Posts Tagged ‘interest rates’

Lock in an interest rate for a home loan

It is important to lock in your interest rate at the correct time. Good timing on an interest rate lock can save you thousands of dollars. Interest rates change daily so the longer a lender locks in a rate, the more risk that they have the market will move against them. Therefore you will have to pay extra to have a lender lock in a rate for a longer period of time.

Still wondering what it means to lock in an interest rate? When you lock an interest rate you are guaranteed to get that rate no matter how the market performs. If you lock an interest rate in today that’s good for 45 days then no matter how much interest rates rise you are still guaranteed the lower rate.

It would be a good idea to lock in interest rates if the trend in interest rates is rising. This will give the lender time to close the loan without worrying about rising rates. If the trend is down you would want to float your interest rate to take advantage of falling interest rates.

Finding the right time to lock a rate is a game. Even in a stable market it’s a risk to not lock a rate. Because of the highly volitle market interest rates can rise drastically even in the course of a day. Paying the lock fee will ensure you have ample time to close the loan and not have to worry about a drastic rise in interest rates.

Pros of a conventional mortgage loan

A conventional mortgage loan is a type of home loan that meets certain standards set by the United States government. These type of home loans however are not guaranteed or insured by the government. conventional loans are basically any loan that is not an FHA loan or a VA loan. About 35% to 50% of mortgages each year are conventional mortgages.

Conventional mortgages allow for more financing options over VA and FHA loans. Fore example not only do they offer fixed rate mortgages but there are also various adjustable rate mortgages (ARM) and biweekly payment options available.

Because conventional loans have less strict guidelines they offer many other advantages such as underwriting flexibility, cheaper loan fees, less collateral, more lenient appraisal guidelines, and possible lower closing costs.

If a lender decides to keep the loan in their own portfolio they can offer more underwriting flexibility. Since the loan won’t be sold in a secondary market those guidelines won’t have to be met. This makes getting a loan easier with less than perfect credit.

Lenders may also discount certain loan fees or even waive them in certain cases. Since the lender will be keeping your loan they may discount loan fees in order to get your business.

Conventional loan lenders will sometimes let you use other items in the house as collateral. For example including appliances and furniture may be an option.

FHA and VA loans require strict appraisal guidelines. Conventional loan appraisals are much more flexible and only have to meet the lenders restrictions.

Finally, sometimes lenders will pay a portion or all of the closing costs of a conventional loan in exchange for a slightly higher interest rate. This allows someone who doesn’t have a lot of cash on hand to still purchase a home with less out of pocket money.

As you can see there are many advantages to conventional mortgage loans. Before you decide which type of loan to choose review all of your options. Everyone has a different financial situation so a conventional loan may not be your best option. Research other types of loans before making the final decision.

How much should a mortgage down payment be?

Deciding how much down payment to pay on your home mortgage affects many aspects of purchasing a home. Before you talk to a realtor or call about a home listing you should figure out how much money you can pay down on your home. Your down payment can affect your interest rate, the amount of  money you save, and the type of loan you qualify for.

The interest rate you qualify for on a home mortgage loan is very important. A single percentage point can change your monthly payment by hundreds of dollars. It will also affect the amount of interest you pay over the life of the loan by thousands of dollars. Many times the more down payment you put down the better interest rate you will get.

Paying any down payment will save you thousands of dollars over the course of 30 years. A down payment of $10,000 on a $250,000 loan at 6% for 30 years will save you an additional $11,000 in interest over a 30 year mortgage.

There are different types of loans to consider when purchasing a home. Some are more beneficial than others depending on your financial situation.  The different loan choices available include: conventional fixed rate loans, (ARM) or adjustable rate mortgages, VA, buydowns, FHA, graduated payment mortgages and all the variations of each. The more down payment you have the better loan program you will qualify for.

There are many important choices when it comes to purchasing a home. Home quality, neighborhood, affordability and pricing are all important aspects of a home purchase; however your down payment could be one of the most important decisions. Maximize your buying power with the best down payment you can afford!