Will We Be Able To Buy a Bigger, Better House? Is an Adjustable Rate Mortgage a Smart, Safe Choice?

Mortgage interest rates have been declining for a while now, so you may not even think about an adjustable rate mortgage (ARM). There are a few reasons an ARM might make good sense for you financially even with today’s low 30-year fixed mortgage interest rates. ARM interest rates can be up to half a percentage point (or more) lower than a fixed-rate mortgage, especially when it comes to Jumbo ARMs and Super Jumbo ARMs. In high housing cost markets like Los Angeles and Orange County, along with many other high cost counties in the State of California, a half point difference in mortgage interest rate could help you to buy a bigger, better house.

What Are the Advantages of an Adjustable Rate Mortgage (ARM)?

As long as ARMs offer lower interest rates than fixed-rate 30-year mortgages, you may be able to qualify for a larger loan and therefore, a bigger, better house.

For example, if you wanted to buy a $1 million home, put 20% down, and applied for a 5/1 ARM at 3.35% interest, your monthly payments (excluding taxes and insurance) would be about $3,540. At 3.99% interest and a fixed-rate 30-year mortgage, your monthly principal and interest payments would be more than $3,800.

If there is no difference in interest rate between a 30-year fixed rate mortgage and a 5/1 ARM, then the ARM won’t help you to qualify for a higher loan amount and a bigger house.

What Are Some Pitfalls of an ARM?

ARMs come with different terms. Common ARM terms are 3/1, 5/1, 7/1, and even 10/1. The first number indicates the number of years you’ll have your initial interest rate locked-in. So, a 5/1 ARM will have the same interest rate and monthly payment for five years. The second number indicates how often the rate can change after the initial rate period. You’ll notice all the common ARMs can have their interest rate change every year after the initial fixed-rate term. By “change”, you’re right — the biggest pitfall with an ARM is the potential for the interest rate, and monthly payment, to go up every year after the initial fixed-rate term. Watch our short video clip below that explains the 3 Reasons why you should consider an Adjustable Rate Mortgage.

If you’re interested in an ARM so you can buy the home you want, and save on the compounding effect of interest, you should work with an experienced mortgage professional to locate an ARM that has terms you can understand and live with. ARMs can have caps on the amount their interest rate can go up when the fixed-rate term ends. They can also have a cap on the total interest rate increase over the lifetime of the loan.

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What is the Best Mortgage Advice You Ever Heard? How Big Should Your Monthly Mortgage Payments Be and More

Buying a house is one of the biggest financial decisions most people will ever make. We’ve put together a few tips from people who’ve done it successfully.

Get Multiple Quotes from Multiple Lenders Without Multiple Credit Inquiries or Hard Hits to Your Credit

You can improve on your interest rate by having your application shopped across multiple lenders, but not having your credit run multiple times. This is very easy when working with an independent mortgage broker. Since the independent mortgage broker is working on your side. They take your loan application and when the independent mortgage broker runs your credit they can then shop with multiple lenders to get multiple quotes giving you the best options. 

Lenders are aware you’re applying for loans with more than one lender when you’re working with an independent mortgage broker, who submits your loan applications.Since the Independent Mortgage Broker WORKS for the CONSUMER and NOT the LENDER, they have several choices from where they ultimately send the loan to. Since the lenders are getting a lot of business from the independent mortgage broker they are likely to be more diligent in responding to your application. Also, the very lowest mortgage interest rate may not be the very best choice for you. Working with a knowledgeable independent mortgage broker who can apply with multiple lenders will also give you a good idea of which lender is the best communicator and best to work with overall for your unique situation. Since different lenders are better for different borrower situations. 

Such as quick fast closing timelines, streamlined limited paperwork, for situations where time is of the essence. Or other lenders that may provide the rock bottom cut throat discount rates but require a ton of paperwork and letters of explanation and extensive income documentation, those lenders may be a good option if the borrower/consumer is not in any hurry and can afford to delay a closing and is willing to come up with all the needed paperwork. So working with a mortgage broker helps the consumer navigate the sea of lenders and loan product choices out there. If you’re concerned about multiple credit inquiries reducing your credit score, this is also why a mortgage broker is a great option since this reduces multiple inquiries on your credit report. With the single credit report run by a mortgage broker that broker can shop your loan with dozens of lenders, without any additional credit inquiries or hits to your credit report

Lock in Your Home Loan Interest Rate for the Longest-Possible Time Needed

You may not have even heard the word “escrow” before you started looking for a home to buy, but it can last longer than you may think. When you’re applying for a loan, go ahead and lock in the rate for the longest time your lender will allow, depending on the situation. You don’t want to be surprised with a higher interest rate and higher payments at close of escrow should interest rates go up while you are floating. It’s also best to get your Realtor Real Estate Agent introduced to your Independent Mortgage Broker earlier on in the home buying process. When they are both on the same page things run smoothly. You may be able to out negotiate other buyers and get that home you really want, since your Realtor would know from the Mortgage Broker how quick they can close. This would help when writing the purchase offers, since your agent can offer the seller shorter contingency time frames, where your loan can close quick with a shorter escrow, making you stand out above the competition of other home buyers.

