Tag Archive for: mortgage advisor

Understanding a 3-2-1 Interest Rate Buydown

February 9, 2024

Higher interest rate environments can make it difficult to buy a home, but there are silver linings and workarounds. The good news is that higher interest rates often mean less competition, lower prices, and eager sellers. These sellers can be more willing to consider concessions than they would have been in a hotter market. Today you may be able to negotiate who pays for many closing costs, including mortgage discount points.

There’s an alternative to buying points, however, that homebuyers should understand. It can significantly lower the interest rate on your mortgage payment for the first several years of the mortgage. It’s called a 3-2-1 buydown, and it can help combat these higher interest rates.

What Is a 3-2-1 Buydown?

A 3-2-1 buydown temporarily lowers the interest rate on your mortgage by 3 percentage points the first year, 2 percentage points the second year, and 1 percentage point the third year. After that time, your mortgage will revert to the original rate.

This is a huge deal with interest rates at their current levels. Suppose you lock in your mortgage with an annual percentage rate (APR) at 6%. If you purchased a 3-2-1 buydown mortgage, your rate would be 3% in year one, 4% in year two, and 5% in year three, wrapping up with the agreed-upon 6% note rate for the remainder of the loan term.

This program was created to give buyers a little breathing room when higher interest rates threaten to derail their dream of homeownership. A 3 percentage point difference in your mortgage loan can make a significant impact on your monthly payment.

This program can also free up cash at a critical time after you purchase a home. Remember that a down payment, closing costs, and moving expenses can be very expensive. The money you save with temporary buydowns such as a 3-2-1 buydown can replenish the savings or emergency fund that you might have exhausted to pay for these expenses.

Your savings can also be put toward furniture purchases or repairs and upgrades for your new home. You don’t want to max out your credit cards on these items, which negatively affects your credit score. Instead, put the money you’re saving to work for you.

How Can I Use the 3-2-1 Buydown to My Advantage?

Three years is a long time in the mortgage industry. You’ve seen how quickly the daily and weekly mortgage rates can change. The 3-2-1 buydown can get you through the current interest rate hike, but it can also position you to refinance after the program ends in three years. At that time—as long as your home equity is at least 20%—you can consider refinancing to a lower permanent rate.

This is assuming that 30-year fixed-rate mortgages will be lower at that time, although no one knows what the Federal Reserve will do three years from now. If rates do increase, you’re still ahead of the game with the mortgage rate you originally locked in.

This makes a 3-2-1 temporary buydown a win-win for homebuyers!

Who Pays for a 3-2-1 Buydown?

A 3-2-1 buydown can be paid for by the seller, homebuilder, or even the mortgage lender. This is a popular concession among sellers who are eager to sell for one reason or another. It often allows them to achieve the full asking price on their home, while also incentivizing buyers to invest in real estate.

What’s the Difference Between a 3-2-1 Buydown and Buying Discount Points?

The difference between 3-2-1 temporary buydowns and discount points all comes down to rate and timing. You know you’ll get to chop entire percentage points off your interest rate during the first three years of your loan term with the 3-2-1 buydown. Permanent buydowns such as discount points, on the other hand, lower your rate by a smaller amount—generally 0.125 to 0.5 percentage points—for the entire life of the loan.

Here’s where you need to weigh your options. Naturally, that 3 percentage point APR savings is an attractive benefit, but saving half a percentage point on a 30-year fixed-rate mortgage is valuable, too. That equates to a lot of savings over time.

Buying mortgage points can be the way to go if you plan to stay in your home a long time because you want to make sure you achieve your “breakeven.” This is the point at which the money you’ve saved on the permanent interest rate discount outweighs the upfront costs you (or the seller) paid for that discount. This breakeven is generally achieved around year five of your home loan.

An additional item to consider is how comfortable you are with the interest rate you’re locking in. You want to make sure this is an interest rate you can live with after the three-year period on a 3-2-1 buydown ends because it will be your permanent mortgage rate for the remaining years of the loan. The option to refinance as long as you’ve built up enough home equity is available, but there’s no guarantee that rates will be low enough to count on that.

Taking all this into account, the 3-2-1 buydown is still a very attractive option for buyers when interest rates are high.

We know these are important decisions, which is why Preferred Rate is always here to walk you through them. We can explore the various scenarios with you, outlining how much you’d save with each option. Locate a Preferred Rate Mortgage Advisor near you to get started.

How to Set Achievable Financial Goals

January 2, 2024

Happy couple, tablet and planning for finance, budget or application for loan on fintech app in home. Black man, woman or reading on touchscreen ux with smile, financial goals and investment profit

New year, new goals, right? When it comes to personal goal-setting, creating financial goals can be one of the most meaningful things you can do for yourself and your family.

Why? Because money may not be everything, but it can buy us choices. Where we live, what we do for work (and how much we work), what hobbies we’re able to pursue, and whether we’re able to help others in our lives often have strong ties to our financial picture. So, do yourself a favor in 2024 and set some financial goals you can crush.

No matter what your financial goals, remember that a goal without a plan is just a dream. Cheesy? Yes. True? Yes.

That’s why we’re here to show you not just the value of personal goal-setting, but a road map for killing those financial goals.

All Big Dreams Start Small

Whether your goal is to travel the world or pay off student loans, chances are this goal is more complicated than simply snapping your fingers and making it so. If that were the case, it wouldn’t be part of your list of goals. It would be on a to-do list.

So let’s acknowledge upfront that some of these financial goals can seem quite lofty. After all, it takes a lot of financial planning to, say, buy a home or live debt-free. But here’s the thing: Once you set a goal, you can work backward to see how you can achieve it.

For example, let’s say you need $18,000 to pay off your debt this year. That’s $1,500 per month, or about $750 every two weeks. If you know that you can afford to set aside $650 of every paycheck toward paying back debt, that leaves $100 per month you still need to find—perhaps through scrimping, selling, or a side hustle.

