If you are planning to buy a home in the near future, you may be concerned by talk of rising interest rates. Perhaps you worry that the higher rates will force you to settle for less than your ideal home or may even affect your ability to buy a home. But just how important are interest rates? How closely should you follow them as you start the home buying process?
Should Interest Rates Be Considered When Choosing between Lenders?
If you are shopping around for a lender, you may see different advertised interest rates. Before you start comparison shopping based on these numbers, consider the following:
Most differences in mortgage rates will be minimal, usually one-eighth or one-quarter of a percentage point. This difference will not have a significant impact on your monthly payments. Although your rate and monthly payment is most certainly a large factor in which lender you choose, it is also important to focus on the level of service they can provide. You should look at how knowledgeable they are on new laws and regulations regarding home loans and ask about the speed of the process before making your final decision. Being delayed several months in closing may ultimately be more detrimental than paying a fraction of a point in rate.
In many cases, the advertised rate is not what you will be paying. It may be the best rate that is offered, while the actual rate will be affected by the specific loan program you choose, your credit and other factors.
Where Should You Focus?
Of course, Annual Percentage Rate (APR) matters and is one of the most important drivers of the monthly payment. But, when shopping for a lender, you should also focus on quality service. Here are some things to evaluate when choosing your lender.
• The lender’s reputation
• Ability to provide guidance for a smooth transaction
• Other costs, such as points, fees and APR (see below)
Points, often known as discount points, are defined as interest that is prepaid to the lender at closing, which generally reduces the interest rate and lowers the monthly payment. Generally, one point is equal to one percent of the loan amount. For instance, on a $200,000 loan, you would pay $2,000 to reduce the interest rate by one percentage point.
You may have to pay other fees to process the loan. Some of them are standard, such as title insurance and appraisal fees, while others may vary by lender. All lenders are required to provide what is known as a “good faith estimate” or a document that includes the interest rate, lender fees, title charges, pre-paid interest and mortgage insurance. Although this document only provides an estimate, it allows you to compare lenders and their anticipated costs associated with getting a mortgage.
Annual Percentage Rate (APR)
The APR includes discount points, lender fees and mortgage insurance, if required. It will be slightly higher than the nominal interest rate for a loan, in most cases.
A beautiful piece of art isn't just memorable – in real estate, an attractive exterior can make or break a home sale. Here are some of the best tips on creating a sparkling outside that beckons potential buyers inside.
Curb Appeal starts online.
Since 88 percent of homebuyers begin the process on the Web, fabulous photos are critical to getting homebuyers to the front door. Find the best time of day to shoot each room, avoiding too much sunlight, which will give the photo a glow effect. Overcast days are often the best time for a photo shoot. Take a digital shot and examine it as if you were a buyer, and get rid of extras – Kid toys on the front porch, appliances scattered across a kitchen counter – things that don't show your home at its best
Act like a Buyer
Walk around your entire home's exterior with a critical eye and a notepad and pen. Take notes on what looks "off" and needs repairing, replacing or cleaning. Get in your car and drive by slowly from both directions during the day and night. You might see something you've never noticed before, like a broken tiles on the roof or a missing piece of siding.
Most homeowners don't give their roofs a second glance, but the roof is an important curb appeal item that buyers do notice. Is yours missing any shingles, or is it dingy and streaked? A good cleaning or, if necessary, a roof replacement will up your home's curb appeal factor tremendously.
If your house numbers aren't easy to see or if they're dirty and dingy, replacing them carries a tremendous impact . Consider the style of your house – traditional, transitional or modern – and create a harmonious or contrasting effect with new house numbers.
Get a Second Opinion
Homeowners often get used to certain defects –chipped paint on the front door from the keys banging against it, cobwebs on the porch ceiling, cracked or stained steps – and might need a new set of eyes to help them prioritize what needs to be fixed and cleaned up. Know your budget and how much time you can spend, and get an outsider to help you decide what needs work.
