The Difference Between Your Mortgage Rate and the Annual Percentage Rate (APR)
Understanding the difference between an annual percentage rate (APR) and an interest rate could save you thousands of dollars on your mortgage. But most homebuyers might not know that the interest rate and the APR measure two different costs associated with your home loan.
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Interest Rate and APR
An interest rate is the cost of borrowing the principal loan amount. It can be variable or fixed, but it’s always expressed as a percentage. An APR is a broader measure of the cost of a mortgage because it reflects the interest rate plus other costs such as broker fees, discount points and some closing costs, expressed as a percentage
Why have both?
The main difference is that the interest rate calculates what your actual monthly payment will be whereas the APR calculates the total cost of the loan.
RELATED: 6 Mortgage Terms To Know
You can use one or both to make apples-to-apples comparisons when shopping for loans.
For example, a loan with a 4 percent rate will have a lower monthly payment than a loan with a 6 percent rate, assuming both are fixed for the same term. Likewise, the total cost of a loan with a 4 percent APR will be less than one with a 6 percent APR.
Where it gets tricky
Interest rates and APRs have limitations to helping you understand the true cost of your mortgage. But taken together, borrowers should be able to use both figures to determine their total costs. The trick is to understand the interplay between the two figures.
If you are only focused on getting the lowest monthly payment, then focus on the interest rate. But if you are focused on the total cost of the loan, then use the APR as a tool to compare the total cost of two loans.
This chart shows the interest rate, APR and total costs over time for a $200,000 mortgage in which 1.5 discount points cut the interest rate by one-quarter of a percentage point, and another 1.5 discount points cut the interest rate by a further quarter of a percentage point.
3 loans, same amounts, 3 APRs
Time horizon matters
If you plan to stay in your home for 30 years or more, it probably makes sense to go with a loan that has the lowest APR because it means you’ll end up paying the lowest amount possible for your house. But if your time horizon isn’t that long, it may make sense to pay fewer upfront fees and get a higher rate — and a higher APR — because the total costs will be less over the first few years.
APR spreads the fees over the course of the entire loan, so its value is optimized only if a borrower plans to stay in the home throughout the entire mortgage.
Figure the break-even point
If you’re planning to stay in your home for a shorter period, you need to do the math and determine your break-even point.
For example, if you chose a 0.25 percent lower rate for an additional 1.5 points because of the lower APR, but you moved in five years, you lost money. Your break-even on the points was seven years.
Unfortunately, those calculations can be confusing for many, which is why it’s crucial to pick the right lender. Your Buyer’s Agent should have excellent relationships with lender’s and can refer you to someone they trust.
Did you recently shop for a Mortgage? Do you have Buyer’s Remorse? What might you do differently now that you didn’t do then? We want to here from you! Sound off on our Facebook Page or on our Twitter, Instagram or LinkedIn feeds. And don’t forget to subscribe to our monthly HOME ADVICEtm eNewsletter for articles like this delivered straight to your inbox. You may unsubscribe at any time.
Why Is There So Much Paperwork Required To Get A Mortgage?
Why is there so much paperwork mandated by the lenders for a mortgage loan application when buying a home today? It seems that they need to know everything about you and requires three separate sources to validate each and every entry on the application form.
RELATED: 6 Mortgage Terms To Know
Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago.
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There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history:
1. The government has set new guidelines that now demand that the bank proves beyond any doubt that you are indeed capable of paying the mortgage.
During the run-up to the housing crisis, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again.
RELATED: Will I Qualify For A Mortgage?
2. The banks don’t want to be in the real estate business.
Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.
However, there is some good news in the situation.
The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate around 4%.
The friends and family who bought homes ten or twenty years ago experienced a simpler mortgage application process, but also paid a higher interest rate (the average 30-year fixed rate mortgage was 8.12% in the 1990s and 6.29% in the 2000s).
If you went to the bank and offered to pay 7% instead of around 4%, they would probably bend over backward to make the process much easier.
Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.
