5 Tips for Home Buyers to Find the Best Interest Rate

When the time comes and you’re finally ready to buy a home in Woodstock or Roswell, topics like mortgage interest rates may feel overwhelming and start giving you cold feet. Take a breath. At Frank Pallota Law, we are here to help you navigate the convoluted real estate market in Metro Atlanta.

A high interest rate could be the one thing between you and your dream home. So we’re going to take you through a few things you can start TODAY to ensure you will get the best rate once the time comes to apply.

Because there are a few components that determine your rate, you can’t anticipate a certain rate by simply asking your neighbors even though their home is in the same area and, most likely, comparable in price. So spend less time asking around and more time doing these 5 things…

1. Have the Highest Credit Score Possible

Needing a high credit score to get the best interest rate seems like a given for obvious reasons, however, there are a few things you can do to get a leg up! Pay down your credit card balances as much as you can each month without closing them. The goal is to get into the habit of only spending as much as you’re bringing in each month without building any unnecessary debt. Having a history of responsible credit usage will work in your favor when applying for a mortgage rate.

2. Have a Large Down Payment at Closing

As you prepare to make your home purchase, you want to start saving as if you already have a mortgage payment. Put that extra money into a savings account to apply towards your down payment. The larger the down payment at closing, the better the interest rate!

3. Lower Your Debt to Income Ratio

When applying for a mortgage interest rate you typically want a debt-to-income ratio smaller than 36%, with 28% (or less) of that debt going towards your mortgage. To figure this out, simply take your total debt amount and divide it by your income. If your debt totals up to $1,000 per month and your monthly income equals $4,000, your DTI is $1,000 ÷ $4,000, or 25 percent.

4. Pay Bills ON TIME

A history of how you manage your credit plays a significant role in the outcome of your interest rate. With a high credit score, a large down payment and a reasonable debt-to-income ratio, the lender will see you as a trusted borrower thus approving you for a great interest rate.

5. Avoid Adding New Lines of Credit Until After Closing

Try holding off on opening any new lines of credit until after those closing documents are signed, sealed & delivered! Adding new lines of credit make it more difficult for the lender to get an accurate sense of how you manage your finances. The more predictable you are in regards to your financial behavior, the greater confidence the lender will have in your ability to pay your mortgage on time.

If you have more questions or concerns about locking in your interest rate before closing, we’re here to help! Give us a call today and let our expert team guide you through the process.

What is a Cash-Out Refinance?

Refinancing your home means asking a lot of questions. Like any major financial decision, you want to be sure you have all of the information you need to make the best choice for you and your family. Understanding the way refinancing works can seem overwhelming, but that’s okay! If real estate finance was easy, you wouldn’t need us around. We’re here to help explain a few things that you need to know. 

Today’s Lesson: Cash-Out Refinances

In real estate, there are two basic refinance options: rate-and-term and cash-out refinances. While a rate-and-term refinance could help you save money over time, a cash-out refinance could be a good option for anyone looking for a boost of cash flow in the short term. Cash-out refinancing means that your home equity is converted into cash by creating a new mortgage for a larger amount than what you currently owe. 

For example, if you took out a $200,000 home loan and have paid off $100,000 over time, this means you have $100,000 worth of home equity. If you wanted to convert $50,000 of that equity into cash, you could opt for a cash-out refinance. In this scenario, you would get a new loan for $150,000 — the remaining balance on your original loan plus the $50,000 cash. You pay the balance on the first loan ($100,000) and keep the remaining $50,000. You still owe that $100,000, but you’ll be paying a new lender at a new interest rate.  

Lenders will look at your property’s loan-to-value ratio to calculate how much equity you have, and how much you could potentially cash out. If your home has drastically increased in value since you purchased it — but you’re not ready to sell anytime soon — a cash-out refinance could be a good option. This type of refinance could also be a smart choice if you want to renovate your current home, because you’re essentially using the equity you already have to increase the value of your home. 

