The rate and payment will remain unchanged for the life of your loan. The longer the term, the lower your mortgage payment will be. For example, a 30-year fixed-rate mortgage will have a lower mortgage payment since you have 30 years to pay off the loan. A 15-year fixed-rate loan will have a higher payment, but you’ll pay much less in interest over the life of the loan.

RELATED: Talk with a local mortgage expert to find out if you qualify for first-time homebuyer advantages

3. Evaluate current mortgage rates and market trends. 

With current trends, inflation, and recent action taken by the Fed, it might be a smart move to apply for an adjustable-rate loan. While mortgage rates are increasing, it’s possible to lock in a rate for a typical ARM adjustment period (5-7 years).

Market experts expect mortgage rates to continue to rise until the economy stabilizes, though it’s unknown when this could take effect and for how long.

When the market fluctuates, adjustable-rate mortgages change along with it once the adjustment period ends.

RELATED: How to FAST TRACK your application with a mortgage pre-approval

Summary

Applying for an adjustable-rate mortgage can help you get a lower mortgage rate and a lower mortgage payment. For first-time homebuyers, an adjustable-rate mortgage provides flexibility, especially if you think you might move or sell your home within 5 to 7 years.

A fixed-rate mortgage promises a mortgage rate that won’t change and steady mortgage payments for the life of the home loan. If you’re refinancing your mortgage, a fixed-rate mortgage can bring stability for years to come.

Connecting with a mortgage advisor is the best move you can make to get your best mortgage and meet your homeownership goals.

Next Steps

When you’re ready to buy a home, applying for an adjustable-rate mortgage could help you become a homeowner sooner than you think. In addition, an ARM could provide a lower mortgage payment or help you afford a bigger home. Whether you’re a new homeowner or refinancing your third home, take time to connect with a local mortgage advisor and start building financial stability through homeownership. We’d love to help.

Is an ARM Better Than a Fixed-Rate Mortgage for New Homebuyers?

January 4, 2022
mortgage blog, arm, adjustable-rate mortgage, preferred rate

If one of your goals for 2022 is buying a home, you’re in the right place. Mortgage rates continue to stay low, but the market is beginning to show signs that rates could be shifting upwards. As a result, one of the biggest questions we hear from homebuyers is whether or not to apply for a fixed-rate mortgage or an adjustable-rate mortgage. 

It’s not a quick answer, but this article can help you decide which home loan fits your financial goals. 

RELATED: See the Top 5 home loans most popular for first-time homebuyers

Fixed-Rate Mortgages

Fixed-rate mortgages are the most popular type of home loan.

Fixed-rate home loans are typically offered for a 30-year term or 15-year term. While fixed-rate home loans offer slightly higher mortgage rates than adjustable-rate mortgages, fixed-rate loans have stable terms for the life of the loan.

The upshot is your mortgage payment stays the same for the entire 30 years (or 15), and your rate stays the same.

A fixed-rate mortgage keeps monthly mortgage payments reliable, predictable, and easy on your budget. So no matter how the mortgage market changes, you can rest secure and know that your mortgage payment won’t change.

Adjustable-Rate Mortgages

Adjustable-rate mortgages often offer the lowest mortgage rates available.

ARM interest rates are set for an initial loan period (called an adjustment period), and then they shift according to the market. This is why the loan is called “adjustable.” Essentially, the mortgage rate adjusts along with market trends.

Adjustable-rate mortgages typically offer an initial adjustment period for 5 to 7 years, during which the mortgage rate does not change. When applying for a mortgage with an adjustable-rate mortgage, the first loan period (called an adjustment period) will be a lower interest rate and a lower mortgage payment compared to a fixed-rate mortgage.

This is ideal if you plan to stay in the home for less than the initial adjustment period for the loan. For example, if you expect to move for work within 3-5 years, or plan to sell the home for other reasons, an ARM could save you money.

Use this mortgage calculator to find out how much you can afford right now

An adjustable-rate mortgage is also ideal for buyers who want to purchase a home while mortgage rates are higher than usual. ARM loans can help homebuyers get into the housing market at a lower rate.

However, adjustable-rate mortgages often include complex changes after the initial adjustment period. For this reason, it’s important to discuss the full terms of your loan with a trusted mortgage advisor.  

Find a qualified mortgage expert in your local area

Benefits of an Adjustable-Rate Mortgage

  • ARM’s provide a lower mortgage payment and lower initial interest rates, benefiting homeowners who expect to own their home for only a few years.

  • You could become a homeowner sooner with an ARM. Lower interest rates translate to a lower initial mortgage payment and a lower DTI (debt-to-income) ratio.

  • ARM’s offer homeowners more buying power. Since ARM’s offer a lower interest rate, you could qualify for a higher purchase price and a bigger home.

  • When the market shifts downward, your mortgage rate automatically decreases. This means a lower mortgage payment or the option to refinance at a lower interest rate.

  • Invest your extra cash elsewhere during low-interest periods of your ARM home loan, and your mortgage payment drops.

Drawbacks of an Adjustable-Rate Mortgage

  • The market is ultimately unpredictable, and you may end up with an unexpectedly high monthly mortgage payment.