10 Rookie Mistakes That Hurt First-Time Homebuyers
If you’re a first-time homebuyer, buying a house can definitely be overwhelming. With an Agent by your side to guide you through the process, you’ll make it through just fine – but you might want to be aware of these rookie mistakes.
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If you’re searching for homes for sale on the Jersey Shore or Eastern Monmouth County where the market is ultracompetitive, making one of these mistakes could end up costing you big time.
Here are the Top 10 mistakes often made by first-time homebuyers:
1. Getting too emotionally attached
You’re about to purchase what’s probably the most expensive item you’ve ever bought. So try – as difficult as it is – not to get too attached. There will always be another house if you lose one.
A good tip would be to work with your Buyer’s Agent to find several homes you love so that you’re not too emotionally invested in one.
RELATED: How To Find The Right Buyer’s Agent
2. Finding the home yourself
We know you’re going to browse www.patrickparkerrealty.com and other real estate websites to find homes for sale in your desired location. But don’t rely on just your research skills. Finding your own home can be like diagnosing yourself of an illness.
Let your Agent vet homes for you. A good Real Estate Agent might find you properties that aren’t yet on the market. And of the homes that are on the market, your agent should be able to tell you what the home looks like, where it’s situated, the price per square foot in the neighborhood, and every other detail.
3. Going directly to the listing agent
If you’ve ever played Monopoly, there’s a card you might pick (a bad one) that says, “Do not pass go. Do not collect $200.” It means you did something wrong and now must pay the penalty.
The same applies if you go directly to a Listing Agent who is hired by and represents the seller, not you. Unless the Listing Agent is someone you have worked with or know personally and know they are an amazing agent, this is a big no-no. You need someone representing your best interests and your best interests only.
4. Assuming you have no rules to follow as a homeowner
One of the draws of homeownership is freedom: getting out from under someone else’s rules, whether those of your parents or your landlord. But some homes have deed restrictions that come with conditions.
Deed restrictions vary, depending on the community you’re buying in. Their purpose is typically to ensure the property holds its value, which is a good thing. But if you have plans that conflict with the restrictions, you won’t be a happy camper.
Get copies of the restrictions, read them, and ‘look under the hood’ at the internal health of a condo or homeowners’ association. Look for things like whether reserves are kept, the neighbors are paying their assessments, if there are pet restrictions, and whether you can run a business from the home.
5. Not saving enough money
If you saved up enough money for a down payment, kudos. That’s a huge accomplishment. Unfortunately, it’s only the tip of the iceberg. Transitioning from a renter or your parents’ home to your own home has incidental costs that may be overlooked.
Aim to have two to three months’ worth of mortgage payments in reserve. You should also count on paying closing costs (between 2% and 5% of the home’s price) and property taxes. After moving day, you’ll also need to buy household essentials you’ve never owned before, such as appliances, tools, and garden supplies.
Three to six months of expenses saved up in an emergency fund is even better. It’s not money to buy new furniture or remodel a room. It’s for the unexpected expenses, such as a leaky roof.
6. Not getting pre-approved for a loan
You’ve run the numbers several times now and know just what you can afford. That’s great. But if you want your offer to be taken seriously by the seller, get proof of income and assets in the form of a pre-approval letter from a lender.
This process can take just a few days and simply means that the lender has looked through your financial situation and is comfortable with the idea of lending you a certain amount of money.
7. Paying private mortgage insurance (PMI)
If you don’t put down at least 20%, you’ll have to pay PMI. Many first-time buyers pay this, she says. If you do, make sure you notify your lender when you pay down your mortgage and owe just 80% of the home’s value. Your lender will automatically cancel your PMI when you owe 78%, but you don’t want to pay a month more of PMI than you have to.
8. Not checking the price of homeowners’ insurance
Buying a home on the water is a dream come true for many people. But make sure you can afford to insure that home because it could be pricey. Being on the water means higher wind insurance and, of course, higher risk of flood. Other factors may increase your insurance, such as if your new home has a pool and more. Do your research ahead of time. Your Buyer’s Agent will have a network of experts you can ask about these things.
