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Courtesy of NBC, Cheryl Winokur Munk
With inflation and the possibility of further rate increases, here are some tips and tricks to find ways to lower your rates.
1. Try to boost your credit score
Consumers may be able to improve their credit score in less than a month. Start by checking for discrepancies on your credit report that could make your debt situation appear worse than it actually is, he said. Also, if you have the cash, pay down your debts to reduce your debt-to-credit ratio.
Once you’ve taken positive steps to improve your credit, consider asking your lender to initiate a process called a rapid rescore as a way to get positive changes to your credit updated quickly — typically within a week as opposed to 30 to 60 days.
2. Comparison shop
Compare offerings among a variety of lenders and products. A local bank or credit union where you do significant business could offer more competitive rates than a large bank you’ve never worked with before. You could also try a mortgage broker to compare rates from several different lenders.
3. Consider paying points
Mortgage points are fees a borrower pays to a lender in exchange for a reduced interest rate. Each point equals 1% of the total loan amount.
Here’s a hypothetical example for a $200,000 loan taking into account principal and interest only. With zero points and an APR of 4.5%, the monthly payment would be $1,013.37. With one point, the buyer would pay $2,000 for an APR of 4.25% and a monthly payment of $983.88. The total savings on a 30-year-loan would be $10,616.40, assuming the buyer owns the home for the full term and doesn’t refinance. With two points, the buyer would pay $4,000 for an APR of 4% and a monthly payment of $954.83. The total savings on that loan would be $21,074.40, again assuming the buyer owns the home for the full 30 years without refinancing.
Be sure to crunch the numbers, taking into account factors such as how long you expect to own the home. With the 2-point option, for instance, you’d be saving $58.54 per month, compared with the no-point loan option. But because of the $4,000 upfront cost, it would take you 68 months to break even.
If you are going to keep the loan for the long-term, you could be better off paying points to get the lower rate, Mallett said.
4. Make a larger down payment
Instead of putting 20% down, consider putting down more additional cash upfront. This strategy will reduce a buyer’s loan-to-value ratio and potentially decrease lenders’ risks. This may make borrowers more favorable candidates for a lower-rate loan.
How much lower depends on the lender and the product, but it could be somewhere up to 1%. Of course, there can be downsides to this strategy as well. You need to make sure you have the cash to do this, without depleting needed reserves.
5. Consider other loan types
One option is an adjustable-rate mortgage, or ARM.
As of July 11, the average APR for a 30-year fixed mortgage was 5.75%, according to a national survey by Bankrate. By contrast, Bankrate lists the marketplace average APR on a 5/1 ARM, meaning the rate stays the same for five years, as 5.53%. The average APR on a 7/1 ARM, where the introductory rate stays constant for seven years, is 4.98%, Bankrate said.
Another option could be an interest-only fixed-rate mortgage that is amortized over 30 years and allows the borrower to pay interest-only at the onset, say for 10 years. You’ll pay more over the life of the loan, but this could be an especially attractive option if you plan to keep the property for less than 10 years, Rupena said.
When weighing the economics of these loan types, how long you plan to keep a property is an important consideration prospective buyers should weigh carefully, he said.
Know Your Price
This market is moving very quickly right now. It’s my job to help you understand current market conditions. I generate up to date market analysis, including information on what home prices, that are currently under contract or pending, are selling for. Comparable values of sold homes that are 6 months old do not give you accurate valuation right now.
Get Direct Underwriter Pre-Approval Up Front
If you do this you may be able to submit your offer without loan or appraisal contingency, which will make your offer stronger. If you are competing against all cash offer(s) this strategy can give you the edge.
Understand What Your Seller Wants
As your agent, having relationships within the real estate community is important. It’s my job to reach out to the listing agent and determine what is most important to the seller’s goals. For example: short escrow period, do they need a rent back..
Increase Your Earnest Money Deposit
Show the seller you are a serious buyer – 3% earnest money deposit it customary in most real estate transactions, but you can gain leverage by increasing your earnest money deposit. You can also consider irrevocably releasing a percentage of your earnest money deposit during the transaction process, for example: once you have removed physical inspection contingency.
Shorten Your Physical Inspection Contingency Period
Standard inspection contingency runs 17 days. As a seasoned agent, I have access to inspection companies and contractors on short notice. I can typically complete a physical inspection in 7-10 days.
Offer To Reduce Seller Closing Costs
In the competitive market we are seeing buyers offering to cover their own closing costs, which reduces the cost to the seller and adds value to your offer.
Hire An Agent Who Knows The Market
I’m a local real estate professional who has experience. I am available to assist you in buying or selling a home, so please contact me if you would like to schedule a time to discuss your needs. Please be well and stay healthy and safe!
Proposition 19 Background
Proposition 13 was a previous proposition that helped California homeowners get their homes assessed less. This helped make some people’s property taxes more manageable. Additionally, Proposition 60 was another past proposition. It applied to homeowners and allowed them to transfer their assessed value, if
- the home owner was over 55,
- their new home and the one they were selling was their primary residence,
- the new home was of equal or lesser value than their old home,
- and they could only do this transfer once in their lives
Proposition 90 had all the same rules, but it only applied to certain counties. Therefore, counties within California could choose to opt in or out.
What’s Changed
Proposition 60 and 90 no longer apply and Proposition 19 is the new law of the land. It automatically includes all counties within California. So a homeowner can now move anywhere within California and apply the tax transfer from Proposition 19. Furthermore, homeowners now get three transfers within their life instead of one. In the past, married couples only got one transfer between them, even after a divorce. This new proposition is helping to correct that.
Proposition 19 also allows homeowners to purchase a new home up to a million dollars over the selling price of their old home and still get to transfer their property tax amount. However, they only get to transfer the property taxes up to the amount the home sold for. Anything above that selling price gets taxed at the present day amount.
Proposition 19 will go into effect on April 16, 2021.
The Three Main Parts Of Proposition 19
1. Get Rid Of Proposition 60 And 90
This step has already occurred.
2. Get Rid Of Proposition 58
This allowed parents and grandparents to gift a home to their child or grandchild. Furthermore, they could gift the property taxes to the child or grandchild. It didn’t matter if the home was going to be a primary residence or an investment property. However, after February 1st of next year, this will no longer be the case. The gifted home will have to be the child or grandchild’s primary residence.
Note: One caveat is if the parent or grandparent dies and their home belongs to a trust. The property then goes to the successor and Proposition 19 will not affect them.
Note: The recipients of gifted property can only receive up to $2,000,000 worth of property without any tax consequences.
3. Caveats Now Apply To A Wider Group Of People
The new rules for Proposition 19 have always applied to severely disabled people. This included people who weren’t 55, weren’t buying a home of equal or lesser value, etc. However, the new proposition will also extend to people affected by natural disasters. These homeowners will not have to match the same criteria as everyone else when transferring property taxes. This is a great benefit for people who have second homes. If the second home is destroyed by a wildfire, they are now able to buy a new one and transfer the taxes. This part of the proposition will go into effect on April 16, 2021.
Note: A homeowner has two years to reinvest and still maintain their property taxes. So in an ideal world, anyone who wants to take advantage of Proposition 19 should sell their home and close on April 15th or before. Then they will need to close on their new home sometime after April 16, 2021, but before their two years are up.
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