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A Homebuyers Guide to Financing Options and Mortgage Rates

If you’re in the market to buy a home, you’re likely keeping a close eye on mortgage rates and exploring various financing options. In this blog, we’ll delve into the latest developments in mortgage rates, lending options, and financial strategies to help you make informed decisions when it comes to one of life’s most significant investments.

The Current Mortgage Rate Landscape

Mortgage rates are ever-changing and are influenced by a variety of factors, including economic conditions, inflation, and the Federal Reserve’s policies. As of our last update in early 2022, mortgage rates were hovering near historic lows, making it an attractive time for prospective homebuyers to secure financing. However, it’s essential to remember that these rates can fluctuate, so it’s crucial to stay updated with the latest trends.

Keeping Tabs on Mortgage Rates

To stay informed about the latest mortgage rates, consider utilizing online resources, such as mortgage rate comparison websites and financial news outlets. Many banks and lenders also provide real-time rate information on their websites, allowing you to track changes easily. Remember, it’s a dynamic market, so staying updated will empower you to make the most of favorable conditions.

Financing Options for Homebuyers

The mortgage market offers various financing options to cater to the diverse needs of homebuyers. Each option has its advantages and considerations, so let’s explore some of the most common choices:

Fixed-Rate Mortgages

Fixed-rate mortgages are popular because they offer stable and predictable monthly payments throughout the loan term. Depending on your financial goals, you can choose between 15-year and 30-year fixed-rate loans. These are excellent options for those who want to lock in a low-interest rate for the long term and don’t mind a higher initial monthly payment.

Adjustable-Rate Mortgages (ARMs)

Adjustable-rate mortgages come with lower initial interest rates compared to fixed-rate mortgages. However, they are subject to periodic adjustments based on prevailing market rates. ARMs are ideal for borrowers who plan to stay in their homes for a shorter period and can manage potential rate increases.

Government-Backed Loans

Government agencies like the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA) offer loans with lower down payment requirements and more flexible credit criteria. These options can be beneficial for first-time homebuyers or individuals who may not qualify for conventional loans.

Jumbo Loans

Jumbo loans are designed for high-value properties that exceed the conforming loan limits set by Fannie Mae and Freddie Mac. These loans often require larger down payments and have stricter qualification criteria. If you’re considering a luxury or high-end property, a jumbo loan might be the way to go.

Financial Strategies for a Successful Home Purchase

Navigating the complex world of home financing can be challenging, but with the right strategies, you can make the process smoother and more affordable:

Improve Your Credit Score

A higher credit score can lead to better mortgage rates. Take steps to boost your credit score by paying bills on time, reducing outstanding debts, and monitoring your credit report for errors.

Save for a Down Payment

A larger down payment can lower your monthly mortgage payments and help you avoid private mortgage insurance (PMI). Start saving early to secure a more substantial down payment.

Get Pre-Approved

Getting pre-approved for a mortgage can give you a competitive advantage in a hot real estate market. It also helps you understand your budget and prevents wasting time on homes you can’t afford.

Shop Around for Lenders

Different lenders offer various loan programs and rates. Don’t hesitate to compare multiple lenders to find the best deal that suits your financial situation.

Consult a Financial Advisor

If you’re unsure about which financing option is right for you or need personalized advice, consider speaking with a financial advisor or mortgage broker. They can provide valuable insights and help you make informed decisions.

In Conclusion

Staying informed about mortgage rates, exploring financing options, and implementing smart financial strategies are crucial steps on your journey to homeownership. The real estate market is dynamic, so it’s essential to adapt and make choices that align with your long-term goals. By keeping these factors in mind, you can navigate the homebuying process with confidence and make the most of the opportunities available to you. Happy house hunting!

What is PMI (or MIP) and how do I get rid of it?

PMI (short for ‘private mortgage insurance’) is one of those things in life that is both a curse and a blessing. If you put down less than 20 percent of the loan amount when you take out a conventional loan, you will be required to pay a monthly mortgage insurance premium (typically tacked on to your mortgage payment) to cover the lender in the event you mess up and default on the loan.