9. Not checking your credit score
Here’s a weird trivia fact: About 42 million credit reports contain errors. True, the error might be just a misspelling of your street address, which wouldn’t affect you. But some errors could hurt your score badly, such as showing you have late payments when you don’t.
Check your credit at least three months prior to house hunting. If there’s an error, ask the credit bureau to kindly fix it. Your interest rate depends on it.
10. Not getting a home inspection
All homes need inspections, even brand-new ones. But some homebuyers skip this step because they get emotionally attached to the home and want it no matter what. If the home does have issues, you’ll want the seller to fix them or to lower the price.
If you’re first-time homebuyers, you might be a bit shy about asking the seller to fix that stuck window or leaky faucet. But the reality is that the buyers who ask for more often get more. So don’t be afraid to speak up and get outstanding issues fixed before you sign those settlement papers.
Did you make any rookie mistakes and have tips to share? Sound of on our Facebook Page, or on our Twitter, LinkedIn or Instagram feeds. And don’t forget to subscribe to our monthly HOME ADVICE email newsletter for articles like this delivered straight to your inbox. You may unsubscribe at any time.
5 Reasons You Should Never Buy or Sell a Home Without a Real Estate Agent
You’re DIY’ing this real estate thing, and you think you’re doing pretty well—after all, any info you might need is at your fingertips online, right? That and your own judgment.
Oh, dear home buyer (or seller!)—we know you can do it on your own. But you really, really shouldn’t. This is likely the biggest financial decision of your entire life, and you need Real Estate Agent if you want to do it right.
1. They have loads of expertise
Want to check the MLS for a 4B/2B with an EIK and a W/D? Real estate has its own language, full of acronyms and semi-arcane jargon, and your Real Estate Agent is trained to speak that language fluently.
Plus, buying or selling a home usually requires dozens of forms, reports, disclosures, and other technical documents. Real Estate Agents have the expertise to help you prepare a killer deal—while avoiding delays or costly mistakes that can seriously mess you up.
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2. They have turbocharged searching power
The Internet is awesome. You can find almost anything—anything! And with online real estate listing sites such as yours truly, you can find up-to-date home listings on your own, any time you want. But guess what? Real Estate Agents have access to even more listings. Sometimes properties are available but not actively advertised. A Real Estate Agent can help you find those hidden gems.
Plus, a good local Real Estate Agent is going to know the search area way better than you ever could. Have your eye on a particular neighborhood, but it’s just out of your price range? Your Real Estate Agent is equipped to know the ins and outs of every neighborhood, so she can direct you toward a home in your price range that you may have overlooked.
3. They have bullish negotiating chops
Any time you buy or sell a home, you’re going to encounter negotiations—and as today’s housing market heats up, those negotiations are more likely than ever to get a little heated.
You can expect lots of competition, cutthroat tactics, all-cash offers, and bidding wars. Don’t you want a savvy and professional negotiator on your side to seal the best deal for you?
And it’s not just about how much money you end up spending or netting. A Real Estate Agent will help draw up a purchase agreement that allows enough time for inspections, contingencies, and anything else that’s crucial to your particular needs.
4. They’re connected to everyone
Real Estate Agents might not know everything, but they make it their mission to know just about everyone who can possibly help in the process of buying or selling a home. Mortgage brokers, real estate attorneys, home inspectors, home stagers, interior designers—the list goes on—and they’re all in your Real Estate Agent’s network. Use them.
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5. They’re your sage parent/data analyst/therapist—all rolled into one
The thing about Real Estate Agents: They wear a lot of different hats. Sure, they’re salespeople, but they actually do a whole heck of a lot to earn their commission. They’re constantly driving around, checking out listings for you. They spend their own money on marketing your home (if you’re selling). They’re researching comps to make sure you’re getting the best deal.
And, of course, they’re working for you at nearly all hours of the day and night—whether you need more info on a home or just someone to talk to in order to feel at ease with the offer you just put in. This is the biggest financial (and possibly emotional) decision of your life, and guiding you through it isn’t a responsibility Real Estate Agents take lightly.
