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Thinking About Refinancing?

Mortgage rates have dropped once again, offering a unique opportunity for both homebuyers and current homeowners, with rates at their lowest rate in over 18 months. For homeowners, this may be the perfect time to consider refinancing—replacing their existing mortgage with one that has a lower interest rate. If you’ve been holding off on refinancing due to high rates, now could be your chance to lock in savings.
In recent years, refinancing activity plummeted as rates surged from 3 percent during the pandemic to as high as 8 percent in late 2023. However, with rates starting to dip, some homeowners who took out mortgages during the rate hike may find it beneficial to refinance now. For homeowners with adjustable-rate mortgages or those locked into higher rates, the current market conditions could make refinancing a smart move.
However, refinancing isn’t as simple as getting a better rate. It’s important to weigh the costs involved, including closing fees, which typically range from 2 to 5 percent of the loan amount. You’ll need to factor in expenses like credit checks, appraisal fees, and title insurance. Some states even impose additional taxes on mortgage refinances. Experts suggest that homeowners should aim for at least a 1.5 percentage point drop in their interest rate to make refinancing worthwhile.
If you’re thinking about refinancing or wondering what else is on the horizon got to our calendar on our website and schedule an evaluation.

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Retiring with a Mortgage: What You Need to Know

While it’s true that mortgage debt can feel like a burden in retirement, it’s important to remember that your home remains a valuable asset. According to a recent study from the Michigan Retirement and Disability Research Center, many retirees with mortgages still have the potential to thrive financially—it just requires some thoughtful planning. For those who find their mortgage payments manageable, there’s no need to worry. If you love your home and your mortgage fits within your retirement budget, there’s no reason to change a thing.

The idea of paying off your mortgage before retirement has long been a goal, but times are changing. Today, many people are buying homes later in life or taking advantage of low interest rates to refinance. This means more retirees are entering their golden years with a mortgage, but that doesn’t have to be a bad thing. With careful planning, even a 30-year mortgage taken out at age 65 can be part of a successful retirement strategy. Plus, staying in your home allows you to continue building equity and enjoying the stability of homeownership.

If you’re retired and find your mortgage payments challenging, there are options to explore. Downsizing to a smaller, more affordable home might be one solution, especially if you’re ready for a change of scenery. Alternatively, a reverse mortgage could offer a way to tap into your home’s equity while staying put. While these options might seem daunting, they can be smart moves with the right advice. Of course schedule a consultation on our website and we can help guide you through your specific situation.

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Market Watch – Rates Dropping Below 7?

This week marks a positive shift for prospective homebuyers, as mortgage rates have stayed below the 7 percent threshold. This is the first time since February that the average 30-year fixed rate has dipped into the sub-7 range. The catalyst for this decrease is the growing optimism that the Federal Reserve might cut rates in the near future, providing a glimmer of hope for those looking to secure a mortgage.

Currently, the average rate for a 30-year fixed mortgage is 6.90%, slightly down from 7.02% four weeks ago and 6.98% a year ago. For those considering a shorter-term commitment, the 15-year fixed mortgage stands at 6.24%, and the 30-year jumbo mortgage is at 6.97%. These rates include an average total of 0.28 discount and origination points, which are fees paid to reduce your mortgage rate and cover the lender’s costs to process the loan.

When translating these rates into monthly payments, consider the national median family income for 2024, which is $97,800. With the median price of an existing home at $426,900, a 20 percent down payment, and a 6.9 percent mortgage rate, the monthly mortgage payment would be approximately $2,249. This payment constitutes about 28 percent of a typical family’s monthly income, illustrating the financial commitment required for homeownership in the current market.

Looking ahead, the trajectory of mortgage rates will largely depend on the broader economic landscape. While a strong job market and persistent inflation suggest rates might not plummet, there is cautious optimism for a slight dip due to potential Federal Reserve rate cuts. Mortgage rates, influenced by the demand for 10-year Treasury bonds, are likely to fluctuate. If you are in the market for a mortgage and want to stay informed and be prepared for possible changes in rates signup for our rate advisor on our website.

