How Rising Rates Affect Boston Area Home Buying

The Boston area home buying market may feel the effects of the Federal Reserve’s recent decision to raise interest rates… or not. The Fed increased the rate on federal funds for banks by .25%, the first such increase in over seven years. What does that mean for people contemplating purchasing a home?

How will Boston area home buying be affected, if at all, by the Fed raising interest rates?

Boston Area Home Buying: What’s Next?

As part of an overall strategy to allow the market to recover from the 2008 housing crash, the Federal Reserve purposely kept interest rates low.

For months new home buyers have anticipated a rate increase. That’s given many an incentive to buy or refinance existing mortgages before rates went up. However, a slight interest rate increase isn’t likely to deter buyers from continuing to shop for homes. If anything, it may continue to make them aware that interest rates could be on the rise and now is the time to buy.

The increase in the Federal Reserve rate won’t affect you all that much. There’s little correlation between the Fed’s interest rate and mortgage interest rates. Economists argue that rates on new mortgages have fluctuated throughout the entire year without any change in the Federal Reserve’s policy until recently. They cite, for example, a movement of 70 basis points (.70%) in the 30-year fixed rate mortgage loan category during 2015.

Higher rates don’t mean mortgage lending will tighten up. Because the Fed’s rate hike was so small, it’s not likely to prevent homebuyers from being able to purchase. There are mortgage products available for most every financial situation — from low down payment requirements to still-attractive fixed rate 30-year conventional loans.

Higher rates may motivate you to act. Some economists expect interest rates to rise in 2016 by as much as 1%. While the increases will probably be small, they may serve as the “nudge” that some Boston area home buyers need to get off the fence and get serious about buying.

Higher interest rates may keep home values in line with wage increases. Home values increased dramatically in some markets during 2015. This appreciation rose higher and faster than wage increases, making it harder for many Americans to afford to buy. The rise in interest rates typically slows the rate of home appreciation. This will allow wages the opportunity to “catch up” with real estate appreciation, making homes more affordable.

If you have an adjustable-rate mortgage, you probably shouldn’t worry. You probably don’t have an ARM. Experts say 85-90% of mortgage originations in the past two years were for 30-year fixed rate loans. Homeowners that may have had an ARM likely refinanced during 2015 expecting a possible rate increase. If you have an ARM don’t worry. Most ARMs have a locked interest rate between 5-7 years. The rate will remain unaffected during that period. Even if you’ve passed that timeframe, chances are the rate increases in 2016 will be small. If you’re still worried about the future, a fixed-rate refinancing is always an option.

Continue to shop around for the best deal. Just as the Boston area home buying process involves looking for the home that best suits their needs, you should do the same when loan shopping. Find the loan program that fits you and your financial situation. Shop around. Ask questions. Compare rates and lenders.

Get more information on Boston area home buying by checking out our other articles in the Boston area Home Buying Tips section just beneath Boston area Real Estate Categories to your right. And be sure to check us out on Facebook and Twitter. We post daily tips there.

5 Ways to Lower Mortgage Closing Costs

Mortgage closing costs have risen 6% over the past year, according to a recent report — averaging $2,539 on a $200,000 loan.

But mortgage closing costs aren’t set in stone. Especially in today’s market, you can definitely negotiate your origination and lender fees. It’s like any other service. They have the power to give you a discount, if they want to. Don’t just settle for whatever you’re quoted for mortgage closing costs when buying a Boston area home.

Buying a Boston area home, ways to lower mortgage closing costs Here are 5 Ways to Lower Your Mortgage Closing Costs

Get Multiple Quotes – Going with the first lender you call is like going with the first car insurance quote, or the first car you test drive — there might be a better deal or car out there. Get estimates from at least three lenders. You’re looking for the total package for evaluation—interest rate plus closing costs. You’ll generally be able to get those numbers by providing a few financial basics over the phone.

Compare Mortgage Closing Costs Carefully – This may be harder than it sounds, since lenders call similar fees by different names. They may lump certain things together that other lenders list separately, and include and exclude certain third-party costs, such as homeowners insurance. Your best bet is to ask for a GFE, or Good Faith Estimate, which lists each individual fee. It’s the clearest way to see what each lender is charging you.