Did you try the DIY route and the go Agent? Tell us about your experience. Sound of on the Patrick Parker Realty Facebook Page, our Twitter or LinkedIn Feeds or on our Instagram account. And don’t forget to subscribe to our monthly HOME ADVICE email newsletter for articles like this delivered straight to your inbox. You may unsubscribe at any time.
5 Things You Need To Be Pre-Approved For A Mortgage
While idly shopping for a home may be pleasant, serious homebuyers need to start the process in a lender’s office, not an open house. Potential buyers benefit in several ways by consulting with a lender and obtaining a pre-approval letter. First, they have an opportunity to discuss loan options and budgeting with the lender. Second, the lender will check on their credit and alert the would-be buyers to any problems.
Third, the buyers learn the maximum they can borrow and therefore have an idea of their price range. However, all buyers should be careful to estimate their own comfort level with a housing payment rather than immediately aiming for the top of their spending ability. Lastly, home sellers expect all buyers to have a pre-approval letter and are more willing to negotiate with people who have proof that they can obtain financing.
Pre-qualification Vs. Pre-approval
A mortgage pre-qualification can be useful as an estimate of how much you can afford to spend on your home, but a pre-approval is much more valuable because this means the lender has actually checked your credit and verified your documentation to approve a specific loan amount (usually for a particular time period such as 90 days). Final loan approval occurs when you have an appraisal done and the loan is applied to a particular property. (Learn more by reading Pre-Qualified vs. Pre-Approved – What’s The Difference?)
1. Proof of Income
“No verification” or “no documentation” loans are a thing of the past, so all borrowers need to be prepared with W-2 statements from the past two years, recent pay stubs that show income as well as year-to-date income, proof of any additional income such as alimony or bonuses and your two most recent years of tax returns.
2. Proof of Assets
You will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs, as well as cash reserves. An FHA loan requires a down payment of as low as 3.5% of the cost of the home, while conventional home loans require 10 to 20%, depending on the loan program. If you receive money from a friend or relative to assist with the down payment, you will need a gift letter to prove that this is not a loan.
TUTORIAL: Mortgage Glossary
3. Good Credit
Most lenders today reserve the lowest interest rates for customers with a credit score of 740 or above. Below that, borrowers may have to pay a little more in interest or pay additional discount points to lower the rate. FHA loan guidelines have tightened in recent months, too, so that borrowers with a credit score below 580 are required to make a larger down payment. Most lenders require a credit score of 620 or above in order to approve an FHA loan. Lenders will often work with borrowers with a low or moderately low credit score and suggest ways they can improve their score. (For more on credit scores, see Can You Hit A Perfect Credit Score?)
4. Employment Verification
Your lender will not only want to see your pay stubs, but is also likely to call your employer to verify that you are still employed and to check on your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Lenders today want to make sure they are loaning only to borrowers with a stable employment. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income.
Your lender will need to copy your driver’s license and will need your Social Security number and your signature allowing the lender to pull a credit report. Be prepared at the pre-approval session and later to provide (as quickly as possible) any additional paperwork requested by the lender. The more cooperative you are, the smoother the mortgage process will be.
The Bottom Line
Consulting with a lender before you start the home buying process can save a lot of heartache later, so gather your paperwork or print some recent statements off your online bank accounts before your pre-approval appointment and before you begin house hunting.
Did you recently buy a home after being pre-approved? How did this make the homebuying process easier? Did you buy only to be approved later? What challenges did you meet? Sound off on the Patrick Parker Realty Facebook Page, Twitter or LinkedIn feeds and don’t forget to subscribe to Patrick Parker Realty’s Jersey Shore HOME ADVICE™ monthly email newsletter for articles like this delivered straight to your inbox.
Jersey Shore Home Buyers:
Beat the Competition with a Pre-Approved Loan
The Monmouth and Ocean County New Jersey housing market is red hot. This can mean you’ll need to compete with other buyers for a home.
But with a pre-approved loan from a lender, you’ll give yourself a head-start in the race for a home you love.
Pre-approval also comes in handy when you’re dipping your toe into the market. Even in a soft market, you’ll have to compete with other buyers if you find a home in excellent condition with an attractive price tag.