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Down Payments in 2024

The landscape of home buying has evolved significantly, and this is particularly evident when examining down payment trends in 2024. The median down payment on a home in the U.S. during the first quarter of 2024 was $26,700, which represents about 8% of the median home purchase price at that time. This figure highlights a shift from the traditional 20% down payment that many prospective homeowners believe is necessary. The minimum down payment required for a mortgage can vary greatly, depending on the home’s cost and the type of mortgage.
Despite the belief that a 20% down payment is standard, many mortgages today allow for much smaller initial investments. Some loans require as little as 3% or 3.5%, and certain loans, like VA and USDA loans, have no minimum down payment requirements at all. As of May 2024, the median down payment rose to $60,202, which is about 15.6% of the median home sales price of $384,375 for that month. These variations underscore the importance of understanding the different mortgage options and their respective down payment requirements.
The funding for down payments often comes from a variety of sources. Common methods include personal savings, financial gifts or assistance from family, borrowing from retirement accounts, or selling investments. It’s also important to consider that down payment amounts can vary significantly based on location and the buyer’s age group. For instance, younger buyers, typically aged 25-33, tend to make smaller down payments, averaging around 10%, whereas older buyers aged 59-68 may put down as much as 22%.
While a larger down payment can reduce the amount you need to borrow and potentially lower your interest rates, it’s not always feasible or necessary to aim for the traditional 20%. Smaller down payments can still facilitate homeownership and help buyers avoid the ongoing costs of renting. Moreover, putting down less and entering the housing market sooner allows buyers to start building equity and enjoying the benefits of homeownership earlier. Every situation is unique so please complete our home purchase qualifier on our website and we help you choose the down payment strategy that best fits your needs and goals.

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What Is A Convertible ARM?

For first-time homebuyers considering their mortgage options, a convertible adjustable-rate mortgage (ARM) offers a compelling combination of lower initial interest rates and monthly payments, along with the flexibility to switch to a fixed-rate mortgage later. This option can be particularly attractive for those seeking initial affordability. However, understanding the specifics of a convertible ARM is crucial to determine if it aligns with your financial needs.
A convertible ARM is an adjustable-rate mortgage that includes a conversion clause, allowing borrowers to switch from an adjustable rate to a fixed rate without refinancing. This option usually becomes available after an initial fixed-rate period of five, seven, or ten years. While there is a small fee associated with this conversion, it can result in more stable and predictable monthly payments for the remainder of the loan term. This stability is advantageous for those who benefit from lower initial rates but prefer the certainty of fixed payments over time.
The operation of a convertible ARM involves an initial fixed-rate period, followed by adjustments at predetermined intervals based on market rates. Unlike a traditional ARM, where the interest rate can fluctuate significantly, a convertible ARM offers the option to lock in a fixed rate upon conversion, typically higher than the initial adjustable rate. This conversion can be a strategic move to avoid the potential risks of rising interest rates and increased monthly payments associated with traditional ARMs.
Ultimately, the choice to opt for a convertible ARM depends on your financial goals and your ability to manage potential rate changes. While the initial lower rates and payments provide an immediate benefit, the flexibility to convert to a fixed-rate mortgage without refinancing offers long-term stability, we recommend that you schedule a consultation with us on our website and we can see what loan program fits your needs.

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Market Watch: Rates Trending Down

Mortgage rates have seen a decline across the board this week, providing a glimmer of hope for prospective homebuyers. According to the latest data, rates for 30-year fixed, 15-year fixed, 5/1 adjustable-rate mortgages (ARMs), and jumbo loans have all dropped. This slight decrease offers some relief amidst the continuing challenges of high prices and elevated interest rates. Despite inflation cooling somewhat, homebuyers still face significant hurdles in the current market environment.

The Federal Reserve’s recent decision to hold off on changing interest rates at their June 12 meeting highlights the ongoing uncertainty in economic policy. The Fed’s stance of maintaining higher interest rates for an extended period appears increasingly untenable as consumer spending pulls back and economic indicators suggest potential rising unemployment. As the economic landscape evolves, there is speculation that a rate cut could be on the horizon, potentially as soon as later this year. This anticipation adds another layer of complexity for those trying to navigate the housing market.

Deciding to buy a home often transcends economic conditions and is deeply personal. For some, taking on a higher mortgage rate now with plans to refinance later might be a strategic move. This approach allows buyers to start building equity immediately rather than waiting for a potentially more favorable market. While today’s 30-year mortgage rate at 7.05% is slightly lower than last week’s 7.06%, it still means higher monthly payments. However, locking in a rate and starting the journey toward homeownership could outweigh the uncertainties of future market conditions.