  • Initial loan caps might make the first readjustment period costly.

  • Mortgage lenders have more options when it comes to ARM home loans. A customized ARM loan could introduce a number of complicated factors like high fees and caps. This could put you in a mortgage contract that is difficult to understand. 

Related: Check out the best custom loan options for 2022

How to Decide Between a Fixed-Rate Mortgage vs. Adjustable-Rate Mortgage

1. Think about how long you expect to live in the home.

An adjustable-rate mortgage is ideal for homeowners looking to stay put for 5 to 7 years, which is the typical adjustment period for ARM home loans. The “initial adjustment period” is the length of time that your mortgage rate will stay the same. After this period is over, your rate will change with the market, which could increase your mortgage payment. 

If you expect to live in your new home for a longer period of time, a fixed-rate mortgage can bring stability. You won’t need to worry about mortgage rates or your mortgage payment changing with a fixed-rate mortgage.

You’ll always have the option to refinance, no matter which home loan you have initially. Just be aware that you’ll be subject to current mortgage rates, closing costs, and one-time fees to secure your new home loan when you refinance.

2. Understand the ARM adjustment period for your home loan.

Most ARM home loans offer adjustment periods of 3 to 10 years (5-7 is the most common). Shorter adjustment periods offer lower rates, securing a low mortgage payment. However, your mortgage rate will fluctuate with the market once the adjustment period ends. Talk to your mortgage advisor about the detailed terms of your home loan including caps, added fees, and potential balloon payments.

A fixed-rate mortgage sets your mortgage payment (and your interest) for the entire loan term. The rate and payment will remain unchanged for the life of your loan. The longer the term, the lower your mortgage payment will be. For example, a 30-year fixed-rate mortgage will have a lower mortgage payment since you have 30 years to pay off the loan. A 15-year fixed-rate loan will have a higher payment, but you’ll pay much less in interest over the life of the loan.

RELATED: Talk with a local mortgage expert to find out if you qualify for first-time homebuyers advantages

3. Evaluate current mortgage rates and market trends. 

The pandemic has created some historic lows for mortgage interest rates. With current trends, it might be a smart move to apply for a fixed-rate loan rather than an adjustable-rate loan. While mortgage rates might stay low, they most likely won’t go any lower.

Market experts expect mortgage rates to rise with inflation, though it’s unknown when this rise might begin to take effect.

When the market fluctuates, adjustable-rate mortgages change along with it. When interest rates increase, an ARM mortgage payment will increase too, once the adjustment period ends. 

RELATED: Learn the Truth About No-Closing Cost Loans

4. Take a close look at your monthly budget and financial goals.

For many homeowners, a home is one of their largest assets. As you build your wealth, consider your mortgage payment along with your other financial goals: savings, investments, career changes, overall debt, and future purchases.

If you don’t have much room for unpredictable shifts in your monthly budget, an adjustable-rate mortgage could be risky once the adjustment period ends. Not to mention, the changes to your mortgage could be costly if the market has changed dramatically or you need to refinance unexpectedly.

On the other hand, if you have a steady income, solid employment and a positive cash flow, a change in your mortgage payment might not have a noticeable impact. 

RELATED: How to FAST TRACK your application with a mortgage pre-approval

Summary

Applying for an adjustable-rate mortgage can help you get a lower mortgage rate, whether refinancing your mortgage or buying a home for the first time. For first-time homebuyers, an adjustable-rate mortgage provides flexibility, especially if you think you might sell and move to another home within 5 to 7 years.

A fixed-rate mortgage promises a mortgage rate that won’t change and steady mortgage payments for the life of the home loan. If you’re refinancing your mortgage, a fixed-rate mortgage can bring stability for years to come.

Connecting with a mortgage advisor is the best move you can make to get your best mortgage and meet your homeownership goals.

Next Steps

When you’re ready to buy a home, applying for an adjustable-rate mortgage can help you get a lower mortgage rate help you become a homeowner sooner. If you’re thinking about refinancing your mortgage, refinancing to adjustable-rate can lower your mortgage payment while keeping your options open. Connect with a local mortgage advisor to discuss your loan options and start saving money on your mortgage. We’d love to help.

How to Pay Closing Costs Without Going Broke

March 30, 2022
mortgage blog, how to pay closing costs, preferred rate

Closing costs can be an unwelcome surprise to every homebuyer, even if you aren’t a first-time homebuyer. The truth is, every home loan includes closing costs as part of the transaction—new home loans, home renovation loans, investment properties, condos, and refinancing. If you’re getting approved for a new mortgage, deciding how to pay for closing costs is important.

The good news is that homebuyers have several options for paying closing costs.

An experienced mortgage advisor can help explain the different ways to cover closing costs and the best programs to help you meet your financial goals. This article offers a few top highlights.

Related: How to win the bidding war for new homebuyers in 2022

HOW TO PAY FOR CLOSING COSTS: KNOW YOUR OPTIONS

Many homebuyers choose to pay closing costs upfront once the purchase or refinance is complete.

However, paying a large sum of money out-of-pocket sometimes isn’t the best financial option.

