Tag Archives: interest rates

The 3 Biggest Mistakes First Time HomeBuyers Make

mortgage

Shopping for a home the first time can be scary: Scouring the market, negotiating the best deal and navigating the fine print is enough to overwhelm any new homebuyer.

If you’re in the market for a new home, check out the results of LendingTree.com‘s poll of major lenders. They’ve identified the three biggest mistakes first-time homebuyers make – along with some essential tips on overcoming them. Happy house hunting!

Mistake # 1: Shopping for a home without a pre-approved loan

Without a pre-approved home loan, most sellers won’t give you the time of day. Many experienced real estate agents will ask you to get pre-approved (or at the very least, get pre-qualified) with a mortgage lender before they’ll take you shopping. It saves time and helps them weed out the dreamers  from real prospective buyers.

But there’s something in it for you, too: It helps you avoid the experience of falling in love with a home, opening escrow, only to then find out you can’t get financing.

Finally, a pre-approved mortgage is almost like paying cash. Bbeing able to say, “I have loan approval and can close in 30 days” puts you in a stronger bargaining position.

o   TIP: You probably don’t want to advertise to home sellers exactly how much your lender will let you spend. When making an offer, ask your loan officer for a custom letter. If you’re approved for a $400,000 purchase and a $320,000 mortgage, but you’re offering $300,000, your letter should probably say that you’re approved for a $300,000 purchase with a $240,000 mortgage.

Mistake #2: Ignoring first-time buyer programs

Home ownership is such a big deal in the US, that there are tons of organizations and programs designed to help you buy. Ignoring these opportunities can cost you a lot of money. Here is just some of what you might be missing:

o   Down payment assistance (low-interest loans or outright gifts of cash to buy a home).

o   Mortgage Credit Certificates (mortgage interest subsidies through local governments).

o   Revitalization programs (grants for buying homes in areas under redevelopment).

o   HUD homes ($100 down and 50% discounts for first responders, nurses and teachers).

TIP: Most first-time home buyer programs define “first-timer” as someone who has not had an ownership interest in real property in at least three years.

Mistake #3: Only considering 30-year “fixed” rate mortgages

With mortgage rates currently near historic lows, it’s understandable that many want to lock in the low rates via a fixed mortgage. But 30-year fixed rate mortgages aren’t the only home loans to consider. For many first-time home buyers, hybrid adjustable-rate mortgages providing a fixed rate for only a specified number of years may actually be a better choice.

According to the National Association of Realtors, younger home buyers and first-time owners tend to sell and move much sooner than older or repeat buyers. Chances are you’ll pay probably pay more money for a 30-year mortgage, but only get five or seven years out of it.

o   TIP: If you’re considering a larger mortgage (a jumbo or super-jumbo), it makes even more sense to test drive the hybrids. The difference between the hybrid rates and the 30-year rates can be even more than it is with smaller conforming loans.

 

 

Interest Rates Are Rising! Here’s What You Need to Do Now

interest rateThose of us with savings accounts know where interest rates have been in recent years: Nowhere. But the historically low rates used by the Fed to help stimulate lending and borrowing (and by extension, the entire economy) are very likely to rise soon. In some sectors, such as housing, mortgage rates have already doubled in recent months. Here’s what you need to do now to position yourself for rising rates:

Check Your Current Interest Rates

Find out what you’re paying on private student loans, car notes, mortgages, and so forth, because if any of these are variable, that rate will almost certainly rise in the coming months. Now’s the time to switch to a fixed loan if you can, or re-allocate additional funds in your budget toward debt servicing if you can’t. Rising interest rates make loans more expensive to re-pay, so act now to re-finance, if possible. In the case of variable rate mortgages (whose rates are already increasing rapidly), you should have acted yesterday, so get moving!

Re-Think Savings & Money Market Accounts

My “high yield” savings account has been paying me less than 0.8% interest – and I’ve gladly taken it, because safe sources of yield have been hard to come by in recent years. But many investors have shunned savings and money market accounts and CDs in search of better returns elsewhere. If you’ve been reluctant to hold cash because of low yields, it may be time to re-consider. (Who remembers the pre-recession days when such accounts yielded four or five percent?) Rising interest rates will provide you with better returns and a safer environment for your funds. That’s of real benefit if you’re expecting to make higher payments on variable-rate loans — or if you just plain want more money in the bank.

Bond Market Malaise

Rising interest rates mean a decline in the value of bonds (these move inversely), so the recent suggestion that the Fed might ease back on its bond purchases some time later this year has caused a mass sell-off in the asset class. Depending upon your investing style, this may be the time to re-consider your bond holdings. Some experts believe the worst is yet to come and are encouraging a complete departure, while others think the demand for bonds will re-surface as banks, major companies and government entities seek new purchases to roll-over older debt. They see this dip as a buying opportunity. Either way, one thing’s for sure: Bonds are likely to suffer in the coming weeks and months. Consider positioning yourself accordingly as you see fit.

Potential Five Ten Twenty Club Savings Example:

Let’s say you have a $10,000 savings account that is currently earning 0.5% interest (and that you don’t add a single penny to it). If rates return to their pre-recession levels of about 4%, you’d be earning eight times as much interest! Such a dramatic rise is unlikely in the near-term, however, so let’s focus on a more realistic new rate of about 2%.

Total Savings With 1-Year Interest Gains: $10,200 (vs. $10,050 at current rates)

Total Savings After 10 Years: $12,190 (vs. $10,500 at current rates)

Total Savings After 35 Years: $20,000 (vs. $11,900 at current rates)

..And, if rates do rise to 4% again, you’d have almost $40,000 after 35 years!

What interest rate are you earning on your savings account(s)? Have you started looking at whether your interest rates are variable or fixed? What do you plan to do next? Share your story in the comments below or in our Community Forum!

Disclaimer: This post is for your consideration only and should not be taken as actual financial advice. Please consider consulting a financial management professional before modifying your investments.