What is a pre-approved loan?
Every potential homebuyer should start the process of looking for a home with a visit to a reputable mortgage lender. While a lender can give you a pre-qualification for a home loan based on your credit score and your stated income and assets, a home seller wants to see you’re completely pre-approved for a loan.
To find a lender who will help land your dream home, try a pre-approved loan service like the one featured on the realtor.com® individual listings page. By checking the box that says, “I want to get pre-approved by a lender” you’ll be connected with up to three lenders right away.
How a pre-approved loan can help you compete
If you’re competing with other buyers, a mortgage pre-approval makes your offer stronger. While many buyers today have a pre-approval handy, you can use yours to win the bidding war by providing a financial statement along with a pre-approval letter from your lender with your offer.
If your pre-approval letter is for an amount above the asking price for the home, this will give the sellers confidence in your ability to easily finalize the loan. You also can ask your lender to call the listing agent directly to emphasize your ability to close the deal and to discuss how quickly the contract can go to settlement.
Most real estate contracts include a contingency: the offer depends on the buyer obtaining financing. If you have a strong pre-approval letter and feel your lender is dependable, you can remove the financing contingency or shorten the contingency term.
Sellers are happy to see an offer without a financing contingency, because it proves the buyer has confidence the loan will close on time. However, waiving this contingency can be risky because if your financing doesn’t come through you could lose your earnest money deposit and even run the risk of being sued by the sellers.
A shorter contingency might be safer and still garner you the attention and confidence of the sellers in a competitive situation.
What benefits did you see from getting pre-approved? Post your stories on the Patrick Parker Realty Facebook Page, Twitter Feed or on LinkedIn. Plus don’t forget to subscribe to the monthly Patrick Parker Realty email newsletter for articles like this one delivered straight to your inbox.
4 Credit Secrets for Buying a Home
In a report that was done by the Federal Trade Commission in 2015 they found that 1 out of every 4 consumers had errors on their credit report.
That being stated, means that it’s possible that you could possibly fall under that scenario. There are many things you can do to improve your credit on your own and should consider before buying a home. Let’s dive into four ideal credit secrets that will help rebuild your credit and improve your score.
Pay off collections first, inquiries second.
While it’s unattested of people living in South Florida, living on credit at one point or another is the norm. We’re talking about using credit cards for everyday living expenses, like rent or groceries. If you’ve fallen behind these are the first debts to focus on.
According to the folks at Experian, charge card debt is about 50% of most people’s issues when it comes to scarring or less-than-perfect credit.
By paying any of the items that went to collections first, then focusing on your hard inquiries second you’ll see an improvement in your score almost right away.
By the way, if you check your score once in the morning and then once at night it will most likely be different. The debt fairies are constantly changing and reporting, making it very hard to stay consistent.
The good news is, most of the time they are off by a few digits. Hard inquiries are generally coming from lenders for items like mortgages, car loans and more credit cards.
They can stay on your report for a while, and there are some cases you may have to ask to have them removed.
Be consistent with all 3 of the bureaus
Each score is synonymous to the other two bureaus. Don’t forget to be consistent with all three of the credit bureaus (TransUnion, Experian and Equifax).
Just because you ask for an item to be changed or removed, doesn’t mean that all three get the message.
By pursuing your due diligence, and following up with all three you are ensuring that they are undeviating from one another. Peace of mind will be beneficial by having consistency in place.
RELATED: What Affects Your Credit Score?
Check for errors and discrepancies
You’d be surprised to learn how many people fail to do this. A man who’s a Senior, Junior, the third, etc., needs to make sure his credit is being reported and not a relative. This is a common mistake that does happen.
Of course, everyone wants to believe bureaus are safe from ‘human error’, but this is just not the case. It’s your credit and your responsibility to know what’s on it.
It’s also necessary to stay engaged in being accurate. The last thing you want is to run into an incubus during an important purchase, such as buying a home, so be sure to check this often.
RELATED: 9 Fast Fixes For Your Credit Score
By law, you are entitled to one free credit report a year. Contact a loan officer for more details on how this works.