Closing costs are one-time expenses due at closing—typically 2-5% of the home loan amount. Line items covered by closing costs often include loan origination fees, appraisal fees, title insurance, property taxes, and more. You can find a more extensive list here.

Top 5 Ways to Pay Closing Costs

If you’re looking for a way to lower your out-of-pocket expenses at closing, these are the most popular options:

  • Pay closing costs upfront when you sign the new loan
  • Roll the closing costs into your loan
  • Agree to have the lender pay closing costs in exchange for a higher rate
  • Negotiate with the seller to cover some fees
  • Apply for HUD-approved grants to help pay for closing costs


1. Pay for closing costs upfront.

This is a common approach to paying closing costs. When you get ready to sign the final papers and close on your new mortgage, there will be a final balance due. You can pay this in full (typically with a cashier’s check) right then and there.

For homebuyers short on cash, this can be costly. Especially since you want to have enough savings to cover new home expenses or unexpected repairs that might come up.

2. Roll the closing costs directly into the mortgage.

Adding closing costs to a home loan is another option that helps homebuyers lower out-of-pocket expenses. When you decide to roll the closing costs into your mortgage, the lender simply adds the amount of the closing costs to your original loan amount.

For example, if your purchase price is $400,000 with a down payment of $40,000 (10%), your home loan would be $360,000. Let’s assume closing costs for your new mortgage are $10,800 (3%). The mortgage lender would add that amount to the loan, putting your new mortgage at $370,800.

This can be an attractive solution for new homeowners who can afford a slightly higher mortgage payment and don’t want to pay closing costs upfront.

Related: How to refinance a mortgage without an appraisal fee

3. Ask your mortgage lender about a no-cost or zero-cost loan to cover closing costs.

Some mortgage lenders offer what’s called a no-cost mortgage. In this case, the mortgage lender will pay all (or most) of your closing costs upfront and increase the mortgage rate in exchange.

This is a profitable option for the lender since the lender will have a higher return over the life of the loan, and closing costs are a fixed amount.

For first-time homebuyers, lowering out-of-pocket expenses could help you become a homeowner sooner.

4. Negotiate with the seller to decide who pays for closing costs.

It’s common for a seller and buyer to negotiate who pays for some of the closing costs as part of the final contract. Often the seller will offer to cover some of the closing costs, but if the property is in a high-demand area, the buyer will cover the closing costs in full.

5. Apply for housing grants that help pay for closing costs.

Sometimes, rolling the closing costs into the mortgage isn’t affordable. Often, it can cause the home loan amount to jump beyond your approved loan amount, or the new mortgage payment isn’t affordable.

Many first-time homebuyers and borrowers with low-to-moderate income can apply to HUD-approved housing agencies for help. These agencies offer grants to help with closing costs. If you think you might qualify, give us a call. We can connect you with some information that might help.

How to Apply for a No-Cost or Zero-Cost Mortgage

Connect with a local mortgage advisor to discuss your options.

Closing costs are to be expected when you apply for a mortgage, whether you pay them out-of-pocket or roll them into a home loan.

Mortgage financing is never one-size-fits-all, and we understand it can be overwhelming to understand all the options available to you. We’re committed to helping you secure the best mortgage at a competitive rate so you can save money on your mortgage.

Connect with a local mortgage advisor and find out which option helps you meet your financial objectives.

Related: Compare the benefits of Renting vs. Buying in 2022

Taking Action

Don’t let closing costs keep you from your best mortgage.

If you’re considering buying a house or refinancing in 2022, connect with a local mortgage advisor to discuss your options. We can guide you through the process and help you decide which path meets your financial goals. We’d love to help.

How to Cover Closing Costs: You’ve Got Options

November 2, 2022
mortgage blog, closing costs, preferred rate

Mortgage rates are beginning to steady but higher rates could be coming down the road. If you’re thinking about buying a home or refinancing, you can save a lot of money when it comes to closing costs. Closing costs can be an unwelcome surprise, even if you aren’t a first-time homebuyer. But closing costs don’t have to break the bank. Every home loan includes closing costs as part of the transaction—new home loans, home renovation loans, investment properties, condos, and refinancing. If you’re getting approved for a new mortgage then deciding how to pay the closing costs is an important part of the bigger financial picture.

The good news is that homebuyers have several options when it comes to paying closing costs. What’s more, you can save a lot of money on your next mortgage, and understanding how to pay closing costs is a big part of the puzzle.

An experienced mortgage advisor can help explain your best options and help you meet your financial goals. Keep reading for the top highlights.

Related: How to win the bidding war for new homebuyers in 2022

HOW TO PAY CLOSING COSTS: KNOW YOUR OPTIONS

Many homebuyers choose to pay closing costs upfront once the purchase or refinance is complete.

However, paying a large sum of money out-of-pocket sometimes isn’t the best financial strategy.

Closing costs are a one-time expense due at closing—typically 2-5% of the home loan amount. Line items covered by closing costs often include loan origination fees, appraisal fees, title insurance, property taxes, and more. You can find a more extensive list here.