Breaking your goal into a smaller time frame helps you see how you can get there, and whether it’s really achievable.

Using SMART Goals

Using the SMART system to achieve your goals is extremely powerful. It’s all about breaking these larger financial goals into bite-sized, achievable pieces.

SMART stands for specific, measurable, achievable, relevant, and time-bound. Sounds fancy, but it’s really just a practical way to turn dreams into reality. Here’s what each component means.

Specific: Define your goal as precisely as you can. Instead of saying, “I need to get out of debt,” perhaps make it, “I want to pay off my credit card debt in a year.”
Measurable: Make sure you can track your progress toward your goal. For example, “On the first of every month, I’ll send $200 to the credit card company.”
Achievable: Make sure your goal is realistic for you. And then outline exactly how you plan to save the money. For example, to save that $200, maybe you commit to stopping buying coffee outside the house and making dinner at home six days a week.
Relevant: Ensure that your financial goals align with your personal life. If you’re ultimately dreaming of homeownership, maybe your priorities are to pay down debt and work on your credit score, rather than saving up for a vacation.
Time-bound: Give yourself a deadline. Saying, “I’ll have $5,000 saved for a down payment in 12 months,” helps you think about what that means on a weekly and monthly basis. It also creates a sense of urgency.

Financial Goals That Are Worth Setting

Let’s get one thing straight: Any goal that’s worth it to you is worth setting. Want to save money so you can buy a piece of artwork? Great. Need extra cash because your living expenses are increasing? Fabulous. Just really love to see a fat number in your savings account? We totally get it.

No two goals are exactly alike because the people setting them are all different. Nevertheless, when it comes to personal goal-setting, there are some financial goals that come up more than others. Here are some ideas for you.

Creating a budget

Perhaps you’re not sure what kind of financial goals to set because you’re not really sure where your money is going. If that’s the case, getting a handle on that is a valid goal for 2024!

Here’s a simple way to get started:

List all your monthly income. List all your sources of income, including your salary, freelance work, rental income, and any other sources of money.
List all your fixed monthly expenses. Fixed expenses are regular and consistent, like rent, utilities, loan payments, and other monthly obligations. For annual fixed expenses like property insurance, divide the total number by 12.
List all your variable monthly expenses. Estimate the expenses that can vary from month to month, such as groceries, gas, clothing, entertainment, and dining out.
Start tracking your spending. Make a spreadsheet to keep track of your actual spending in all the categories you’ve listed. This will give you a clear picture of where your money is going right now.

Once you have some basic information, you can start thinking about areas where you might be able to cut back or set realistic spending limits for yourself.

If you struggle to create a budget—or to stick to one—there are also many apps you can use to keep yourself on track.

Becoming debt-free

Ah, the “D” word. Credit cards, student loans, medical bills, mortgages, car payments, you know the drill. Being debt-free is like shedding a financial weight.

If this is one of your personal goals, then a good plan can be to tackle high-interest debts first. That’s because those interest rates are costing you the most money. You may also want to look into consolidating debt or opening a credit card that offers a 0% APR on balance transfers.

Only consider the credit card option, however, if you’re positive you can control your future spending. Part of the goal of being debt-free is improving your credit score. Getting into even more credit card debt is the opposite of what you want and can prevent you from reaching your financial goals.

For more help on paying off debt, see our blog post with eight practical ideas here.

Saving money

When it comes to saving money, the old set-it-and-forget-it method can be great. An easy way to do this is to auto-allocate a specific amount of money to be transferred to your savings account once your paycheck is deposited.

This is honestly the best kind of New Year’s resolution. You can take some time in January to set things up when your motivation is high, and then you’re done for the year. Goal achieved!

The other great thing about this strategy is it can help you work toward a long-term goal like buying a house, but it’s also great for short-term financial goals like, say, Taylor Swift concert tickets.

And you don’t have to have a spending goal in mind at all! If you want to save money simply to watch your savings account grow, that’s not only an achievable goal, it’s a brilliant one!

Improving your credit score

The credit score: also known as your financial goals’ gatekeeper. We don’t have to tell you that a great credit score opens doors—namely, to the ability to make big purchases by taking on more debt. This privilege can be yours if you work on your credit score.

Remember the SMART goals here. Before you can set a specific goal, you need to know what your starting score is. (You can request a free credit report here.)

Say you have a credit score of 650, and you want to get it up to 700 by the end of the year. Here are some achievable ways to do that:

Be sure to pay your bills on time. This is crucial, so set up reminders or automatic payments if necessary.
Keep your credit card balances low. Aim to keep your credit card balances at no more than 30% of your credit limit.
Keep old accounts open, and avoid opening too many new accounts. The length of your credit history is important. So having long-standing accounts helps you, while opening a lot of new accounts is viewed as risky behavior.
Seek professional help. If you want to improve your credit score before buying a home, a Preferred Rate Mortgage Advisor may be a great resource for getting personalized help on this goal.

Saving for a down payment

One of the most common financial goals involves real estate. This might take the form of buying your first house, a vacation property or adding an investment property to your portfolio. In any case, a down payment will be needed, making this one of the great personal goals for 2024.

Start by setting a specific savings goal for your down payment, then see where you can save—and where you can earn more money—to hit this target. It’s always great to put 20% down if you want to snag better mortgage rates and avoid private mortgage insurance (PMI), but it’s not required. Consult with a Preferred Rate Mortgage Advisor to see if you qualify for down payment assistance and what a good down payment savings goal might be for you.

Saving for retirement

It’s time to play the long game. Long-term financial goals keep your eye on the prize. If your dream is to work less or retire on a beach somewhere, then now is the time to start saving for it. If you haven’t done it already, set up a retirement account, such as a 401(k) or an IRA.