Working hard to manage your credit is important. Healthy credit makes you have the security necessary knowing you’re covered with issues like emergencies or better yet, a vacation. It’s also vital when getting a mortgage.
The other credit secret that we want you to know is that following up is HUGE when it comes to buying a home. Once you start to pay off your debts, you’ll want to follow up with the creditors.
Your report, needs to be consistent with all three bureaus and if you find errors, keep following up with the appropriate party until they’re gone.
FREE DOWNLOAD: The Ultimate Home Buying Checklist
Are you a “credit master warrior”? Share your stories on the Patrick Parker Realty Facebook Page, Twitter Feed or on LinkedIn. Plus don’t forget to subscribe to the monthly Patrick Parker Realty email newsletter for articles like this one delivered straight to your inbox.
7 Mistakes Many New Home Buyers Make
Once the ether wears off, and the dust from moving clears, new home buyers oftentimes reflect on their decisions for buying a new home. Since this will be a significant, if not the biggest purchase of your life, it behooves to understand these tips for homebuyers and all of the parameters involved in purchasing a new home.
In this article, we uncover seven mistakes commonly made by new homebuyers that you can reference prior to signing on that dotted line:
In many cases when people are considering their budget prior to buying their first home, they sometimes overlook ALL expenses. It may be helpful to write down what you’re currently spending down to the penny.
Once you have a clear understanding of what is going out for things like food, entertainment, clothing, gas for your car, etc., you can obtain a higher knowledge of day-to-day living. You can then calculate how much of a mortgage is obtainable.
RELATED: How Much Home Can I Afford?
Simple daily costs are not going to go away, so it makes perfect sense to budget correctly. Many times people become unrealistic in their expectations, making it difficult.
Your mortgage is going to be your highest expenditure, but you still need to live. By creating reasonable perimeters, you’ll be a lot happier as a new home owner.
It may be helpful to write down what you’re currently spending down to the penny. Once you have a clear understanding of what is going out for things like food, entertainment, clothing, gas for your car, etc., you can obtain a higher knowledge of day-to-day living. You can then calculate how much of a mortgage is obtainable.
Simple daily costs are not going to go away, so it makes perfect sense to budget correctly. Many times people become unrealistic in their expectations, making it difficult. Your mortgage is going to be your highest expenditure, but you still need to live. By creating reasonable perimeters, you’ll be a lot happier as a new home owner.
Getting prequalified is imperative to avoid making a mistake. In most situations a realtor will redirect people looking to purchase a home prior to them working with you.
By allowing the bank to give you a realistic number to shop with, you avoid wasting valuable time. More importantly, you’ll be looking at property that is suitable for you.
RELATED: Will I Qualify For A Mortgage?
Hire a Professional
Hiring a professional is easy, hiring one that’s better may be difficult. Be sure to ask for referrals when it comes to loan officers, realtors and real estate attorneys. A professional real estate agent can be invaluable when it comes to purchasing your first home.
Don’t try to manage this type of transaction alone. It’s crucial to understand what you’re purchasing, what’s involved in the contracts and what will happen after you sign. By working with an experienced loan officer or attorney, you should be privy to any laws and ensuring your first home doesn’t have loopholes.
Think into the Future
Once you’ve become pre-qualified and start shopping think into the future. Mortgages and interest rates can change over time. It’s highly advisable to understand your loan and what changes are possible over the next 2 to 30 years. While many things are unpredictable, it’s best to prepare yourself and create a safety net if possible.
Don’t Be Overly Anxious or Picky, Do Get an Inspection
An inspection will most likely be required, while your home is in escrow. In the meantime, don’t be overly anxious to avoid jumping into the first thing you see. The other issue with being overly anxious is to change gears when you’re negotiating. Take your time but don’t be overly picky either.
Don’t Spend Entire Down Payment
Being overly picky means that you may end up with a home that needs to be fixed the way you like it. Since it’s the first home, chances are it will be one of many. If it isn’t 100% the way you pictured it, keep in mind that it’s your first home and your next will come closer.
