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Should you buy down your interest rate?

Should You Buy Down Your Mortgage Interest Rate?

Rising interest rates can be a major concern if you’re shopping for a new home. A higher rate reduces your buying power and increases the home cost thousands of dollars over the course of the loan. One option to avoid this is to “buy down” your loan rate. This allows you to purchase your home at a more attractive rate.

A rate buydown is when you pay an upfront fee in exchange for a lower interest rate. This increases your closing costs and for every 1% of the purchase price you pay in points, your mortgage interest rate is reduced. Buying a lower interest rate may be a good strategy for a home you intend to keep for a long time, thus making up the difference over the life of the loan.

There are a couple options for a rate buydown. The first is a simple payment of increased closing costs up front in exchange for a lower interest rate. The buydown lasts for as long as you have the loan and is requested by the buyer.

The second is a temporary buydown often initiated by a homebuilder or lender to incentivize a purchase. In this case, the buydown is for a set period, two or three years, and then the rate will return to the higher rate if the borrower does not refinance. This strategy is a good one for a starter home or if one believes the interest rates will be lower in a few years.

Utilizing a buydown as part of your loan origination can be a smart way to save money and maximize your purchasing power. It’s important to recognize the breakeven point, however, so that you know when you have started gaining money on the plan.

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Should I Pay to Lock in my Interest Rate or No?

Rising Interest Rates – Should I Lock in the Mortgage Rate?

One of the most important financial considerations of buying a new home is the interest rate paid on the mortgage. Over time, a higher interest rate can add thousands of dollars to the true cost of buying the home. When interest rates are low or steady buyers have greater confidence that they will get a favorable rate when they go to secure the loan, but in our current environment of rising interest rates, many lenders are suggesting a rate lock at the time of pre-approval.

What is a Mortgage Rate Lock?

A rate lock freezes the interest rate on a mortgage for a period of time before the close of the loan. Typically lasting for 30-60 days, the lender guarantees the rate will not change during this period for a fee that is paid when you agree to the loan terms.

A mortgage lock protects the borrower from rising interest rates while the loan is processed and approved.

When should you lock in a Mortgage Rate?

Lenders will offer to lock in the rate at the time of loan approval. With escrow periods of 30-60 days, the lock assures the buyer that their rate will not increase during the time it takes to complete the loan process.

In a period of rising interest rates, as we see today, locking the rate may be a smart idea. The borrower will pay a higher fee for the lock, as the lender is also taking a risk, but it could be worth thousands of saved dollars over the life of the loan. Even a small increase in the interest rate can have a huge financial impact.

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Special Benefits of the VA Loan

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Our military veterans have given so much to this country. To make it easier for these special families to qualify for and purchase a home, Veteran Affairs has a unique loan offer reserved only for retired and active military.

The VA loan offers mortgage options unavailable to the general public.

• No Down Payment – While zero down loans disappeared in the real estate bubble of the last decade, VA loans allow our military to buy a house without the stress of trying to save the down payment.

• Easier to Qualify – Most loans require a credit score of 650 or higher. Qualifying for a VA loan only requires a FICO score of 620.

• No PMI – PMI (private mortgage insurance) is required for any loan where the loan-to-value falls below 80%.

• Limits on Fees – VA borrowers are protected by strict limits to fees and closing costs. Lenders financing a VA loan cannot charge more than 1% for loan costs whereas typical financing can run as high as 2.4–3%.

• Appraisal Assistance – At times homebuyers run into problems when the appraisal does come back high enough to purchase the home at the agreed-upon price. When this happens, the VA can help by diligently reviewing the report and comparable properties and then asking the lender to adjust the appraisal if it determines that the value is not accurate.

The VA loan is a special loan program offered only to our active and retired military. These families have sacrificed so much for their country, the VA loan might be the only way these families can buy a home of their own.

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