As you begin to save for retirement, you’ll see what compound interest can do to the money you’re stashing away. As you watch this money grow, you can feel confident knowing you’re working toward being financially secure for the rest of your life.

Making career goals a reality

Part of being financially secure is the ability to pursue what’s important to you. When you’re not tied to the punch clock, you can achieve the career goals of your dreams.

For example, maybe you’d like to save enough money to return to school part-time to learn a new skill. Or maybe you have an idea for an entrepreneurial adventure and need startup funding. Or perhaps your goal is to be able to quit your day job entirely to turn your passion project into a career.

The first step, as always, is to write out your plan, including how much it is likely to cost and how long it will take to save for it. But whatever your goals, the ability to invest in yourself will never go out of style.

Celebrate Wins of All Sizes

A large part of personal goal-setting can involve sacrifice. You have to devote the time, money, and energy to creating specific goals. But you also need realistic, actionable plans to help get you there.

Keep in mind that the payoff doesn’t have to be years down the road when you achieve long-term financial goals. Celebrate the short-term goals as well. Did you create a plan and exceed your savings goal in the first month? That deserves some acknowledgment. Plus, recognizing your victories can keep you motivated for the long haul.

Setting achievable financial goals doesn’t have to be a buzzkill. Instead, it’s a positive step toward realizing your dreams.

And always remember, we’re here to help. Whether you’re having trouble establishing goals, aren’t sure of the best ways to save money, or want to understand the SMART goals system better, we’re happy to assist however we can.

What Is a Good Credit Score to Get a Mortgage Loan?

January 23, 2024

credit score concept on the screen of smartphone

Before you go too far down the house-hunting rabbit hole, you’ll want to ensure that you meet the credit score requirements to secure a mortgage loan. After all, this mortgage loan will allow you to purchase your dream home. And while many factors go into qualifying a good credit score is definitely one of them.

We know that getting “rated” can make you feel like you’re back in school. Like in school, however, with a little hard work, discipline, and dedication, you can improve your credit scores quickly!

So let’s jump right in, starting with the obvious.

What Is a Credit Score?

Credit scores range from 300 to 850. The Fair Isaac Corporation, also known as FICO, originally created this scale to help lenders and investors determine the creditworthiness of consumers.

A higher credit score indicates that you’re a lower-risk borrower, which could lead to a lower mortgage rate over the life of the loan. That’s because a good credit score and a strong credit report imply that you can manage your credit wisely and make timely payments. Lenders are more likely to offer you a lower interest rate mortgage loan if you are a high-credit-score (low-risk) borrower.

Other agencies have adopted a similar scale and are expected to start playing a bigger role in credit scoring in the coming years. At the end of the day, your credit score is a tool that provides a snapshot of your credit history to lenders, essentially summarizing the risk of lending to you.

What Determines Your Credit Score?

Five factors help calculate your credit score. Here’s an overview of these elements of the credit scoring model.

1. Payment history (35% of your overall score)

Paying your credit accounts on time—including credit cards, auto loans, student loans, medical bills, and any personal loans—can increase your credit score. In the same vein, late payments can negatively impact your credit score.

The credit scoring model considers the frequency and severity of these late payments. A 90-day late payment, for example, will have a larger negative impact on your credit score than a payment that’s 30 days late. Ultimately, you want to do what you can to pay your bills on time to ensure that you don’t make bad credit worse or reverse all the work you’ve done to improve your credit score.

2. Utilization rate (30% of your score)

The ratio of your credit account balances to your available credit limit is known as the utilization rate. The credit bureaus consider the utilization rate of your individual cards, as well as your overall cumulative credit limits, in this factor. A balance-to-credit-limit ratio below 30% may improve your credit scores, while a ratio above 30% may lead to bad credit.

3. Length of history (15% of your score)

The age of your credit accounts matters. What we mean is that it pays to establish a long history of credit usage and on-time payments. Credit accounts that have been open and utilized for years can improve your credit score.

Many people use their credit cards for their monthly expenses, which earns them perks and helps establish their reputation as responsible borrowers. This is a good idea only if you know you can pay your balance off every month.

With this in mind, you might think that it makes sense to open a bunch of new credit accounts, just as long as you pay off the balance at the end of the month. However, opening new credit accounts lowers the length of your credit history.

This can result in a lower credit score in the first 12 months. Once an account reaches 24 months or longer, however, it becomes a more established account. That’s when you can expect to see a positive impact.

This is also why a mortgage lender may tell potential homebuyers not to open new lines of credit when they’re preparing to buy a house. It can lower your credit score and potentially affect your debt-to-income (DTI) ratio.

4. Type of credit (10% of your score)

Also known as credit mix, credit scoring models consider what type of credit you have. Generally speaking, a mix of different credit types is more favorable than only one type of credit. Various types of credit may include a revolving credit card, an auto loan, and an installment loan, for example. This mix of credit types can produce a higher score than using revolving credit cards.

5. Inquiries (10% of your score)

When a lender pulls your credit, it is considered a “hard” inquiry. That can have a negative impact on your credit score. That means you could be dinging your score every time you apply for a new credit card or loan.

Not all inquiries negatively impact your credit, though. Pre-approval and employer inquiries that check your credit aren’t detrimental and don’t trigger calls and letters from other parties trying to sell you their latest and greatest credit card. Multiple inquiries from mortgage companies made within a 45-day window will ding your credit score only once, allowing consumers to do their research without lowering their credit score.

Of course, not all inquiries negatively impact your credit. “Soft” inquiries, such as a potential employer checking your credit, aren’t detrimental. Multiple inquiries on a single new account, such as multiple credit checks for your mortgage, ding your credit score only once, as long as these checks are all made within 45 days of one another.

