Daily News And Advice
Rate Locks: What You Need to Know
If you’re a homeowner and thinking of maybe refinancing or you’re out shopping for a new home, certainly interest rates are part of the picture. Rates determine your monthly mortgage payment as well as determine affordability. In either case, it’s important to know that any rate you see advertised on the internet or a rate you get from your loan officer aren’t immediately available for you. Mortgage interest rates can change daily and, in some instances, when the markets are somewhat volatile, rates can even change from the morning to later in the day. Regardless, whatever rate you see isn’t any good until you lock that rate in. How do you lock in a mortgage rate and what is the process?
First and perhaps foremost, don’t expect to pick up the phone and call a mortgage company and request a rate lock. Lenders take rate locks just as seriously as you and won’t lock in a rate from someone who’s just placed a phone call. Lenders want a bit more commitment than that. To get to this important first step, it means you must at minimum submit a loan application and provide the requested documentation.
Lenders can quote rates over the phone to give you a general idea of what the rate market is doing but there are different factors involved when lenders quote a specific rate to a client. FICO scores, occupancy, equity in the transaction matter. Some of this information won’t be known until you apply for the mortgage and send in copies of your paycheck stubs, W2s and other requested documentation.
Once you’ve reached this stage, you might be in a position to lock. But maybe not. There are no universal guidelines lenders must adhere to as it relates to when and how you can lock in a rate. Lenders do have their own rate lock disclosures they use to give you a physical copy of their own rate lock policy. Read it carefully because this disclosure specifically lays out when you can lock in a rate. Your loan officer will also help explain this to you as well.
Rate lock periods can vary but most rate locks can range from 10 to 60 days or more. The longer the rate lock period the higher the rate and/or fees will be. The strategy is to lock in your rate for the shortest period possible while still meeting your settlement date or to give the lender enough time to approve your loan, deliver your loan papers to the settlement agent, sign the papers and return them to the lender for a final review.
Finally, if your rate lock expires while your loan is still in process, most lenders will relock the loan at the higher of the initial rate or current market rates. When someone locks in an interest rate then soon thereafter rates begin to drop, that person might want to let the rate lock expire and then relock at the new, lower rates. In this instance, that person will get the higher of either rate.
What Should You Know About Buying Real Estate Overseas?
Owning real estate overseas is often a lifelong dream. It can look different for everyone. For example, maybe your goal is to retire in Tuscany, or perhaps you want to buy a second home but keep your primary residence in the U.S. You might want to purchase property now where you’ll live later, or you could want to move overseas full-time.
Regardless of your situation, many specifics vary depending on where you want to buy, but the following are some general considerations to keep in mind.
Buying Property Overseas Is Complex
No matter where you want to buy or when, you should go into it with an understanding that it’s complex. There are legal and financial issues, as well as travel-related logistics. If you think you’re going to have a completely smooth process, you’re probably wrong.
To help streamline it, you should work with local professionals. First, a local lawyer can be extremely helpful when you’re buying property as a foreigner. You should also use a buyer’s agent who specializes in international transactions.
There are very specific rules dictating who can buy what in most countries. For example, there’s a rule in Mexico that if you’re a foreigner, you can’t own property on the coast, but there are ways to go around this by using a Mexican bank trust.
Some places won’t let foreigners buy property altogether. For example, Switzerland has very strict restrictions on foreigners buying property. You can only buy property if you’re an EU or EFTA national who has a Swiss residence permit and lives in Switzerland, or have a Swiss C permit.
Financing Foreign Property
In many cases, mortgages overseas aren’t available to U.S. buyers, and U.S. banks typically won’t lend you money to buy something internationally. Even if you can find a location where you might be eligible for mortgage lending, you’re probably going to have to make a down payment of anywhere from 30% to 50% and your terms aren’t going to be very favorable.
You may also have to get a life insurance policy that totals your mortgage, and the bank lending you money will have to be named the beneficiary. At the same time, depending on your age you may not be eligible for life insurance in some countries.
What this means is that you should have cash if you plan to buy overseas. You might be able to get developer financing, or you can use the proceeds of a self-directed IRA if you plan to use the property as a rental or investment only.
If you buy property in a foreign country, you may be taxed both when you buy it and sell it. You may also have to make payments throughout the year, similar to property taxes in the U.S.
Finally, before you buy anything overseas you need to have an exit strategy you can turn to if necessary. You may think you’ll never sell, but unexpected life and financial situations can arise. What taxes would you owe if you did sell? Would you even be able to sell? What is the market like where you’re buying and what is it likely to look like in the future?
What to Consider Before Starting a Kitchen Remodel
Your kitchen may be the place where your family spends the vast majority of their time. That’s common, and as such, we often want our kitchens to reflect our style and how we live our lives. A beautiful kitchen can be functional, stylish, and can boost your home’s value.
With that being said, a kitchen remodel is a huge undertaking, financially, and just in terms of logistics. Rather than jumping in, you need to prepare yourself for what to expect and make sure it’s something your family is ready for.
Can You Live Without a Kitchen?