5 Popular Strategies to Pay Closing Costs

If you’re looking for a way to lower your out-of-pocket expenses at closing, these are the most popular options:

  • Pay closing costs up front when you sign the new loan
  • Roll the closing costs into your loan
  • Agree to have the lender pay closing costs in exchange for a higher rate
  • Negotiate with the seller to cover some fees
  • Apply for HUD-approved grants to help pay for closing costs


1. Pay for closing costs upfront.

This is a common approach to paying closing costs. When you get ready to sign the final papers and close on your new mortgage, there will be a final balance due. You can pay this in full (typically with a cashier’s check) right then and there.

For homebuyers short on cash, this can be costly. Especially since you want to have enough savings to cover new home expenses or unexpected repairs that might come up.

2. Roll the closing costs directly into the mortgage.

Adding closing costs to a home loan is another option that helps homebuyers lower out-of-pocket expenses. When you decide to roll the closing costs into your mortgage, the lender simply adds the amount of the closing costs to your original loan amount.

For example, if your purchase price is $400,000 with a down payment of $40,000 (10%), your home loan would be $360,000. Let’s assume closing costs for your new mortgage are $10,800 (3%). The mortgage lender would add that amount to the loan, putting your new mortgage at $370,800.

This can be an attractive solution for new homeowners who can afford a slightly higher mortgage payment and don’t want to pay the closing costs upfront.

Related: How to refinance a mortgage without an appraisal fee

3. Ask your mortgage lender about a no-cost or zero-cost loan to cover closing costs.

Some mortgage lenders offer what’s called a no-cost mortgage. In this case, the mortgage lender will pay all (or most) of your closing costs upfront and increase the mortgage rate in exchange.

This is a profitable option for the lender since the lender will have a higher return over the life of the loan, and closing costs are a fixed amount.

For first-time homebuyers, lowering out-of-pocket expenses could help you become a homeowner sooner.

4. Negotiate with the seller to decide who pays for closing costs.

It’s common for a seller and buyer to negotiate who pays for some of the closing costs as part of the final contract. Often the seller will offer to cover some of the closing costs, but if the property is in a high-demand location, the buyer typically covers the closing costs in full.

5. Apply for housing grants that help pay for closing costs.

Sometimes, rolling the closing costs into the mortgage isn’t affordable since it often results in a higher mortgage payment or a bigger home loan. Sometimes, it can cause the home loan amount to jump beyond your approved loan amount, or the new mortgage payment isn’t affordable.

A good alternative might be a HUD-approved grant. Many first-time homebuyers and borrowers with low-to-moderate income can apply to HUD-approved housing agencies for help. These agencies offer grants to help with closing costs and down payments. If you think you might qualify, give us a call. We can connect you with some information that might help.

How to Apply for a No-Cost or Zero-Cost Mortgage

Connect with a local mortgage advisor to discuss your options.

Closing costs are to be expected when you apply for a mortgage, whether you pay them out-of-pocket or roll them into a home loan. And understanding your options ahead of time can help you save money and move toward financial stability.

Mortgage financing is never one-size-fits-all, and we understand it can be overwhelming to understand all the options available to you. We’re committed to helping you secure the best mortgage at a competitive rate so you can save money on your next mortgage.

Connect with a local mortgage advisor and find out which option will help you meet your financial objectives.

Related: Compare the benefits of Renting vs. Buying in 2022

Taking Action

Don’t let closing costs keep you from your best mortgage.

If you’re considering buying a house or refinancing your mortgage, connect with a mortgage advisor in your area to discuss your best options. We can guide you through the process and help you decide which path meets your financial goals. We’d love to help you finance your next dream home today.

When is it Smart to Buy Mortgage Points?

May 18, 2022
mortgage blog, mortgage points, preferred rate

As mortgage rates rise and housing inventory is beginning to stall, many homebuyers ask whether they should buy mortgage points to secure a lower interest rate. Buying mortgage points is one way to lower your mortgage rate, but the decision can be difficult for many homebuyers. For new borrowers getting ready to buy a home and for homeowners who want to refinance, buying mortgage points is one option to reduce your rate and bring down a mortgage payment. But it’s not always the best option. 

Keep reading to learn the pros and cons of buying mortgage points.

If getting the lowest interest rate is your primary goal, then choosing to buy mortgage points or “discount” points can make a lot of sense. But paying mortgage points at closing isn’t always the best financial decision when it comes to saving money on your mortgage. It all depends on your financial goals.

The truth is there are a lot of factors: the terms of the loan, closing costs, how much money you want to use for a down payment, and how long you plan to stay in your home. An experienced mortgage advisor can help explain your best loan options to help you meet your financial goals.

Related: How to win the bidding war for new homebuyers in 2022

Are mortgage points and discount points the same thing?

There are two types of mortgage points: Discount points and rebate points. When people talk about paying mortgage points or buying mortgage points, they are typically referring to discount points. Mortgage points, or discount points, allow you to reduce your interest rate by paying your mortgage interest upfront.

Mortgage points typically cost 1% of your total loan amount. For example, for a $400,000 mortgage, 1 point would cost $4,000 (2 points would cost $8,000, etc.) In exchange, you’ll typically receive a reduced interest rate of 0.25% for each point.

Buying mortgage points can reduce your interest rate and monthly payment (how it works).