What if you want to check your credit scores yourself? Any request regarding your personal credit is considered a soft inquiry and won’t count against you.

What Are the Credit Score Requirements to Buy a House?

Every mortgage lender is different. No magical number will suddenly unlock a home loan, but there are credit score ranges that lenders generally view more favorably than others.

Credit scores are typically viewed this way:

800–850: Excellent
700–799: Very good
680–699: Good
620–679: Fair
580–619: Poor
500–579: Bad
499 and lower: Very bad

A higher credit score can lead to a more favorable home loan interest rate. However, it’s important to note that credit score is just one part of the equation, and other factors such as income and DTI ratio also play a role in home loan qualification.

Each mortgage lender has its own strategy, including the level of risk they finds acceptable for a given credit product. So remember that there’s no standard “cut-off score” used by all lenders. Instead, these general ranges can tell them whether a potential borrower has a good or bad credit score or is somewhere in the middle.

Don’t forget: When it comes to qualifying for a loan, your credit score is only one part of the equation. A borrower can have a perfect 850 score, but if their income and DTI ratio don’t support the loan amount they’re requesting—say they make $30,000 a year and are looking at homes in the $800,000 range with no other liquid assets—their desired amount can still be denied.

How Do You Check Your Credit Score?

You can request a free copy of your credit report once a year from each of the three credit bureaus: TransWestern, Experian, and Equifax. You can contact these bureaus directly or go to Annual Credit Report to get all three.

This is a solid strategy if you’re looking to get a mortgage loan in the next three months. If you have some time and want to improve your credit, you can always request one report from each credit bureau every four months to track your progress.

Once your credit report is in hand, review it for accuracy. Call the credit bureaus if you find any errors or if you have questions about anything in the report.

How Do You Improve Your Credit Score?

If you find that your credit needs some work, remember the five factors determining your score and then set about optimizing your credit.

The most effective ways to do this:

Make payments on time every time.
Pay credit cards down to 30% or less of their credit limits.
Limit the number of accounts you apply for at one time.
Leave established, older accounts open even if they’re paid off.

Keep in mind, too, that you might be able to qualify for a mortgage loan even if your credit score is in the “poor” to “fair” range. That’s because credit is not the only factor considered.

Preferred Rate’s specialty pr ograms can help individuals who have previously had a short sale, pre-foreclosure, or foreclosure reenter the housing market. There is no need to count yourself out of the market just because your credit score is less than perfect. your credit score is less than perfect.

If you have questions about your credit or want to learn more about the homebuying process, click here to connect with an Preferred Rate Mortgage Advisor in your area.

Buy a Home Now, Refinance Later at Reduced Fees

January 16, 2024

Laptop, living room and couple search website information for home investment, loan or real estate property discussion on sofa. Young people on couch with pc internet, planning future together

The real estate waiting game is no fun. But with today’s high-interest rate, some would-be buyers think it’s prudent to play if they want to secure the best homeownership deal. The problem with that is you miss out on homeownership opportunities today, including less competition and falling prices in many markets.

The thing is, once the high-interest rates of today’s market moderate, everyone who’s been sitting on the sidelines may very well flood into the market at once. Yes, that’s right: A lot of other potential homebuyers are taking the wait-and-see approach, just like you are. The likely outcome is that competition will return, and real estate prices may start heading north once again.

Thankfully, Preferred Rate has a solution to get you on the path to homeownership NOW while allowing you to take advantage of lower rates if they materialize in the near future. The Buy-Fi Program lets you buy a home now and then refinance later with reduced lender fees.

Let’s dig into the details of this program.

The Advantages of Preferred Rate’s Buy-Fi Program

Buy-Fi is a game-changing opportunity for potential homebuyers seeking confidence and flexibility in their purchasing decisions. It’s truly the best of both worlds.

Buy now with confidence

Preferred Rate’s Buy-Fi program lets potential homebuyers buy with confidence between November 1, 2023, and March 31, 2024, regardless of current high-interest rates, with the knowledge that they can refinance into a lower rate later for lower fees.

Flexible refinancing options

Participants in the Buy-Fi program can refinance their homes anytime before December 31, 2024. This allows them to capitalize on lower interest rates at any time before that date.

Reduced fees make it a no-brainer

Preferred Rate is committed to reducing the financial burden of refinancing by offering reduced closing costs. These include administrative, application, commitment, technology, processing, and underwriting fees. When you add all those up, that’s a lot of savings compared with another mortgage lender or financial institution!

How to Buy a Home Now, Refinance Later

A few simple steps can help you get into a home now with the Buy-Fi program while taking advantage of lower interest rates that may be forthcoming.

To secure your home purchase loan, you just have to do the following:

Start your homeownership journey by applying with Preferred Rate for the purchase of your new home.
Successfully close on your home loan, securing your foothold in the real estate market.
At that point, Preferred Rate will watch the interest rates for you. When they drop, we’ve got you covered!
You can refinance anytime before December 31, 2024, and we’ll reduce your lender fees.

The Buy-Fi program creates a stress-free homeownership experience without the hassle of waiting for higher interest rates to come down. The strategy to buy a home now and refinance later is a financially responsible way to invest in real estate. These reduced lender fees provide real-world benefits to you in the long run and allow you to start building equity sooner.

Plus, this flexible approach of refinancing when it’s right for you (up until December 31, 2024) allows you to dictate the timing while securing a more favorable interest rate.

Some people think sitting on the sidelines puts them in the driver’s seat in this market. But really, doing your homework, getting creative, and pulling the trigger when the factors are right for you are what really put you in control of your financial future.

Other Things to Consider

Here are a few other things to consider when considering this program.

The federal funds rate and its influence on real estate

Preferred Rate’s Buy-Fi program strategically aligns with market dynamics influenced by the federal funds rate. That’s the rate at which banks, credit unions, and other financial institutions lend one another money. This gives participants in the Buy-Fi program a competitive edge in the real estate market.

