Mortgage Rates at an All Time Low: Time to Get Your Taxes in Order

Mortgage rates have been at levels not seen before in history. They have stayed low since March and have even gone below historic levels acheived in April. Refis were through the roof. While home sales have slowed, mainly due to a choked supply of housing, housing prices have also soared. Many have lost jobs. and we all fear more jobs and industries are precarious to additional setbacks from the virus. This environment forces lenders to be more picky, even though refis typically result in lower payments, they still need to understand if you will be employed in a year, if those savings will be extinguished, not to mention with a flood of people looking to refi or buy, lenders have the choice of who to lend to.

What Does This Mean for Me?

As with any mortgage application, whether refi or new, you need to have your taxes in order. You need to prove current income and employment as well as demonstrate past employment and earnings. This is mainly done to create not just a picture of your earning potential but also your past behavior. Seeing your current savings and recent income creates a view into your spending habits and helps create a picture of your financial responsibility.

So. First, get your taxes in order. You are most likely going to need the last two years of taxes, but potentially three, depending on your employment history, income fluctuation, and industry.

You are going to need your tax documents digitally, in some form. Whether you are scanning them yourself or already have digital copies, know that in these days of email and coronavirus, your tax documents will need to be in PDF form. There are plenty of online accounting software options available. The one we just linked to may not be a perfect fit for you, but just an example of what to look for and compare.

These softwares can help you organize your documents for the lender.

Where it can get tricky is if you have a tricky tax return, such as with additional consulting companies, properties, split properties, non-income related assets, investments, big deductions, etc.

The best advice we can give here, in today’s climate, is to relax and be prepared for a lender to ask for WAY WAY more information than you believe is reasonable. Remember, they are looking for both a reason to give you an offer and also eliminate you vs someone else. So be patient. Roll your eyes at home, but be polite and quick with your responses. Many of them will require a lot of legwork to find. However, keep your eyes on the prize, because once you get through this, you’ll have deep savings for a long time.

2020 Taxes

We are not far away from year end, and while taxes aren’t technically due for another four months, lenders will start asking for them before April 15. So look at this process as if you are going to need to document and show lenders 2020 the same way they are looking for 2019 and 2018. Whatever your lender is asking for from previous years, make certain you have the same 2020 tax docs to match.

Should I Listen to a Real Estate Agent or a Home Loan Officer?

My home loan officer is trying to convince me to buy points on my mortgage, while my real estate agent is warning me about keeping enough in our savings to be able to furnish the house the way we want without being financially stressed. The agent is even willing to admit that dollar-for-dollar it might make sense, given that we plan on staying in the home for a while. But he also says in his experience people always underestimate their move-in and decorating budget. We’re still pretty early in the home buying process, but I agree it’s never too early to be thinking about these things. So, it’s not even so much that they’re disagreeing on the finer points—and they’re definitely being polite/professional in the ways they’re disagreeing—but either on this particular point or in general, do you think it’s usually better to listen to your real estate agent or your home loan officer? (Note: My friend says this wouldn’t be happening if I had gotten a recommendation from a realtor about a home loan officer or vice versa, but because I found them independently, something like this was more likely to happen.)

Nadine


Dear Nadine,

When it comes to home buyers and the process of house selection, buying and financing can be a daunting task. A home buyer should consider a lender recommended to them by their realtor. Most lenders can be deceiving, but a real estate agent wants to close the deal smoothly without hiccups with the main factor being financing the arrangement. Real estate agents who close a number of deals have an experience with different lenders and hence they know the ones that would get the job done, this saves you from wrong financial advice and rude surprises. Should a buyer take the advice of buying mortgage points?

If your lender recommends the buying of points on your mortgage, most of the time it is misleading. Buying mortgage points is always a losing proposition. In most cases, homeowners do not keep their mortgage long enough to be able to do more than recoup the upfront cost of paying points. Mortgage points have a lot of cons that come with them. Each point cost 1% of the loan amount and hence reduces the interest rate from one eighth to one-quarter of a percentage point. One should really consider everything carefully before buying points.

One of the main points of buying points is that the interest rate goes down. In the case of interest rates declining to the point that there is an available loan without closing costs at a price below the one you purchased, then the value of the points you bought becomes worthless. If the buyer refinances then they would give up a loan that costs more than what they made in reduced interest savings. In the case the buyer remains in the loan then, they would miss out on the available lower rate.

Upfront costs are yet another disadvantage. Normally the cost of points are wrapped into the loan balance and repaid in time until the loan is fully paid. If a buyer doesn’t have enough equity in their house to increase the loan balance, then they come up with the cost of the points at the end.

The break-even period is the amount of time it takes for the monthly savings due to pay the points. Moving and refinancing before the break-even point results in buyers paying more in points than reduced interest. No matter what a buyer decides to do, education of the entire process is key.

Should I Be Worried about Mortgage Rates Going Up?