Sample loan for a fixed-rate 30-year home loan for $450,000:

  • Loan amount: $450,000
  • Loan term: 30-year fixed rate
  • Interest rate: 6.00%
  • Monthly payment: $2,698

Sample scenario if you decide to pay 2 mortgage points:

  • Loan amount: $450,000
  • Loan term: 30-year fixed rate
  • Mortgage points: 2
  • Reduced interest rate: 5.50%
  • Lower monthly payment: $2,555
  • Monthly savings: $143/mo
  • Break-even period: 63 months
  • Cost at closing: $9,000

In short, this means that paying 2 mortgage points (0.25% discount per point) would cost $9,000 (2% of the loan amount). Paying 2 mortgage points would reduce your mortgage payment by $143/mo and take 63 months to “break-even” or recover that cost. On month 64, you’d start the real benefits of a lower monthly payment.

The example above offers a framework to evaluate if paying points might be a smart decision.

Related: How to FAST TRACK your mortgage pre-approval


Is it always worth it to pay points on a mortgage?

Yes and no. In the example above, you can see how paying mortgage points upfront can save you money on your mortgage over the long term. But if you end up selling your house or refinancing in the short-term, paying mortgage points could end up costing money upfront at closing that you won’t recover.

Similarly, if you need the additional cash for emergency funds, home repairs, or other needs, it’s probably not wise to become cash-poor just to save 0.25% on your mortgage interest rate.

Today, with mortgage rates inching up and inflation rising, it can be a smart move to buy mortgage points and get a lower mortgage rate. Especially if you plan on staying in your home for more than 6 years, you could save thousands on interest over the life of the loan.

Is it smarter to make a bigger down payment instead of buying mortgage points?

Let’s say you have $9,000 in additional funds that you want to put toward your new home loan, and you’re not sure if you should buy mortgage points or put it toward your down payment.

Going back to the example above, you could put the $9,000 toward your down payment, reducing your home loan to $441,000. While this might not seem like a substantial difference, it would lower your monthly payment since your loan amount is lower.

What’s more, by increasing your down payment, you can improve your loan-to-value (LTV) ratio. A better LTV can translate into a lower interest rate or better terms. If your down payment crosses the 20% threshold, you’ll save even more.

The truth is, talking with a local mortgage advisor can help. Several factors affect every mortgage application, such as your credit score, debt-to-income ratio, and income verification. Custom loan options can create the best terms for your financial situation. Together, these factors impact the overall terms of your loan offer. Paying mortgage points is one element in a much bigger picture.

Related: How to refinance a mortgage without an appraisal fee

Are mortgage points tax deductible?

Mortgage points are tax-deductible in most circumstances. Mortgage discount points are prepaid interest on your mortgage and are treated the same as mortgage interest on your tax return. Note that the Tax Cuts and Jobs Act of 2017 puts a limit on the amount of mortgage interest you can deduct, so it’s best to check with your tax accountant for current limits and tax laws.

Finally, a few questions to consider:

Do you plan on staying in your home for at least 5 years (or longer than the break-even period)?

If you plan to move or refinance in less than 5 years, paying points might not be beneficial. But if this is going to be your forever home, it might benefit you to pay points for a reduced interest rate.

Do you have enough cash to make a substantial down payment and also pay points?

If not, it might be better to focus on your down payment. By making a larger down payment, you’ll have a smaller loan amount and a lower mortgage payment.

Is there a better way to invest your money instead of buying mortgage points?

In the example above, you’d pay $9,000 in points when your loan closes. Consider whether or not there may be an alternative way to invest that $9,000 which could yield better returns.

Check out a mortgage calculator to see what you can afford and if paying points will help meet your homeownership goals.

Takeaway

Paying mortgage points is a clear path to getting a lower interest rate and saving money if you plan to stay in your home long-term. That said, paying discount points in addition to a down payment and other closing costs can be financially demanding.

Before you deplete your savings, talk with a local mortgage advisor to find out how much you’ll save each month and how long it will take before you break even. Finally, if you have the extra cash, consider making a larger down payment which might generate better loan terms and save you more money than buying mortgage points.

Connect with a local mortgage advisor and discover which options will help you meet your financial goals.

Related: Compare the benefits of Renting vs. Buying in 2022

Next Steps

Working with a local mortgage advisor can help you compare your best mortgage options, lock in the lowest mortgage rate, and secure the best home loan that fits your life goals. Once you know your home loan options, you can decide whether or not buying mortgage points is a smart path. Connect with a local mortgage advisor to discuss your options and save money on your mortgage. We’d love to help.

Home Appraisals: What to Expect and Who Pays the Cost

June 18, 2021
blog small red house

Waiting to find out the results of a home appraisal can be stressful for homeowners and buyers alike. As a homeowner, you might need your home to appraise at a specific value before you decide to sell or refinance. As a first-time homebuyer, the appraisal could impact whether or not you qualify for a mortgage. The truth is, home appraisals can have a significant impact on your mortgage, the final terms of your refinance, or even negotiations between a buyer and seller.