In other words, when these high-interest rates finally start moving down, we move to save you money!

A new way to save

An online savings account—not to mention a high-yield savings account—is great, but Preferred Rate’s Buy-Fi program positions itself as a modern alternative to the traditional savings account.

With Buy-Fi, you save money on reduced closing costs on the refinance (via reduced mortgage lender fees). You also save on the lower interest rate after you refinance. And, of course, you can start building equity right away.

Get into the market while the competition is lower

Those high-interest rates do make the housing market more attractive in a few respects. They mean that competition is lower, meaning you’re less likely to get into a bidding war over the home of your dreams. Lower competition usually leads to lower prices as well.

Waiting to Buy a Home Could Cost You

Getting a mortgage from other financial institutions or a mortgage lender comes with fees, including closing costs. The extra money required can strain the homebuying process, and waiting for rates to drop may not necessarily mitigate all these costs.

At the same time, putting the money that would go toward your home purchase into one of these high-yield savings accounts that compounds interest can be attractive. However, the opportunity cost of waiting for lower mortgage rates could lead to missed opportunities for homeownership, impacting your long-term financial goals.

That’s why Preferred Rate’s Buy-Fi program is here to help. By encouraging proactive decision-making, offering flexible refinancing options, and reducing closing costs, Preferred Rate hopes to pave the way for a smart and seamless homeownership experience.

Don’t let the uncertainty of market conditions dictate your homeownership journey. Seize the opportunity with Buy-Fi, and start your journey today!

The Importance of an Annual Mortgage Review for Homeowners

December 18, 2023

Boyfriend and girlfriend sitting at home with laptop

Just as we prioritize our physical well-being with annual checkups with our doctors, it’s important to take a moment each year to assess our financial health. One of the essential financial checkups is the annual mortgage review.

This proactive approach can have a major impact on your financial well-being and can save you big money in the long run. Whether you have a fixed-rate loan, adjustable-rate mortgage (ARM), VA loan, FHA loan, or any other type of home loan, this review can be a game-changer.

Assess Your Financial Situation

An annual mortgage review provides you with an opportunity to assess your current financial situation. If you’re planning on making any major financial decisions in the upcoming year, such as paying for college, remodeling your home, or buying an investment property, your mortgage loan could play a big role.

Knowing where you stand with your mortgage can help you make informed choices about accessing funds for any additional ventures.

Leverage Home Equity

Home equity is a valuable asset that many homeowners underestimate. During your annual mortgage review, you’ll get a look at how much your home has appreciated, as well as the amount of equity in your home. This information is vital because it can be a resource to tap into for future financial endeavors.

Let’s say you want to remodel your home. You might be able to use a home equity line of credit (HELOC) or refinance your mortgage to access the funds you need. By using your home equity wisely, you can finance your projects at a lower interest rate than other forms of borrowing. This can save you money in the long term.

Plan for Future Investments

Your annual mortgage review is an excellent time to discuss your upcoming investments or major financial decisions with a professional. Whether it’s turning your primary residence into an investment property, expanding your real estate portfolio, or venturing into other investment opportunities, your home can play a big part in bankrolling these endeavors.

Your Preferred Rate Mortgage Advisor can help you explore how your current mortgage loan and the equity in your home can be used to facilitate any of these investments and potentially save you money in the process.

Manage Your Debt

We all face financial challenges now and again. Mounting credit card debt, medical bills, and other unexpected expenses have been known to derail even the best-intentioned people. Your mortgage review is the perfect time to discuss any speed bumps with a financial professional who can help you explore all your options and potential solutions.

One option to consider is consolidating your debt under your mortgage using your home equity. By rolling your high-interest debts into your mortgage, you can benefit from a lower interest rate and a single monthly payment. This can make managing your finances more efficient while saving you money in interest payments over the long term.

Another option might be to consolidate your debt using a home equity loan or personal line of credit. Your Preferred Rate Mortgage Advisor can connect you with the right financing for your specific scenario.

Eliminate Private Mortgage Insurance

If your mortgage loan required you to pay for private mortgage insurance (PMI) when you initially purchased your home, an annual mortgage review can be the right time to assess whether you’re eligible to eliminate this additional cost from your mortgage payments.

Often, once you’ve built up 20% equity in your home, you can request to remove PMI. This typically has some requirements to be eligible but can reduce your monthly mortgage payment amount and save you money on your mortgage over the long term. Your advisor can guide you through the process and determine whether you qualify to remove PMI. It’s important to note that mortgage insurance for FHA loans is treated differently by the Federal Housing Authority, and cannot be removed.

Explore Loan Term Options

Your annual mortgage review is an opportunity to re-evaluate the terms of your mortgage loan. If you currently have a long-term loan, such as a 30-year fixed-rate loan, you might consider shortening your loan term. If you shorten your loan term to a 15-year fixed-rate mortgage, it can help you pay off your home loan faster and save tons on interest over the life of the loan.

An annual mortgage review can be even more important if you have an adjustable-rate mortgage (ARM). That’s because the review is the ideal time to assess your current rate and the potential risk of rate fluctuations. You can also talk about refinancing into a fixed-rate loan if you’re looking to obtain a stable interest rate, ensuring that your monthly payment remains consistent and predictable.

Explore Payment Options

Did you know that if you make one extra principal and interest payment per year, you could shave years off your mortgage?

This is information you’ll learn in your annual mortgage review. Most mortgages offer flexible payment options, and if your financial situation allows for it, you might be able to increase your payment amount or make additional payments to pay your mortgage off faster.

Stay Informed About Interest Rates

Even if you have a fixed-rate mortgage, interest rates play a pivotal role in your mortgage and overall financial health. Your annual mortgage review is a way to stay informed about current interest rates and any trends in the mortgage market.