Before you make any plans, think about your lifestyle and the lifestyle of your family. Can you really manage a kitchen remodel? You’re going to have to pack everything up, and you may not have use of your kitchen for weeks or even months. Many families will set up a small version of a kitchen elsewhere in their home, but it’s still going to be a struggle.
There are minor upgrades you can make to your kitchen to refresh the style without a full overhaul. At this point in your life, would that be best for you?
If you have young kids at home and you’re going through renovations, safety becomes an issue.
Many people are also working from home right now, so will you be able to continue doing that with construction going on around you?
Are You Prepared for the Costs?
According to HomeAdvisor, the average cost of a kitchen remodel is just over $25,300, which comes out to around $150 per square foot. The total cost varies depending on the size of your kitchen, whether or not you change the layout and the materials you choose.
You could do a minor remodel including refacing cabinets, upgrading your sink and adding a new backsplash for around $10,000. A much larger renovation costing upwards of $30,000 may include custom cabinetry, new flooring and countertops and high-end appliances.
Do you have the money to spend, and if so, is this how you want to spend it? If you’d have to finance the project, how will those added monthly debt payments affect your budget and life?
If you’re planning to sell your home soon, the project could pay for itself but you need to ensure you design a kitchen that will appeal to a wide set of tastes and don’t make it too personal to your family.
Inevitably if you set a budget for a kitchen remodel, you’re going to go over, so give yourself padding with that in mind.
Do You Need to Change the Layout?
If the layout of your kitchen isn’t functional and you think it needs to be changed, it’s going to be more time-consuming and expensive than primarily aesthetic changes. You will need to work with a contractor, even if you plan to do some of the work independently.
It’s important to understand which walls are load-bearing.
You will also need to talk to a professional to understand how to move plumbing, venting, and electrical components if you’re changing the layout.
If you think you can do all the work in your kitchen on your own to save money, what can ultimately happen is that you make mistakes along the way. Then, you pay more to fix them. Sometimes it’s a better option to find a reliable contractor to work with from the start.
You might also want to hire a designer or at least consult with one if you’re changing the layout. A designer can help you understand how layout changes will impact the flow of the kitchen, and they can help you with an optimal placement that will work for not just your family but potential buyers if you sell in the future.
A kitchen remodel is a huge undertaking. If you’re considering it, prepare yourself for how it’ll affect your day to day life and finances.
What Are the Differences in Mortgage Pre-Qualification and Pre-Approval?
When you’re considering buying a home, there are two terms you’ll hear, both of which are related to getting a mortgage loan. There’s mortgage pre-qualification and pre-approval. Sometimes people use these terms interchangeably, but they’re different from one another.
Understanding these terms is critical because they’re going to help you know what you can afford as you search for a home, and they’re also how you’re going to demonstrate you’re a serious buyer to a seller.
Both are similar in that they are steps along the way to get a mortgage, but if you have a preapproval, you don’t necessarily need a prequalification.
What is Prequalification?
A mortgage prequalification means that you provide a lender with some general financial information. The goal is to help provide you an estimate of how much you can afford when you’re buying a home.
The information you provide for prequalification is usually self-reported. Most of the time, it doesn’t include verification of your credit report. You can get a prequalification without dinging your credit report with a hard pull.
When you’re prequalified, you receive a letter that will show you can afford to buy. You can show it to your agent and sellers, and it may be helpful in the process, but not as much as a preapproval.
What is Preapproval?
A preapproval carries a lot more weight in the buying process. When you’re preapproved, you’ve submitted your financial history and the lender has verified the information you provide by checking your credit report, your employment and income, and your assets and debts.
For a preapproval, you’ll have to submit information like your total monthly expenses, W2s, pay stubs, and if you already own property, your mortgage statement.
Once you submit all the necessary documents, you receive a preapproval letter. This letter will outline the amount you’re approved for, and the type of mortgage a lender will give you as well as the terms.
A preapproval serves as an offer by the lender to you, and there is usually an expiration of the offer. For example, you might have 90 days to buy a home based on your preapproval.
How Do You Get a Mortgage Preapproval?
The following are steps to follow to get a mortgage preapproval:
• Get your own credit score. The higher your score, not only the more likely you are to be approved but the better the terms you’re likely to be offered. With most lenders, if you have at least a 740 credit score, you’re likely to qualify for the most favorable terms.
• When you check your credit score, go over your report and make sure there aren’t errors that need to be addressed.
• Calculate your debt-to-income ratio. To buy a home, you should aim to have a ratio of 36% or less. Your DTI is a ratio of your gross monthly income that goes toward paying debt.
• Gather the documents you’re likely to need to submit, such as your tax forms, employment details, and banking and account information. If you’re self-employed anticipate showing at least two years of income tax returns.
Finally, when you’re applying for preapprovals, shop around and talk to multiple lenders. This will help you find the lender that’s right for you so you increase your chances of getting approved, but also so that you can save money on interest with better terms.
|Mortgage Rates |
Averages as of November 2020:
30 yr. fixed: 2.81%
15 yr. fixed: 2.32%
5/1 yr. adj: 2.88%