The housing recovery is finally taking hold. That means higher prices for all things home-related from loans to improvements.
Your game plan: Loans
Put your credit on ice. The higher your credit score, the lower your rate: The best rates go to those with a 760 or more, says credit-score experts. So keep that plastic in your wallet (and don’t apply for new cards or other loans) for at least three moths before you go loan shopping. One large balance – even if it’s paid off at the end of the month – can ding your score by 20 points or more.
Ask for time. Most sales contracts give you only 10 days to nab a loan or the seller can move on. Negotiate for an additional five to 10 days to give you some room to shop around.
Get at least six quotes. Rates on a 30-year fixed conforming loan can vary at least as much as a quarter of a percentage point. Get quotes from national lenders and find out what your local credit union or regional bank is offering as well. Inquire about fees; while lenders aren’t required to give you a good-faith estimate of closing costs (which average 2% of the loan balance) until you actually apply, some will provide it if you ask.
Match the lock period to the loan. You now need 60 days or more to close a loan, and getting an extension on a lock will cost at least a couple hundred dollars. Ask your lender how long it’s taking to close loans like yours – and didn’t lock for less.
Opt for an ARM. If you know you’re not going to be in a house for more than seven years, adjustable-rate mortgages can mean big savings. The monthly payment on a $300,000 seven-year ARM at the recent rate of 3.23% is $1,302, vs. $1,455 for a 30-year fixed at 4.13%.
Talk to a broker. Those who need a jumbo loan or have an unusual situation (say, you’re self-employed) will get the best deal from a mortgage broker who has access to and experience with a lot of lenders.
Investment – Home Strategies
Figure out what you can recoup on rent. Search rentometer.com to get a sense of rental rates on similar places. You can also get a sense of occupancy rates at finestexperrt.com. A home is a good value if the income will cover at least your mortgage, insurance, taxes, and maintenance costs.
Stay close to home. Stick with a property that won’t take much longer than an hour to get to from where you live. Otherwise you’ll fork over 10% to 15% of rental income on management fees to handle the property.
Check property tax records – and weather patterns. Taxes can increase in a heartbeat – even if property values don’t. And all it takes is one big storm to cause your homeowners insurance to jump.