Cash-out refinances typically come with much higher interest rates than your initial mortgage, so they’re not always the right option for someone looking to save money long-term. Instead, a cash-out refinance could work for someone looking for extra money in the immediate future. It’s not a get-rich-quick scheme, though. You might be getting a boost of cash right away, but could end up paying more over time. 

As always, make sure you’re working with a team of trusted experts. There are so many individual factors to consider when refinancing your mortgage, and you’ll want someone who has the time to answer all of your questions and make sure your specific needs are meant. If you think a cash-out refinance is right for you, give us a call today!

What is a Rate-and-Term Refinance?

Mortgage rates are lower than in recent years, which means now is a great time to think about refinancing your existing home loan. A mortgage refinance is a big decision, and making the right choice now could save you thousands of dollars in the future. If you’ve never considered refinancing before, you’re probably finding yourself overwhelmed with questions and unfamiliar terms. And that’s okay! If real estate finance was easy, you wouldn’t need us around.   

We’re here to help explain a few things you might want to know.

Today’s lesson: Rate-and-Term Refinance

A rate-and-term refinance changes the interest rate on your loan, the term (or length) of the loan, or both. Unlike with a cash-out refinance, this type of change doesn’t advance any money on the loan — which means you won’t see a lump sum of cash. Instead, this type of refinance can save you money by lowering your monthly payment or by allowing you to pay off your loan faster (saving you money in interest). Rate-and-term refinances are driven by drops in market interest rate values. 

If you purchased your home during a time of high market interest rates, you might want to consider a rate-and-term refinance now while the rates are lower. This type of refinance is also a great option for homeowners who have seen positive changes in their financial situation since they purchased. If your consumer credit score has improved drastically over the last few years you’ve owned your home, you could qualify for a much lower interest rate. 

Rate-and-term refinances aren’t right for everyone. If you’ve only been in your home for a few years and you haven’t experienced any major financial changes, you might be better off waiting a few years or looking for a different type of refinance. 

No matter what you decide, make sure you’re working with a team of trusted experts. There are so many individual factors to consider when refinancing your mortgage, and you’ll want someone who has the time to answer all of your questions and make sure your specific needs are meant. If you think a rate-and-term refinance is right for you, give us a call today! 

Are You Ready to Refinance?

As mortgage rates dip lower and lower, you might be wondering if it’s time to think about refinancing. Many homeowners could find themselves able to negotiate a lower rate, and be able to pay off their home loans sooner than they initially planned. If you’re thinking about refinancing your mortgage, here are a few things to consider before you do: 

Know how much your home is worth.

The amount of equity you have on your home is one of the most important factors in refinancing. Your loan to value ratio, or LTV, is what lenders use to calculate how much equity you have. The less equity you hold, the higher your rate will end up being. A real estate agent can compare your home to similar homes in the area and create a competitive market analysis, so you can have a better idea of how your home is currently valued. 

Have clear financial goals.

There are a few reasons that homeowners decide to refinance. You could lower your monthly payment and give yourself extra room in your budget for other expenses. Another option is to continue making the same payment, but pay off your loan a few years earlier than expected. Some homeowners opt for a cash-out refinance, where you borrow more than the balance due and take the difference as a lump sum of cash. This money can then be used to pay off other debts, such as credit cards or student loans, or used to finance remodeling or other expensive home improvements. There is no right or wrong option — it’s best to work with a financial planner or lending expert to decide what will work for you. 

Don’t wait too long.

The mortgage interest rate market is as fickle as the stock market, and interest rates can change quickly. If you feel comfortable with the way the math is adding up, work with a loan officer (and a closing attorney!) that you trust. Get the necessary paperwork — such as current mortgage statements, pay stubs and bank statements — in order so you’ll know you’re fully prepared. Once you and your loan officer find the best rate for you, be sure to request a written confirmation of the rate you’re being offered. Remember, if it’s not in writing, it’s not legally binding! 

Refinancing your home mortgage can seem like an overwhelming and impossible task, but it doesn’t have to be! We’re here to help connect you with the best agents and loan officers in town, and make all of the necessary paperwork and negotiations are completed properly. Contact us today!