In short, a home appraisal determines the fair market value for a home. A licensed home appraiser evaluates the home as a neutral third party by researching similar neighborhood homes. After assessing the home, the appraiser submits a detailed report.

Sounds easy enough, depending on the outcome. But if a home appraisal reports a much higher or lower value than anticipated, it can cause added stress for everyone. For example, the buyer and seller could restart negotiations, a buyer could walk away, or the loan could fall through.

The good news is that the home appraisal process can be less stressful when you know what to expect.

Know What to Expect Before You Get an Appraisal

Let’s look at the appraisal process, how much it might cost, and how home appraisals work.

You might be surprised to find out that some refinance loans don’t require an appraisal at all. If you’d like to refinance without an appraisal, check out the FHA streamline and the VA IRRRL to see if you qualify.

Related: Talk with a mortgage expert to find out if you qualify for a no-cost refinance

How it Works: What is a Home Appraisal?

In basic terms, a home appraisal determines the fair market value for a home. This is helpful for the buyer, seller, and lender. For buyers, a home appraisal ensures they’re paying a fair price. For sellers, it verifies that their home is priced competitively. And for lenders, an appraisal offers proof that a home is adequately valued to approve a home loan.

Certified home appraisers serve as neutral parties, so they don’t represent the buyer, seller, realtor, or lender. Simply put, an appraiser will evaluate comparable homes in the area along with recent home sales and write up a detailed report to confirm their findings.

Since the purpose of an appraisal is to set the fair market value of a home, both the buyer and seller have a unique interest in the outcome. Sometimes when an appraisal comes in much higher or lower than anticipated, the buyer or seller might request a new appraisal by appeal. But this is not common in practice.

Once the appraisal report is received, all interested parties take the appraisal as the current fair market value of the home.

Related: Access our FREE Homebuyer’s Guide

Common Questions About Home Appraisals

Q1: Are appraisals required for every home purchase?

No. A home appraisal is necessary in most cases, but not always. 

For example, if you’re buying a home with an all-cash offer in a competitive housing market, you can skip the appraisal as long as the seller is willing to do the same.

However, if you need a mortgage to buy a home, the lender will require an appraisal. The home appraisal will verify that the home’s value is comparable to similar homes in the area. In addition, since your home is the collateral for a mortgage, lenders look to the home appraisal to confirm its fair market value.

If you’re refinancing, you might be eligible for a no-appraisal refinance, saving time and money. Talk to a mortgage advisor to find it if you qualify.

Related: Top 5 Most Popular Home Loans for First-Time Homebuyers

Q2: Is an appraisal contingency a good idea?

Sometimes. If you’re the buyer, it can be a good idea to include an appraisal contingency in the offer. An appraisal contingency lets you walk away from the home purchase if the appraisal comes in too low.

However, if there are multiple offers and low housing inventory, a seller may choose a buyer who has fewer contingencies. In this case, an appraisal contingency might protect you as the buyer, but you could lose the house in negotiations.

Q3: Is there a difference between home inspections and home appraisals?

Yes. A home inspection provides an in-depth evaluation of the current condition of a home. 

A home inspector will do a detailed walk-thru and look for problems that might need repair or uncover areas that might need attention. For example, they’ll check the roof and the home’s foundation; they may test the furnace and outlets, along with the plumbing system, and see if the water heater is installed correctly. Often, the results of a home inspection lead to further negotiations between the buyer and seller. Especially if there are costly repairs needed.

An appraiser provides a final report to determine the fair market value by comparing similar homes, but they don’t check the home’s condition in detail. For example, an appraiser will note visible structural problems (for example, a falling roof or lack of plumbing), but not minor details. Instead, appraisers research comparable homes nearby that have sold recently using standard criteria. For example, they’ll compare homes with a similar number of bedrooms, bathrooms, square footage, acreage, and other major elements such as a backyard pool or ADU.

Q4: How much does it cost to get a home appraisal?

In general, a home appraisal for a single-family home will cost $300-$500. Most lenders require an appraisal before the loan closes, and typically the buyer pays. However, if the housing market leans in favor of the buyer, sometimes the seller will pay this fee.

Worth noting, the appraisal cost can vary widely depending on a few factors: the size of the property, location, and total acreage. For example, properties located in rural areas with additional acreage can cost more since the appraiser will need to survey the property’s boundary lines.

Related: Find Out the Truth About Closing Costs and No-Closing-Cost Loans

Final Takeaway

The home appraisal process can be a lot less stressful when you know what to expect.

In short, a home appraisal determines the fair market value of your home. For this reason, a home appraisal can have a significant impact on your mortgage, the final terms of your refinance, and negotiations between a buyer and seller. Of course, you can always appeal the appraisal, though this isn’t common practice.

The good news is that even when a home appraisal comes in different than expected, both the buyer and seller have options. As the buyer, you could walk away, bring more money to the table, or renegotiate with the seller. As the seller, talk with your realtor, see what they recommend, and decide if you’re willing to renegotiate the sales price.

Next Steps

Research comparable homes in your area and talk with your realtor about what to expect. If you’re thinking about buying a home or refinancing, we’d love to partner with you in the process. Connecting with a mortgage expert can reduce stress and save you money in the long run. We’re here to help.

