What Factors Determine the Interest Rate I’ll Be Offered On My Loan?

iStock 000006290216Small 300x199 What Factors Determine The Interest Rate I’ll Be Offered On My Loan?

If you’ve decided to buy a home or refinance your mortgage, you may be puzzled by the different interest rates you’ve seen advertised for home loans. You’re not alone: Many home buyers and homeowners are confused when they discover they don’t qualify for these rock-bottom interest rates.

The reality is that the interest rate you’ll pay on a loan is determined largely by your own personal situation. Even if you don’t meet the requirements for the best-of-the-best rates that you’ve seen advertised, that doesn’t mean you won’t be able to qualify for a loan or won’t be offered an attractive interest rate that you’ll be able to afford.

The interest rate you’ll be offered will depend on:

Credit score. Your credit history and credit score will have the greatest effect on the interest rate you’ll be offered. The higher your score, the lower your interest rate likely will be. A credit score is a numerical representation of how well you’ve handled other loans and credit cards in the past.

Type of property. The interest rate you’ll be offered also depends on the type of property you want to purchase. You’ll generally pay a higher interest rate to buy a second home or a property you want to rent out to tenants than you will to buy a home you intend to occupy yourself.

Loan term. Interest rates tend to be higher on 15-year loans than they are on 30-year loans. That means you’ll likely be offered a higher rate if you choose the shorter term.

Loan amount. If you want to borrow more than $417,000, your mortgage may be considered a non-conventional or even “jumbo” loan, in which case, you’ll pay a higher interest rate due to the larger loan amount.

Loan-to-value (LTV) ratio. Your loan-to-value ratio is the total amount of your mortgage divided by the appraised value of your home or the home you want to buy. If you have only a small downpayment, or not much equity, you’ll likely pay a higher interest rate. Taking out cash can raise your interest rate as well.

Location. Interest rates vary from lender to lender and from state to state. Some states simply have lower borrowing costs on average.

When you compare the interest rates you’re offered with advertised interest rates, keep in mind that some advertised rates require payment of discount points, which makes those rates appear to be cheaper than they actually are. A point is an upfront fee that’s equal to 1 percent of the loan amount. Points don’t directly influence the interest rate you’ll be offered, but you can pay points to reduce the interest rate on your loan.

For more information, don’t hesitate to contact us today! Agents, share this informational post with your clients.

(via Josh Mettle)

5 Real Estate Headlines You’ll See in the Next Six Months

Making predictions can be the ‘kiss-of-death’ for a blog. Even if we get four out of five correct (80%), there are those in the industry who will kill us on the one we got wrong. We believe strongly that when making a real estate decision for you and your family you must look forward and take into consideration how the housing market may change. For this reason, we are willing to take on the possible wrath of our counterparts by sticking out our necks and predicting these will be the major real estate news stories from now until the end of the year.

Interest Rates Rise

Many, including us, have been surprised that rates have not risen already. However, the next several months are going to see three distinct changes that will propel rates upward.

  1. As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate.
  2. In many higher priced markets, rolling back Conforming Loan Limits means that rates for the mortgages on these properties will resort back to the rates on private jumbo loans. The FHFA informed us that last year, the difference between mortgage rates for jumbo loans and jumbo-conforming mortgages has varied between about ½ and ¾ of a percentage point.
  3. As the economy gets better (and we believe it will), the pressure to keep rates low to stimulate growth will abate.

Some Loan Requirements Tighten but More Can Now Get a Loan

Lending institutions have already started to introduce stricter mortgage guidelines. Whether the Quality Residential Mortgage (QRM) requirements are instituted as originally proposed or eased somewhat, there is no doubt that guidelines will continue to tighten as we work through the year. However, we believe the private sector will again start introducing alternative mortgage financing but at a greater expense to the consumer. You WILL be able to get a mortgage. It will just cost you more.

Housing Sales Increase

Contracted sales have shown consistent improvement over the last six months and we feel this will continue and actually begin gaining even greater momentum. We believe there is a ‘pent-up’ buying demand caused by the volatility of the market over the last several years. When interest rates start to move upward and alternative financing becomes more available, these buyers will start to jump off the fence. We believe there will be a major upswing in sales over the next six months.

