housing

How to Get the Best Rates in this Market

/ Jennifer Larson

Rates are down and they continue to trend that way as inflation cools and home sales are slow in many areas. This is the best buyer’s market we’ve seen in a few years and it’s also a treasure trove of savings if you have the right strategy.

Even with rates in the low 6’s, buyers in slow markets have an advantage of getting motivated sellers to work with them. Instead of asking for $15k-20k off the sales price, a buyer will actually save HUNDREDS more per month on their monthly mortgage payment by, instead, asking for that amount in seller credits to buy down their rate in a 2-1 buydown. The buyers will then get a rate in the LOW 4’s for the first year and a 1% reduction the next year because of it. Buy down points are expensive and can easily cost thousands so if a buyer instead asks for the reduction as a credit versus a sales price drop, they’ll actually save significantly more. Just offering $20k below ask doesn’t save you much, believe it or not, on your loan. It’s all in the interest rate how much you pay and how you’re approved of what you can afford. Don’t worry so much about the price but how much you will pay per month. Here are some examples how it makes a big difference:

We’re going to compare this listing in Yucca Valley, CA from C & S Real Estate with a price reduction and a buy down scenario to show you the real way to save money on buying your next house.

Listing Agent Sean Dittmer and currently for sale as of this posting

If the buyer offers $20k below ask, their mortgage would be looking like this:

This is based upon an accepted offer $20k below asking and about 3.5% down or $13,000

If they instead asked for that in seller credits to buy down their rate, their payment would be approximately this: See the difference?

This is asking price but 2-1 buydown rate. Discount points are where it’s at! The down payment only goes up to $14k as well.

This is the same buyer with a 690 credit score and $60,000 annual income.

See how offering well below ask doesn’t lower your payment as much as a buydown? You can also buy permanent discount points for that amount from the seller and buy down to that permanent rate of 5% that’s shown in the example. These are real calculations from UWM that we use to price a loan. Instead of offering $20,000 below asking price, get that amount to buydown your rate and pay lower than market. If your credit is better than this buyer, you can possibly end up paying a rate in the 4’s!

It’s important to note that the rate you’re approved for will go up a little on your Closing Disclosure (the CD) because it includes the APR which is your rate plus all your points and fees financed into the loan. The APR is your total cost of the loan percentage. Mortgage insurance (PMI or MIP) are included in that Annual Percentage Rate so that’s the final cost you will pay as a rate on your loan. The APR is that mortgage 💸 insurance, any fees and points, + interest rate for your total loan percentage (APR).

To get a total APR under 5% you need better credit. If you’re working on your credit still, make sure you reach out and work with me. It’s free and easy. If you’re ready to buy, THIS is how you get the best rate. Get those buy down points so you save money and the seller will net the same price. Win Win!

Let’s get started!

Which Debts Are Most Important to Pay Down?

/ Jennifer Larson

For a home loan, it’s not medical debt. In fact, the Biden Administration is focusing on passing legislation through Congress that would eliminate it from being considered in your credit score for many types of financing and home loans. It also depends on what your credit report says (go to http://www.annualcreditreport.com) and a detailed report will show this if lenders can see it or not but it’s not typically a factor to worry about for approval. The biggest hindrance might be your student loans.

Make sure you’re getting as much loan forgiveness as you can and negotiating with your creditors to reduce fees and interest rates. This will help lower your payments and DTI which helps you get approved for more. If you don’t have student loans, your next biggest hurdle is probably your car.

Cars of all brands are absolutely ridiculous nowadays. We have clients paying almost a thousand dollars for Fords and Toyotas and I’m not talking their top of the line models with extra features. It’s insane right now so imagine for luxury cars how that can affect your approval! Add up your car payments and that amount will be how much less you’re approved for in underwriting because that’s all DTI and those numbers are subtracted from your total approval. We start with your front end DTI which is just how much the house will cost you per month to buy. Your back end DTI then starts reducing that amount because we have to factor in your cars, your credit cards, payment plans you’re on, etc. If it’s on http://www.annualcreditreport.com and you pay monthly on it, it’s probably going to reduce your approval amount. Car payments by far are the biggest killers of dreams and buying a house. Don’t buy brand new, and get them two years old at least, to save thousands on dealer mark ups and depreciation.

