YOU can’t hear enough about the fact that mortgage rates are at record lows! Its absolutely true, I have been in the mortgage and RE business for over 25 years and when I started everyone was refinancing out of a 12% rate to a 9% rate back in the later 80’s. Here we are in the low 3’s and even 2% range for 15 years and what is there to be sad about. If you are a homeowner able to refinance your 4% rate down to the low 3’s you should be scrambling to find a good lender.
For first time buyers this is the greatest time to lock in to a low fixed rate mortgage for the next 10-20 years and enjoy of mortgage payment possibly lower than renting a house.
The recent Fed action of purchasing $40 billion per month in mortgage-backed securities resulted in lowering interest rates even further to interest rate levels never before seen.
So how can we put that into perspective? What if you are considering buying a home right now, what do these lower rates really mean in terms of real money? Let’s compare these current low rates with those seen over a year ago, back in early 2011.
A 30-year mortgage rate could be found in February 2011 at around 5.25 percent. Today, that same loan is about 3.25 percent, or a 2.00 percent drop. What does that mean?
Lower rates equal more buying power
First, it lowers your mortgage payment. That’s obvious but let’s take a close look at the impact of a rate that is 2.00 percent lower. On a $300,000 30-year mortgage, a 5.25 percent rate results in a $1,656 per month payment. A 3.25 percent rate drops the payment to $1,305 per month, or a savings of $351. That’s huge.
Now this has another good side to it, if you can only qualify for a $1656 payment and a $300,000.00 mortgage amount. Now you can actually qualify for a $375,000.00 mortgage balance. A 25% increase in allowable money you can borrow just because the rates are lower now. AMAZING.
Sellers should really consider selling now and moving up to a bigger and better home. Now they might say that it might not be the time to sell, on the contrary the inventory is really low and if you are in a good location and have a fairly descent property, you should be able to get much more for the Real Estate now compared to last year. Also remember if you buy now you might be buying in a location that has a greater potential of appreciation compared to where you are. That is why move up buyers should consider this to be the best time to sell and buy.
Lenders used debt-to-income ratios during the loan approval process and a standard debt ratio is max at around 45 percent. That is typical for conventional financing an FHA government loan will sometime go up to about a 50% Debt to Income ratio. Lets go thru the arithmetic and see if you can self qualify to find out how much you can afford:
For FHA Financing
Example: Gross income: $ 7000.00 (usually need 2 years of steady income in same line of wk) Minimal payment on all credit card and installment debts: $500/mo.
Savings for a down payment: $ 20,000.00 +/- (FHA allows all the down pay to be gifted) Estimated total monthly pmt @ 3.25% rate =$ 2,600.00
Minimum Fico Score required: 640
In most areas that is about the rent for a 3-4 bedroom house but with these qualification you can actually buy the house yourself, take the tax benefits and enjoy the almost guaranteed appreciation the next 8-10 years and build your wealth.
Take a look around at the differences between homes in your area selling for $317,500 and ones selling for $402,000. See a difference? Of course you do. That’s the power of interest rates. They do make a difference. And if you’re thinking of buying a home right now, these low rates should convince you that now is the time to buy. Quit thinking and start looking.
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Thanks for your inquiries and comments. Please call Ken Go of 1st Innovative Finance Group for your refinancing, new home financing, Short Sales inquiries at (562) 508-7048 or write to [email protected].