Saving for a mortgage is simple but not easy. For many looking to transition from Renter to Homeowner, saving for a down payment and closing costs seems an impossible hill to climb. Luckily, there are loan programs available now that make saving for a home much more manageable for the average American. Even with these programs, the prospective home buyer is expected to come up with at least 3.5% in down payment and around 4% for closing costs. For a $250,0000 home, that’s $18,750 in down payment and closing costs. So, how do we get there? Again, it’s simple but not easy. Saving for a home is exactly that -- saving. We all know what it means but so many of us struggle to put it into practice.
First, decide where you will put the money you’re saving and don’t touch it. Pretend that this money doesn’t exist. If your bank allows you to split up money in different pools or sub-accounts, do that. If not, try setting up a separate savings account. Whether it’s with your current bank or a different one, the idea is to make it harder to touch the money. If it takes a few days for transfers to be completed, you’ll be less likely to dip into your savings for impulse buys.
Ready for the hard part? Next, cut down your monthly debts. There are online subscriptions for everything, all of which are great for silently draining your bank account. Decide which ones are absolutely necessary, cancel the others, and reroute that money to your new savings account. If you have a car payment that takes a significant portion of your monthly income, consider trading it in for one with a lower payment. Credit cards are great for things like gas and groceries but not for unnecessary purchases. Be sure to keep your balance under ⅓ of your credit limit -- this will build your credit score and help you get a better interest rate on your future mortgage. One thing that many of us have learned to do in the past year is cooking at home. If you’re included in that group, you’ve probably noticed the impact it has had on your bank account. Keep it up! Come up with a few staple recipes that use similar ingredients and are easy to prepare. Buying in bulk is usually cheaper. Although the savings per purchase are small, they’ll add up over the course of a few months.
Here’s some good news: the habits you’ll develop to save for your home are the same ones you’ll need to actually get approved! There are plenty of people who have enough money saved for both a down payment and the closing costs but, because of their recurring monthly debts, they don’t qualify for the home they want. Saving is a decision to shift your mindset. It takes some discipline and creativity but once you start building the habit, the monthly savings will snowball and you’ll be shopping for your new home in no time!
You may have recently heard that the Fed announced that they think the Fed Funds Rate will remain at zero through at least 2023.
First and foremost, the Fed Funds Rate and Mortgage Rates are two totally different instruments. The Fed Funds Rate can change from one day to another, but a Mortgage Rate may be in effect for over 30 years.
Mortgage Rates will be affected by inflation because inflation erodes the buying power of the fixed return that a mortgage holder receives. And interestingly, the best way to combat inflation is by raising the Fed Funds Rate. If inflation begins to rise, and there are already some signs of this, Mortgage Rates will start to climb in response. All this can occur while the Fed Funds Rate is at zero.
If you would like to see an example of this, look no further then what transpired a few years ago when Mortgage Rates rose nearly 1%, while the Fed Funds Rate remained at zero.
The current rate environment presents an incredible opportunity that should be taken advantage of. Looking to take advantage of low rates before things change? Connect with us today.
Ask 10 different mortgage experts what the future of 30-year fixed rates looks like, and you'll get 10 different answers. From the latest deadly virus to the uncertain trajectory of the US political climate, there seems to be an endless list of potential causes for our inevitable economic doom. Rates have been under 4% since June 2019, but since we aren't certain which straw will break the proverbial camel's back, let's focus on what we know -- rates are LOW. What does this mean for the average homeowner? Refinance.
Cash-out, or rate-and-term -- What's the Difference?
Cash-Out refinances allow you to trade your home equity for cash. At closing, your existing mortgage is paid off, the closing costs are paid, and the remaining funds are given to the borrower. Common uses for cash-out refinances include:
paying off student loan debt
paying off high-interest debt, such as credit cards, car loans, etc.
much needed vacation
One thing to remember about cash-out refinances is that it is not free money. For all intents and purposes, you're borrowing money from yourself in order to make a purchase or pay off debt.
Rate-and-term refinances allows borrowers to replace an existing mortgage with one that has a lower rate or more favorable term. Rate-and-terms are most often used by borrowers who have owned their home for more than a year however, sometimes plans change and borrowers refinance as soon as six months after their purchase. Has your home increased in value since you've bought it? You may be sitting on more equity than you think; a rate-and-term refi might allow you to get rid of that Mortgage Insurance payment!
A common question when talking to potential borrowers about refinancing is, "Have you lived in your home for more than a year?" This gives us a better idea as to what their current rate might be or how much equity they may have. After all, we wouldn't want you to go through the whole process of refinancing if it will end up costing you money in the long run!
Whether you've got debt that needs to be paid off or just a fear of missing out on the low rates, I encourage you to speak with your local Sovereign Mortgage loan originator. Save yourself time, money, and future headaches by speaking with a mortgage professional about your home loan options.