Distressed Properties Increase Markedly

More people are paying their mortgage on time and that is great news for housing in the long term. However, the numbers of distressed properties currently in the foreclosure process is still very swollen. These properties will begin coming to the market in the second half of the year as short sales and foreclosures. The numbers will be staggering in some areas.

Prices Continue to Soften in Most Markets

The current housing inventory for sale and the distressed properties about to come on the market will vastly outnumber the increased supply of purchasers we will see over the next six months. There will be more houses for sale then there will be buyers purchasing them. That oversupply will continue to put downward pressure on prices through the rest of this year and into 2012. You now know what we believe will take place in real estate between now and the end of the year. (Thanks to the KCM Crew for this great post.)

5 Realtor Quick Tips for July 2011

1. Prepare diligently for EVERY appointment. 

Most agents prepare well for a listing appointment. They go in with a complete consultation manual ready to show the seller why they should sell now and at the suggested price. They make sure they have all the tools necessary to have a successful meeting.

  • What about the buyer consultation appointment?
  • Or the price-break appointment?
  • Or the negotiation of offer appointment?

There are four critical appointments in today’s market. We prepare for one of them. We ‘wing’ the other three. We must prepare as thoroughly for the last three as we do for the listing presentation. We must make the most of every opportunity presented from now until the end of the year.

2. Don’t forget the fundamentals; contact listings that expired in June. 

History has shown us that the single day of the year that most listings expire is December 31st. The date that comes in second is June 30th. There will be more opportunity in the first week of July 2011 than perhaps in any other July in history. The number of expiring listings will be staggering. That means opportunity for someone. Hone your listing and pricing skills and approach every expired you can. The inventory of listings you accumulate in the first two weeks of July could catapult you to success for the rest of the year.

3. Gain knowledge and then get to work.

Two quotes from the late business guru, Peter Drucker:

“Knowledge has to be improved, challenged and increased constantly, or it vanishes.”

We have to become better at our craft every day. We must continuously improve our skills. We must become an expert at showing our customers what is taking place in the current housing market. They can then make the right choices for themselves and their families.

“Plans are only good intentions unless they immediately degenerate into hard work.”

It is not good enough to be a student of real estate. We must act on our knowledge. We must plan where we wish to be and then get busy making our way there. If I could have only one of all the attributes successful people are known to have, I would chose the ability to work hard. It is the most important and will get you closer to success than any other attribute.

4. Remember that a picture is worth a thousand words.

Whether we are taking a listing, consulting a buyer, doing a price adjustment or presenting an offer-to-purchase, we must be able to effectively communicate our customers’ options in the current real estate environment. The use of strong visuals dramatically enhances the chances that the consumer will truly understand the points we are making. Too many agents are satisfied complaining about the fact that their client just ‘doesn’t get it’ even after they ‘told’ them what is happening.We must take the time to visually ‘tell a story’ on each point we are making. We must hone that story until it makes our point simple to understand. That is what differentiates talking at a person from truly educating them. We need to be great educators in this market. 

5. Stop hoping the market gets better…Make sure YOU get better.

As I travel the country sharing my message with real estate professionals, the same question comes up over and over – Steve, when do you think the market will get better? I have a difficult time addressing the person asking the question. I don’t want to be rude but the real question we should be asking is – When are we going to get better?

The best market a true professional can hope for is a market that truly needs the skills of a well-trained expert in the field. Anyone can do the job in a market that doesn’t require competency, skill and insight. To the great real estate professional, a market’s strength has always been determined by how many people needed our help. In my 25 years in the business, I have never experienced a market that had more people who need our help in making the right decisions for themselves and their families.

Are we consistently doing the necessary research to keep abreast of what is happening in today’s rapidly evolving market? Are we taking classes to help us understand why certain things are taking place? Are we taking the time to sit with our clients and simply and effectively inform them of their options?

“Are we prepared to help?” becomes the question that needs to be answered; not “When will the market no longer require a true professional?”

Blog Post courtesy of our friends at Keeping Current Matters. http://keepingcurrentmatters.com/getkcm/