Ask About Fees – Make your lender walk through each charge with you and discuss what it includes. Some third party charges, such as appraisals and credit report fees, are pretty set in stone. Other costs, such as title insurance, legal fees, and rate lock fees vary more frequently than not. (Title insurance varies so much from state to state that some lenders don’t even include it in their numbers. It’s also something you can shop around for. You’re not forced to take whatever quote you’re given. Another charge to watch out for: Courier fees. In today’s world of technology, unless the lender has been sending papers around for signature via delivery service, you can have this one nixed. Most use email and fax for signatures these days.

Watch For “Junk” Fees – Junk fees are fees a lender will charge that are negotiable, that they can take out or leave in. These might include things like application fees, underwriting fees, and loan processing fees, among others. If they seem vague, they probably are. Sometimes when you question the more ambiguous charges, they can be lowered or eliminated.

Ask for Discounts the Competitor is Offering – Go ahead, pit lenders against each other when getting quotes on your mortgage closing costs. If one lender is offering a deal, ask other lenders if they can match it. You may be surprised when a competitive market results in a smaller bottom line.

So there you have it. Our list of 5 Ways to Lower Mortgage Closing Costs when buying a Boston area home.

Stay abreast of all the tips and tricks affecting your ability to obtain a mortgage and lower your mortgage closing costs here at our website. More articles regarding Boston area mortgages can be found by clicking on the Boston Mortgage Info link to your right under Boston Real Estate Categories.

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5 Mortgage Tips for Boston Area Home Buyers

Boston area home buyers need to be sure they’ll qualify for a mortgage before they sign on the dotted line to buy that home of their dreams.

Qualifying for a mortgage alone is not enough these days. Boston area home buyers also need to know they are getting the best possible rate they can, as well as shop around for closing costs, because these can vary from lender to lender.

5 Mortgage Tips for All Boston Area Home Buyers

Boston area home buyers need to be prepared to document their finances when applying for a mortgage1 – Document Your Finances. Boston area home buyers should be prepared for extra scrutiny by lenders when qualifying for a mortgage due to new mortgage regulations that went into effect in January, especially the new rules that prove borrowers’ ability to repay their loans. You should be prepared to show bank statements, tax returns, W-2s, investment accounts, and documentation of any other assets you own. You should also be prepared to explain any sizable deposits to your bank account—even a $500 check from a family member for Christmas. If you can’t prove where the money came from, it can delay your closing.

2 – Lock In Your Rate As Soon As Possible. Mortgage rates are expected to rise in 2014 as the Federal Reserve continues to phase out its $85 billion per month bond-buying stimulus program. A rate lock is usually good for 30, 45, or 60 days, although that time period can vary among lenders.

3 – Know Your Credit Score. The best mortgage rates go to Boston area home buyers with credit scores of 720 or higher. While those with a credit score of 680 can still likely qualify for a loan, you may end up paying a higher rate or more closing costs.

4 – Shop Lenders. Boston area home buyers may have the upper hand in 2014. Lenders have lost a huge amount of their refinance business as rising rates discourage home owners from refinancing. Boston area home buyers are the beneficiaries of the refinancing cutbacks, as lenders become more willing to compete for your business. Boston area home buyers need to shop around for more than just the best interest rate on the loan, looking at points and closing costs as well.

5 – Watch What You Spend. Boston area home buyers need to refrain from going out and outfitting their new home with all new furniture—on credit—before closing on the home loan. Lenders will be carefully scrutinizing your debt obligations, such as credit cards and student loans. Borrowers are advised to keep their monthly debt obligations, including mortgage and property taxes, to below 43 percent of their income. And just because you have been approved for a loan doesn’t mean the loan is guaranteed. It’s customary for lenders to pull your credit report a second time, just before closing, to see if you have done anything to change the credit line they approved you on to begin with.

We post periodic updates about Boston area mortgage rates and the news that affects those rates at our Boston Mortgage Info link to your right under Boston Real Estate Categories.

