1 The Federal Reserve raised interest rates in December, right? Guess I’ve missed the boat on the lowest mortgage rate.
Wrong. What the Fed raised (from a range of 0.0 percent to 0.25 percent to a range of 0.25 percent to 0.5 percent) was the federal funds rate—the rate banks charge each other for overnight loans. Yes, mortgage rates tend to move in the same direction as the federal funds rate over the long term. But not so much in the short term. Thanks in part to recent stock market volatility and plummeting oil prices, the rate on the average 30-year fixed-rate home loan—a common benchmark—has actually fallen, from 4.15 percent at the end of December to 3.85 percent at the end of February, according to the Mortgage Bankers Association. What’s more, even if the Fed continues to raise rates this year, it has made clear that it will do so very gradually. So from a purely interest-rate perspective, now is a great time to buy.
2 What are these new “Know Before You Owe” rules I’ve been hearing about?
They’re a victory for borrowers that make it “much easier to decipher exactly what you’ll be paying,” says Tom Pilafas, a vice president of the Chicago-based title industry company Near North National Title. Late last year, Congress passed a law requiring each potential lender to give you a three-page loan estimate—including details on rates, fees, and closing costs—in a format that’s easy to compare with competitors’ estimates. Your lender must also give you a disclosure sheet at least three days before your scheduled closing that spells out exactly what your final costs will be (no more closing-table surprises!). To make the most of the new rules, use the information from the loan estimates as ammo to negotiate a better deal. And always compare the disclosure sheet with your estimate to make sure they match.
3 I need a jumbo loan. Any tips?
Yes: Celebrate. It used to be that interest rates on jumbos (currently defined as loans of more than $417,000) were about half a point heftier than on nonjumbos (or “conforming loans,” in broker-speak). But competition among banks for high-end borrowers has shaved down that difference. The average 30-year fixed jumbo now goes for 3.80 percent, even less than the going rate for the conforming version. The required down payment for the best rate has also come down, with some lenders offering loans without private mortgage insurance for borrowers putting down as little as 15 percent. Eliminating PMI could save you thousands of dollars over the life of the loan.
4 Sellers love all-cash buyers. Should I sell assets so I can become one?
Buyers who plunk down 100 percent of a home’s purchase price in cash do have a significant negotiating advantage right now in hot markets such as New York City and San Francisco. But generally not in Chicago, where the competition for properties is less robust. (The average homebuyer in the metro area puts down only about 16 percent of the sale price, according to the most recent data from the real estate research firm RealtyTrac, versus about 29 percent in the New York City area.) So don’t worry about liquidating everything in sight, provided you can put down at least 20 percent (for loans of less than $417,000).
5 What if I’m buying a vacation home?
That’s one situation in which an all-cash offer can make a difference. Here’s why: If you plan on renting out your vacation place, even for just a few weeks a year, mortgage lenders may consider it an investment property, and banks will likely impose tougher financial requirements, such as a bigger down payment or higher credit score. Pay all cash and you won’t need a mortgage at all, of course. How to scare up the greenbacks? Assuming you have plenty of equity in your primary residence, consider what’s known as a cash-out refinance. Doing that now will let you make an offer quickly when you find the vacation home of your dreams, notes Ken Perlmutter, president of Perl Mortgage in Chicago.
6 I’m still underwater on my mortgage. Can I sell my home without taking a loss?
Sorry, no. But even if you’re unable to sell your property, there may be a flicker of good financial news. Let’s say that a few years ago you were denied entry into the federal government’s Home Affordable Refinance Program, which allows borrowers with little or no equity to refinance into a lower-rate mortgage or shorter-term loan or from an adjustable- to a fixed-rate mortgage. The program has since relaxed its eligibility requirements (and your equity likely has grown), so if you apply again, you may qualify this time. Don’t dawdle: HARP is set to expire at the end of 2016.