One of the first steps in your homebuying journey is getting pre-approved. To understand why it’s such an important step, you need to understand what pre-approval is and what it does for you. Business Insider explains:
“In a preapproval, the lender tells you which types of loans you may be eligible to take out, how much you may be approved to borrow, and what your rate could be.”
Basically, pre-approval gives you critical information about the homebuying process that’ll help you understand your options and what you may be able to borrow.
How does it work? As part of the pre-approval process, a lender will look at your finances to determine what they’d be willing to loan you. From there, your lender will give you a pre-approval letter to help you understand how much money you can borrow. That can make it easier when you set out to search for homes because you’ll know your overall numbers. And with higher mortgage rates impacting affordability for many buyers today, a solid understanding of your numbers is even more important.
Pre-Approval Helps Show You’re a Serious Buyer
Another added benefit is pre-approval can help a seller feel more confident in your offer because it shows you’re serious about buying their house. A recent article from Forbes notes:
“From the seller’s perspective, a preapproval [sic] letter from a reputable local lender often can make the difference between accepting and rejecting an offer.”
This goes to show, even though you may not face the intense bidding wars you saw if you tried to buy during the pandemic, pre-approval is still an important part of making a strong offer. In fact, Christy Bieber, Personal Finance Writer at The Motley Fool explains it may be the most important part of making an offer:
“Pre-approval maximizes the chances you’ll be able to actually close the deal – and sellers want to see that.
The fact that a pre-approval gives you a better chance of getting your offer accepted is undoubtedly the most important reason to complete this step…”
Get a Pre-Approval
Getting pre-approved is an important first step towards buying a home. It lets you know what you can borrow and shows sellers you’re serious about purchasing their home. Connect with a local real estate agent and a trusted lender so you have the tools you need to purchase a home in today’s market.
Waiting For Low Mortgage Rates?
Last year, the Federal Reserve took action to try to bring down inflation. In response to those efforts, mortgage rates jumped up rapidly from the record lows we saw in 2021, peaking at just over 7% last October. Hopeful buyers experienced a hit to their purchasing power as a result, and some decided to press pause on their plans.
Today, the rate of inflation is starting to drop. And as a result, mortgage rates have dipped below last year’s peak. Sam Khater, Chief Economist at Freddie Mac, shares:
“While mortgage market activity has significantly shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023.”
That’s potentially great news if you’re a buyer aiming to jump back into the housing market. Any drop in mortgage rates helps boost your purchasing power by bringing down your expected monthly mortgage payment. This means the lower mortgage rates experts forecast this year could be just what you need to reignite your homebuying goals.
While this opens up a window of opportunity for you, remember: you shouldn’t expect rates to drop back down to record lows like we saw in 2021. Experts agree that’s not the range buyers should bank on. Greg McBride, Chief Financial Analyst at Bankrate, explains:
“I think we could be surprised at how much mortgage rates pull back this year. But we’re not going back to 3 percent anytime soon, because inflation is not going back to 2 percent anytime soon.”
It’s important to have a realistic vision for what you can expect this year, and that’s where the advice of expert real estate advisors is critical. You may be surprised by the impact even a mild drop in mortgage rates has on your budget. If you’re ready to buy a home now, today’s market presents the opportunity to get a more affordable mortgage rate, find your dream home, and face less competition from other buyers.
The recent pullback in mortgage rates is great news – but if you’re ready to buy now, holding out for 3% is a mistake. Work with a local lender to learn how today’s rates impact your goals, and let’s connect to explore your options in our area.
How much home can I afford?
Knowing how much home you can afford can help you narrow your search and find the right home, but there are a lot of different factors to consider. You’ll need to look at the price of the home, sure, but you’ll also need to think about the interest rate on your mortgage, the property taxes, the cost of insurance, how much cash you’ll need up front at closing (from your downpayment to closing costs), and how much the home could cost you in the long run (repairs, maintenance, remodeling). Some of the costs can’t be easily calculated, such as repairs – who can predict when their AC system will conk out on them (this would be a good time to be covered by a home warranty)? Costs like taxes and insurance can be figured out for now, but will more than likely rise over time. Unless you get an adjustable rate mortgage (which are not as common as they once were), your interest rate will remain solid and the amount you pay for the house will remain fixed, although your mortgage payments may change if you use an escrow account for your taxes and insurance.
Calculating How Much Home You Can Afford
There is no shortage of calculators for affordability online and most of them are based on the same basic principles. Like most things, the outcome of the calculator is only as good as the data you put into it. Most affordability calculators will ask you a few basics: your income, how much money you’re going to put down on the home, how much do your monthly debts (car payments, credit cards, etc.) cost, and what interest rate you’ll be paying on your mortgage. Of course, that number can vary greatly, but you can usually get a basic estimate using the latest rates available online (you should probably overestimate rather than underestimate). Remember, your interest rate is based on multiple factors, so what you see online or your friend’s interest rate, might not be the same as yours.
More advanced calculators will ask you about property taxes (which you can look up online at your county appraisal district’s website), insurance (often the hardest to estimate as it is based on the house you intend to buy, but call your insurance agent and ask them for some roundabout numbers), mortgage insurance, and HOA dues. Some will even allow you to work backwards from the amount you want to pay a month.
