First Stop 4 Home Loans

It’s all over the news that rates are at RECORD lows, again!  How lucky can we be?  If you’re looking to buy a home, especially your FIRST home, it’s a great time to consider doing it. 

But, buying a home “just because” the rates are low isn’t a good reason to purchase and some people, frankly, aren’t cut out to be home-owners.  You need to know the time is right for YOU!

The chart below demonstrates where rates have been.  Current 30 year fixed rates are at least 1% LOWER than the low years or 2009 and 2010.  Take that to the bank!

What about the first time buyer programs?  Yup, their rates are soooo low, it’s crazy.   Here is a summary of the most common programs and the rates for the 30-year fixed:
-Dakota County - for homes in Dakota County – 3.75% with up to $10,000 in assistance*
-City Living - for homes in the CITIES of Minneapolis and St. Paul – 3.99% with up to $10,000** or 2.5% of the loan amount toward assistance
-MN Housing – ALL of Minnesota – 3.625% with no assistance or 4% with $4500 in assistance*

Yippee — great rates — what does that mean to you, other than bragging rights over your parents’ rate when they bought their first home?? It means more buying power. For example — let’s say you qualify for a $1500 PITI payment (principal, interest, taxes and insurance), of which $1200 is just the principal and interest. With a rate of 4%, you’d be looking at financing about $250,000 — if the rate were 1% higher, your buying power drops by $25,000.

A better way to look at this … buy a home that’s $25,000 less and have a lower payment by about $130. THAT sounds like a better idea, especially since home prices are in YOUR favor.

NUTSHELL — if now IS the time for YOU to buy, then by all means take the plunge. Make sure you’re working with a lender with experience (like my 17 years) and one that knows and practices the first time buyer programs (in my sleep!). I am here and happy to help!

*Assistance and qualification for program is based on total household income and possibly other parameters set by the program
**Special program with St. Paul based on total household income, as well foreclosure status

The past few years have been sensational with first time buyer programs and rates. Recently, a few of the popular programs REDUCED their rates again, making this an even better time to “go all in!”

MN Housing, a program that is well known throughout the Minnesota area, has got a few programs. One of their programs offers no assistance, BUT, a low rate of 4.125%* That is incredible!  And, if you want, or qualify for, down payment assistance, you could be looking at 4.5%. All of these rates are subject to change, are 30-year fixed terms and have NO pre-payment penalty!  Keep in mind, they do have a recapture tax, which all subsidized bond programs have.  Don’t let this scare you though … most people don’t have to worry about this when they sell.

Another great change occured with the City Living Program. This is the program availalbe to homes in the cities of Minneapolis and St. Paul. They reduced their rate to 4.25% AND increased their down payment assistance from 2% of the loan amount up to 2.5%! Plus, you may be eligible for funds in certain neighborhoods making the pot even sweeeter!

The Dakota County program also dropped their rate — so 4.35%. They offer 3 different tiers of assistance depending on your household income. And speaking of household income — all the programs have adjusted these limits down just a tad, so please inquire if you’re interested in pursuing one of the programs.

Remember, you’re only a first time buyer once and if you can take advantage of a special program to reduce your rate and possibly help with costs, do it!!!
*Assumes an FHA or VA loan

For almost a year, we have been at historically low interest rates.  With 30-year fixed rates under 4.5% and 15-year rates under 4.25%, it’s no wonder people are refinancing their homes or buying new homes.  Though what is surprising is that there aren’t MORE people taking advantage of this. 

Rates are Grrrreat!

For the first-time buyer, the special programs have had LOWER-THAN-MARKET interest rates.  Not only do they offer these competitive rates, most have an option to get down-payment assistance.  The down-payment assistance, in most instances, is actually a second loan that is placed against the home.  The assistance is a zero-interest loan with no payments.  Because it’s a lien on the home, it must be paid when you either sell the home or refinance.  It will be due to a sale since there will be NO reason for you to refinance your loan, ever.  Rates are just too low.

So what about the first-time program rates?  Below is a listing of a few of the most popular programs and what their current interest rates are.  Please keep in mind, these rates are as of this post date and are subject to change at any time.  This is more to show you just how crazy-low rates are.  And yes, these are all 30-year fixed rates, no additional points being charged and no pre-payment penalties.

• Dakota County Bond:  for homes in the Dakota County area — 4.25% — FHA or VA loan
• City Living:  for homes in the city limits of St. Paul and Minneapolis — 4.25% with assistance or 3.99% with no assistance — FHA or VA
• MN Housing:  available in the 11-county metro area — 3.75% (FHA/VA) with no assistance up to 4.5% (conventional) with NO down payment and NO PMI (private mortgage insurance)

A few of these programs can also be used in combination with the FHA 203K rehab loans.  A great way to get into a home that may need some work or that may NOT meet FHA guidelines.  All of these programs have special requirements for owner-occupancy, household income limits and sales price limits.  Feel free to contact me with further questions or to see if you qualify for one of these great programs!