By keeping an eye on interest rate movements, you’ll know whether it’s the right time to refinance or lock in a more favorable rate. If you’re looking to buy another home, second home, or investment property, this is a great time to talk about the right time to buy, the type of mortgage you should be looking at, and strategies around higher interest rates.

Yearly Financial Checkup

An annual mortgage review is a prudent practice for current homeowners. It provides you with the opportunity to assess your financial situation, leverage your home equity, plan for future investments, manage debt, eliminate unnecessary costs, explore loan term options, stay informed about interest rates, and so much more. You didn’t think one little meeting could do so much, did you?

Owning a home isn’t a passive investment. So the annual mortgage review makes sure your investment stands the best chance of paying off for you. Pair that with an experienced Preferred Rate Mortgage Advisor, and you can make the most out of your home loan while potentially saving money in the process.

6 Most Commonly Asked Questions About VA Loans

November 3, 2023

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If you or a loved one have served your country and are now looking to buy a home, you may wonder if you qualify for a VA loan.

VA mortgage loans offer tons of benefits, like no down payment requirements, no private mortgage insurance (PMI) monthly payment, and flexible underwriting guidelines.

Below are the most commonly asked questions about VA loans. But first, let’s explain who qualifies for a VA loan. You can obtain a VA loan if you are an active-duty service member, veteran, or surviving spouse of a veteran. This includes veterans with service-connected disabilities.

Those who qualify will receive a Certificate of Eligibility (COE) as proof that they are eligible for a VA loan. If you do not have a copy of your COE, your Preferred Rate Mortgage Advisor can assist you.

1. Are There Closing Costs Associated with a VA Loan?

As with many loan programs, VA loans do come with some of the standard closing costs and fees. These include fees you’d see on most loans, including the appraisal, title search, title insurance, recording fee, and other lender fees.

One fee that is specific to VA loans is the VA funding fee. You pay this one-time fee directly to the VA to keep the loan program going. The size of the VA funding fee depends on a few factors.

For first-time use, the funding fee is 2.125% of the total amount borrowed. The funding fee increases to 3.3% for borrowers who have previously used the VA loan program, but it can be reduced by putting money down. Veterans who are more than 10% disabled may be exempt from this fee.

There are a few ways you can avoid paying the VA funding fee out of pocket. You can negotiate to have the seller pay this fee, or you can roll the funding fee into your mortgage and finance it over the life of the loan.

2. What Credit Score Do I Need for a VA Loan?

Credit score requirements are one of the biggest worries for many homebuyers, but are you ready for some good news? There is no credit score requirement for VA loans.

As exciting as this is, remember that although the VA loan program doesn’t set a minimum credit score, individual lenders do. At Preferred Rate, our minimum FICO score requirement is 580 for VA loans, which provides applicants with more leniency. However, it’s important to note that not all lenders have the same requirements.

It’s also important to keep in mind that the better your score, the better your interest rate and loan terms will be. To learn where you stand, you can obtain your free credit report once a year from each of the three credit bureaus—or you can connect with a Preferred Rate Mortgage Advisor by clicking here to set up a free pre-qualification.

If you find that you need help boosting your credit score, our experienced Preferred Rate Mortgage Advisors are always here to help. We’re happy to sit down with you to discuss your financial situation and how you can improve your FICO score before applying for a VA loan.

3. How Many Times Can I Use My VA Home Loan Benefit?

As many times as you like. There’s no limit on how many VA loans you can take out in your lifetime.

The only caveat is that VA loans must be used only to purchase or refinance a primary residence. In addition, your entitlement—the amount the VA is willing to guarantee for your loan—is finite. Some veterans with a partial remaining entitlement can get another VA loan if the remaining entitlement is sufficient. Your Mortgage Advisor can help with that calculation.

Normally, you’d have to sell the home that is financed under the VA loan to restore your full entitlement. However, the Department of Veterans Affairs offers a one-time entitlement restoration for individuals who have paid off their VA loan but still own their property. This perk can be used whether the loan was paid off entirely or refinanced into a different loan, such as a conventional mortgage.

4. Can I Have Two VA Loans?

You sure can. VA loans are technically used for primary residences, but primary residences change all the time—especially for active service members. For example, you can use a VA home loan program to buy your primary residence. Then, if you receive orders to move, you can take out another VA loan to purchase your new primary residence—as long as your entitlement covers both.

The best part about having multiple VA loans is that you don’t have to sell your old home. You can use it as a rental property and earn supplemental income while your original VA loan remains intact.

Naturally, you will have to qualify for the VA loan again. You may also be limited in how much you can borrow the second time around, depending on your VA loan entitlement.

5. Can I Use a VA Loan to Buy Land?

A VA loan doesn’t allow you to purchase land by itself, but it does allow you to buy land that you plan to build on. So you can use a VA loan to buy land if you finance the costs associated with that land and the construction of your new home at the same time.

You could also finance the cost of the land through a conventional loan and then use a VA loan to fund the construction of a home that will sit on that land. Your third option is to finance both the cost of the land and the construction of the home through other means, such as a short-term construction or bridge loan, and then refinance into a VA loan once the home is built.

There are a few more rules you may need to consider before purchasing land using a VA loan. A Preferred Rate Mortgage Advisor can go over those with you.

6. Can I Refinance a VA Loan?

By now you’ve probably gleaned that, yes, you can refinance a VA loan. You can obtain a VA-backed cash-out refinance or an interest rate reduction refinance loan (IRRRL). Like your initial VA loan, you’ll work with a lender like Preferred Rate (not the VA) to refinance your loan.