Next is credit cards 💳. People use these like free money and they’re NOT! Before you apply for a mortgage, make sure you are below 15% utilization and don’t be surprised you have to pay below 10% to get approved. Clients need to understand their current balances due are a major factor because it’s debt we have to account for. Pay it down tremendously before applying. It doesn’t matter if you always pay in full, pay before you apply!!

These are the top debts to pay down (or off if you can) so that your chance of a new house isn’t ruined by all these payments. You can have debt and buy a house but you can’t have a lot of debt. Lenders want to see fiscally responsible borrowers and big car payments and credit card balances are not a good candidate for rates around 7%. Sorry. 🤷‍♀️

How to Much Do I Need to Save for a Down Payment?

/ Jennifer Larson / Leave a comment

Let’s calculate it for a variety of different home prices. Regardless of mortgage rates, this is how much you need to save for a down payment at 3% or 7% because they’re based on the math of the sale price, not the interest rates. How much you need to make though IS dependent on rates so that math changes.

Let’s start with a $200,000 house on an FHA 3.5% down. On your calculator type in 3.5 and hit % to get a decimal of 0.035 and then X 200,000=$7,000 and your closing costs will be at least that much for a total of $7,000 (more in some states) so in this scenario I’d advise clients to have at least $15,000 plus for inspections, and buyer agency compensation if necessary. I tell clients expect your total cash to close will be at least double your down payment in any state. In other states, it’s higher.

Let’s say you want the house but the roof needs to be repaird and the seller isn’t about to fully cover the full cost of something they’re never going to benefit from. (They say that all the time in negotiations!) You might have to meet in the middle with that expense if you really want the house and in seller’s markets, they have that leverage so multiple houses you look at might have this scenario. This is why so many buyers get blindsided by closing costs because all the money needed to bring the deal together can add up through the transaction. This is where it’s important to have additional savings or go back and negotiate seller concessions too. For the seller, they can be pay things at closing from the proceeds to compensate you some costs. You can have them cover what you covered on the roof out of pocket in seller credits, etc. No down payment loans are even higher interest rate and you’re approved for less so keep that in mind. You might not qualify for the house you want anymore. I have seen many times the “double your down payment” rule doesn’t work. I recommend more to avoid stress, surprises, and to know you’re in good standing.

All this to say, for each price, my rule of thumb (to also account for negotiations, inspections, and other fees you’ll pay during escrow) I tell clients, if you have 10% of the total purchase price, you should be fine.

$200k=$20k, $300k=$30k, $400k=$40k, $500k=$50k etc. If you’re worried about the “new” NAR rulings and you might have to pay commissions if you want an agent to help you, these amounts should help cover. If the seller is insisting on lots of costs for you to share, make sure you and your agent fully discuss it or get some kind of compensation back (like closing concessions as much as your loan allows) before you shell out. Sometimes you have to walk away. Ask your lender too because there are limits but FHA and Conventional loan holders Fannie Mae/Freddie Mac announced they will not count commissions against buyers so that’s good news!! There are still loan limits how much you can receive in credits so be wary of that and ask upfront with your lender.

One thing to note too, is that lenders like to see cash reserves in your account. This is why it’s so important to save and why I tell clients to expect a minimum of 10% needed because it’s not just the down you’re going to have to pay. Closings costs are just as high or worse, and some clients won’t get approved without reserves. Otherwise, you’ll need seller concessions and/or gift funds from loved ones to help the deal close. I’ve seen it too many times people weren’t aware of this. That emergency fund is what they’re looking for in addition to your total cash to close amounts. When in doubt, save more!