A quick look at the rates today for the MN Housing programs sent us all into an uproar at the office.  MN Housing is quoting 3.75%* for a government 30 year (yes, 30 years, not 15), fixed rate.  This is for their MMP program which doesn’t require the 8-hour Homestretch class, offers no down payment assistance, but DOES offer a great rate.  And when I say great rate, I mean “out-of-this-world-I-can’t-believe-it’s-not-an-adjustable-rate-Macaulay-Culkin-shocked-look” rate.  This is off the charts.  Who would have guessed we would not only see rates this low, BUT, see them on the special first time buyer programs?  Certainly not me!!

Let’s look at some figures using a loan amount of $150,000 (these estimates do NOT include taxes, insurance, mortgage insurance or dues):

• Rate:  3.75%**
• Principal and interest:  $695
• Total interest over 30 years:  $100,042

Compare this to the rate prior to 4 PM today …

• Rate:  4.25%**
• Principal and interest:  $738
• Total interest over 30 years:  $115647

So, the monthy savings is just $43/month, which means $516 a year.  Okay, so not really a HUGE difference; BUT, check out the 30 year savings in interest — over $15,000.  That’s just crazy!  You could take that $43/mo and add another $6000 or so to your purchase price.  That may be worth it just to get into another price bracket.

So what about the zero down payment program?  That rate came down too — also by 1/2%  — from 5% to 4.5%**  Remember, this program’s primary benefit, other than NO down payment, is that there is no private mortgage insurance (PMI).  A regular 30 year right now is about 4.5% or less without using a first time program.  Well, if you had less than 20% down, you would be required to have PMI.  On the above $150,000 loan the PMI would be about $65 in  your payment, eating away at what you could afford.

We are in some crazy times right now, but I cannot say it enough — NOW IS THE TIME to buy a home.  There hasn’t been, and will probably never be, another time in our lifetime to have so many benefits — low rates, low home prices and many special first time buyer programs just waiting to help you get into your first home.  Let me be the one to do that too!

*Rates are subject to change without notice.  This is not an offer to enter into an agreement.  **Assuming 5 days of interest on a $150,000 loan amount, the APR for these rates are 3.899%, 4.403% and 4.656% respectively

This is a common question now that rates have fallen to the lowest levels in well over 40 years.  This means you can get, as of today, rates around 4.5% for a 30-year fixed rate — WOW!  It would appear that everyone who has a mortgage should refinance because if you can get a lower rate, why wouldn’t you?  In some instances, I would agree; but, the answer is in the numbers.

Currently, I am telling all clients that there will be NO reason for them to refinance.  It won’t make financial sense; their rate is just too low.  As a homeowner, you may get solicitations to refinance because mortgages are public record.  Thing is, the lender doesn’t know your specifics, nor do they have your best interest in mind.  My current clients, from the last year or so,  know I won’t call them to refinance since I DO care whether they do the right thing.

So when does it make sense?  One general rule of thumb is the new rate should be more than 1% lower than your current rate.  This isn’t true for all people though.  If what you owe is less than $150,000, you may need the rate to be closer to 1 1/2% – 2% lower.  And if your loan is less than $100,000, I would say it almost never makes sense to refinance.  You’re better off making principal payments.

Why though?  Since you’re taking out a new loan, you will have origination charges along with all the fees involved with a new loan — title company fees, setting up your escrow account and county fees.  Sure, you may hear that there are no closing cost refinances, but I am here to say nothing is free.  Your charges are either added to your loan, covered with a higher interest rate or being paid out of pocket by you or a combination thereof.  It’s time to run numbers!

To get a true sense if a refinance is a sound financial decision, you’ll want to gather the following information:

• approximate value of your home (tax assessed values are actually higher than current values)
• your current loan balance(s) on any first, second or home equity lines of credit
• your current loan rate(s)
• annual property taxes
• annual homeowner’s insurance if a single family home
• current principal and interest payment
• your goals — reduce rate, take cash out, etc.
• type of loan, i.e. fixed rate, term or ARM
• occupancy of the home, i.e. owner occupied, second home or investment property

These will enable me to run figures and determine the “payback” time frame.  I recently had a past client do a refinance.  They were saving $200/month.  That’s a lot of money!  Their costs were about $4400 which covered lender fees, title charges and county charges.  Setting up the escrow is not figured into this equation.  Escrows are pre-paid expenses that cover future payments of taxes and insurance.  My client would pay for these regardless of refinancing or not. 

Anyway, the calculation I run is based on the savings per year – $2400 – divided by the costs of $4400.  He’s going to re-coup these fees in 1.8 years, so under two.  This is the second rule of thumb.  If it takes longer than two years to recoup the costs, then refinancing may not be the right move.  Now, going to a shorter term or going from an Adjustable Rate Mortgage (ARM) to a fixed may make sense even if the time-frame to recoup is higher.  Biggest question here … how long will you be in the home?  Though we never really know the answer, it will certainly help guide the financial soundness of the refinance.

For those of you with second loans or home values close to or  than what you owe, refinancing may just NOT be an option, regardless of the savings.  Long and short — “maybe” is the answer to the title question.  It’s not right for everyone.  And when you work with me, I will make sure you know whether it’s right for you or not.  I would rather give you the straight scoop than have you upset that you did something you should not have.  

Send me the answers to the bulleted items above.  Let’s see if refinancing IS right for you!!