Don’t Make Additional Purchases
Don’t spend your entire down payment on the ‘down payment’. That being said, remember there will be extra expenses that will pop up and you’ll need at least petty cash laying around to cover them.
This last part is HUGE! While you’re in escrow, your loan officer or your realtor may advise not to go out and get a line of credit for ANYTHING! This is really important because the last thing you want is the bank to turn you down for suspicious activity. Don’t run out and charge a line of credit to buy new furniture or get a new car. It’s super smart to lay low while the banks do their thing.
By following these simple tips you’ll be a lot happier and the chance for buyer remorse won’t kick in. Keep all your receipts and documents in one safe place for easy to reference materials, in case you need it. It’s the little things that will help in the long run to lessen your chances of making a valuable mistake later on that count.
For more information on buying a home, contact our Jersey Shore real estate experts for answers.
Are you a fresh first time homebuyer with some advice? Share your stories on the Patrick Parker Realty Facebook Page, Twitter Feed or on LinkedIn. Plus don’t forget to subscribe to the monthly Patrick Parker Realty email newsletter for articles like this one delivered straight to your inbox.
#Brexit: The Immediate Impact on U.S. Mortgage and Housing Finance
After much speculation on the U.K.’s decision — British voters decided to leave the European Union — now many speculate about how this will affect the U.S. economy.
Here is a summary of the opinions that impact the housing and mortgage finance industry:
First, Standard & Poor’s reports it may downgrade UK sovereign ratings: now at “competitive disadvantage compared with other global financial centers.”
Stateside, financial institutions sought to downplay fears in the early hours Friday.
“We affirm our assessment that the U.K. economy and financial sector remain resilient and are confident that the UK authorities are well-positioned to address the consequences of the referendum outcome,” the G-7 finance ministers and central bank governors stated.
“We recognize that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability,” their statement continued.
So how do experts think the market will react to this decision?
“The market action in Treasuries and Gilts continues to evolve in line with the playbook from the 2011 U.S. sovereign downgrade,” said Mike Schumacher, head of rate strategy Wells Fargo.
“There is one key distinction: this time Gilts are leading the way,” Schumacher said. “Should Gilts lead Treasuries? We think not. We still expect capital to flow out of the U.K., with the U.S. being a very likely destination.”
“In the June 17 edition of the Rates Explorer, we called for two-year and 10-year Treasury yields to reach 0.5% and 1.3%, respectively, in the week or two after a leave victory,” Schumacher continued. “We stand by these projections. In the Asia trading session, the two-year reached 0.5%, while the 10-year bottomed at 1.4%.”
Then he adds this important point:
“We still expect capital to flow out of the U.K., with the U.S. being a very likely destination. In the June 17 edition of the Rates Explorer, we called for 2yr and 10yr Treasury yields to reach 0.5% and 1.3%, respectively, in the week or two after a “Leave” victory.”
In fact, the Brexit vote may not cause as dramatic of an effect as some people think, and will even take years before going into effect, said Andrew Kenningham Capital Economics senior global economist. The economy may even see benefits such as loosening monetary conditions.
“Goldman Sachs has a long history of adapting to change, and we will work with the relevant authorities as the terms of the exit become clear,” said CEO Lloyd Blankfein in an internal memo following the Brexit vote, according to an article by Stephen Alpher for Seeking Alpha.
On the other hand, some experts point out the downfalls that could come from the vote.
“Isolationist move will cause many wealthy foreigners to consider selling their properties in UK, especially in London as it becomes less attractive place to set up offices to conduct global business,” said Lawrence Yun, the National Association of Realtors chief economist. “Therefore, demand for U.S. real estate could rise if global investors view America as open to global business.”
“But overall, global economy and job creations could modestly slow down with more frictions in place to do commerce,” Yun said. “The British economy will be disrupted and hence we should expect fewer Brits able to buy in the U.S”
Previously, after the recent shockingly low jobs report, some experts pointed to the Brexit vote as a deciding factor on the Fed raising rates.