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Jumbo vs. Conventional Loans

If you’re seeking financing for a home over a million dollars, chances are you have heard these options: jumbo loans and conventional loans. A conventional loan, typically offered by private lenders, is what most people think of when considering a mortgage — a fixed interest rate loan covering most of a home’s purchase price. While a jumbo loan technically falls under the conventional loan category, it is distinct in several key ways, particularly in the amount of money it allows you to borrow.

What Defines Jumbo and Conventional Loans?

A conventional loan is not backed by the federal government but instead originated, financed, and guaranteed by private lenders. These loans can be either conforming or nonconforming. Conforming loans meet the Federal Housing Finance Agency (FHFA) requirements, including loan size limits that vary by state and county. For 2024, the conforming loan limit is $766,550 in most areas, rising to $1,149,825 in high-cost areas. Conforming loans can be bought by Fannie Mae and Freddie Mac, reducing lenders’ risk. Jumbo loans, on the other hand, are nonconforming due to their size. They are necessary for purchasing high-priced homes exceeding conforming loan limits, allowing borrowers to secure larger amounts — often up to $3 million or more.

Comparing Jumbo and Conforming Loans

Though both jumbo and conforming loans are conventional, they have significant differences. Jumbo loans require a higher credit score (minimum 700) compared to conforming loans (minimum 620). The down payment for jumbo loans is also larger, typically 20-25%, while conforming loans may require as little as 3-5%. Debt-to-income (DTI) ratios for jumbo loans are stricter, and borrowers need substantial cash reserves, sometimes up to 12 months’ worth. Interest rates on jumbo loans are generally higher due to the increased risk to lenders, although competitive rates are still available, influenced by broader economic factors and individual financial profiles.

Choosing the Right Loan for You

Deciding between a jumbo and a conventional loan depends on your financial situation and home-buying goals. Jumbo loans are ideal for purchasing luxury homes or properties in high-cost areas, especially if you have a high income, excellent credit, and can afford a significant down payment. Conforming loans are better suited for moderate-priced homes within local loan limits, particularly if you have a lower income, less savings, and need a smaller down payment. Of course feel free to schedule a consultation with us on our website and we can help review the differences and requirements of each loan type will help you make an informed decision tailored to your specific needs.

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VA Loans – Pros and Cons

VA loans, backed by the U.S. Department of Veterans Affairs (VA), offer eligible active-duty military members, veterans, and surviving spouses a unique path to homeownership. These loans come with a variety of benefits, making them an attractive option for those who qualify. However, like any financial product, they also have their drawbacks. Understanding the pros and cons of VA loans can help potential borrowers make an informed decision.

One of the most significant advantages of a VA loan is that it requires no down payment. Unlike conventional mortgages that often demand at least 20 percent of the purchase price upfront, VA loans enable eligible borrowers to buy a home without any initial cash investment. This feature alone makes homeownership accessible to many who might otherwise struggle to save for a down payment. Additionally, VA loans do not require private mortgage insurance (PMI), which is typically mandatory for conventional loans with less than 20 percent down. This can result in substantial monthly savings for VA loan borrowers.

Another benefit of VA loans is the generally lower interest rates and fees compared to conventional loans. Lenders often offer more favorable terms to VA loan recipients, leading to long-term savings on interest. The VA also limits the amount that lenders can charge for origination fees, helping to keep closing costs manageable. Furthermore, VA loans come with more lenient qualification requirements, making it easier for individuals with lower credit scores or past financial difficulties to secure financing. The VA even provides convenient refinancing options, such as the Interest Rate Reduction Refinance Loan (IRRRL), which simplifies the process and reduces costs.

However, VA loans are not without their drawbacks. One notable disadvantage is the funding fee, which can range from 1.25 percent to 3.3 percent of the loan amount, depending on the borrower’s down payment and loan history. This fee can be financed into the loan, but it still increases the overall debt. Additionally, VA loans impose property restrictions, limiting purchases to primary residences and often excluding investment properties and certain types of housing like manufactured homes. Lastly, because VA loans typically require no down payment, borrowers start with less equity in their homes. This can be a risk if property values decline, potentially leaving homeowners owing more than their property is worth.