Refinance Your Mortgage and Lock in the Best Rate (How To)

June 12, 2021
blog refinance

The recent dip in 10-year Treasury bonds is good news for homeowners ready to refinance a mortgage and first-time homebuyers. Whether you want to refinance your mortgage for a lower payment, apply for a cash-out refinance, or refinance your mortgage for a lower rate, now’s the time to take action.

Historically, a dip in Treasury yields translates to lower mortgage rates. Still, the economy is opening up, and rates have been near historic lows for months. Despite the downshift, mortgage experts predict rates to begin an upward rise soon.

Connect with a mortgage advisor to start the process early and lock in a low mortgage rate before they start to rise again.

Related: First-Time Homebuyer Advantages for 2021

How to Refinance Your Mortgage and Save Money in 5 Steps

Every borrower wants the best rate possible, and lenders will compete for your business if you’ve got a good financial track record. Borrowers with a good credit score and a low debt-to-income ratio will have leverage when deciding to shop around. But even if you’re financial picture isn’t where you’d like it to be right now, these tips will help you prepare.

When you apply for a mortgage refinance, the top three factors that will impact your mortgage application are your credit score, debt-to-income ratio, and home equity (loan-to-value ratio).

Take note of these five steps to leverage your knowledge and approach lenders with confidence.

Step 1: Protect your credit score.

Download a free copy of your credit report so you can resolve any errors or misinformation. If you have high consumer debt or multiple loans, pay down the balances to improve your credit score.

Keep making your payments on time and don’t take on any new debt or apply for new credit lines. Now’s not the time to open a new credit card or apply for a car loan. Keep your credit report as clean and consistent as possible when you’re ready to refinance.

Step 2: Shop around for the best mortgage refinance lender.

Just because rates are low doesn’t mean lenders will give you the best mortgage rate. Shopping for the best rate is a common strategy for most homeowners, but it’s smarter to shop around for the best mortgage advisor.

Yes, mortgage rates are one of the main factors borrowers consider when refinancing a mortgage. But the best loan terms are part of an overall package that goes beyond your interest rate. Fees, closing costs, points, and mortgage insurance are a few costs that can overshadow a low mortgage rate.

You don’t want to end up with a mortgage refinance that ends up costing you more and keeps you from meeting your long-term financial goals. 

We recommend shopping around for the best mortgage advisor. Read reviews, check in with colleagues, follow up directly when you find a low rate.

A great mortgage advisor will talk with you about your financial and homeownership goals. Together, you can refinance your mortgage with a custom solution that checks all the boxes. You should be able to refinance your mortgage with a low-interest rate, a better mortgage payment, and loan terms that meet your financial goals.

  • Do they deliver exceptional customer service?
  • Do they offer the refinance product you want (fixed, adjustable, streamline, cash-out, etc.)?
  • Do they understand your financial goals?
  • Do they have great customer reviews?

Related: When is it a good time to change mortgage lenders?

Step 3: Compare mortgage refinance offers to find the best loan.

Advertised rates are helpful metrics to find out where the market is trending, but refinancing a mortgage can end up costing you a lot of money if you’re not careful.

So, shopping for the lowest rate won’t always get you the best mortgage refinance. Instead, compare your refinance offers side-by-side using the loan estimates provided by your lender.

The truth is, mortgage rates vary based on the borrower’s information, the loan product, and the lender. Certain lenders might advertise super low rates, but they might offer you higher rates than other lenders based on your credit score. The same goes for your debt-to-income ratio and your home equity.

When you apply for a mortgage refinance, you’ll receive a quote, also called a loan estimate. Your loan estimate will offer a line-by-line breakdown that shows the terms of your home loan.

Prepare ahead of time and review this sample Loan Estimate. All lenders use the same format, so this will make it easier to compare refinance offers.

Step 4: Estimate the closing costs for a mortgage refinance.

Refinancing your mortgage is about saving money for most borrowers. So if your mortgage refinance has a lower rate but high closing costs, it might not be a great solution.

Check out your Loan Estimate again to verify closing costs and any other fees that might be negotiable. Closing costs will be written in a different section and cover one-time expenses.

When you refinance a mortgage, many borrowers have the option to pay closing costs up front, roll them into the loan, or get a lender credit in exchange for a higher rate. 

To find out which fees are negotiable, check out this sample Loan Estimate.

Closing costs typically include:

  • Origination Fee
  • Appraisal Fee
  • Credit Report Fee
  • Prepaid Homeowner’s Insurance
  • Prepaid Interest
  • Property Taxes
  • Mortgage Insurance

Remember these are one-time fees that you wouldn’t incur without refinancing your mortgage. One way to know whether refinancing your mortgage will save you money is to calculate your closing costs.

Related: The Truth About Closing Costs and No-Closing Cost Loans

Step 5: Lock your rate when you apply for refinancing.

Lenders vary in how and when they offer mortgage rate locks, so be sure to ask your mortgage advisor about the terms. Often, borrowers have the option to lock in a mortgage rate early in the application process.