While the VA IRRRL loan is a streamlined process that requires less paperwork on behalf of the borrower, you will need to supply the lender your COE. For a cash-out refinance, you will need to provide most of the paperwork that comes standard for home financing. There are some restrictions on the equity required for cash-out refinances, but VA mortgage rates are typically in line with other government products like conventional loans.

Closing fees do apply on VA refinances. In addition, there is also a VA funding fee that you can finance into your new loan amount. It’s always a good idea to consult with a trusted Mortgage Advisor to make sure the terms and cost of refinancing are worth it and will save you money in the end.

Taking the First Step

The VA home loan benefit is one of the ways our country and companies like Preferred Rate say thank you to military personnel and their families for the sacrifices they have made in the name of our freedom. Our job is to make the homeownership journey as easy as possible for you and your family.

At Preferred Rate, we truly believe that the VA home loan benefit is one of the best ways to make that happen. For more information on VA loans click here to connect with a Preferred Rate Mortgage Advisor.

House Hunting: The Art of Timing and the Cost of Waiting

September 27, 2023

House for sale. A stunning real estate photograph of a suburban

When it comes to investments, a lot of folks say that timing is everything. Sounds good on paper, right? But let’s be real, when you’re thinking about making a big investment like buying a house, trying to time the market is like chasing a unicorn. Sure, we all wish for a world where both interest rates and house prices are in the basement, but that’s about as rare as a shooting star.

Remember the big housing price drop in 2007 during the Great Recession? Yeah, that was a rollercoaster. And then in 2020, the pandemic made home prices play hide and seek. But apart from those blips, it’s mostly been business as usual.

Of course, home prices have their ups and downs, driven by stuff like the overall economy, interest rates, and what’s happening in your neighborhood. Speaking of interest rates, those are like the secret sauce controlled by the Federal Reserve. They’re the only ones who really know what’s up with interest rates, and they sometimes have to do some last-minute tweaking.

But hey, no worries, right? You’re thinking of waiting it out until houses are raining from the sky, and interest rates are so low you’d think they’re on clearance.

But what if that never happens? What if mortgage rates decide to do a rocket launch to the moon instead? Housing inventory could become scarcer than Bigfoot sightings. And as for prices, well, they dance to the beat of their own drum.

Bottom line, market timing might sound good in theory, but while you’re waiting for the perfect alignment of stars, someone else might snatch your dream home.

The Waiting Game

Putting off a big money move like buying a home can make sense sometimes, like if you need to work on your credit, save up for a down payment, or build an emergency fund. But if you’re just twiddling your thumbs waiting for the stars to align in the housing market, it might be time to consider the cost of playing the waiting game.

In this world of rising inflation, the price tags on everything keep going up. Unfortunately, that can eat into your housing budget, leaving you with less cash to put down on your dream pad.

And remember, a home is like any other product on the shelf—it’s not immune to price hikes. While some markets have calmed down a bit in the past year, nobody can say for sure if that trend will stick around. The wild card here is interest rates. If they take a nosedive, demand could spike again, and the epic house bidding wars of 2021 might make a comeback. So, no guarantees of lower prices there.

On the flip side, if interest rates decide to climb, there might be less competition in the market, but those rates will gnaw away at your housing budget. They can even tack on extra bucks—sometimes hundreds—to your monthly mortgage payments.

Renting Costs

Now, let’s talk about your current housing situation. If you’re renting, you’re basically paying someone else’s mortgage (your landlord’s), and you’re probably dealing with annual rent hikes.

So far, this year has seen average rent increases of around 3.3%, according to NerdWallet. But in some places, like Hartford, Connecticut (7.3%), Buffalo, New York (6.3%), Chicago (6%), and Boston (5.8%), rent hikes are way steeper.

One of the perks of owning a home is that your monthly mortgage payment stays put if you’ve got a fixed-rate loan.

And here’s another nifty thing about mortgages: You can refinance them. It’s like giving yourself a safety net. You can buy a home now to cash in on lower prices and less competition, and then refinance whenever interest rates decide to play nice.

And trust us, interest rates will eventually behave. The real estate market operates in cycles, and this interest rate party won’t last forever. When it’ll end, though, is anyone’s guess.

Don’t forget, that homes tend to appreciate over time, even if they take a few price dips here and there. Just look at the median price of homes sold in July—it hit $406,700, according to the National Association of Realtors, and that’s with interest rates at 7.3%!

Ready to Make the Move?

So, if you’ve got your financial ducks in a row but you’re waiting for the perfect moment to buy a home, consider that the right time might be right now. You can always refinance down the road, and you don’t want to miss out on your dream home if rates or prices decide to do a moonwalk.

Got more questions? Click here to chat with a Preferred Rate Mortgage Advisor in your area. They can fill you in on your unique financial situation and what’s cooking in the housing market.

Should I Refinance My Home to Pay Off High-Interest Debt?

September 11, 2023

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High-interest credit card debt can be financially draining for anyone. Paying off such debt with today’s high-interest rates can require significant sacrifices, but there’s a potential solution, especially if you’re a homeowner.

Your home equity can serve as a lifeline when facing the burden of high-interest credit card debt. Through options like a cash-out refinance, home equity line of credit (HELOC), or home equity loan (HELOAN), you can eliminate your debt or consolidate multiple high-interest credit card accounts into a more manageable single payment, typically lower than your previous combined monthly payments to various creditors.

How It Works:

Cash-Out Refinance: This involves replacing your existing mortgage with a new, larger one, with the difference between the new and old loan balances paid to you in cash. You can then use this money to pay off your high-interest credit card debt.
HELOC: A HELOC allows you to establish a line of credit against your home, typically with a 10-year draw period during which you can withdraw funds up to your maximum credit limit. You then have 20 years to repay the principal and interest on the amount withdrawn, and during the draw period, you pay interest only on the money you take out.
HELOAN (Home Equity Loan): This is a fixed-rate mortgage with a typical term of 15 years. Unlike HELOC, it offers a fixed home loan with a lump sum check at closing, enabling you to consolidate your debt.