In conclusion, VA loans offer significant benefits, including no down payment, no mortgage insurance, and lower interest rates, making them an excellent choice for eligible borrowers. However, potential applicants should also consider the funding fee, property restrictions, and the slower equity buildup associated with these loans. If you are a veterans or active-duty service member we can help you decide if a VA loan is the best fit for their home financing needs.

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Mortgage Income Requirements Explained

From conventional to government loans, there are many types of mortgages to suit borrowers with varying credit scores and financial means. While there isn’t a standard baseline income to qualify for a mortgage, you’ll generally need enough income to repay the loan. Understanding how qualifying for a mortgage works and how your income can impact the decision is crucial for prospective homeowners.

There is no single, universal income requirement to qualify for a mortgage. It all depends on the amount you need to borrow, current interest rates, and the type of loan you’re applying for. Rather than requiring a specific amount of income, mortgage lenders review your credit and financial information to determine how much mortgage you qualify for and whether you can afford the monthly mortgage payment. Lenders evaluate your debt-to-income (DTI) ratio to determine these answers.

Your DTI ratio, also known as the “back-end” ratio, is a measure of gross monthly income against monthly debt payments. To calculate your DTI ratio, divide your monthly debt payments by your gross monthly income. While there’s no minimum income requirement for a mortgage, there are parameters around the DTI ratio that vary by loan type. For conventional loans, the DTI should be no more than 36 percent, but it can go up to 50 percent with compensating factors like a bigger down payment or higher credit score. FHA loans typically require a DTI of no more than 43 percent, while VA and USDA loans generally require a DTI of no more than 41 percent.

A low income doesn’t have to keep you from buying a house. Several loan options cater to low-income borrowers. Conventional loan programs like Fannie Mae’s HomeReady and Freddie Mac’s Home Possible offer mortgages with a minimum down payment of 3 percent. State Housing Finance Agency (HFA) loans often have low down payment requirements and provide closing cost or down payment assistance. FHA loans, insured by the Federal Housing Administration, have more lenient credit score and DTI ratio requirements. VA and USDA loans, which are government-guaranteed, have no down payment requirement for those who qualify. If you are in the market and aren’t sure how much you qualify for – just go to our website and fill out our purchase quick app and we can schedule a consultation.

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Buying A Home With All-Cash Or A Mortgage

As of March 2024, the National Association of Realtors reported that 28% of home purchases were made with all-cash offers. This significant portion of the market reflects a growing interest in forgoing traditional mortgage financing. However, the decision to pay in cash shouldn’t be made lightly. There are distinct advantages to all-cash acquisitions, yet there are also critical financial and strategic factors to consider before foregoing mortgage opportunities.

Advantages of Buying with Cash
One clear advantage of an all-cash purchase is the leverage it may provide in a competitive real estate market. Sellers often prefer cash offers because they promise a quicker and more secure transaction without the risk of buyer financing falling through. Additionally, cash buyers avoid many of the fees associated with obtaining a mortgage, such as origination fees and other lender charges, and they also sidestep the ongoing financial commitment of mortgage payments, potentially saving on long-term interest costs.

Financial Implications and Limitations
However, using cash for a home purchase also means a significant amount of money is tied up in one asset, which can restrict financial flexibility. The absence of a mortgage eliminates potential tax benefits associated with mortgage interest deductions, which can be significant for those in higher tax brackets. Furthermore, investing a large sum in a home could mean missed opportunities to invest that money elsewhere where it might generate higher returns, particularly in a strong stock market or other investment avenues.

Strategic Financial Considerations
When deciding whether to make a cash offer or pursue a mortgage, potential buyers should consider several factors. The nature of the local real estate market is crucial; in highly competitive areas, a cash offer might be necessary to secure a property. However, in markets where buyer competition is less intense, the benefits of retaining cash and opting for a mortgage might outweigh the advantages of an all-cash deal. It’s also essential for buyers to assess their overall financial picture, ensuring they maintain enough liquidity for other personal and financial obligations.

The choice between buying a home with cash or using a mortgage depends on personal financial situations and market dynamics. This decision should be approached with a comprehensive understanding of both the immediate and long-term financial impacts, balancing the appeal of a quick, uncomplicated purchase against the need for financial flexibility and diversification. Of course if you aren’t sure or would like us to crunch the numbers for unique needs – schedule a consultation on our website.

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