Here we are again, the start of another Spring Market. I’m happy to report that it is going much better than last year! Thank God for that!!
More houses are coming on the market, so Buyers’ demand seems to be getting satisfied a little quicker than the last year. It’s not great, but it’s definitely an improvement! Rates are still low and although we’ve been hearing for years that they are going up, they really haven’t moved more than a half point up in the last 9 years! I know this, because I bought my house in 2010 and locked in at 4%. The current rates are 4.25% for Conventional and 4.125% for FHA. So much for the Boy Who Cried Wolf, “The rates are rising”… You’re better off believing Winter is Coming and if you don’t know what I’m talking about, then get HBO and get on it, LOL!
So, speaking of rates, how can one go about getting the lowest rate with the best terms? Well there are a few things that mortgage companies take into consideration when qualifying Buyers. One is Credit Score. I know, you know that one! But did you know that you can be approved with a score as low as 620? According to FICO, anything below a 669 is considered a Fair Credit Score. So you really don’t need Great or even Good Credit to get a mortgage. Now keep in mind, you may not the get the best rate, but you can still purchase a home.
Another way mortgage companies determine your rate is by how much you are actually able to put down on a house. FHA requires 3.5% down. That means that you will be financing 96.5% of the home price. So if you buy a $300,000 home, you must put down at least $10,500. The seller can pick up the rest of the closing costs, up to 6% and that usually covers everything. There are some things that get paid out of pocket before settlement, like the Home Inspection and Appraisal, but pretty much everything else can be paid at settlement by the Seller.
Now how do you think a Seller will feel about this? The money that they are using to pay your closing costs, is really coming out of their proceeds. One way to overcome this conundrum, is to raise the selling price. Ouch, how badly will that hurt? Surprisingly, not as much as you think! With rates as low as they are, adding $10,000 to the sales price will really only make the mortgage payment go up $55, respectively. Now on the other hand, how long will it take you to save another $10 grand, so that you can have a payment $55 less? If you can afford the payment, then it’s really a no brainer! $10,000 spread out over 30 years with a 4-something % interest rate, is really not bad.
Another thing that you could do to help get approved for a higher mortgage, is to pay down your debt. If you had that $10,000 in an account and were planning on using it for closing costs, it might behoove you (yes, I love the Dictionary App) to just pay off your credit cards or auto loan so that you can borrow more for a house. Hear me out, I’m really not crazy!
Let’s say you owe $7,000 on your car and the payment is $300/month. If you pay that off, then your Debt to Income Ratio just went up by $300! Now we’ve already seen that a mere $10,000 borrowed only comes out to $55/month. Imagine how much more you could borrow if you had another $300 to put towards your monthly payment? Don’t hurt yourself, I’ll do the math. It comes out to around $55,000 in home price. $55,000!!!!! I think that’s a pretty significant jump! So bottom line, try to pay off as much debt as you can if you want to be approved for a higher priced home.
Now, if you don’t have any debt, good for you! Then you’ll want to put down as much money as you can. Mortgage insurance is all based on Tier Pricing now. There aren’t any set prices. The MI is based on LTV, Loan to Value & Credit Score. Loan to Value is how much you are paying down on the mortgage. Are you going to finance 96.5%, 90%, 80%? The less you finance, the lower the Mortgage Insurance. I’d still recommend asking the Seller to pay the Closing Costs, if you can though. You might as well pay down the mortgage amount, get the better rate and the lower MI.
If this seems really confusing, then I apologize for that. Unfortunately, buying a house can be a bit overwhelming, if you don’t know all the ins and outs! Fortunately for you, I’ve been doing this for a long time and have a pretty good grasp on how the whole financial process goes. The good news is that, like many Realtors, I work with excellent mortgage professionals that make the process seamless!
And keep in mind, that studies show that it’s definitely cheaper to own a home then to pay rent! First, last and security usually comes pretty darn close to the 3.5% that you need to put down. For the same money, you could OWN a similar or nicer place!
If you’d like to find out if buying a home is doable, then just give me a call, or call another area Realtor. We help people become Homeowners. On a personal note, I am here to help!!! I’m a Realtor. Now put on your big girl/boy pants and give me a call! We’ll make a Homeowner out of you yet!
Suzanne can be reached at:
Bus: 215-968-7400 • Cell: 267-243-8487