Experts are saying that if you are in the market to buy a home or refinance you should do it; however, there are many factors that preclude some folks from buying, trading up or refinancing. Not so long ago, buyers could walk into a bank and pretty much get 100 percent financing, or even get some cash out after getting a second mortgage.
Times have certainly changed and now borrowers need an almost perfect credit plus a sizable down payment or equity to get considered. Not only that, banks and mortgage companies don’t have the flexibility they used to have in the past. They have to play by the new stringent rules and fees established by Freddie Mack, Fannie Mae and the industry in general.
The reality is that with all these new rules, fewer borrowers qualify.
Interest rates depend on risk assessment. The best indicator for this are credit scores, which reward those with a 680 score or higher with a lower interest rate. In fact any borrower with a score of less than 600 raises eyebrows, something unheard of three years ago.
Borrowers with a healthy down payment or over twenty percent equity of the current home may have bargaining power with a lender.
Most equity cash-out programs are almost prohibitive, and of course, 100 percent financing is no longer an option, unless the property happens to fall into the Rural Development program.
Just in case you haven’t heard, the federal government tax credit for first-time buyers was extended and new homeowners could get up to $8,000 income credit for their first purchase. In addition, folks that moved to a more expensive home could get a tax credit up to $6,500. These incentives are welcomed and hoped to ignite the real estate industry sooner than later.
The Mortgage Bankers Association claims that over half of all the mortgage applicants are seeking refinancing, which is in line with what the current market conditions as rates could very well be as low as they are going to get for a while.
In order to calculate whether a refinance transaction is worthwhile, borrowers need to consider all refinance costs, and compute the savings that a refinance will generate versus how long the borrowers plan to stay at their current location to reach the break-even point.
Needless to say, if the borrowers don’t plan on stay too long, then the refinance costs will be pretty hard to recover.
If borrowers don’t opt for the refinance then there are other options, such as shortening the term of their current mortgage to 10, 15, or even 20 years. The interest saved over the life of the mortgage is a respectable amount.
Another group of borrowers that have taken advantage of the low ARM interest rates may consider locking into current mortgage rates, even if it means a higher monthly payment.
Adjustable Rate Mortgages are partially to blame for the recent state of the real estate industry, as many borrowers were barely meeting those monthly payments.
Many economists agree with this as they foresee an inevitably interest rate increase in the next couple of years. Unfortunately this event could stress the mortgage industry further, with yet another rush of foreclosures for all those borrowers still holding on to their ARM mortgages.
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