The best way to get a true picture of not only what you can afford, but also what kind of loan products (and interest rates) are available to you is to sit down with a local lender and talk. They will ask you for the basic info (which is all subject to verification in order to get the loan) and show you what they see as your potential target for both a monthly payment and how much home you can purchase. Lenders will often give you a price range you want to stick to – the closer to that ceiling you get, the more you will need to tighten the budget to afford it. We recommend you don’t max out your limit there, so that you still have a cushion for when your water heater explodes in the middle of the night!
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Tapioca Pudding or a 15 Year Mortgage? Which is better for you?
Is a 15 Year Mortgage the Right Choice?
So, right off the bat you must be thinking – what on earth can 15 year mortgages and tapioca pudding possibly have in common? And you’re right – at first glance there isn’t much, but as you dig deeper the similarities will surprise you and do completely read what he said about it and how it sinks into real life.
Tapioca pudding is a sweet pudding desert thickened by man-made tapioca pearls. Tapioca does not occur naturally, but must be processed from cassava root. Most recognizable are the tapioca pearls that are a staple in both tapioca pudding and in the increasingly popular Bubble Tea. Tapioca has been around for quite some time and was quite popular in the 18th and 19th centuries, particularly because the starchy tapioca pearls were an easy thickening agent and partly because they were easy to digest. Often, they were prescribed to the very young or old and infirm with digestive problems. Tapoica pudding saw a rise in popularity in the US in the 1960s through the 1980s and then fell off the culinary bandwagon for a while. However, we are seeing a recent resurgence in its popularity in modern times again.
The 15 year mortgage also has a history of rising and falling popularity with a slight increase in interest in the current market. By far, the most common term of a residential mortgage is 30 years. Interestingly, most people stay in their homes for fewer than 10 years (3-5), so for some, 30 years seems daunting. The prospect of not being able to fully pay off a mortgage may be difficult for some to digest (see what I did there?), so the concept of a shorter term mortgage was invented. Generally the qualifications for this type of loan are stricter (higher credit scores and tighter debt to income ratios) and that’s because payments are higher (you’re paying twice as fast) and lenders earn less on interest because of the faster payoff. Lately, we’ve been seeing these type of loans taken out by investors, on second home purchases, and on later in life home purchases.
But the 15 year payments mentioned on this website, may not be palatable by just anyone. Your finances may support paying more now, but if you’re uncertain about your job or reluctant to over commit “just in case,” a 15 year mortgage may not be the right avenue for you. Consider making additional payments on your 30 year mortgage instead (just make sure they are applied to principal only). Doing one additional full payment per year could decrease your actual mortgage payoff time from 30 years to as little as 20 or more! When it comes to protecting your system and data you can opt for a security that can protect from ICS and OT security threats.
Much like there is a time and a place for tapioca pudding, 15 year mortgages might not be the perfect fit for everyone’s financial situation, but in both cases, variety is the spice of life and simply knowing more about the many unique and unconventional options available to you may just help satisfy you completely. Need someone to help you find the right recipe for a successful real estate transaction? Let John Alaniva show you the proof in his pudding.
image courtesy of Presagio
FHA Limits Restored
This just in from the National Association of REALTORS® News Desk: Congress has restored the loan limits for the FHA for two years.
Back in September we let you know that the loan limits had been reduced in over 40 states. Effective immediately, these limits have returned to the previous levels.
For San Antonio, this means that the limit of an FHA home mortgage is once again:
The reinstated FHA loan limit should help to keep mortgages affordable and accessible. FHA morgtgages require one of the the lowest downpayment of any traditional mortgage currently on the market (3.5%) and their presence in the market is critical as we work towards a housing market recovery.
If you have questions about FHA loans, contact a professional REALTOR® or mortgage broker for specifics.
image courtesy of krissen
FHA Loan Limits Drop
Effective October 1, 2011, the loan limit on a FHA (government backed) mortgage on a single family home in Bexar County dropped from $332,500 to $287,500. The numbers, released by HUD and the FHFA have the potential to substantially affect the availability and affordability of mortgage credit.
FHA loans have been one of the most popular loan types in recent years, particularly for first time home buyers, due to their low downpayment requirement (currently 3.5%). The new, lower limit means that buyers will either have to come up with substantially more cash as a downpayment,or that many homes may suddenly be out of reach to many home buyers.
FHA loans have typically required a minimum of 3.5% investment by the buyer (downpayment). This means that anyone seeking to purchase a home with an FHA mortgage in Bexar County can no longer spend more than $297,927.47 on their home purchase with the minimum downpayment. ($10,427.47 downpayment and a loan of $287,500). Previously these same buyers could possibly have financed a loan on a property up to $344,559. That’s over $46,000 difference in home buying power for these types of buyers.
Alternative loan programs (non-conforming or “conventional”) require as much as 5% down before potential buyers could be eligible.
Forty two states contain counties that have been negatively impacted by these limit adjustments. San Antonio is not alone in feeling the pinch from the latest round of lending crackdowns.
What this means to you:
Buying a home: If you were considering an FHA backed mortgage, consult with your lending professional to see how these recent changes impact your specific loan situation. Adjust your home search criteria if necessary to take these new limits into consideration. Look for additional funds for downpayment that may open new finance options to you.
Selling a home: Homes priced in the $300,000-350,000 price range are most substantially affected, as the pool of financing options for potential buyers has been severely limited. Consider your price points and potential buyers. If these limits do make a difference, consider altering some of your marketing strategies to better target your new buyer pool. Be prepared for even strong buyers to struggle with some of the new regulations on the mortgage industry.
image courtesy of matturick