Interest rates continue to be higher than they were for much of the past decade.
Kara Loftus, VP of Mortgage Lending with Mountain America Credit Union, joined us with advice on financing your dream home.
She says while the rates are higher than they have been in the past 15 years, historically they remain slightly lower than the 50-year average of 7.7 percent. So, if you're waiting for rates to drop to the historic lows in the 2 to 4 percent range, you may be waiting a long time.
Kara says a home is typically the largest monthly payment you'll have, and the single biggest purchase you'll make, so take your time and research your options.
She says there are multiple loan programs available that you may qualify for, like a first-time homebuyer loan or a Veterans Affairs loan.
Kara says you also might want to consider looking at a loan with a longer amortization period. Typical mortgage loans amortize over 15 or 30 years, which is how long you need to make payments until your loan is paid off.
Mountain America offers a first-time homebuyer loan with a 40-year amortization with a 15-year balloon. What that means is that the payment is calculated as if it were a 40-year payback term, therefore, the monthly payment is lower. However, by year 15 of the loan, the buyer will need to either refinance or have fully repaid the loan. The loan also does not require private mortgage insurance, further reducing the cost. This option could be beneficial for new homebuyers who are early in their careers and find a larger 30-year mortgage payment to be higher than they are comfortable with at the moment.
Another option is to pay down points. This entails paying additional upfront costs to reduce the interest rate. However, it may not be worth doing this if the buyer hopes to refinance sooner than later. It takes several years of payments to get the value of buying those points. You can use an online calculator to figure out your break-even point and weigh that against the likelihood of moving or refinancing before that time.
Kim also says lately homes have been staying on the market longer on average, and this could potentially give buyers and opportunity to negotiate with sellers for concessions such as covering closing costs or offering allowances for repairs.
Lastly, before you commit to any additional monthly payment, it's a good idea to "try on your payment." Estimate what the new payment might be if you were to make a move or take out another loan, then start making that payment to yourself in a savings account for a few months. If you can't easily and regularly save the difference, you probably don't want to commit to a higher payment.
You can talk to a mortgage loan officer at Mountain America, even before you're ready to make a purchase. They can make sure you know the best available options for your particular situation and help you prepare to qualify for the best rates and products you can get.
Schedule an appointment with a loan officer or visit macu.com/mortgage.
Disclosures:
Loans on approved credit
Equal Housing Lender
NMLS ID 462815
Membership required—based on eligibility.
