Renting vs Buying

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As with any major purchase, it pays to be informed prior to making any decisions. As experienced buyers already know, buying a home is a complicated process, so it’s important to start at the beginning and thoroughly understand each step. Whether you’re buying your first home or your third, make sure you have the necessary financial resources and have explored all your options before you purchase a new home.

If you’re a first-time buyer, you should weigh the pros and cons of homeownership versus renting. There are many advantages and disadvantages to consider. For example, renters have the freedom of mobility if they choose to move, but their monthly rent checks do not establish long-term equity or produce any other benefits. And while homeowners’ mortgage payments accumulate equity, these payments are generally higher than rent payments and come with the responsibility to manage the care and upkeep of the property.

Both new and experienced buyers have their own sets of financial considerations when it comes to buying a home. Move-up buyers should evaluate their financial situation to ensure they’re prepared to meet the higher mortgage payments involved with relocating. Likewise, first-time buyers should determine if monthly mortgage payments fit in their budgets. In addition, you’ll need to be prepared to cover the downpayment and closing costs. And, you should consider whether you meet the basic criteria to qualify for a mortgage; lenders prefer that applicants offer a stable job history and a good credit record.

The numbers don’t lie! Here’s a comparison chart you can use to calculate what benefits you at this point, renting or buying. Renting or Buying Chart.

 

Source: http://www.modernorealty.com/2017/01/25/renting-vs-buying/ 

 

How to lower your mortgage rate when buying a home

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Mortgage rates took a big leap after the presidential election and are continuing to move higher. Demand for homes is strong, but home prices are hitting new highs and affordability is weakening.

For the average buyer who was thinking about getting into a new home last summer, but didn’t, the monthly payment on that same home is now considerably higher. There is, however, a way to lower it by buying down the rate.

“Buying your rate down, or ‘paying points,’ means you’re paying an extra fee on top of standard loan fees like appraisal, underwriting and a credit report to get a lower rate.

Of course that means you have to have more cash upfront. The math isn’t as complicated as it seems. First, a “point” is 1 percent of the amount of your loan, so if you are taking out a $200,000 mortgage, 1 point would be $2,000. Lenders will lower your rate if you pay that point at closing, or, at the start of the loan.

“If you were getting a 30-year fixed loan of $325,000, you might get two options with and without points. Today the option with zero points might show the rate as 4.25 percent, and the option with 1 percent in points – equal to $3,250 – might show the rate as 4 percent,” said Hebron. “Paying $3,250 at closing to lower your rate by .25 percent lowers your payment $42 per month, and lowers your interest cost $68 per month.”

How do you know if you should buy down the mortgage? It’s all about time – how long you expect to be in the home and have that same mortgage. What is the savings? Here comes more math – this time from Matt Weaver, vice president of sales at Finance of America Mortgage.

“We can calculate this figure by taking the dollar value of the buy down and dividing it by the monthly savings from the lower interest rate, then dividing that figure by 12 months. So as an example, let’s say a homebuyer will need to pay $2,000 in buy down to generate $30.00/month in savings. If we divide $2,000.00/$30.00, we would conclude it would take 66.7 months, or 5.5 years, to recoup the cost of the buy down – now you can ask yourself, ‘Do I reasonably foresee myself staying in this home for at least 5.5 years?’ in order to truly capture the return on your investment,” explained Weaver.

Sounds simple, if you have the cash and the time, but buying down a mortgage, as with everything else in housing, carries some risk.

“As they say, ‘A dollar in the present is worth more than a dollar in the future.’ The risk with the uncertainty in length of ownership coupled with the possible need of that same cash for any unforeseen expenses poses a risk for homebuyers considering a buy down,” said Weaver. “The buy-down strategy can be worthwhile with a longer-term view in mind, longer term being defined as seven years or greater.”

The benefits can also vary lender to lender. Shopping for the best rate is always a good plan but even more important when you’re looking to buy down.