However, it’s important to understand that utilizing these options will result in a new mortgage loan or, in the case of a second mortgage, a new interest rate.

Benefits of Using Home Equity to Pay off High-Interest Debt:

Faster Debt Repayment: Lower interest rates mean reduced borrowing costs, allowing you to pay off your debt more quickly, saving thousands of dollars in interest payments over time.
Improved Credit Score: Reducing your credit card debt load can lead to an improved credit score, offering better terms and opportunities for future loans and credit lines.
Building Savings: Freed-up funds from a HELOC, home equity loan, or cash-out refinance can accelerate debt consolidation efforts, allowing you to divert previous monthly payments into savings, retirement, emergencies, or other financial goals.
Financial Security: Debt consolidation provides a safety net, increases credit limits, and creates financial security, leading to better peace of mind.
Streamlined Payment Process: Simplify your financial management by consolidating multiple payments into one with a more favorable fixed interest rate, potentially improving your credit score.
Elimination of High Interest: While your new mortgage may have a different interest rate, it’s generally much lower than the high-interest rates on credit cards, potentially saving you substantial sums.

Considerations for Debt Consolidation Refinance:

Higher Monthly Payments: Expect increased monthly mortgage payments due to new terms and a higher mortgage balance. However, the savings from consolidating high-interest debt can outweigh this cost.
More Mortgage Interest: While you save on credit card interest, you may pay more interest on your mortgage over its life.
Loss of Deductibility: Unlike mortgage interest, interest on other debts, such as credit card debt, is not tax-deductible.
Long-Term Commitment: A cash-out refinance or HELOC commits you to a new loan and repayment structure for the next 20 to 30 years.
Closing Costs: Using home equity involves closing costs, typically ranging from 2% to 6% of the loan amount.

Using home equity to pay off high-interest credit card debt can be a wise move for homeowners who can manage the new monthly payments and plan to stay in their homes. While it may involve higher monthly mortgage payments and additional costs, the long-term benefits can outweigh these drawbacks, especially if your credit card debt is overwhelming your financial stability. Consider discussing your situation with a Preferred Rate Mortgage Advisor for personalized guidance.

Pros and Cons of a Debt Consolidation Mortgage Refinance

September 7, 2023

Consolidating your debt through a refinancing option can be a smart way to address multiple financial challenges at once. It offers the potential to secure a lower interest rate for your debts while simplifying your monthly payments into one manageable installment. Essentially, you merge your various debt obligations into your mortgage, benefiting from the significantly reduced mortgage interest rates. This results in a single monthly payment at a more favorable interest rate, which is your mortgage payment.

How It Operates

A debt consolidation refinance allows you to pay off high-interest debts such as credit card balances, medical bills, student loans, and any other outstanding loan balances. This is accomplished by borrowing a larger sum than what you owe on your home through a home equity-based refinance. The difference between the amount borrowed and your existing debt is then used to settle those debts.

To be eligible for this program, you typically need at least 20% equity in your home and must meet certain qualification criteria. Lenders assess factors such as your credit score, employment history, and debt-to-income ratio, similar to the process when purchasing real estate. Additionally, they usually require a home appraisal to confirm that your home’s value exceeds the amount you wish to borrow and that you’ll still have equity left after using the funds to pay off your debts.

Debt Payoff Options

Cash-out Refinance: Ideal for homeowners with substantial loan balances and significant home equity. The new loan pays off your initial mortgage, with the remaining funds used to clear your debts either directly or by providing you with the cash to pay them off.
Rate and Term Refinance: This option involves securing a new loan with a lower interest rate and potentially extending the repayment term, often starting over with a new 30-year mortgage. It’s effective at combating high interest rates that may have been affecting your ability to meet your mortgage payments.
Home Equity Line of Credit (HELOC): HELOC allows you to tap into your home’s equity without altering your current mortgage’s rate and term. It’s a flexible option, suitable for situations where you’ve secured a favorable mortgage rate but still need access to your home equity for purposes like home improvements or debt consolidation.

Advantages of Refinancing

Refinancing your mortgage offers several significant advantages, including paying off high-interest debt more quickly, improving your credit score as your debt decreases, and redirecting the money saved from lower interest rates toward debt repayment. This approach also reopens your credit card lines, providing a financial safety net for emergencies. Additionally, the savings can be directed towards building a rainy-day fund, reducing reliance on credit cards. Consolidating your debts simplifies the repayment process, resulting in a single payment at a more advantageous interest rate compared to high-interest credit cards.

Considerations Before Refinancing

Before proceeding, it’s crucial to weigh certain factors. A debt consolidation refinance typically results in higher monthly mortgage payments, although the lower interest rate and simplified payment structure can outweigh the increase. It’s essential to ensure that the new monthly payment fits within your budget. Additionally, while this approach may lead to higher mortgage interest payments over the loan’s lifetime, you must compare this cost to the interest accrued on your high-interest credit cards. Also, keep in mind that mortgage interest tied to other outstanding debts is not tax-deductible.

Consider the length of time you plan to stay in your home; if it’s a short-term arrangement, you might have less equity when selling, which means less profit. The loan term should also align with your comfort level, as it’s typically a 30- or 15-year repayment period. Remember that cash-out refinances come with closing costs, usually ranging from 2% to 6% of the loan amount.

Utilizing your home equity can be a strategic approach, especially as U.S. homeowners witnessed an increase in equity in 2023. Given the rising credit card debt levels, which stood at $986 billion in the first quarter of 2023, homeowners facing mounting debts might find that tapping into their home equity through debt consolidation offers much-needed financial relief.

If you’re considering these options and want to explore them further with a Preferred Rate Mortgage Advisor in your area, you can click here.