I’ve heard that mortgage rates are at or have been at historic lows for years now. I’m just now approaching the phase where I could buy a home. I definitely see myself as a homeowner someday, but also don’t feel any pressure to buy right away. Especially since I like my current rental agreement and home values seem to be at record highs. So one part of me thinks I should just wait and keep building my savings/down payment (slowly but steadily). But then I keep thinking about the mortgage rates and everybody rushing to lock-in these really low rates, and it makes me wonder if I should be more worried about not buying soon enough. Any information or perspective you can offer would be great.

Thanks,

Laurence


Dear Laurence,

While mortgage rates are exceptionally low, the rates have been quite low during the last 8 years. In fact, average mortgage rates for a 30-year mortgage have been between approximately 3.66% and 4.55% during this time period. Recently, average 30 year mortgage rates have dropped to around 3.29%, which is only slightly outside of the range that they have been in during the last 8 years or so. However, current mortgage rates have been exceptionally low compared to where they’ve been since 1971.

The highest 30-year mortgage rates occurred in 1981, and they reached more than 16%. While the rates have been up and down, they dropped during the rest of the 1980s, 1990s, and 2000s. However, rates were relatively stable for much of the 2010s. While 15-year mortgage rates tend to be slightly lower, they have largely paralleled the rates on 30 year mortgages in terms of the rate.

It’s important not to pay too much attention to short-term trends when it comes to mortgage rates. If mortgage rates are dropping or staying the same, there will be periods of time where they will briefly appear to rise.

While your interest rate is an important factor when it comes to how much you’ll pay for a home, the price that you pay for the house itself is equally important. Most investors believe in the strategy of “buy low, sell high” when it comes to their investments, and real estate is included in this. Buying now would more than likely be doing the opposite, which could make your home less profitable as an investment.

Waiting to buy a home could allow you to build a savings as you said. This could allow you to make a larger down payment when you do buy a home, which could reduce the size of the mortgage that you take out. This could allow you to pay significantly less in interest over the course of time.

You don’t have to be in a hurry to buy your first home. Overall, it is still somewhat of a seller’s market, but the low interest rates can be good for buyers as well of course. The market is likely to shift from a seller’s market to a buyer’s market sometime later on this year or in 2021. As this begins to happen, you may still be able to take advantage of low interest rates for a time, and home prices will be low as well.

Tips for Getting the Best Mortgage and House

A mortgage advisor’s greatest concern is getting you in your dream home with the best mortgage possible. While they do everything in their power to get your house at a great rate, there are some things you can do to give yourself better options in finding your home: 

  • Having a good credit store is invaluable to getting an excellent mortgage, and thus, home. Your credit score and history acts as a guide for lenders deciding how great of a risk your mortgage will be to them. You’ll have better loan options and more flexible interest rates with a higher credit score. 
  • Saving up a large sum of money to put toward your home’s down payment can save you thousands of dollars down the line in interest. 
  • Be completely honest on your mortgage application, lying about income or other questions could cause you to get rejected. 
  • Don’t settle on the first house you see! There are hundreds of homes out there and you never know which one may be right for you. Make a list of your top choices and visit them multiple times, you’ll catch any details you may have overlooked the first time. 
  • When visiting a perspective house, bring a digital camera and notepad. When you’re trying to decide on a house later, you’ll have pictures of it and notes of what was going through your during the walk-through. 
  • Don’t consider buying a home if you’re not willing to live in it for at least a few years, you could definitely end up losing money. 
  • A major mistake some people make is misrepresenting their income on loan applications, be as accurate as possible on your application as it will affect your chances of being approved. 
  • Consider buying in a district with good schools, even if you don’t have children. Strong schools are a priority for many buyers and will boost the value of your home if you decide to sell it. 
  • Don’t be fooled by the starting prices of new homes by developers, it’s just to get people in the door. 

How Can a Mortgage Advisor Help Me?

If you’ve ever been in the market for a new home, you already know how difficult the mortgage process can be. If you’re looking for your first house, you probably aren’t quite prepared for to take it all on by yourself. No matter how much experience you have in the home market, a mortgage advisor can help you through it! It’s highly recommended that you get professional help with your mortgage. If you get the wrong mortgage, you could potentially cost yourself thousands of dollars and even lose your home. 

Most mortgage advisors will require an initial application, which is often straightforward. This should only take a few minutes. After that, you’ll begin the process of negotiating with different lenders to get you the mortgage that best suits your unique needs!  

Over the years, mortgage advisors compile a gigantic network of trusted lenders. They will go through each one until they find the mortgage that is meant for you. The service can be done completely online, meaning you never have to leave your computer to find your mortgage.  

Not only will a mortgage advisor save you time, but you’ll save money too. Does fraud and spyware make you hesitant about using online services? Make sure you get an online mortgage advisor that is 100% protected by the most up to date security services. Your privacy is important to.  

