With prices up, as a result of low inventories and high demand, now is the time to buy. And, with current 30 year rates still in the low fours (currently 4.25 percent, 4.286 percent APR), this is an excellent time to buy or even refinance your home.
The Fed will likely raise short term rates at least two more times this year, which will put further pressure on mortgage rates. For one reason, the creation of almost 200,000 jobs per month has encouraged them to watch inflation closely. What does all this mean? It means the Fed will be watching all the factors that affect inflation, not just one month of lower job growth. Other factors such as the bad weather we experienced in January and February, layoffs in the energy sector and the strengthening dollar are all having an effect.
All signs are that they will raise rates to regain normalization. As the economy recovers, I think we all agree that rates will rise this year.
How will this affect me? Even a small increase in the interest rates has a long term effect on the cost of your loan and your home. On a $300,000 loan the difference of 3/8 percent over a five year period would cost you $6,000 in interest. For someone staying in their home more than five years, it is definitely a benefit to buy or even refinance now!
On the loan processing front, loan requirements are much tighter now and it’s important for the borrower to know that their income and assets will need to be verified. Even large deposits shown on their bank statements will need verification.
While rates are very low, it can be frustrating to go through today’s loan process. That is why using an experienced mortgage broker to guide you through the process is very helpful and will even save you money. Remember, lenders have much stricter guidelines to follow, as a result of the Dodd-Frank Act, which took effect on January 10, 2014.
Other restrictions have been put in place that affect vacation rentals that you need to know. Additionally, the Borrower’s Ability-to-Repay(ATR), especially for a Qualified Mortgage (QM) has become a critical factor in approving your loan. Lenders are now responsible for proving the Borrowers ATR and that it will continue for three years. The following five key tips below will give you some guidance:
5 KEY TIPS FOR HOME LOAN FINANCING
First, for the best rate and terms, you should seek an 80 percent or lower loan.
Second, you’ll need to prove your regular monthly income. If you’re a salaried employee, i.e. W-2 employee, all you’ll need is your most recent 30 days paystubs, showing YTD income, plus 2016 W-2s. If you’re self-employed, you’ll need your last two years tax returns. Tax returns will be verified by the lender.
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 45 percent. Gross monthly income will be used in this calculation.
Fourth, the best rate and terms will be for what’s called a “rate and term” refinance or “purchase money” loan for a primary or second home. Cash-out loans will result in a higher rate.
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 generally will require six months reserves if you have rental properties.
A 30 year fixed rate is the best product today, with rate increases on the horizon. Higher growth in employment will probably nudge rates higher this year.
Robert W. Browne, CEO
R.B. Financial Services, Inc.
500 Highland Meadow Loop
Redmond, OR 97756
541- 548-6860
NMLS #235283; Company NMLS #234048