“The sudden stop in employment growth rules out any chance of a rate hike from the Fed at next week’s FOMC meeting, particularly now that the UK vote on whether to leave the European Union appears to be going down to the wire,” said Capital Economics Chief Economist Paul Ashworth.
“The people of the United Kingdom have spoken and we respect their decision,” said Jacob Lew, U.S. Secretary of the Treasury. “We will work closely with both London and Brussels and our international partners to ensure continued economic stability, security, and prosperity in Europe and beyond.”
“We continue to monitor developments in financial markets,” Lew said. “I have been in regular contact in recent weeks with my counterparts and financial market participants in the UK, EU and globally and we are continuing to consult closely. The UK and other policymakers have the tools necessary to support financial stability, which is key to economic growth.”
Sources: The New York Times, The Wall Street Journal, Housing Wire
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Best Practices for Paying Off Your Mortgage
It’s simple to pay off a mortgage earlier. But should you? It’s a complicated question.
Let’s discuss why…
For many people, their mortgage carries an interest rate that’s lower than they could average in retirement or investment accounts. And that means the “extra” money you could throw at a mortgage might actually earn you a lot more elsewhere.
With a low mortgage interest rate, homeowners are “so much better off putting that money in a Roth IRA,” says Jill Gianola, CFP professional, author of “The Young Couple’s Guide to Growing Rich Together.”
Other financial pros agree. And if you have extra money and an employer that offers matching retirement contributions, that option might give you a higher return for your money than paying off a low-rate mortgage, says Eric Tyson, author of “Personal Finance for Dummies.”
Then there’s the college aid factor. If you’re applying for need-based aid for your kids, that home equity could count against you with some colleges, he says, because some institutions view equity as money in the bank.
If, after those caveats, you want to pay off your mortgage early, here are 4 ways to make it happen:
1. Pay an extra 1/12th every month
Divide your monthly principal and interest by 12 and add that amount to your monthly payment. End result: 13 payments a year.
IMPORTANT NOTE: Before you make anything beyond the regular payment, phone your mortgage servicer and find out exactly what you need to do so that your extra payments will be correctly applied to your loan.
Let them know you want to pay “more aggressively,” and ask the best ways to do that.
Some servicers may require a note with the extra money or directions on the notation line of the check.
And to confirm, if you’re putting extra money toward your loan, always check the next statement to make sure it’s been properly applied.
2. Refinance with a shorter-term mortgage
Want to make sure your mortgage is paid in 15 years? Refinance to a 15-year mortgage.
15-year mortgages often carry interest rates a quarter of a percentage point to three-quarters of a percentage point lower than their 30-year counterparts.
But this option is not quick or free. You must qualify for a new mortgage – which means paperwork, a credit check, and, likely, a home appraisal. Plus closing costs.
So do your research about refinance costs before jumping in… even with a lower interest rate, that quicker payoff means higher monthly payments. And this method is a lot less flexible. If you decide that you don’t have the extra money one month to put toward the mortgage, you’re locked in anyway.
Ultimately, unless the new interest rate is lower than the old rate, there’s no point in refinancing. Without a lower rate, you’ll get all the same benefits (and none of the extra costs) by just increasing your payment a sufficient amount.
3. Make an extra mortgage payment every year
12 months, 13 payments. There are a couple of ways to pull off this tactic. You can save up throughout the year and make an extra payment. Or, for those who get paid biweekly, harness part or all of those “extra” or “third” checks.
Get a bonus? A tax refund? An unexpected windfall? However it ends up in your hands, you can funnel some or all of your newfound money toward your mortgage.
The upside: You’re paying extra only when you’re flush. And those additional payments toward the principal will cut the total interest on your loan.
The downside: It’s irregular, so it’s hard to predict the mortgage payoff date. If you throw too much at the mortgage, you won’t have money for other needs.
So yes, whether you should pay off your mortgage early it’s a complicated question. But it does not mean without the proper research you can’t come to an answer.
Have you used any of the above methods to start paying your mortgage off early? What is working for you?
And don’t forget to subscribe to the monthly Patrick Parker Realty email newsletter for articles like these delivered straight to your inbox!
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