Keep Your Mortgage Payment Under or Close to One Paycheck

This is one of the simplest forms of mortgage advice and overall, most reliable. No matter what the future holds, you can plan financially to manage a mortgage payment that equals one paycheck (if you’re paid weekly). If you have a two-income household and are paid twice a month, the same advice holds true.

 

Sign for a Mortgage That Will Let You Save for Retirement

Think about how you will best be able to save and invest your money. If your mortgage payment will allow you to save $1,000 a month and you can invest it at an average rate of 6%, you’ll build up a substantial retirement fund. Even if your home increases in value, chances are you’ll have a more secure retirement if you allocate your money this way.

And finally, get preapproved for a mortgage before you start home shopping. Few things are more frustrating than being uncertain of how much you can offer on a home, and losing the home you really want to a buyer who’s been preapproved and is prepared to make a better offer.

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10 Things You Should Know About Jumbo Mortgages

Like their names, jumbo home mortgages and super jumbo home mortgages are large and even larger. In some counties in the U.S., a jumbo mortgage is any mortgage bigger than $484,350. This isn’t the case in Los Angeles and Orange counties. As higher-priced real estate markets, jumbo mortgages on single family homes in LA and Orange counties are any amount over $726,525. A super jumbo mortgage is typically one that is over $1.5M and in higher priced area’s in California, especially Southern California and in Northern California we routinely see super jumbo loans in the $10M to $20M loan amount range.

The size of jumbo loans isn’t the only thing that’s different about them. We’ve put together a list of 10 things to know about jumbo home mortgages:

1) Jumbo loans are “nonconforming” loans. This means they don’t “conform” to the limits for loans that are sold to Fannie Mae or Freddie Mac. These government-sponsored mortgage associations protect lenders against defaults and resell mortgages to investors.

2) Jumbo loans are non-conforming but still conventional mortgages. A conventional mortgage is a non-government insured mortgage. FHA mortgages have the mortgage insurance insured by the government.

3) Jumbo loan and Super Jumbo loan interest rates can be fixed or adjustable APR (annual percentage rate).

4) Jumbo loan credit scores should be strong. Most jumbo mortgage lenders ask for credit scores of 700 to 720 or higher.

5) Your DTI should be low. Lenders like to see a debt-to-income ratio (DTI) of less than 41% up to 45%. You need to have relatively low debt for a regular jumbo home loan. However, there are many other Jumbo and Super Jumbo loan options now available with slighltly higher interest rates that allow up to 50% DTI ratios.

6) You’ll need cash reserves. Could you cover up to a year’s worth of mortgage payments from your liquid cash reserves? Many jumbo mortgage lenders will ask for documentation of cash reserves.

7) Jumbo mortgages need more documentation. The majority of jumbo mortgages require thorough documentation, including tax returns, investment accounts and bank statements. Business profit and loss information may also be required. In some cases Jumbo and Super Jumbo mortgages may be available with limited streamlined documentation such as not using any tax returns, but instead using bank statements and/or profit and loss statements.

8) You may need more than one appraisal. Because jumbo mortgages represent a risk to lenders, they may request a second property appraisal to confirm property value.

9) Higher down payment. You can get a low or even no down payment on some loans, but not for jumbo mortgages. You will need to put down at least 10% of the purchase price up to 20% or more.

10) Interest rates differ. For a long time, jumbo mortgages and super jumbo loans had higher interest rates than conforming loans. But in housing markets like California, you can often find rates competitive with, or in certain cases lower than, the rates offered on smaller conventional mortgages.

You can find jumbo mortgages that will fit your needs, home purchase plans, and financial goals. Work with a jumbo mortgage specialist who understands how these larger mortgages are financed and approved. You will soon find yourself owning that dream property you desire. These jumbo and super jumbo mortgage loans are also available for non US Citizens, including both Permenent Residents Green Card Holders, and also Foreign Nationals. Super Jumbo Loans include those that can be $10 Million or $15 Million or higher loan amounts.

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