Is it time to buy?
OAKLAND, CA. – Is it the right time to buy a house? The advantage for the buyer is that there are far fewer buyers to compete with, driving up prices. What you save on the purchase price can go against higher rates.
With house prices steady or often falling, buyers aren’t lining up to snap them up. Here’s why paying higher interest rates, in the short term, might be a smart strategy.
Assume an $800,000 home with a 20% down payment. A 30-year fixed mortgage interest rate is now around 7.1%, locking you into a monthly payment of $4,300. A 15-year fixed rate, half as long, at around 6%, works out to $5,400, if you can afford it.
Fif Ghobadian is Senior Vice President at Origin Point Lending. “You’ve saved because you’re not competing and you can refinance in a year or two,” she said.
Another increasingly popular option is called the ARM, the adjustable rate mortgage. Experts say the best is an adjustable 7/1 where, that means you get a fixed rate for seven years and after that the rates can go up. But, by then, you should be able to refinance. “The interest rate difference between an adjustable rate and a 30-year fixed rate is about half a percent in most cases,” Ghobadian said.
The best conditions and rates are granted to people with a credit score of 720 or more. “Even for a jumbo loan, which is a loan over $970,800, you can deposit as little as 10%,” Ghobadian said.
Below the jumbo loan amount, a 5% deposit payment is very possible. “If you put less than 20% down, your interest rate is about 0.5% to 0.75% higher.
At 10% down, many lenders allow you to borrow 80% of the purchase price on one loan and another loan for the remaining 10%. You avoid mortgage insurance and the payment on the second loan is interest only,” the loan expert said.
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Finally, nowadays many lenders have the new Buydown program. “When seller or lender but seller can put money in ESCROW for buyer and for first year the interest rate is reduced by 2%. Second year it is reduced 1%. The buyer has the advantage at the moment and the competition has really gone down,” Ghobadian said.
If, as experts expect, mortgage rates drop over the next few years, you can refinance everything at lower rates.