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.

Should You Make a Smaller Down Payment?

You’ve most likely heard the rule: save for a 20-percent down payment before you buy a home. The logic behind saving 20-percent is solid. It shows that you have the financial discipline and stability to save for a long-term goal, and helps you get favorable rates from lenders.

But there can be financial benefits to putting down a smaller down payment—one as low as three percent—rather than parting with so much cash up front, even if you have the money available.

THE DOWNSIDE

The downsides of a small down payment are pretty well known. You might have to pay private mortgage insurance, which is a type of insurance that is typically required for buyers with a conventional loan and less than 20-percent down payment. The lower your down payment, the more you’ll pay. You could also be offered a lesser loan amount than borrowers who have a 20-percent down payment, which will eliminate some homes from your search.

THE UPSIDE

The national average for home appreciation is currently a little less than five percent. The appreciation is independent from your home payment, so whether you put down 20-percent or three percent, the increase in equity is the same. If you’re looking at your home as an investment, putting down a smaller amount can lead to a higher return on investment, while also leaving more of your savings free for home repairs, upgrades, or other investment opportunities. 

THE HAPPY MEDIUM

Of course, your home payment options aren’t binary. Most borrowers can find some common ground between the security of a traditional 20 percent and an investment-focused, small down payment. As always, it’s best to work with a team of trusted experts that can provide some answers as you explore your financing options.

Ready to close on your dream property? Give us a call today!

What is a Home Appraisal?

You’ve found your dream home, and now it’s time to make it your own. One of the first things you’ll want to check off your final closing list is the home appraisal. So, what exactly is that?

The home appraisal is essentially a value assessment of the home and property. It is conducted by a certified third party and is used to determine whether the home is priced appropriately. If you’re buying your home using a mortgage, your bank will require the home appraisal. This is different from a home inspection — an appraisal protects the financial interests of the lender, and while a home inspection protects the buyer from potential maintenance or repair issues.   

During a home appraisal, the appraiser conducts a complete visual inspection of the interior and exterior of the home. Their assessment will factor in a variety of things, including the home’s floor plan, functionality, condition, location, school district, fixtures, lot size, and more. Adjustments will generally be made if the home was recently renovated, or exterior upgrades like a deck or pool were put in place. The appraiser will also compare the home to several similar homes in the area — known as comps — that sold within the last six months.

Unlike a home inspection, an appraisal only looks at the surface value of the property. The appraiser will note any obvious damage, such as a badly dilapidated roof, but won’t conduct the same thorough tests you’ll get from a home inspector. The final appraisal report must include a street map showing the property and the comps, photographs of the interior and exterior, an explanation on how the square footage was calculated, market sales data, public land records, and more.

After the appraisal report is complete, the lender uses the information to ensure that the property is worth the amount they are investing. This is a safeguard for the lender, as the home acts as collateral for the mortgage. If a buyer defaults on the mortgage and goes into foreclosure, the lender generally sells the home to recover the money borrowed. 

As a buyer, the most important thing to note is that home appraisals protect the bank, not the homeowner. You’ll still need to schedule a home inspection to be sure that your home is in good condition and won’t require any unexpected repairs. 

Are you ready to close on your dream home? Give us a call! 

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!

Real Estate Terms Explained: Title Insurance

If you’re a first-time buyer, you’re probably faced with a lot of unfamiliar terms as you complete the closing process. But don’t worry! We’re going to use the power of the blog to explain (most of) them to you. 

Today’s lesson: Title Insurance

What the heck is title insurance? 

Technically there are two answers to this question, because there are two types of title insurance: the lender’s insurance and the owner’s insurance. Both policies protect against future financial losses. To put it simply, if your home purchase falls through after closing, these insurance policies can save you and your lender from being financially responsible for a property home that you didn’t actually purchase. Most lenders will require this insurance, and you’ll find it included with the rest of your closing costs. Owner’s insurance is optional, but highly recommended. Both policies are a one-time fee that you pay at closing.   

Why would my purchase fall through after closing?

It’s an unlikely scenario, but it is possible. When you purchase a property, a title researcher will check the ownership history to make sure you have what is known as a “clean title.” This means that there are no pre-existing issues that could prevent the title from becoming legally yours. 

A pre-existing issue could be that a previous owner failed to disclose a creditor’s lien on the house, or the property is caught up in an inheritance dispute, or there are uncollected taxes on the property. In most instances these issues are the result of a minor error and can be cleared up quickly, but there are cases where the title issues take months or even years to resolve. And if you find yourself in one of those situations, you’ll be facing a mountain of legal fees and the potential that you’ll lose the property (and the money you invested) before you even unpack. 

Alright, I hear you. How do I get title insurance? 

Typically your agent or closing attorney will start the process for you. You’ll be charged a one-time fee (the exact cost will vary depending on a variety of factors), and even though you only pay for it once, the coverage will insurance your financial transaction as long as you own the property. Please note: this is NOT homeowners insurance — that’s a completely different type of policy and coverage. If you’re not sure how to find the right title insurance, talk to your closing agent or attorney. We live for this stuff. 

Title insurance may seem like yet another unexpected cost, but trust us, it’s worth it. If you still need convincing, give us a call! We’re here to help you every step of the way. 

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!