A float-down option often allows rate flexibility that protects the borrower: if market rates drop, the borrower’s rate “floats down” with the market; but if rates rise, the quoted rate stays secure. Mortgage lenders typically offer rate locks for 30 to 60 days. 

Ask your mortgage lender about locking your rate and what happens if mortgage rates shift. If the refinance process takes longer than anticipated, you don’t want the uncertainty of a fluctuating mortgage rate in the mix.

Related: Your Complete Guide To Refinancing Your Mortgage

Final Takeaway

Refinancing a mortgage can help you reach your financial goals faster. Take a minute to clarify your goals to make an informed decision once you get a loan estimate from your lender. Keep your credit report in check, take a close look at closing costs, and lock your rate if possible. Most importantly, shop around for the right mortgage lender and make sure you’re comparing apples to apples when you evaluate the terms of your refinance.

Next Steps

To get the best refinance rates and loan terms, work with a local mortgage expert who understands your financial situation. We’d love to discuss your financial goals and build a custom mortgage refinance that saves you money. 

The Truth About Closing Costs and No-Closing-Cost Loans

April 22, 2021
blog young couple on couch

Each time you refinance your mortgage or purchase a new home, closing costs will be an inevitable part of the transaction. Depending on the amount, this can be an unwelcome surprise to new homeowners. The good news is that you have options. A great mortgage advisor can help explain the benefits and drawbacks unique to your situation. Even better, you can secure a custom home loan that covers your closing fees and meet your financial goals sooner.

The truth is, you get to decide how your home loan is structured. There are some tradeoffs to consider: You can choose to pay more points upfront and lower your interest rate, or you can increase your down payment for better long-term rates. You can also roll your closing costs into your mortgage or pay the costs out of pocket.

What are My Options When it Comes to Closing Costs?

With so many variables, it makes sense to look at a few alternatives:

  • Pay closing costs out of pocket
  • Roll closing costs into your loan
  • Negotiate with the seller to cover partial fees
  • Agree to have the lender cover closing costs in exchange for a slightly higher rate

Mortgage interest rates are still low enough that it’s worth considering.

The bottom line is that every new mortgage and refinance will have closing costs, but you have a few options about how you decide to pay them.

What Do Closing Costs Include and How Much Will I Have to Pay?

Closing costs are one-time fees and expenses a homeowner pays when you close on a new home purchase or refinance your mortgage. It’s the final chunk of money required after you’ve covered your down payment.

Closing costs run anywhere from 2-5% of the home loan amount and typically include title insurance, appraisal fees, property taxes, loan origination fees, and more.

It’s common for the buyer and seller to negotiate some of these costs in the final purchase contract. Often the buyer will pay most of the closing costs, and the seller will cover some of them, but this isn’t always the case.

In some situations, the buyer will pay the full amount, especially if the property is in high demand with multiple offers.

If you’d like a detailed behind-the-scenes look at closing costs, go here to check out the breakdown of loan-related fees and mortgage insurance costs that your mortgage could include.

What Happens When a Lender Covers the Closing Costs?

With a no-closing-cost mortgage, this typically means that your lender will cover most or all of your closing costs upfront. For the lender, this is a profitable alternative since the closing costs are a set amount. By charging a slightly higher mortgage interest rate in exchange, the lender will have a higher return over the life of the loan.

Depending on your situation, this might be a great choice to consider as a new homeowner facing closing costs. Less out-of-pocket expenses mean you might be able to become a homeowner sooner. As a homeowner, you’ll be able to start building equity right away, take advantage of tax breaks, and have the option to refinance in the future.

What Happens When I Roll Closing Costs into my Mortgage?

Folding the closing costs of your mortgage into your new home loan is different than having the lender cover the closing costs. When you roll your closing costs into your mortgage, it doesn’t necessarily raise your interest rate. Instead, the amount of your home loan increases by the value of your closing costs.

For example, if your purchase price is $350,000 and you put a down payment of $35,000 (10%), your starting mortgage would be $315,000. If the closing costs for your new mortgage are $10,500 (3%), your lender can roll it into your mortgage so that your home loan would be $325,100.

Rolling your closing costs into your mortgage might change your monthly payment by only a nominal amount, making it an attractive option for new homeowners short on cash. Just remember that you’ll be paying off that $10,500 with interest over the life of the loan, which in some cases might be 30 years.

What Happens If I Can’t Afford the Closing Costs?

Adding the closing costs to the home loan might cause the loan amount to jump beyond the approved loan amount in certain circumstances. In other situations, a borrower might not have the funds to cover closing costs for various reasons and might qualify for a government grant.

Borrowers with low-to-moderate income can apply for grants to help with closing costs through HUD-approved housing agencies. If you think you might qualify, give us a call. We can connect you with some information that might help.

Final Takeaway

Every home purchase and refinance will incur closing costs. If you don’t want to pay out of pocket, schedule a time to talk with your mortgage advisor about possible options:

  • no-closing-cost mortgages
  • lender credits or rebates
  • lender-paid closing costs
  • zero-cost or no-cost mortgages

What’s Next

Working with an expert mortgage advisor makes all the difference when it comes to managing your closing costs on a new home purchase or refinancing your mortgage. If you’d like to understand more about your options, give us a call. We can help.