“The break-even time on buying down varies from lender to lender and from rate to rate, generally in a range of five-10 years. Look at different combinations of rates and upfront costs side-by-side and see which makes the most sense for you,” suggested Matthew Graham, chief operating officer of Mortgage News Daily. “Heads-up: Some lenders with stricter interpretations of recent regulatory changes no longer allow this flexibility.”

If you really don’t see yourself in the home for more than seven years, or even 10, you might want to consider an adjustable-rate mortgage (ARM). These carry much lower interest rates and can be fixed for five, seven, 10, even 15 years. They were vilified during the housing crash because so many people took them out and then couldn’t afford the payments when they adjusted, but the ARMs of today are not those of years past.

One more thing to consider is the rate itself. Mortgage rates are rising, but they are still near historic lows. If you are really on the edge of homeownership, perhaps you’re a young first-time buyer, then buying down the rate is probably not for you. The odds are you’re going to want to be more mobile, and staying in the home for seven years is longer than it sounds. Bailing out of the home before you expected is a real risk.

“The other risk of buying down your rate is that rates drop after you do so,” cautioned Hebron. “For now that risk is low. The Mortgage Bankers Association is predicting that rates will rise about .375 percent from current levels during 2017.”

While rates are expected to rise, the experts have been wrong before. Rates could just as easily come down and credit availability could loosen up, depending on how the new administration tackles mortgage reform. Rates are also sensitive to global financial markets, which are always a wild card, and especially so now.

Source: Dian Olick-CNBC Real Estate Reporter

http://www.cnbc.com/2016/12/29/rising-mortgage-rates-making-you-nervous-heres-how-to-lower-yours.html

 

How to save your credit through the holidays while buying a home.

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We’re roughly one month away from the beginning of the busiest shopping season of the year. Millions of people will descend on shopping malls and retail websites to buy holiday presents. And while credit scores are not likely at the top of any gift-givers’ priority lists, you’d be surprised just how active those scores might be.

First and foremost, if you apply for a new credit card or higher spending limits on existing cards for the holiday season, the card issuers will probably request your credit score from one or more of the national credit reporting companies (CRCs), Equifax, Experian and TransUnion. The same is true if a new car is on your shopping list or if you choose to open a store credit card account. Just as they would at any other time of year, those score inquiries from lenders can cause a dip in your credit score.

The shopping-season strategy here is twofold: You want to maximize your score before applying for this holiday-related credit, and you want to avoid having these holiday loans lower your score in advance of any major borrowing you may be planning in the early months of the new year.

Since you want to get the best available borrowing terms on any new loans you seek for the holidays, you should try to get your credit score as high as possible before applying for credit. Ideally that means you’ve got your outstanding card balances as close to zero as possible and at 30 percent or less of their spending limits. Ideally, it also means you’ve allowed a few months of timely payments to pass since the last time you applied for credit, since inquiry-related score drops typically rebound within a few months, as long as you continue making your payments on time.

Conversely, if you plan to seek major loans in the spring (e.g., if you’re considering a new home or car purchase in spring or early summer), be aware that your holiday-season borrowing could keep your credit score from being in peak condition when you apply for those loans.

So, what do you do? There are several ways you can protect your scores during the holiday season to avoid any inadvertent negative score impact.

Credit scoring systems will consider and potentially penalize you if you have too much credit card debt appearing on your credit report, so the goal is to prevent holiday debt from showing up on your credit reports. Here’s how:

Any part of a new outstanding balance that you pay off before it appears on your monthly statement will never appear on your credit reports. So log in to your credit card account and make a payment before the Statement Closing Date, which is almost always exactly 21 days before your due date. If you do this routinely, you can get the convenience and safety of using credit cards for holiday shopping without hurting your credit score.

If you start using that trick before the holidays, you’ll be rewarded with a higher credit score in the new year. Think of it as an early resolution.

Source: Vantage Score

 

Link: http://www.modernorealty.com/2016/11/01/how-to-save-your-credit-through-the-holidays-when-buying-a-home/