Maximize Your Purchasing Power

2013-06-08T00:00:00Z Maximize Your Purchasing PowerMichelle Krueger nwitimes.com
June 08, 2013 12:00 am  • 

Last week, mortgage rates jumped to their highest point in a year – hovering around 4 percent for a 30-year fixed mortgage.

For those hoping to get a little more bang for their buck by taking advantage of low mortgage rates when buying a home, now’s the time to make your move.

“I’m seeing higher rates across the board,” Gerry Zagone, nmls #137008, of Adventas Mortgage in Schererville said. “For those people with a wait-and-see attitude about the real estate market, it’s time to jump on the right opportunity. The sooner a purchase agreement is accepted by all parties, the sooner you can lock in your rate.”

While most industry insiders anticipate rates will continue to trend up through the end of the year, they are also predicting a gradual rise – at least for now. But, since you never know with interest rates, there is a greater sense of urgency, and the big question for prospective homebuyers is, “what are you waiting for?”

For the time being, mortgage rates are still near 50-year lows. Take a look at the annual averages for 30-year fixed-rate mortgages as recorded by Freddie Mac since 1971:

2012 2011 2010 2000 1992 1982 1972

3.66 4.45 4.69 8.05 8.39 16.04 7.38

That means your purchasing power is also the strongest it’s been over the last 50 years. For every $100,000 of mortgage value, the monthly payment would be:

2012 2011 2010 2000 1992 1982 1972

$458 $504 $518 $737 $761 $1348 $691

If, for example, you have $750 earmarked for housing in your monthly budget, you could comfortably afford to finance $130,000 plus estimated property taxes, homeowners insurance and PMI at the current rate.

Even with home buying more affordable than ever, many people are hesitant to make their move in today’s market due to some misconceptions about getting a mortgage, according to Zagone.

“Basically, if you’re disciplined you can turn your situation around,” he said. “Buyers need to understand what it takes to become a homeowner today. They need to get pre-approved – to see what they qualify for – before they even start shopping. As part of the pre-approval process, your lender will verify a number of documents – from you driver’s license and social security card to the last 30 days of pay stubs, complete bank statements from the last two months, 401K statements, all the pages from the last two years of tax filings with w-2s and rent verification with landlord information if applicable. They will also pull your credit report. All of this information helps them make an accurate evaluation of how much house you are capable of buying. A pre-approval is also an important part of the bargaining process in a competitive market and often helps reduce the time your lender needs to process and fund your loan.”

When it comes to finding the best option for your situation, be sure to carefully compare mortgage information from several different lenders or mortgage brokers. Once you know how much of a down payment you can afford, find out all the costs involved with different loans.

“Knowing just the amount of the monthly payment or the interest rate is not enough,” Zagone said. “Always ask for information about the same loan amount, loan term and type of loan so you can compare information on rates, points and fees.”

It’s also important to note that homebuyers who choose Federal Housing Authority (FHA)-backed mortgages for their low down payments will now need to buy mortgage insurance throughout the life of their loan.

Effective June 3, once the FHA insures a home purchase, buyers will no longer be able to drop their mortgage insurance when the balance drops to 78 percent of the value of the home. As the nation’s largest insurer of low down payment home loans, this policy change reflects the FHA’s attempt to rebuild its Mutual Mortgage Insurance Fund.

While many buyers need the assistance of this low down payment financing option, Zagone points out that they do have options.

“Credit requirements can be more stringent with conventional loans, so many home buyers still need FHA loans,” he explained. “However, once a buyer gets their foot in the door with FHA, they can refinance using a conventional loan later, and get out from under the new FHA required mortgage insurance rule. People use the best option available to them under their specific circumstances. In order to make the best possible decision they need to be informed. That’s the key to a successful closing for buyers in today’s market.”

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