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Many Boston Home Buyers Remain Clueless

BostonMany Boston area home buyers are clueless regarding mortgages home buyers have been flocking to the market in droves this past year, trying to take advantage of affordable prices and record-low mortgage interest rates while they still can.

When it comes to applying for a mortgage — the most important aspect of the home-buying process — recent surveys found that about one in three buyers have no idea what they’re doing.

In today’s market, where the low supply of listings and bidding wars require swift decision-making, it’s pretty unsettling that few buyers come in well-prepared. And considering the fact that the housing crisis was largely attributed to homeowners who took on mortgages they couldn’t afford, buyers apparently haven’t learned many lessons.

Boston Home Buyers Need Education

Here are some key findings from the recent unrelated reports by Zillow and the Yale Law Journal study:

  • One-third of about 1,000 potential buyers who took Zillow’s Mortgage IQ Survey did not know they could get a mortgage with less than 5 percent down. (The minimum down payment for FHA loans is 3.5 percent and VA loans can be obtained with zero down.)
  • One-third of buyers incorrectly believe that all lenders are required by law to charge the same fees for credit reports and appraisals.
  • 26 percent of buyers thought they were obligated to stay with the lender that pre-approved them (not so) while 24 percent believed the best interest rates and fees are only obtained through their own bank (again, not true).
  • The Yale study, conducted over three years, also found that 31 percent of its participants did not understand the basic principals of a mortgage, and many didn’t even bother to read the terms of the documents they were signing.
  • Nearly one-third of participants who read a lender disclosure form didn’t know the loan being presented had an adjustable rate, despite the fact that the form clearly specified so.

If you’d like to see how prepared you are to join the ranks of Boston home buyers, take Zillow’s 10-question mortgage quiz.

Get more Boston Mortgage Information here.

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Tight-Fisted Lenders Causing Boston Area Homebuyers Problems

Boston area homebuyers are still being squeezed by tight-fisted lenders, even though they can afford a media-price home better than 50% of the time.Nearly half of all potential Boston area homebuyers can afford the median-priced home in the area, but that’s not much help if they can’t get a mortgage.

Six years after the subprime mortgage meltdown, banks remain tight-fisted, even with solid borrowers — a fact they attribute to shifts in government regulation and demands that they buy back bad loans. Mortgage credit has not eased much since 2007, according to Federal Reserve surveys of loan officers, even while low rates and the housing recovery have borrowers lined up looking for financing.

Which Boston Area Homebuyers Are Having Problems With Lenders?

First time Boston area homebuyers and those who are self-employed find themselves jumping through especially complex hoops. Even would-be borrowers with crystal clear credit are having to justify even the smallest quirks in their finances, and the application process can take months.

This is all in sharp contrast to 2006 when just 12% of Boston area homebuyers could afford the median-priced home, but seemingly anyone could get a mortgage to buy one. The turnabout highlights a cruel fact of the housing crash: Many who were crushed by lost home values — or other economic pain related to the housing meltdown — may now miss out on record low prices and interest rates if they want to become Boston area homebuyers again.

Complaints about tight-fisted lenders have emanated not just from potential Boston area homebuyers and industry sources, but from Federal Reserve Chairman Ben S. Bernanke, who at least twice in the last year has remarked on how the pendulum has swung too far.

In November, Bernanke said, “Overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.” There is no indication that things have improved since he made those comments.

Despite the problems, there have been some improvements since the mortgage market tightened up during the financial crisis. For instance, refinancing of certain underwater mortgages — those that borrowers owe more on than their homes are worth — has become more available for homeowners who have stayed current on payments under an Obama administration program that offers incentives to banks. And jumbo loans, those for more than $625,000, nearly disappeared after the crash, but now are widely available at rates less than a half a point higher than traditional loans.

The tighter mortgage market is all the more reason not to try to become a Boston area homebuyer alone. You need a professional to help you through the mortgage maze. Talk to us. We have a lot of experience dealing with lenders, and between our experience and the expertise of some of our preferred lenders that we work with on a regular basis, we can help you get through it all.

For more tips on getting through the mortgage maze, visit our Boston Mortgage Info under our Boston Real Estate Categories to your right.

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