Without it, cash-poor homebuyers can’t get a mortgage.

With it, your house payments are higher, it takes a long time to get rid of (with some loans it never goes away) and it only protects the lender.

If you have an FHA-backed loan it’s called MIP for mortgage insurance premium. “MIP is required on all FHA loans, regardless of the size of your down payment,” according to Molly Grace at rocketmortgage.com.

“FHA loans require both an upfront mortgage insurance premium (UFMIP) as well as an annual premium payment, or annual MIP,” she concludes.

Mortgage Insurance and the FHA-Backed Loan

Borrowers who were granted an FHA-backed loan prior to June 3, 2013 can get rid of this monthly headache when the loan reaches a 78 percent loan-to-value (LTV) ratio for a 15-year loan.

If you have a 30-year loan you’ll need to wait until your LTV reaches 78 percent AND you’ve been paying the premium for a minimum of 60 months, which is government-speak for five years.

Calculate your LTV by dividing your current loan balance by the current appraised value of the home. Here’s an example of how this works from the experts at bankofamerica.com:

“You currently have a loan balance of $140,000 … Your home currently appraises for $200,000. So, your loan-to-value equation would look like this:

$140,000 ÷ $200,000 = .70

Convert .70 to a percentage and that gives you a loan-to-value ratio of 70%.”

FHA borrowers who put down 10 percent on a home after June 3, 2013 must wait 11 years to have the MIP requirement terminated. If you pay less than 10 percent down – which is the beauty of the FHA loan, after all – you must continue to pay MIP for the life of the loan.

Conventional Loans and PMI

The Homeowner’s Protection Act of 1998 states that homeowners who have a conventional loan on their primary residence, purchased after July 29, 1999 can request a cancellation of PMI once they have 20 percent equity in the home.

The same law says that the lender must automatically terminate PMI on the date that the loan is scheduled to reach a 78 percent loan-to-value ratio – not based on payments made – but according to the date the loan should reach this milestone, as listed on the initial amortization schedule.

The law gives borrowers another way to realize relief from PMI by stating that the lender has to release you from the requirement when you are at the midpoint of your loan’s amortization schedule, regardless of your LTV.

Mortgage loans for medical professionals

There has been a lot of debate of late over student loan forgiveness. When it comes to these loans, it’s hard to imagine what the debt wracked up by each of 28,337 students who graduated from medical school.

Let’s face it, when it comes to student loans, these former students have a lot of debt and not a lot of provable earnings. Despite this, many want to finally settle down and purchase a home.

And, their newbie-ness in the medical field, a blank credit history or heavy student loan debt won’t stop them from getting a mortgage. Why?

Because of their potential earnings – that’s what lenders care about when it comes to new physicians, dentists, and veterinarians. They know that only 1 percent of physicians default on their mortgage – substantially fewer than the general public, at 10%, according to Ryan Inman at FinancialResidency.com.

Lenders want this business – badly – so they created the doctor loan, also known as the physician loan.

Here are a few of the offerings, which vary by the way, by lender:

Typically there is no or a low-down payment requirement.
Private mortgage insurance (PMI) is waived, even if you put down less than 20 percent of the purchase price.
Debt-to-income ratio restrictions are more relaxed than they are with conventional mortgages.
Lending limits up to $2 million.
Low credit score requirements.
All physician loan programs are available to those with a D.O. degree. “Some lenders also offer loan programs for medical professionals such as dentists, orthodontists and veterinarians with the following degrees: D.S., M.D., P.M.,V.M.,” according to Sidney Richardson at RocketMortgage.com.

Are there drawbacks to these mortgages? Yes. They are commonly not fixed-rate mortgages, but carry adjustable rates (ARM). “With an ARM, you typically pay a lower, fixed interest rate for the first few years of the loan,” explains Richardson.

“After that initial period, however, your interest rate will fluctuate and often increase,” she concludes.

Then, interest rates may be higher for this loan product than the current average mortgage rate.

If you’ve dreamt of purchasing a home and didn’t think you could at this point in your career, we urge you to speak with a lender about physician loans.