16
Nov
By Fred Gruber
Mortgage Tips

Comparing Temporary and Permanent Mortgage Buydowns

When it comes to mortgages, a “buydown” generally refers to paying an extra fee upfront to reduce the interest rate over a specific period. There are typically two types: temporary buydowns and permanent buydowns.

Permanent Buydown:
With a permanent buydown, the borrower pays extra fees at the beginning of the loan to permanently reduce the interest rate over the entire life of the loan. This differs from a temporary buydown because the reduced rate remains constant for the entire loan term, potentially resulting in lower overall interest payments.

Temporary Buydowns

A temporary buydown is a type of mortgage financing in which the borrower pays an upfront fee to temporarily reduce the interest rate on the mortgage for a specific period of time. During this period, the borrower enjoys lower monthly mortgage payments, which can help make homeownership more affordable.

The temporary buydown typically lasts for the first few years of the mortgage, usually 1 to 3 years. The borrower pays a one-time fee at closing, which is used to fund the temporary reduction in the interest rate. The fee can either be paid in cash or financed into the loan amount.

During the buydown period, the borrower’s interest rate is lower than the fully indexed rate. For example, if the fully indexed rate on a 30-year fixed mortgage is 4%, a temporary buydown might reduce the interest rate to 2% in the first year, 3% in the second year, and 4% in the third year, after which it would revert to the fully indexed rate for the remainder of the loan term.

The lower interest rate during the buydown period results in lower monthly mortgage payments for the borrower, which can make homeownership more affordable in the early years of the loan. This can be particularly beneficial for borrowers who anticipate lower income during the early years of homeownership but expect to earn more in the future.

It’s important to note that while a temporary buydown can lower monthly payments during the buydown period, it does not reduce the total amount of interest paid over the life of the loan. In fact, the total interest paid over the life of the loan may be higher due to the upfront fee paid to fund the buydown.

Better to do a Temporary Buydown or buy the rate down forever?

Deciding whether to do a temporary buydown or buy the rate down permanently depends on your specific financial situation and goals.

If you plan to stay in the home for a long time and have the financial means to pay the upfront fee, buying the rate down permanently may be a better option. This will result in a lower interest rate and lower monthly payments for the entire term of the loan, which can save you money in the long run.

On the other hand, if you plan to sell the home or refinance the mortgage before the buydown period ends, a temporary buydown may be a better option. The lower payments during the buydown period can help make homeownership more affordable in the short term, without committing to a higher interest rate for the life of the loan.

In general, it’s important to carefully consider your financial goals and circumstances when deciding whether to do a temporary buydown or buy the rate down permanently. You may want to consult with a financial advisor or mortgage professional to help you make the best decision for your individual needs.

14
Nov
By Fred Gruber
Mortgage Application

Speed Your Mortgage Approval up by Following This Checklist

Have you finally found your dream home after months of searching, and then you are told that the seller has received other offers? No buyer wants to find themselves in a bidding war against another buyer as it is a stressful situation. Being unprepared and not having your finances in order will make it even more stressful. Here are a few quick ways if you’re looking to speed up your mortgage approval process, here’s a checklist to help you prepare:

·        Review your credit report: Maintain a good credit score by paying bills on time, reducing existing debt, and avoiding new credit inquiries. Check your credit report for errors and make sure your credit score is in good shape. A good credit score can positively impact the approval and interest rate you receive.

·        Gather financial documents: Gather all necessary paperwork beforehand, including pay stubs, tax returns, bank statements, and any other financial documentation. Having these readily available will expedite the application process.

·        Save for a down payment: A larger down payment can reduce the risk for lenders, making them more inclined to approve your loan faster. It can also decrease the time needed for certain approval processes.

·        Stay at your job: It’s best to avoid changing jobs during the mortgage approval process.

·        Avoid new credit: Don’t apply for new credit or take on new debt during the approval process.

·        Don’t make big purchases: Avoid making large purchases, such as a car, during the approval process.

·        Respond promptly to requests: Once you’ve applied for a mortgage, respond promptly to any requests from your lender. Delays often occur when there’s a lack of communication or slow responses to queries or requests for additional information.

·        Work with a reputable lender: Choose a lender with a good reputation and experience in the mortgage industry.

·        Get pre-approved: Consider getting pre-approved for a mortgage before house hunting to speed up the approval process.

Stay informed about the process and ask questions if you’re unsure about any step. Following this checklist can help speed up your mortgage approval process and make the process smoother and less stressful.  Good communication with your lender is key to ensuring a smooth and expedited process.

10
Nov
By Fred Gruber
0 Comments
Mortgage

How to Go From Renting to Owning a Home

Going from renting to owning a home can be a significant financial and personal milestone, but it requires careful planning and preparation. Here are some steps to take to make the transition from renting to owning:

Determine your budget: Calculate your current expenses and income to determine how much you can afford to spend on a home. Consider factors such as down payment, closing costs, monthly mortgage payments, property taxes, and homeowner’s insurance.

Save for a down payment: A down payment is typically required when purchasing a home, and the larger the down payment, the lower your monthly mortgage payments will be. Aim to save at least 20% of the home’s purchase price to avoid paying private mortgage insurance (PMI).

Check your credit score: A good credit score can help you secure a better mortgage rate, so it’s important to check your credit score and address any issues before applying for a mortgage.

Get pre-approved for a mortgage: Before starting your home search, get pre-approved for a mortgage. This will give you an idea of how much you can afford to spend on a home and will also make you a more attractive buyer to sellers.

Find a real estate agent: A good real estate agent can help you navigate the home-buying process, from finding the right property to negotiating the best deal.

Start house hunting: Once you have your budget and pre-approval in hand, start searching for your dream home. Consider factors such as location, size, amenities, and resale value.

Make an offer and close the deal: Once you’ve found the right property, make an offer, negotiate the terms of the sale, and complete the closing process.

Ultimately, the rental market is driven by supply and demand, and rent prices will fluctuate based on a variety of factors such as location, amenities, and competition. It’s always a good idea for renters to do their research and compare prices before signing a lease. If you think you are ready, remember that buying a home is a significant financial and personal decision, so it’s important to do your research and seek professional advice along the way.