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Posted On Monday, 24 January 2022 09:03 Written by
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I have shared for the last six months my concerns about inflation, higher mortgage rates, and what all of this will mean to the housing and mortgage industries. I maintained the position of: “If you like it, LOCK IT” so everyone could avoid the unpleasant rise in rates that was before us. We have dealt with significant volatility on an almost daily basis, but sooner or later we had to break away from the bottom of the rate market in a meaningful way, and it appears that point has come.

Mortgage rates have gone up significantly since the beginning of the year as we have lost about (depending on which coupon you track) 200 bps and as treasuries continue to climb. The FED is painfully behind the curve as they finally had to admit inflation was real and that they were surprised by how bad things really were. The good news in all of this is that while we are not at the bottom of the rate market any longer and the flood of refinances are now gone; we have in front of us a strong purchase market and while rates and home prices drive monthly payments higher, RENTS are going up even faster in many markets. I have clients that are seeing 25% and higher rent increases in their markets, and that is quite the payment shock.

The winning strategy is to face and present the facts and show people how a simple Google search presents them with information. While mortgage rates in the high 3’s and low 4’s are certainly not as much fun as the mid 2’s; it’s not 18.45% with 2 points we saw in October of 1981 or 8% and 1 point in 2000; or 6% in 2008; or even 5% in 2010. We recently saw 4.5% with .5 point in 2018 and were solidly in the mid 4% range in May of 2019.

You need to share payment information in your price points and in your markets. You need to compare them to RENT payments for similar types of properties. You can even share the rising costs of gasoline, food, and other products that recent inflation has brought us and know that people can lock in their interest rate, cost of their house, and P&I payment when they buy today. Isn’t that WHY people use 30-year fixed rate mortgages, to lock in their P&I payment in the first place?

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Posted On Monday, 24 January 2022 00:00 Written by
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Posted On Monday, 17 January 2022 08:54 Written by

“There are no secrets to success. It is the result of preparation, hard work and learning from failure.” Colin Powell

Are you ready for the economic changes coming in 2022? Game changers this year are the rise in inflation to 40-year highs and the promise from the Federal Reserve to raise their rates multiple times throughout the year. Mortgage rates tend to go up with inflation and the rates on most equity lines and credit cards go up when the Federal Reserve rates go up. 

Here are some maintenance tips you don’t need to ignore:

YOUR CREDIT AND CREDIT SCORE

Keeping your credit score high allows you to enjoy getting lower interest rates when you borrow to buy a car or a house. You have a high credit score if your score is 760 to 850 on the FICO scoring system. A good score is 740 to 759. If your credit score falls into the 600’s you can expect to pay higher interest when you borrow money. 

Phillip and Farrah Fenton got prequalified with a mortgage company several months ago on a very low mortgage rate.  As mortgage rates started their upward trend, the Fenton’s suddenly found that the loan amount they qualified for was less than when they started out.  They did not want to settle for a less expensive home, so the Fenton’s started working on their credit score. As their credit improved, the much higher credit score put the Fenton’s in a much better pricing bracket, keeping them at the mortgage rate they needed.

To improve or maintain your credit score, make sure you make your payments on time.  Review your credit once a year or more at www.annualcreditreport.com  to make sure there are no errors. Work with the credit bureaus to get errors corrected. The three major credit bureaus are Experian, Transunion and Equifax.

Don’t use more than 30% of the total credit limit on any revolving accounts. For instance, if you have a credit card with a credit limit of $1,000, never allow the owed balance to go over $300 during the month. Showing usage of only a small portion of the credit limit on a credit card or other revolving account tends to add points to the credit score.  

Stay away from 12-months-same-as-cash because they act like new, maxed out revolving accounts.   People with older revolving accounts who use only a small portion of the credit  limit, see higher scores than people who are just starting out with newly opened accounts. 

YOUR BUDGET

Set a timer and play some of your favorite tunes while you review your bank statements, credit card statements and your income documents for the last few months to determine how much you can comfortably afford on a house payment per month and how much you can pay down at closing and keep an emergency fund.  Eliminate unnecessary expenses, switching some of your buying to products that give you the same benefits but at a much lesser cost. 

Amelia Allison was young, frugal, and focused.  She knew she wanted to own her home so it would build wealth for her over time, but adventure called her name.   How could she afford to pay for a home and still live her adventurous life? Amelia decided to buy a house that would pay her to live there.  She purchased a four-plex home and lived in one unit.  The rent she got from the other three units more than paid for her mortgage and gave her some extra money to fund her adventures. Creating income from the home helped Amelia make room in her budget to buy the home. 

CHOOSE THE RIGHT MORTGAGE PROGRAM

An experienced mortgage officer who truly listens to your needs will help you explore various mortgage products.  Depending on how long you plan to keep the house and your comfort level on a down payment and monthly payment amount, one mortgage program might be better for you than another one.

In a competitive market where buyers are competing with other homebuyers to purchase the same house, it is very important to have a strong prequalification letter from your lender to show the seller of the home you want to buy.  Go ahead and allow your lender to review your credit and your income and asset documents.  A letter stating the strength of your loan application can give you the edge over someone else with a weaker lender letter. 

Taking the extra steps and going the extra mile toward improving your credit and defining your budget can help you find the very best mortgage product and terms for your home purchase or refinance. Taking the time and energy in the beginning to work on these areas will bring a sweet feeling of accomplish later when you get the home and the loan you can brag about for years. 

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