Budget-conscious homeowners will love this tip: Pressure-washing the dirty siding and deck, as well as the oil-stained driveway and faded walkways is an extremely cost-efficient way to increase your home's curb appeal. If you don't own a pressure washer, you can rent one from your local home improvement store for the day.
Plant Some Color
Except for the dead of winter, some types of annual plants are always in bloom. Plant colorful flowers for instant lift. Never plant artificial flowers – a few inches of dark mulch will brighten up the beds without screaming "fake."
Fling open the shutters, curtains and blinds. Homes that are brighter inside sell faster, and open curtains look prettier on the street. Go outside and look at your window treatments from the street, and try to keep a uniform look throughout.
Light Up Your Landscape
Give your walkway an edge with solar light fixtures, which are affordable and a cinch to install. Solar lights are inexpensive, and you can place them where they highlight your home's best attributes – landscaping, walking paths and any custom fixtures.
Add Some Polish
Paint is only about $25 per gallon, and painting the front door, trim and shutters is a great way to polish the look of your home.Other inexpensive fix-ups: a new mailbox (research your city's regulations to make sure you're up to code first), a new porch light fixture and a cheery new welcome mat.
Use an Experienced Local Real Estate Agent
A good Realtor will save you a lot of time, money and heartbreak. They’re experience in the home buying process and real estate contract expertise is vital for getting the best deal on a home and ensuring the process goes smoothly. While some first-time buyers may try to save some money by not using an agent, this will hurt more than help. In fact, you, as the buyer does not pay the commission to the Realtor, the seller does. A Buyers agent commission is figured into the contract, sellers expect any buyers to have their own agent. A real estate agent will be able to negotiate various things in the contract to protect you and save you money you may never even heard of. You can get referrals to good local agents from friends and family, or by using sites like Trulia and Zillow.
Get Loan Quotes from Multiple Lenders
Interest rates will vary from lender to lender so it’s recommended you get loan quotes from at least 3-4 different mortgage companies. Lenders charge various other fees for processing a mortgage, loan origination fee, loan application fees, etc. In the loan estimate you will be able to clearly see the fees charged. Not only can you use these loan quotes to help you negotiate lower fees and rates. But they give you a chance to speak with different loan officers to see who you’re the most comfortable with.
Have 20% Saved for the Down Payment
Unless you’re coming to the table with a 20% down payment you’re going to be stuck paying for mortgage insurance. Private mortgage insurance (PMI) is insurance on the mortgage loan itself. If a borrower defaults on the loan, the lender is reimbursed for the funds lost.
Increase Your Credit Score
The higher your credit score the cheaper your loan will be. Lender fees and interest rates are tied directly to your credit rating. There are a few simple things you can do to improve your credit score quickly before applying for a mortgage loan. Pay Down Your Credit Card Balances The balance on your credit cards vs the credit limit is called you credit utilization ratio. This ratio accounts for 30% of your overall FICO score, only your payment history (35%) has a higher impact on your credit rating.
Find a House that Needs some Work You are probably looking for a home that is going to sweep you off your feet and doesn’t need any work. The problem is, so is everybody else. Homes that have lots of upgrades and custom features will cost much more than a home that needs some love. Finding that diamond in the rough can be a great way to save a bunch of money. Adding custom fixtures and lighting is relatively easy to do. Painting walls and adding your own personal touch can be very rewarding while saving you cash.
Get the Right Type of Mortgage Loan
Depending on your situation some loan programs are better than others. For instance, Veterans can qualify for a VA loan and not have to put any money down or pay mortgage insurance. If you’re not buying a home inside a major metropolitan area then you may qualify for a USDA loan. The Department of Agriculture created USDA home loans to help low-to-median income buyers become homeowners in rural parts of the country. Not only do these mortgage loans not require a down payment but mortgage insurance on USDA loans is much lower than other types of loans at just 0.35% of the loan amount. This could save you hundreds, if not thousands of dollars annually.
Purchase a Home in Winter
The time of the year can also dictate the housing market. Spring and Summer months often demand the highest prices because this is when most consumers are in the market to purchase. Waiting to buy a home in the winter months can save you quite a bit of money.