Why deal with pushy lenders and pressure sales tactics? With a mortgage advisor, you can decide the terms of your mortgage on your own time, free of lenders that claim to know what’s best for you. 

More Types of Mortgages

If you’re in the market for a house, it’s important to understand what your mortgage options are. We previously wrote about a few types of loans, but we want to add a few more to the mix.  

A mortgage can loosely be defined as a loan secured by physical property, which would be your house for this example. All mortgages are the same in this respect, but they differ greatly in how much interest you’ll pay on it and for how long you’ll have to pay it. Some mortgages will offer an interest rate that will never change over time; others might have an interest rate that can increase or decrease, to a certain limit. Interest rates for every type of mortgage will be affected by how much of a down payment you put on your home.  

Here are three basic types of mortgages to select from when purchasing or refinancing your home: 

Fixed Rate Mortgage: A fixed rate mortgage carries an interest rate that will stay the same forever, no matter how long the length of the mortgage. This means your rate will never go up. However, lenders usually require a higher interest rate from the start to accommodate for this. A fixed rate mortgage might be recommendable for those who are in very good place financially and have a solid credit score. 

Adjustable Rate Mortgage: An Adjustable Rate Mortgage or ARM provides a fixed interest rate initially, but can change over time based current market rates. The rate will only change during a certain period of time every several years, referred to as the adjustment period. The initial fixed interest period can be shorter than a year and is usually less than five years. When considering an ARM, also take into account that a cap, a limit to how high the interest rate can increase, can be negotiated with most lenders. 

Balloon Mortgages: A balloon mortgage is similar to an ARM in that it has a fixed interest rate for a period of time, the difference being that the entire balance is due at the end of the mortgage. These mortgages usually only last for about seven years and are sometimes seen as a short-term fix for people that cannot get approved for a fixed rate or adjustable rate mortgage. Generally, you wouldn’t apply for a balloon mortgage unless you knew you could pay off the balance. If you cannot pay the entire balance at the end of mortgage, you will be forced to get a new mortgage or face foreclosure on your home. 

Types of Mortgages: An Overview

Choosing the correct mortgage for your needs is nearly as important as paying it off—in fact, they’re often intertwined. However, there are several types of mortgages, and the terminology can feel overwhelming when you’re just beginning this process. So, to help you out, we have defined a few of the most common types of home mortgages out there. Once you understand your options, choosing a course of action will be significantly easier.

 

Fixed-rate—This type of mortgage has the same interest rate for the entire repayment term. Therefore, the size of your monthly payment will stay the same. This is one of the most stable mortgage loan options available, but the interest charges are often high.

 

Adjustable-rate—An adjustable-rate mortgage has a changing interest rate. Though they often begin with a fixed rate for several years, the ARM will change every year following this period. These often start off with a lower rate than a fixed-rate mortgage but rise over time.

 

Conventional loan—This type of loan is not insured or guaranteed by the federal government in any way.

 

Government-insured loan—There are three types of government-insured loans: FHA, VA, and USDA/RHS.

  • FHA is a mortgage insurance program managed by the Department of Housing and Urban Development. These are available to all types of borrowers, and the program allows borrowers to make very low down payments. However, monthly payments will be high because of mortgage insurance.

 

  • VA is offered by the U.S. Department of Veterans Affairs. It is a loan program for military service members and their families. The loans are guaranteed and insured by the federal government. Borrowers can receive up to 100% financing for the purchase of a home, meaning no down payment whatsoever.

 

  • USDA/RHS loans are provided by the United States Department of Agriculture and are managed by the Rural Housing Service. This type of mortgage loan is offered to rural residents with a stead, low-to-modest income.

Getting Mortgage Advice is Easy

Purchasing a home is increasingly seen as a cultural indicator of success and adulthood. Owning a home is a dream for Americans nation-wide, but that goal can only be achieved with the right players, the appropriate resources, and salient, informative advice. Most often, individuals and couples need to borrow money in order to purchase their homes; mortgages, then, make up much of the United States economy. However, there are hundreds of different types of mortgages—how do you know which is best for you and your financial needs?

 

A mortgage is a very long commitment—the length will vary by lender and type, but most standard, fixed-rate loans have a 30-year payment period. As a result, choosing a mortgage is a very important decision; getting the wrong option can be devastating, and you could suffer potential consequences for years to come. Starting the borrowing practice with the right set of tools is necessary to both pay your mortgage at a fair rate and avoid potential foreclosure. That’s where we come in.

 

The Internet is a great resource for finding the perfect mortgage fit. However, blogs and informative sites can only go so far; even with all the information, you will still want the satisfaction of having a professional’s approval. That’s exactly what we do. We specialize in helping you avoid typical mortgage pitfalls by pairing you with a perfect loan. We take into account fees, interest rates, and loan conditions when matching you with a lender and loan type. With us, you are guaranteed to find the best mortgage for you, your financial status, and your future home.