Interest Rates Are Up, What Should I Do?

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With prices up and home sales up, and current 30 year rates still at a low 4.25 percent (4.430 percent APR), this is an excellent time to buy a home in Central Oregon. As recently reported in the Bulletin, the median price of a home in Bend has gone from $191,750 in 2010 to $269,000in just three years! That’s a 40 percent increase. Will prices rise as fast in 2014?

 
Probably not, but as a result of increased demand, sales were also up in 2013, topping 2,200 in Bend last year, a 13 percent increase from 2012. This increased demand, as evidenced by increased sales and higher prices, also resulted in fewer distressed sales. Distressed sales were down to 18 percent from 60 percent in 2010! Overall, the indicators are very good for maintaining values in Central Oregon Real Estate. 

Also, an 80 percent loan ($215,200) on a median priced home, at the prevailing rate (no points) still results in a low monthly payment of about $1,075/month. With vacancy rates on rentals at an all-time low, some say ½ percent, if a person has at least 5 percent down WHY RENT, OWN! 

On the loan front, loan requirements are tighter now and it’s important for the borrower to know that everything needs to be verified. This includes their assets, their income and even large deposits to their bank accounts. While rates are very low, it sometimes seems frustrating to go through today’s loan process. This is why using a knowledgeable Mortgage Broker to guide you through the process is very helpful and even cost you less.  Remember, lenders have been given much stricter guidelines to follow as a result of the Dodd-Frank Act, which took effect on January 10, 2014.The Borrower’s Ability to Repay their loan (ATR), especially for a “qualified mortgage” has become a critical factor in approving the loan. Lenders are now being required to prove the Borrowers ATR.

5 KEY TIPS FOR HOME LOAN FINANCING


• First, for the best rate and terms, youshould seek an 80 percent loan, i.e. 80 percent LTV. A lower the LTV, could mean even better loan terms. Higher than an 80 percent LTV ratio will generally include Mortgage Insurance, which will increase your monthly payment. There are some government loan programs that allow for higher LTV’s, but they may have other restrictions.


• Second, you’ll need to prove your regular monthly income. If you’re a salaried employee, i.e. W-2 employee, it’s the simplest. You’ll need your most recent 30 days paystubs, with YTD income, plus 2013 W-2s. If you’re self-employed, you’ll need your last 2 years tax returns (all schedules). Gone are the days of the “stated income, stated asset” loans. All qualifying income must be verified. Tax returns will be verified.


• Third, you’ll need to prove your ability to repay. This means the ratio of your gross monthly income to your total monthly debt should not exceed 43 percent. Gross monthly income may also include any pension or retirement funds you are receiving that will continue for at least 3 years.


• Fourth, the best rate and terms will be for what’s called a “rate and term” refinance or “purchase money” loan. This means, if you’re refinancing that you’re paying off just amount you now owe. If you are paying off a second that originated after the 1st lien, then the refinance is considered a “cash out” loan and will have a pricing adjustment, i.e. cost more. A “Purchase Money” loan means the loan’s purpose is for the purchase of a home. Generally, the same rate and terms will apply to a primary or a second home. If it is a rental or “investment” property the pricing will be higher, plus the max. may be a 75 percent LTV.


• Finally, it’s important to have good credit and “reserves”. A “FICO” or credit score of 740 or higher will get you the best loan terms. Lenders will also require reserves if you have any rental properties – 6 mos. PITI (principal, interest, taxes and insurance).

MORTGAGE LOAN NEWS


This may be the year to check out a 3/1 or a 5/1 ARM Mortgage. You cancount on interest rates going up because the Federal Reserve intends to continue it’s “tapering”, which will have the side effect of raising rates. The national economy appears to be picking up steam, based on the latest data.

Higher growth rates in turn will increase demand for available credit and probably nudge rates higher. So what does this mean for you if you’re thinking about buying a house or refinancing and you want to secure the most favorable interest rate and terms? Should you shop primarily for a 30 year loan? Or should you also check out the ARMs — loans that provide a guaranteed fixed rate for a pre-defined period of time, 3, 5, 7 or 10 years — then convert to a rate that can change annually?

While,30-year rates are more than a full percentage pointhigher this month than they were a year earlier, they are still not far off multi-decade lows. On the other hand, loans that provide a guaranteed fixed rate for a pre-defined period of time, and then convert to a variable rate are usually less expensive than traditional 30-year fixed loans. If your plan includes paying off the loan in a shorter time frame, this is an excellent vehicle that can save thousands of dollars in interest during the initial fixed rate period.

Want to check out current rates? Call me and I will give you up-to-date info. And help you through the process.

Robert W. Browne, CEO

R.B. Financial Services, Inc.

500 Highland Meadow Loop

Redmond, OR  97756

541-548-6860

NMLS #235283;

Company NMLS #234048

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